<PAGE> 1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 12, 1999)
$500,000,000
SEARS CREDIT ACCOUNT MASTER TRUST II
5.65% Class A Master Trust Certificates, Series 1999-1
<TABLE>
<S> <C>
SEARS, ROEBUCK AND CO. SRFG, INC.
SERVICER SELLER
</TABLE>
- ------------------------------------
YOU SHOULD CONSIDER
CAREFULLY THE RISK
FACTORS DESCRIBED ON PAGE
S-14 OF THIS PROSPECTUS
SUPPLEMENT AND PAGE 7 OF
THE ACCOMPANYING
PROSPECTUS.
THE CERTIFICATES
REPRESENT INTERESTS IN
THE TRUST AND ARE NOT
OBLIGATIONS OF SEARS,
ROEBUCK AND CO., SEARS
NATIONAL BANK, SRFG, INC.
OR ANY OF THEIR
AFFILIATES.
NEITHER THE FEDERAL
DEPOSIT INSURANCE
CORPORATION NOR ANY OTHER
GOVERNMENTAL AGENCY HAS
INSURED OR GUARANTEED THE
CERTIFICATES AND THE
TRUST'S ASSETS.
- ------------------------------------
<TABLE>
<S> <C>
THE TRUST WILL ISSUE: CLASS A CERTIFICATES
Principal amount: $500,000,000
Price to public: 99.027522% ($495,137,610)
Underwriting discount: .300% ($1,500,000)
Proceeds to SRFG: 98.727522% ($493,637,610)
Interest rate: 5.65% per year
Interest paid: Monthly
First interest payment date: April 15, 1999
Scheduled first
principal payment date: April 15, 2003
Scheduled final
principal payment date: March 15, 2005
Series termination date: March 17, 2009
CREDIT ENHANCEMENT:
- The Trust is also issuing $35,300,000 principal amount of Class B
Certificates that will be subordinate to the Class A Certificates.
Subordination of the Class B Certificates provides credit enhancement for
the Class A Certificates.
- The Trust is also issuing $52,950,000 principal amount of Class C
Certificates that will be subordinate to the Class A Certificates and the
Class B Certificates. Subordination of the Class C Certificates provides
credit enhancement for the Class A Certificates and the Class B
Certificates.
</TABLE>
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Underwriters will offer the Class A Certificates as described in this
Prospectus Supplement if they receive and accept them from SRFG. The
Underwriters may reject any order in whole or in part. SRFG expects to deliver
the Certificates to the Underwriters, and the Underwriters expect to deliver the
Certificates to you and the other investors, in book-entry form through the
facilities of The Depository Trust Company, Cedelbank and the Euroclear System
on or about March 23, 1999. SRFG and Sears have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933. For a
description of an increase or decrease of underwriting fees payable to Merrill
Lynch, Pierce, Fenner & Smith Incorporated based upon certain movements of
interest rates in a specified time period, see "Underwriting."
------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
------------------------
The date of this Prospectus Supplement is March 12, 1999
<PAGE> 2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
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PAGE
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<S> <C>
Important Notice to Investors about this
Prospectus Supplement and the Accompanying
Prospectus................................ S-3
Summary of Series Terms..................... S-4
Risk Factors................................ S-14
Subordination of the Class B and Class C
Certificates; Limited Subordination..... S-14
Maturity Considerations..................... S-15
Effect of Payment Rates and Other
Factors................................. S-15
Floating Principal Allocation............. S-15
Rapid Amortization Events................. S-16
Effect of Paired Series................... S-16
Sears Credit Business....................... S-17
General................................... S-17
Credit Granting Procedures................ S-18
Billing and Payments...................... S-18
Collection Efforts........................ S-19
Effects of the Selection Process.......... S-21
Composition and Historical Performance of
the Sears Portfolio....................... S-23
Composition of the Sears Portfolio........ S-23
The Certificates............................ S-26
Invested Amounts.......................... S-27
Investor Interests........................ S-27
<CAPTION>
PAGE
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<S> <C>
Interest Payments......................... S-27
Principal Payments........................ S-28
Subordination............................. S-29
Series Collections and Charge-offs........ S-29
Series Yield Collections.................. S-33
Series Investment Income.................. S-33
Series Additional Funds................... S-33
Reallocations............................. S-34
Investor Accounts......................... S-35
Cash Flows................................ S-36
Payments.................................. S-47
Subordinate Series........................ S-49
Sale of Class B Certificates and Class C
Certificates............................ S-49
Issuance of Additional Certificates....... S-49
Paired Series............................. S-50
Rapid Amortization Events................. S-51
Termination of Series; Clean-up Call...... S-52
Servicing Compensation...................... S-53
Underwriting................................ S-53
Legal Matters............................... S-54
Glossary of Terms........................... S-55
Annex A--Cash Flows......................... S-69
Annex B--Other Series....................... S-85
PROSPECTUS
<CAPTION>
PAGE
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<S> <C>
Reports to Investor Certificateholders...... 2
Incorporation of Certain Documents by
Reference................................. 2
Prospectus Summary.......................... 3
Risk Factors................................ 7
The Seller.................................. 13
The Servicer................................ 13
Year 2000 Compliance...................... 13
The Credit Card Bank........................ 14
Certain Legal Matters Relating to the
Receivables............................... 15
Transfer of Receivables................... 15
Security Interests in Receivables......... 15
Insolvency Related Matters................ 16
Consumer Protection Laws and Debtor Relief
Laws Applicable to the Receivables...... 18
Claims and Defenses of Credit Customers
Against the Trust....................... 18
The Trust................................... 18
Formation of the Trust.................... 18
Collections Account and Group Collections
Accounts................................ 19
Adjustments to Receivables................ 20
Addition of Accounts...................... 20
Removal of Accounts....................... 22
Repurchase of Trust Portfolio............. 22
Repurchase of Specified Receivables....... 23
Termination of the Trust.................. 23
Description of the Investor Certificates.... 24
General................................... 24
Interest Payments......................... 24
Principal Payments........................ 25
Class Percentages and Seller Percentage... 25
Investor Losses........................... 25
Reallocations and Subordination of
Collections............................. 26
Aggregate and Net Payments................ 26
Additional Funds.......................... 26
Investment of Funds in Investor
Accounts................................ 27
Final Payment of Principal; Termination of
Series.................................. 27
Description of Credit Enhancement......... 28
<CAPTION>
PAGE
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<S> <C>
Establishing and Issuing New Series....... 28
Reallocation of Series Among Groups....... 29
List of Investor Certificateholders....... 29
Meetings.................................. 30
Book-Entry Registration................... 30
Definitive Certificates................... 33
Exchange of Investor Certificates for
Seller Interest......................... 34
Sale of Seller Interest................... 34
Amendments................................ 34
The Trustee................................. 35
Indemnification of Trust and Trustee...... 36
Certain Matters Regarding the Servicer...... 36
Servicing Compensation and Payment of
Expenses................................ 36
Resignation or Merger of Servicer;
Delegation of Duties.................... 36
Servicer Termination Events............... 37
Reports to Investor Certificateholders.... 37
Evidence as to Compliance................. 38
Use of Proceeds............................. 38
Certain Federal Income Tax Consequences..... 39
General................................... 39
Tax Treatment of the Investor Certificates
as Indebtedness......................... 39
United States Holders..................... 40
United States Alien Holders............... 42
Backup Withholding and Information
Reporting............................... 43
Possible Characterization of the Investor
Certificates............................ 44
Certain State Tax Consequences.............. 45
General................................... 45
Arizona, Delaware, Georgia, Illinois, Ohio
and Texas............................... 45
ERISA Considerations........................ 46
Plan of Distribution........................ 48
Legal Matters............................... 49
Available Information....................... 49
Definitions................................. 50
Annex I--Global Clearance, Settlement and
Tax Documentation Procedures.............. 60
</TABLE>
S-2
<PAGE> 3
IMPORTANT NOTICE TO INVESTORS ABOUT THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the Class A Certificates in two
separate documents:
- this Prospectus Supplement, which describes the specific terms of your
Class A Certificates; and
- the accompanying Prospectus, which provides general information, some of
which may not apply to the Class A Certificates.
It is important for you to read and consider all information contained in both
this Prospectus Supplement and the accompanying Prospectus in making your
investment decision.
IF THE TERMS OF YOUR SERIES OR CLASS OF CERTIFICATES VARY BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus. We have
not authorized anyone to provide you with different information.
We are not offering to sell or soliciting offers to buy any securities
other than the Class A Certificates to which this Prospectus Supplement and the
accompanying Prospectus relate, nor are we offering to sell or soliciting offers
to buy Class A Certificates in any jurisdiction where the offer is not
permitted.
We do not claim that the information contained in the Prospectus and
Prospectus Supplement is accurate as of any date other than the dates on their
respective covers.
We include cross-references in this Prospectus Supplement and in the
accompanying Prospectus to sections in each document where you can find related
discussions containing additional information. The Tables of Contents in this
Prospectus Supplement and in the accompanying Prospectus provide the pages on
which these sections begin.
------------------
S-3
<PAGE> 4
SUMMARY OF SERIES TERMS
The following summary generally describes the terms of this Series of
Certificates. The Prospectus Summary beginning on page 3 of the accompanying
Prospectus generally describes the Trust. You should read that Prospectus
Summary before reading this summary. The remainder of this Prospectus Supplement
and the Prospectus contain more detailed information about the Trust and your
investment in the Certificates. You should review this entire Prospectus
Supplement and the Prospectus before deciding to invest in the Certificates. The
Glossary of Terms contained in this Prospectus Supplement and the Definitions
section of the Prospectus provide more precise definitions of some of the terms
used in this summary.
THE CERTIFICATES.............. Class A Certificates:
$500,000,000 5.65% Class A Master Trust
Certificates, Series 1999-1.
The Trust will also issue:
Class B Certificates:
$35,300,000 Class B Master Trust
Certificates, Series 1999-1.
Class C Certificates:
$52,950,000 Class C Master Trust
Certificates, Series 1999-1.
SRFG initially will own the Class B
Certificates and Class C Certificates. SRFG
is not currently offering the Class B
Certificates or Class C Certificates for sale
to the public.
Each Certificate represents an interest in the
assets in the Trust, which consist primarily
of credit account receivables arising under
Sears Card accounts and cash payments on
these receivables.
OTHER SERIES OF
CERTIFICATES.................. The Trust has issued other series of
certificates and SRFG expects that the Trust
will issue additional series while this
Series is outstanding. The certificates of
these other series represent similar
interests in the Trust. We have summarized
the terms of each series previously issued
and currently outstanding in "Annex B--Other
Series" in this Prospectus Supplement. The
Pooling and Servicing Agreement permits the
Trust to issue additional series without the
consent of the investors in any other
outstanding series. SRFG and the Trust will
not request your consent before issuing any
new series in the future.
INTEREST PAYMENTS............. Class A Certificates: The interest rate for the
Class A Certificates is 5.65% per year,
calculated on the basis of a 360-day year
consisting of twelve 30-day months. The Trust
will pay interest to you on the 15th day of
each month (or, if not a business day, the
next business day) beginning in April 1999.
Class B Certificates and Class C Certificates:
The Trust will not pay interest on the Class
B Certificates or Class C Certificates as
long as SRFG owns them.
S-4
<PAGE> 5
PRINCIPAL PAYMENTS............ Class A Certificates: The Trust is scheduled to
pay $20,833,333.34 of principal on the Class
A Certificates on the 15th day of each month
(or, if not a business day, the next business
day) beginning in April 2003 and ending in
March 2005.
Class B Certificates: The Trust is scheduled to
pay $17,650,000 of principal on the Class B
Certificates on April 15, 2005 (or, if not a
business day, the next business day) and on
May 15, 2005 (or, if not a business day, the
next business day).
Class C Certificates: The Trust is permitted to
pay up to $2,060,760.32 of Class C principal
on the 15th day of each month (or, if not a
business day, the next business day)
beginning in April 2003 and continuing until
the first month after the Class C Invested
Amount is reduced to or below $17,647,500. On
each of those days, the Trust will pay Class
C principal in an amount that will allow the
Class C Investor Interest to decline
proportionately to the decline in the Class A
Investor Interest. The Trust is scheduled to
pay the remaining Class C principal on June
15, 2005 (or, if not a business day, the next
business day).
FORMATION OF THE TRUST;
TRANSFER OF RECEIVABLES....... Sears, SRFG and the Trustee formed the Trust in
July 1994 by entering into a Pooling and
Servicing Agreement that applies to all
series of certificates. Pursuant to the
Pooling and Servicing Agreement, SRFG has
transferred to the Trust all the receivables
existing under certain designated accounts.
We refer to these designated accounts as
"Accounts." As the credit account customers
make additional charges on their Accounts and
incur additional finance charges and other
fees, SRFG transfers the additional
receivables resulting from those purchases,
charges and fees to the Trust on an ongoing
basis. In the future, SRFG may also designate
more accounts as Accounts and transfer the
receivables from those accounts to the Trust.
We refer to all of these receivables as
"Receivables."
The Receivables include:
- "Principal Receivables," which are amounts
owed by credit account customers as a
result of their purchase of goods and
services, late fees and other fees; and
- "Finance Charge Receivables," which are
amounts owed by credit account customers
as a result of interest accrued on unpaid
principal balances.
The aggregate amount of Receivables in the
Accounts as of the last day of the Due Period
ending in February 1999 was $10,850,530,089,
consisting of $10,668,441,420 of Principal
Receivables and $182,088,669 of Finance
Charge Receivables.
S-5
<PAGE> 6
The "Due Period" for any Account is the period
included in the monthly billing cycle of that
Account. When this Prospectus Supplement
refers to a Due Period ending in a particular
month, it means, collectively, the Due
Periods applicable to each of the Accounts
that ended during that month. For example,
the Due Period ending in March includes the
billing cycles of each of the Accounts that
begin on various days during February and end
on various days during March.
TRUST ASSETS.................. The Trust's assets include or may include the
following:
- credit card receivables;
- cash payments by credit account customers;
- interests in the cash recoveries of
receivables owned by SRFG and charged off
as uncollectible;
- interests in other credit card receivables
pools;
- credit support or enhancement for a
particular series or class within a
series;
- additional funds that the Servicer may
elect to add to the Trust;
- cash deposits in Trust accounts; and
- rights to payments under interest rate
protection agreements.
CHARGE-OFFS................... Sears may charge off certain Receivables in the
Trust as uncollectible. We refer to these
receivables as "charge-offs." The Trust will
reimburse investors for charge-offs to the
extent funds are available.
RECOVERIES.................... SRFG has agreed to transfer to the Trust as
"Additional Funds" a portion of the amounts
it recovers with respect to accounts that
Sears charged off as uncollectible. See
"Description of the Investor
Certificates--Additional Funds" in the
accompanying Prospectus for more detailed
information.
CLASS INVESTED AMOUNTS AND
CLASS INVESTOR INTERESTS...... Your interest in the Trust's assets equals:
- the face amount of the Certificates that
you initially purchased; minus
- the amount of principal the Trust has
previously paid to you on your
Certificates; minus
- your share of charge-offs that the Trust
has not reimbursed.
The "Class A Investor Interest" or "Class A
Invested Amount" will equal as of any
Distribution Date:
- $500,000,000; minus
S-6
<PAGE> 7
- the amount of principal previously paid to
the Class A investors; minus
- unreimbursed Class A charge-offs
(including unreimbursed Class A
charge-offs from prior months), if any.
The "Class B Investor Interest" or "Class B
Invested Amount" will equal as of any
Distribution Date:
- $35,300,000; minus
- the amount of principal previously paid to
the Class B investor (initially SRFG);
minus
- unreimbursed Class B charge-offs
(including unreimbursed Class B
charge-offs from prior months), if any.
The "Class C Investor Interest" or "Class C
Invested Amount" will equal as of any
Distribution Date:
- $52,950,000; minus
- the amount of principal previously paid to
the Class C investor (initially SRFG);
minus
- unreimbursed Class C charge-offs
(including unreimbursed Class C
charge-offs from prior months), if any.
The "Series Investor Interest" and the "Series
Invested Amount" equal the sum of the Class A
Investor Interest, the Class B Investor
Interest and the Class C Investor Interest.
DISTRIBUTION DATES............ A "Distribution Date" is the date in each month
(usually the 15th or the following business
day) on which the Trust allocates collections
from the preceding calendar month to
investors (including investors in this
Series) and the Trustee deposits those
collections into the appropriate accounts. A
Distribution Date is also the date in a
particular month on which the Trust pays
interest and/or principal due to investors
(including investors in this Series). The Due
Period related to a particular Distribution
Date is the Due Period ending in the calendar
month preceding that Distribution Date.
SELLER INTEREST............... SRFG owns a Seller Certificate which represents
the interest in the Trust not represented by
certificates of any series. We refer to this
remaining interest as the "Seller Interest."
The Seller Interest varies based on the size
of the interests of the Trust's investors and
the total amount of the Trust's Principal
Receivables. Among other things, the Seller
Interest will decline as a result of
decreases in the amount of the Trust's
Receivables that may be caused by a net
decline in Account balances. The Seller
Certificate reflects SRFG's right to receive
each month a portion of the
S-7
<PAGE> 8
collections paid on the Receivables based on
the Seller Interest.
ALLOCATIONS................... Your Certificate reflects your right to receive
each month a portion of the collections paid
on the Receivables and the Additional Funds
SRFG adds to the Trust minus your share of
charge-offs. "Finance Charge Collections" are
all collections on the Receivables in any
month up to the aggregate amount of Finance
Charge Receivables billed for the applicable
Due Period. "Principal Collections" are all
collections on the Receivables in any month
other than Finance Charge Collections. The
Trust will allocate Principal Collections,
Finance Charge Collections, and charge-offs
among the outstanding series on a pro rata
basis based on the Series Investor Interest
for each series. The Trust will also allocate
Additional Funds to each series (including
this Series) pro rata based on its series
investor interest. Once this allocation among
the series has been made, then the Trust will
further allocate a percentage of the
collections allocable to each series among
that series' classes. The Series Supplement
specifies the percentages of these
collections and charge-offs that are
allocated to each Class of this Series at
each point in time. Each of these
percentages, which we refer to as "Class
Percentages," will be based on:
- the Class Investor Interest at certain
points in time;
- the amount of Principal Receivables in the
Trust;
- the amount of cash in certain cash
accounts designated as excess funding
accounts;
- the interests of other series in the
Trust;
- whether this Series is in its Revolving
Period, its Controlled Amortization Period
or its Rapid Amortization Period; and
- how much principal will be available to
reallocate to this Series from other
series during the Controlled Amortization
Period.
The Class Percentages may vary for Principal
Collections, Finance Charge Collections and
charge-offs.
Finance Charge Collections and Principal
Collections can only be used to fund certain
payments, deposits and reimbursements. When
Sears charges off a receivable as
uncollectible, it allocates a portion of the
amount charged off against your interest in
Principal Receivables based on your Class
Percentage. Typically, the Trust uses Finance
Charge Collections and other income allocated
to you to pay interest on your Certificates,
to pay to the Servicer the portion of the
servicing fee allocated to you, and to
reimburse you for charge-offs that the Trust
previously allocated to you, thus reinstating
your interest in Principal
S-8
<PAGE> 9
Receivables. When you are scheduled to
receive principal payments, the Trust
generally uses Principal Collections to pay
the principal of your Certificates.
In general, the Trust will use collections
allocated to you to make required payments,
to pay its share of servicing fees and to
reimburse your share of charge-offs. If this
Series has more collections than it needs in
any month, the Trust may reallocate the
excess collections to other series so those
series may make their payments. You will not
be entitled to receive these excess
collections. If this Series does not have
enough collections in any month, the Trust
may use excess collections from other series
to make payments to you.
SERVICING COMPENSATION........ Each month the Trust will pay to the Servicer
from available funds an amount equal to 2.00%
per year of the Series 1999-1 investors'
interest in Receivables (generally, the
Series Investor Interest).
REVOLVING PERIOD.............. During the "Revolving Period," the Trust will
not pay Class A and Class B principal.
However, if it is permitted to do so by the
Rating Agencies, the Trust may pay a portion
of the Class C principal during the Revolving
Period. Currently, the Rating Agencies do not
permit the Trust to pay Class C principal
during the Revolving Period.
In general, during the Revolving Period, the
Trust pays Principal Collections allocated to
you to SRFG. During the Revolving Period, the
Trust may also use Principal Collections to
pay the principal of other series.
The Revolving Period for this Series begins on
the first day of the Due Period that ends in
March 1999, and ends on the earlier of:
- the last business day before the
Controlled Amortization Period begins; or
- the day a Rapid Amortization Event occurs.
CONTROLLED AMORTIZATION
PERIOD........................ During the "Controlled Amortization Period,"
the Trust will apply Principal Collections
allocated to this Series to pay principal on
the Certificates, up to the amount of the
scheduled monthly principal payment.
The Trust will pay Class A principal on each
Distribution Date during the Controlled
Amortization Period until the Trust has paid
the Class A principal in full. The Trust is
scheduled to pay Class A principal in
twenty-four monthly payments of
$20,833,333.34. On each Distribution Date
during the Controlled Amortization Period,
the Trust will pay Class B principal only if
the Trust has paid the Class A principal in
full. The Trust expects to pay Class B
principal in two monthly payments of
$17,650,000. The Trust is scheduled to pay a
portion of the Class C principal before the
Trust pays the Class A principal in full. The
Trust will
S-9
<PAGE> 10
pay the remaining portion of Class C
principal only after the Trust has paid the
Class B principal in full.
Unless a Rapid Amortization Event occurs
earlier, the Controlled Amortization Period
will begin on the first day of the Due Period
related to the Distribution Date in April
2003. The Controlled Amortization Period will
end on the earlier of:
- the day the Trust repays the principal of
this Series in full;
- the day a Rapid Amortization Event occurs;
or
- the business day after March 15, 2009 (or,
if March 15, 2009 is not a business day,
the second business day after March 15,
2009).
RAPID AMORTIZATION EVENTS..... "Rapid Amortization Events" are certain events
that might impair the long-term ability of
the Trust to make all required payments for
this Series. Examples of these events
include:
- legal issues with transferring Receivables
to the Trust;
- legal issues with the status of the Trust;
- certain breaches of representations,
warranties or covenants;
- economic performance that may unfavorably
impact the Trust and cause the Trust to
accelerate payment of principal; or
- certain events of insolvency with respect
to SRFG, Sears National Bank (the "Bank")
or Sears.
For some of these events to become Rapid
Amortization Events, the Trustee or a
specified percentage of investors must
declare them to be Rapid Amortization Events;
others become Rapid Amortization Events
automatically when they occur. We discuss
these events in more detail in "The
Certificates--Rapid Amortization Events."
RAPID AMORTIZATION PERIOD..... If a Rapid Amortization Event for this Series
occurs, the Trust will repay the principal of
this Series on a monthly basis and as quickly
as possible under the Cash Flows for this
Series. The "Cash Flows" are the allocation,
payment and reimbursement priorities for this
Series as set forth in "The
Certificates--Cash Flows" and "Annex A--Cash
Flows." The "Rapid Amortization Period"
begins when a Rapid Amortization Event occurs
and continues until the Trust has fully paid
the principal of this Series or until this
Series terminates.
SERIES TERMINATION DATE....... The business day after March 15, 2009 (or, if
March 15, 2009 is not a business day, the
second business day after March 15, 2009).
The "Series Termination Date" is the
S-10
<PAGE> 11
last day on which the Trust may make payments
on the Certificates.
SUBORDINATION; ADDITIONAL
AMOUNTS AVAILABLE TO CLASS A
AND CLASS B INVESTORS....... The Class B Certificates and the Class C
Certificates will be subordinate to the Class
A Certificates. The Class C Certificates will
be subordinate to the Class B Certificates.
However, the Trust generally will not use
Class B Principal Collections and Class C
Principal Collections to pay Class A
principal.
The Trust uses all Finance Charge Collections
and other income allocated to this Series to
pay or reimburse:
- first, Class A interest;
- second, Class B interest, if any;
- third, Class C interest, if any;
- fourth, this Series' monthly servicing
fees;
- fifth, Class A charge-offs;
- sixth, Class B charge-offs; and
- seventh, Class C charge-offs.
The Trust may also reallocate Principal
Collections originally allocated to Class C
or Class C Investor Interest to pay Class A
or Class B interest or to reimburse Class A
or Class B charge-offs. If the Trust does
this, it will increase Class C charge-offs,
and may decrease the Class C Investor
Interest, to reflect the reallocated amount.
The Trust may also reallocate Principal
Collections originally allocated to Class B
or Class B Investor Interest to pay Class A
interest or to reimburse Class A charge-offs.
If the Trust does this, it will increase
Class B charge-offs, and may decrease the
Class B Investor Interest, to reflect the
reallocated amount.
This Series of Certificates will not be
subordinated to any other series of
certificates that the Trust has issued or may
issue in the future.
CLEAN-UP CALL................. SRFG will have the right to repurchase the
Class A Certificates on any Distribution Date
if:
- this Series is in a Rapid Amortization
Period, or the proposed date of repurchase
is on or after May 15, 2005; and
- the sum of the Class A Investor Interest
(excluding Class A's pro rata share of the
funds on deposit in the cash accounts
designated as excess funding accounts) is
less than $50,000,000 (10% of the face
amount of the Class A Certificates).
S-11
<PAGE> 12
The purchase price will equal the sum of the
Class A Investor Interest and accrued but
unpaid interest on the Class A Certificates.
PARTICIPATION WITH OTHER
SERIES........................ This Series is included in a group of series
that the Trust has designated as "Group One."
SRFG has included each other outstanding
series, and may include other series in the
future, in Group One. Under certain
circumstances, the Trust may reallocate
collections allocated to this Series to other
series in Group One. In addition, the Trust
may reallocate collections allocated to other
series in Group One to this Series. Under
certain circumstances, the Trust may move
this Series or any other series from one
group to another group.
ERISA CONSIDERATIONS.......... Under the regulations issued by the Department
of Labor, the Trust's assets will not be
considered "plan assets" of any employee
benefit plan that holds interests in the
Class A Certificates if the Class A
Certificates meet the requirements necessary
to be considered "publicly offered
securities." One of those requirements is
that, upon completion of the public offering
under this Prospectus Supplement, at least
100 persons independent of SRFG and each
other hold interests in the Class A
Certificates. The Underwriters expect,
although they cannot assure you, that at
least 100 independent persons will hold
interests in the Class A Certificates. SRFG
also expects that the other requirements will
be met so that the Class A Certificates will
be considered "publicly offered securities."
If, however, the Class A Certificates do not
meet the requirements of a "publicly offered
security" and the Trust's assets are
considered to be "plan assets" of an employee
benefit plan, then the "prohibited
transaction" rules of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), may apply to certain transactions
involving the Trust's assets. Accordingly,
employee benefit plans should consult their
counsel before purchasing Class A
Certificates. See "ERISA Considerations" in
the accompanying Prospectus for additional
information concerning this and other ERISA
issues.
TAX STATUS.................... Sears and SRFG will receive an opinion of
counsel that, although the matter is not free
from doubt, the Class A Certificates will be
treated as debt for federal income tax
purposes. If you hold a beneficial interest
in a Class A Certificate, you should:
- include in your gross income all interest
paid or accrued on your Certificate;
- include in your gross income a ratable
share of any de minimis original issue
discount as principal payments are made on
your Certificate; and
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- treat as a return of capital any principal
payments on your Certificate, to the
extent of your allocable basis in your
Certificate.
Payments on the Class A Certificates held by
foreign persons will generally be exempt from
United States federal income tax and
withholding, subject to compliance with
applicable certification requirements. See
"Certain Federal Income Tax Consequences" and
"Certain State Tax Consequences" in the
Prospectus for information concerning the
application of tax laws.
REGISTRATION, CLEARANCE AND
SETTLEMENT.................. Your Class A Certificate will be registered in
the name of Cede & Co., as the nominee of The
Depository Trust Company ("DTC"). You will
not receive a definitive certificate
representing your interest in the Trust's
assets, except in limited circumstances. See
"Description of the Investor
Certificates--Definitive Certificates" in the
accompanying Prospectus for more detailed
information.
You may elect to hold your Class A Certificate
through one of the following clearing
organizations (all of which permit transfers
of securities or interests in securities by
computer entries instead of paper transfers):
- DTC (in the United States);
- Cedelbank (in Europe); or
- the Euroclear System (in Europe).
You may transfer your interest within DTC,
Cedelbank or Euroclear in accordance with the
usual rules and operating procedures of the
relevant system. Parties holding directly or
indirectly through DTC, on the one hand, and
other parties holding directly or indirectly
through Cedelbank or Euroclear, on the other
hand, may make cross-market transfers through
the relevant depositories of Cedelbank and
Euroclear. See "Description of the Investor
Certificates--Book-Entry Registration" in the
accompanying Prospectus for more detailed
information.
SRFG expects to deliver the Class A
Certificates in book-entry form through the
facilities of DTC, Cedelbank and Euroclear on
or about March 23, 1999.
CLASS A CERTIFICATE RATING.... The Trust will issue the Class A Certificates
only if at least two nationally recognized
rating agencies rate the Class A Certificates
in the highest rating category. The rating
agencies base their ratings primarily on the
value of the Receivables and the
subordination of the Class B Certificates and
the Class C Certificates. See "Risk
Factors--Rating of the Investor Certificates"
in the Prospectus.
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RISK FACTORS
SUBORDINATION OF THE CLASS B AND CLASS C CERTIFICATES; LIMITED SUBORDINATION
You should consider the following six aspects of the subordination
provisions:
- First, the Trust will use all Series Finance Charge Collections and other
income for this Series (including amounts allocated to the Class B
Investor Interest and the Class C Investor Interest), to pay Class A
interest first, then Class B interest (if any) and finally Class C
interest (if any).
- Second, the Trust will use remaining Series Finance Charge Collections
and other income for this Series to reimburse Class A charge-offs first,
then Class B charge-offs and finally Class C charge-offs. Class A
charge-offs that are not reimbursed will result in a reduction of the
aggregate amount of principal and interest you ultimately receive on your
Class A Certificate.
- Third, the Trust will not use Class B Principal Collections or Class C
Principal Collections to pay Class A principal although it may use Class
B Principal Collections or Class C Principal Collections in some
circumstances to pay Class A interest or to reimburse Class A charge-
offs.
- Fourth, if the Trust allocates charge-offs to the Class A Certificates or
the Class B Certificates that it cannot otherwise reimburse, it will
reallocate Class C Investor Interest to reimburse those charge-offs. (For
example, if the Class A Investor Interest was $500, no subordination was
available, and the Trust could not reimburse $3 of Class A charge-offs,
the Trust would reduce the Class A Investor Interest to $497. If,
however, the Class C Investor Interest at that time was $20, the Trust
would instead reallocate $3 of this interest to reimburse those Class A
charge-offs; the Class A Investor Interest would remain at $500 and the
Trust would reduce the Class C Investor Interest to $17.) Similarly, if
the Trust allocates charge-offs to the Class A Certificates that it
cannot otherwise reimburse, and the Class C Investor Interest is zero,
the Trust will reallocate Class B Investor Interest to reimburse those
charge-offs.
- Fifth, the Trust may pay a portion of Class C principal during the
Revolving Period (if the Rating Agencies advise SRFG that this will not
cause them to reduce or withdraw their ratings on the Class A
Certificates) and will pay limited amounts of Class C principal during
the Controlled Amortization Period as the Trust pays Class A principal.
The Class C Investor Interest will decline by the amount of these
payments.
- Sixth, the amount of Collections allocated to each Class is generally
related to its Class Investor Interest, so reductions in the Class B
Investor Interest or the Class C Investor Interest may also reduce the
amount of Collections allocated to these Classes and to this Series in
later months. (However, once a Rapid Amortization Event occurs, the Trust
will generally use the Class Investor Interest immediately prior to the
Rapid Amortization Event to allocate Collections to each Class.)
Although the Class B Certificates and the Class C Certificates provide credit
enhancement to the Class A Certificates, and the Class C Certificates provide
credit enhancement to the Class B Certificates, the amount of this credit
enhancement is limited by the Class Investor Interest of each subordinate Class.
If you own a Class A Certificate and both the Class C Investor Interest and the
Class B Investor Interest are reduced to zero, you will bear directly all credit
and other risks associated with your interest in the Trust. To the extent that
the Trust cannot fully reinstate any reduction in your Class Investor Interest,
the aggregate amount of principal you ultimately receive will be less than the
face amount of your Certificates. We encourage you to review the Cash Flows for
this Series, summarized in "The Certificates--Cash Flows," which describe in
greater detail how the Trust prioritizes allocations, payments and
reimbursements.
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MATURITY CONSIDERATIONS
The Trust will not pay any Class A principal until the April 2003
Distribution Date, unless a Rapid Amortization Event occurs. If a Rapid
Amortization Event occurs, the Trust will pay Class A principal on each
Distribution Date following the calendar month in which the Rapid Amortization
Event occurs until it has paid the Class A Invested Amount in full. The Trust
will not pay any Class B principal until it has made its final Class A principal
payment. The Trust will not make any payments to you or the other investors
after the March 2009 Distribution Date.
On each Distribution Date during the Controlled Amortization Period, until
the Class A principal is paid in full, the Trust is scheduled to make a Class A
principal payment ($20,833,333.34) using:
- first, funds available in the Series Principal Collections Account; and
- second, this Series' pro rata share of funds in the Group One Principal
Collections Reallocation Account.
We cannot assure you that the terms of any other series currently
outstanding or that the Trust may issue in the future will not affect the timing
or amount of principal payments the Trust makes to you. Although we expect that
the Trust will make each scheduled Class A principal payment, we cannot assure
you that the Trust will meet this schedule.
EFFECT OF PAYMENT RATES AND OTHER FACTORS
Monthly payment rates on the Receivables may vary because, among other
things, credit account customers may not make their required minimum payment,
may pay only the minimum required payment or may pay up to their entire
outstanding balance. Monthly payment rates may also vary due to customers'
seasonal purchasing and payment habits. We cannot predict the credit account
customers' actual future monthly payment rates, the actual rate at which the
Trust will pay Class A principal, or whether the terms of any subsequently
issued series might have an impact on the amount or timing of any payment of
Class A principal.
In addition, the amount of outstanding Receivables and the delinquencies,
charge-offs and new charges on the Accounts may vary from month to month due to
seasonal variations, the availability of other sources of credit, legal factors,
general economic conditions and spending and borrowing habits of individual
credit account customers. We cannot assure you that the Trust will receive
Principal Collections at rates similar to those Sears and the Bank (as defined
in "Sears Credit Business--General") have historically experienced.
FLOATING PRINCIPAL ALLOCATION
The Trust allocates Principal Collections to each Class of this Series
based on its Class Percentage, which in general is proportionate to its Class
Investor Interest. As the Trust pays Class A principal for this Series, we
expect this Series to receive fewer Principal Collections in each month to
reflect its declining interest in the Receivables in the Trust. In these
circumstances, the Trust will use reallocations from other series to this Series
to make scheduled principal payments. If adequate reallocations will not be
available, the Trust will determine the Class Percentage of Principal
Collections for each Class of this Series using a fixed Class Investor Interest
that does not decline as the Trust pays principal to that Class. If a rapid
amortization event occurs for any series that would have reallocated Principal
Collections to this Series:
- this Series may no longer receive reallocations adequate for the Trust to
make the scheduled Class A principal payments; and
- the Class Percentages of Principal Collections for each Class of this
Series may have declined to levels that will not allow the Trust to
allocate sufficient Principal Collections to this Series to make these
scheduled principal payments.
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Consequently, the Trust may not be able to pay Class A principal in full and on
time. We encourage you to review the information in "The Certificates--Series
Collections and Charge-offs" and the definition of "Class Percentage" in the
Glossary of Terms in this Prospectus Supplement for more information about how
the Trust uses Class Percentages to allocate Principal Collections to this
Series and how the Trust calculates those Class Percentages.
RAPID AMORTIZATION EVENTS
We have described the events that the Trust will treat as "Rapid
Amortization Events" for this Series in "The Certificates--Rapid Amortization
Events" and we encourage you to review that description.
If a Rapid Amortization Event occurs, the Trust will pay the principal of
this Series on each Distribution Date, beginning on the Distribution Date in the
calendar month following the month in which the Rapid Amortization Event occurs.
The Trust will use:
- the Series Principal Collections minus the Principal Collections
allocable to the Class B Certificates and the Class C Certificates;
- Class A's allocable share of funds in the Excess Funding Account
(General); and
- this Series' allocable share of funds in the Group One Principal
Collections Reallocation Account
to pay Class A principal until the Class A Invested Amount is zero. In any
event, the Trust will not make any payments to you after the March 2009
Distribution Date. If a Rapid Amortization Event occurs:
- you may receive payments of principal earlier or later than scheduled,
which could cause the average life and maturity of your Certificates to
be significantly reduced or extended and yield to maturity to be
significantly affected; and
- we cannot predict how much principal the Trust will pay in any month, how
long it will take to pay your Invested Amount in full, or whether you
will ultimately receive an aggregate amount of principal less than the
face amount of your Certificates.
EFFECT OF PAIRED SERIES
During the Controlled Amortization Period, if the Trust allocates Principal
Collections based on a percentage that does not decline as the Trust pays Class
A principal, the Trust may issue a "Paired Series" to finance the increase in
the Seller Interest that results when the Trust pays Class A principal. The
Trust will pay to SRFG the proceeds from selling the Paired Series certificates.
The Paired Series invested amount will equal the face amount of the Paired
Series certificates, but initially the Trust will allocate a lower amount of
Principal Collections to the Paired Series than it would if it were not a Paired
Series. The numerator for the allocation percentage for the Paired Series may
increase to the level of the Paired Series invested amount if a rapid
amortization event for the Paired Series occurs.
If a rapid amortization event for the Paired Series occurs before the Trust
pays Class A principal and Class B principal in full, the following may occur:
- SRFG may reduce the numerator of the Class Percentages the Trust uses to
allocate Principal Collections for this Series, thereby reducing the
amount of Principal Collections allocated to each Class of this Series;
- you may receive smaller principal payments than your scheduled payments;
and
- the Trust's final payment of principal to you may be delayed.
We have described the characteristics of a Paired Series in "The
Certificates--Paired Series" and we encourage you to review that description.
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SEARS CREDIT BUSINESS
GENERAL
Sears and Sears National Bank (the "Bank") have issued four types of
open-end revolving credit plans, or "accounts," under which customers may
purchase goods and services sold and made available through Sears stores and its
affiliates, licensees or concessionaires. As described below, the Bank now
issues all accounts. We refer to all of these accounts, and the receivables
arising under them (including the Receivables in the Trust), as the "Sears
Portfolio." If the receivables arising under an account are part of the Trust's
assets, we refer to that account as an "Account." The four types of accounts
are:
- Sears Card: Sears Card is the traditional charge card for purchases at
Sears stores. The Bank issues all Sears Cards, which customers may use to
purchase goods and services, generally in an amount up to the customer's
credit limit. Sears Card receivables accounted for approximately 90% of
the Sears Portfolio as of the end of December 1998.
- SearsCharge PLUS: The Bank issues all SearsCharge PLUS accounts, which
customers in most states may use to purchase certain merchandise that
costs at least $400 (if their account is new) or $100 (if they have an
existing account). SearsCharge PLUS receivables accounted for
approximately 7% of the Sears Portfolio as of the end of December 1998.
- SearsCharge Modernizing Credit Plan and SearsCharge Home Improvement
Plan: Under SearsCharge Modernizing Credit Plan ("MCP") and SearsCharge
Home Improvement Plan ("HIP") accounts, which are available only in
certain states, customers may only purchase various goods and services
relating to home improvements. Together, MCP and HIP receivables
accounted for approximately 3% of the Sears Portfolio as of the end of
December 1998. HIP replaced MCP on April 1, 1988. Until December 2, 1998,
Sears issued all HIP accounts. Since December 2, 1998, the Bank has
issued all HIP accounts.
Each of these four types of accounts requires different minimum monthly
payments, and Sears and the Bank impose different finance charges on outstanding
balances under each type of account.
Sears and the Bank service all the accounts in the Sears Portfolio at:
- nine regional credit card operations centers, each located in a different
state;
- a national account authorization center;
- four credit processing centers;
- Sears headquarters in Hoffman Estates, Illinois; and
- the Bank's headquarters in Tempe, Arizona.
Personnel at the regional credit card operations centers and at the national
account authorization center execute strategies and policies, evaluate credit
applications, maintain direct contact with credit account customers and decide
how to handle overdue accounts. Personnel at the credit processing centers
process collections of receivables and send out monthly statements to credit
account customers reflecting changes in each customer's account balance.
Servicing personnel at the Bank also perform certain functions, including making
judgmental decisions relating to Accounts. The Bank also establishes policies
for the accounts it issues, which Sears executes as Servicer. The Bank and Sears
have entered into agreements under which Sears continues to act as the primary
Servicer of all Receivables that Sears has designated with respect to the Trust,
even if Sears has transferred the related Accounts to the Bank or the Bank has
issued those Accounts. The Sears Credit Department and the Bank employ
approximately 10,000 individuals on a full-time or part-time basis.
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CREDIT GRANTING PROCEDURES
Each credit account customer enters into a "Credit Agreement" with either
the Bank or Sears (whichever issued the account, the "Account Issuer") governing
the terms and conditions of the account. Because each state regulates retail
charge accounts differently, the terms of the Credit Agreement for accounts
issued by Sears are not identical nationally. The Account Issuer reserves the
right to change credit terms, including the rate of the finance charge, upon
notice. In addition, the Account Issuer and, when applicable, its affiliates
take a purchase money security interest to the extent permitted by law in all
goods that customers purchase through their accounts.
Sears and the Bank used the following methods to solicit customers to open
accounts:
- oral invitation by Sears personnel serving customers in Sears stores;
- applications made available to prospective credit account customers at
selling outlets and at the offices of affiliates;
- solicitations by direct mail and telephone;
- catalog sales;
- advertising on television and in magazines; and
- direct response marketing.
The Account Issuer uses statistical scoring models to enhance its ability
to evaluate the creditworthiness of an applicant and minimize its exposure to
high credit risk individuals. The Account Issuer also uses scoring models to
evaluate existing accounts, modify credit limits and approve purchases that
exceed a customer's credit limit. The Account Issuer tracks and audits model
performance to assure that the model is recommending appropriate credit
decisions.
The Account Issuer obtains credit bureau reports, including risk scores
prepared by the credit bureau, from an independent credit reporting agency for
all applications. The applicable credit bureau report is used as an input to
scoring models that recommend whether or not to approve an application based on
all available predictive information about that applicant. If the report
suggests approval of the application, it also recommends a line of credit (which
the Account Issuer will periodically update by using scoring models or upon the
customer's request). An analyst may review credit bureau reports to verify that
the credit bureaus had all the information relevant to the scoring process for a
particular applicant and that the Account Issuer has conducted a direct
investigation, if needed. The analyst may review the risk score provided by the
credit bureau and also determine if extenuating circumstances are present. If in
the analyst's judgment extenuating circumstances are present, the Account Issuer
may revise the recommendation of the scoring model.
The Bank also issues pre-screened accounts. It obtains lists of applicants
for pre-screened accounts from credit bureaus or other list sources. The credit
bureaus qualify the lists without regard to the source of the list based on
credit criteria specified by the Bank that equal or exceed those of the Sears
Portfolio.
In the year ended January 2, 1999, the Account Issuers approved on average
approximately 319,000 new accounts each month. Approximately 26 million accounts
in the Sears Portfolio (excluding accounts from Puerto Rico, which are not
included in the Accounts) had been active during the billing cycles that ended
in December 1998. The number of active accounts tends to be higher in the fourth
quarter of the year.
BILLING AND PAYMENTS
The Account Issuers group the four types of accounts into billing cycles
solely for administrative convenience, without regard to the historical or
expected performance of the accounts. Each billing
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cycle has a separate monthly billing date; the billing cycle is the period of
approximately 30 days ending on that billing date. On each billing date, Sears
and the Bank process and bill customers for their purchases and related finance
charges and fees for the billing cycle.
The four types of accounts have various billing and payment structures,
including varying minimum payment levels and finance charges. This "--Billing
and Payments" section contains information on the most common current billing
and payment characteristics of these accounts, although practices in some states
vary in accordance with local law.
Sears sends monthly billing statements to customers who have more than
$1.00 of outstanding charges or credits. Each month, except in certain
circumstances involving prepayment, low balances or special promotions
(described below), a Sears Card customer generally must make a minimum payment
equal to:
- 1/42 of the amount outstanding on the customer's account; plus
- any amount that is past due.
On accounts with balances less than or equal to $840, the minimum payment will
vary between $10 and $20 according to a schedule in the Credit Agreement (plus
past due amounts). If a customer's entire balance is less than $10, the customer
will be required to pay the entire balance as the minimum monthly payment.
The Bank assesses a finance charge on Sears Card accounts each month a
credit account customer has an unpaid balance from a prior month. The Bank
calculates the finance charge by multiplying the daily balances of the account
for each day of the billing period by the applicable daily periodic finance
charge rate. The equivalent annual rate of periodic finance charge on Sears Card
and SearsCharge PLUS accounts is 21% (other than SearsCharge PLUS accounts in
Arkansas) and the rate on HIP accounts is 15.9%. Periodically, the Account
Issuers test accounts with other finance charge rates. The daily balance owing
on an account equals:
- the account balance at the start of the day; plus
- new purchases, unpaid finance charges, late payment charges, returned
payment charges and insurance charges, if any; minus
- payments and credits processed that day.
The Bank does not assess finance charges on purchases during a billing cycle if
the customer pays the entire account balance shown on the billing statement for
that billing cycle before the customer's next billing date.
The Bank may hold special credit promotions, in conjunction with Sears,
which allow customers to defer payments (in some circumstances without incurring
finance charges) for limited periods of time. For example, the Bank may have a
"zero-percent financing" promotion. If credit account customers make purchases
during the promotion, they will not be billed for those purchases for a
specified period (generally ranging from three to twelve months). During the
promotion period:
- customers are not required to make payments on the balance for those
purchases; and
- customers will not accrue finance charges on that balance.
The Bank will assess customary finance charges in the usual manner on the unpaid
promotional balance after the promotion period ends. The Accounts may include
Principal Receivables originated during zero-percent financing promotions or
other promotions.
COLLECTION EFFORTS
Sears personnel who staff the regional credit card operations centers make
most of the efforts to collect past due receivables. In some instances, however,
Sears retains collection agencies and
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attorneys. Under current practices, Sears requests payment of overdue amounts on
all billing statements with past due balances. Collections personnel generally
initiate telephone contact with credit account customers who have not paid their
past due balances by the first billing date after they have been notified that
their account is past due. Sears begins telephone contact for high risk/high
balance accounts sooner. If the customer does not pay after the initial
telephone contact, Sears or its agent continues to contact the customer by
telephone and by mail. Sears may also arrange with credit account customers to
extend or otherwise change payment schedules.
The following discussion and analysis of Sears conversion to a new credit
card receivables processing system contains forward-looking statements that
involve risks and uncertainties. The actual timing and effects of this
conversion could differ materially from those anticipated in the forward-looking
statements as a result of certain factors including, but not limited to,
operational and logistical developments with respect to the conversion and
changes in social and economic factors and credit policies that affect
delinquencies, charge-offs and customer payment behaviors. In addition, numerous
other social and economic factors and credit policies may also affect
delinquency and charge-off levels following the conversion.
In May 1998, Sears entered into an agreement with Total System Services,
Inc. ("TSYS") to provide certain processing services relating to the Sears
Portfolio, including the Receivables. The new system will enable Sears and the
Bank to enhance their customer relationships and to improve service support of
Sears multiple business formats. Sears currently plans to convert from its
proprietary processing system to the new processing system in three phases,
beginning with the first phase, which was completed in October 1998, followed by
the second phase, which was completed in March 1999, and ending with the last
phase in the second quarter of 1999. The new processing system also enables
Sears to change its methodology for aging and charging off accounts. The new
aging methodology differs from that used historically by Sears in that it
determines delinquency levels based on the number of billing cycles that have
commenced since the customer failed to make a required payment. Under Sears
proprietary credit system, an account is generally considered delinquent when
the cumulative past due balance is three or more times the scheduled minimum
monthly payment. As a result, accounts will generally be considered delinquent
earlier and charged off sooner under the new processing system than is the case
under the proprietary system. These changes reflect a reclassification of
account status rather than a change in actual performance of the account.
Under Sears proprietary system, Sears generally charges off an account
automatically when the account's cumulative past due balance is at least eight
times the scheduled minimum monthly payment (generally 1/42nd of the account
balance). Under the new credit processing system, Sears generally charges off an
account automatically when the customer has failed to make a required payment in
each of the last eight billing cycles. Under either Sears proprietary system or
the new processing system, Sears may charge off accounts earlier if the credit
account customer initiates bankruptcy proceedings.
To assess the potential effect of the new aging methodology, Sears used
historical account activity for a 10% random sample of accounts to simulate the
differences between the historical methodology and the new methodology. Under
the simulations, delinquencies as a percentage of managed receivables at the
conversion date were approximately 275 to 300 basis points higher than under the
proprietary system. After a transition period of approximately eight months, the
change in delinquency levels decreased to approximately 200 basis points above
the levels reported under the historical methodology. Based on the simulations,
Sears believes that delinquency trends over the three-year period covered in the
simulations would have been consistent under either methodology.
The simulations also modeled the gross charge-offs that would have been
reported under the new methodology based upon the actual transaction activity of
the 10% sample of accounts. Under the simulations, using historical account
activity, the percentage of account balances charged off as uncollectible
increased in the range of 75 to 100 basis points during the eight-month period
after the
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conversion date. The increase then declined over the next four months. An
increase in gross charge-off levels in the range of 15 to 25 basis points
remained after this twelve-month period. The actual effect of the new
methodology on charge-offs cannot be predicted with precision, and may be offset
in part by benefits of earlier collection efforts due to an earlier recognition
of delinquencies and improved authorization and line management strategies.
The first phase of the conversion affected approximately 12% of the
accounts in the Sears portfolio. We report the delinquency levels for these
converted accounts after the date of conversion separately from the delinquency
levels for the unconverted accounts in "Composition and Historical Performance
of the Sears Portfolio--Summary Delinquency Aging Information." The performance
of these converted accounts may not be representative of the total Sears
Portfolio.
Over time, Sears and the Bank may change the credit evaluation, servicing
and charge-off policies and collection practices that they apply to the Accounts
in accordance with their business judgment and applicable law. Under the Pooling
and Servicing Agreement, SRFG retains all recoveries on Charged-Off Amounts;
however, SRFG has agreed to add to the Trust certain recoveries it receives on
receivables owned by it in accounts that Sears has charged off as uncollectible.
See "Description of the Investor Certificates--Additional Funds" in the
Prospectus.
EFFECTS OF THE SELECTION PROCESS
Sears selected the Accounts for the Trust (including Additional Accounts)
in a manner intended to include Sears Card, SearsCharge PLUS, MCP and HIP
accounts. The Accounts may contain a higher or lower percentage of newly
solicited or unseasoned accounts than the Sears Portfolio, in part due to the
following factors:
- Sears did not select the Accounts according to the creditworthiness of
the credit account customers (except that Sears did not select
charged-off accounts);
- Sears selected some of the Accounts from previously segregated pools of
more seasoned accounts; and
- Sears selected some of the Accounts from accounts not previously
segregated into pools.
Sears generally does not charge off a new account until it is at least eight
months old. Thus, charge-offs for new accounts may increase for a period of time
after eight months and then decline to a relatively stable level as the accounts
become more seasoned. The Receivables will include delinquent Receivables and
may include amounts owed by credit account customers who are or are about to
become bankrupt or insolvent.
Sears believes that the Accounts are distributed geographically in similar
proportions to the accounts in the Sears Portfolio, except that accounts from
Puerto Rico are not included in the Accounts. Sears cannot, however, assure you
that Accounts from all fifty states and the District of Columbia are
represented. Receivables from accounts from Puerto Rico represented 1.3%, 1.2%
and 1.3% of the receivable balances in the Sears Portfolio as of December 28,
1996, January 3, 1998 and January 2, 1999, respectively.
Sears makes all monthly calculations for the Trust based on the activity
during the Accounts' billing cycles ending in that month. We refer to each of
these billing cycles as a "Due Period." For example, on the April 1999
Distribution Date, monthly collections will be based on the March 1999 Due
Period and will reflect activity for billing cycles beginning at the opening of
business on various days in February 1999 (e.g., the 11th, 17th and 26th) and
ending at the close of business on various days in March 1999 (e.g., the 10th,
16th and 25th, respectively) with respect to the Accounts in each of the billing
cycles. The amount of Principal Receivables and Finance Charge Receivables
billed to the Accounts as of the last day of the Due Periods ending in February
1999 equaled $10,668,441,420 and $182,088,669, respectively. Under the Pooling
and Servicing Agreement, SRFG has the right, and in some circumstances, the
obligation, to designate additional accounts to
S-21
<PAGE> 22
be included as Accounts, or to add participation interests in other pools of
receivables to the Trust, subject to certain conditions.
Sears has no reason to believe that the performance characteristics of the
Accounts will not be representative of the Sears Portfolio in all material
respects. However, based on historical experience, fixed pools of accounts (like
the Accounts) in general experience somewhat higher yields and charge-offs and
more volatile performance characteristics (particularly in the first few months
after the selection of the fixed pool of accounts) than the Sears Portfolio and
monthly variations tend to be greater than annual changes. We also note that
Sears calculates certain performance statistics for the Trust in accordance with
the terms of the Pooling and Servicing Agreement, instead of in accordance with
generally accepted accounting principles. You should expect the reported
performance statistics for the Accounts in the Trust to differ from the reported
performance statistics for the accounts in the Sears Portfolio as a result of
the different calculation methodologies.
S-22
<PAGE> 23
COMPOSITION AND HISTORICAL PERFORMANCE OF THE SEARS PORTFOLIO
The tables below describe the composition and historical performance of the
accounts in the Sears Portfolio, excluding accounts from Puerto Rico (which are
not included in the Trust). These tables do not reflect the composition and
historical performance of the Accounts in the Trust. Sears uses different
methodologies to calculate the performance characteristics of the accounts in
the Sears Portfolio than those the Trust uses to calculate the performance
characteristics of the Accounts. We have described some of these differences and
the performance characteristics they may affect below.
- The total amount of receivables in the Sears Portfolio is used as the
denominator for its yield, charge-off, delinquency and payment rate
calculations. The Trust uses the amount of Principal Receivables in the
Accounts as the denominator for its yield and charge-off rate
calculations.
- Late fees, returned check fees and insurance charges are not accounted
for as finance charges in the Sears Portfolio and, accordingly, the Trust
does not include these fees and charges as "Finance Charge Receivables."
Instead, these fees and charges are reflected as "Principal Receivables"
in the Trust. However, late fees are reflected in the yield on the Sears
Portfolio.
- The charge-off rate for the Sears Portfolio is calculated using only
charge-offs of principal receivables. The Trust calculates its charge-off
rate using the total amount of Receivables charged off as uncollectible.
- Although the Trust automatically retransfers to SRFG the Receivables in
Accounts charged off by Sears as uncollectible at the time charged off,
SRFG has agreed to add to the Trust as Additional Funds a portion of the
amounts it receives as recoveries on charged-off accounts.
COMPOSITION OF THE SEARS PORTFOLIO
COMPOSITION OF ACCOUNTS BY CREDIT LIMIT
The accounts in the Sears Portfolio had the following distributions of
credit limits(1):
<TABLE>
<CAPTION>
PERCENTAGE OF SEARS
PORTFOLIO AS OF
BILLING CYCLES ENDED
CREDIT LIMIT IN DECEMBER 1998
- ------------ --------------------
<S> <C>
$ 0 - $ 99(2)........................... 18.1%
100 - 499.............................. 2.8%
500 - 999.............................. 5.4%
1,000 - 1,499.............................. 6.8%
1,500 - 1,999.............................. 6.1%
2,000 - 2,999.............................. 14.0%
3,000 - 3,999.............................. 18.1%
4,000 and over.............................. 28.7%
------
100.0%
======
</TABLE>
- ------------------
(1) Sears based this information on accounts with balances at any time in the
twenty-four months ended with the billing cycles ended in December 1998.
(2) The Bank or Sears may impose zero credit limits (i) due to delinquency, (ii)
upon customer request, (iii) temporarily in the case of lost or stolen
credit cards or (iv) under certain circumstances in which the customer's
credit may be in question. The customer must obtain specific approval from
the Bank or Sears for purchases on an account with a zero credit limit. In
general, for accounts processed on Sears proprietary receivables processing
system, specific approval is automatic for accounts with past due balances
less than two times the scheduled
S-23
<PAGE> 24
minimum monthly payment and automatically denied for accounts with past due
balances greater than or equal to two times the scheduled minimum monthly
payment. For accounts converted to the new TSYS receivables processing
system, specific approval generally is automatic for accounts that are
current or for which the customer has failed to make a required payment only
in the last billing cycle, and automatically denied for accounts for which
the customer has failed to make a required payment in each of the last two
or more billing cycles.
LARGEST STATES
The Sears Portfolio is not concentrated geographically. As of the billing
cycles ended in December 1998, the following five states had the largest
receivables balances and number of accounts:
<TABLE>
<CAPTION>
SEARS PORTFOLIO CALIFORNIA FLORIDA NEW YORK PENNSYLVANIA TEXAS
--------------- ---------- ------- -------- ------------ -----
<S> <C> <C> <C> <C> <C>
% of active accounts.................... 10.5% 6.9% 6.5% 5.9% 6.7%
% of balances........................... 10.6% 7.4% 6.1% 5.2% 8.2%
</TABLE>
No other state accounted for more than 5% of the number of active accounts
in the Sears Portfolio or 5% of the balances as of the billing cycles ended in
December 1998.
SEASONING
More than 56% of the accounts in the Sears Portfolio were at least five
years old as of the billing cycles ended in December 1998. The ages of accounts
in the Sears Portfolio were distributed as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
SEARS PORTFOLIO AS
OF BILLING
CYCLES ENDED
AGE OF ACCOUNTS IN DECEMBER 1998
- --------------- ------------------
<S> <C>
Up to 1 year................................... 7.6%
1 year up to 2 years........................... 8.4%
2 years up to 3 years.......................... 12.5%
3 years up to 4 years.......................... 8.7%
4 years up to 5 years.......................... 6.2%
5 years up to 10 years......................... 18.5%
10 years and older............................. 38.1%
------
100.0%
======
</TABLE>
Sears based this information on accounts with balances at any time in the
twenty-four months ended with the billing cycles ended in December 1998.
SUMMARY YIELD INFORMATION
The accounts in the Sears Portfolio had the following annualized aggregate
monthly yields:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1999 1999 1998 1997 1996
------------ ------------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Aggregate Monthly Yield........... 19.71% 20.30% 20.48% 20.27% 18.67%
</TABLE>
S-24
<PAGE> 25
Aggregate monthly yield is the average of monthly yields annualized for
each period shown. Sears calculates "monthly yield" by dividing:
- monthly finance charges and late fees minus late fees and the estimated
amount of finance charges billed to accounts that were charged-off as
uncollectible in that month; by
- the balance outstanding as of the beginning of the month.
SUMMARY CHARGE-OFF INFORMATION
The accounts in the Sears Portfolio had the following annualized gross
charge-off and recoveries percentages:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
FEBRUARY 28, FEBRUARY 28,
1999 1999 1998 1997 1996
------------ ------------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Gross Charge-Offs as a % of balances..... 8.54% 8.68% 8.82% 7.61% 5.12%
Recoveries as a % of balances............ 1.47% 1.40% 1.35% 1.06% 0.79%
</TABLE>
All rates shown are unweighted averages of monthly rates annualized for
each period shown. Sears calculated the monthly rate by dividing:
- either (i) the amount of charged-off receivables for that month minus
late fees and the estimated amount of finance charges billed to accounts
that were charged-off as uncollectible in that month, or (ii) the amount
of recoveries for that month, as applicable; by
- the balance outstanding as of the beginning of the month.
For a discussion of Sears change to a new aging methodology in connection
with the conversion of its proprietary receivables processing system to the TSYS
account processing system, which will have an effect on gross charge-off levels,
see "Sears Credit Business--Collection Efforts."
SUMMARY DELINQUENCY AGING INFORMATION
The accounts in the Sears Portfolio had the following delinquency
profiles(1):
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
FEBRUARY 28,
1999(2) 1998(2) 1997 1996
------------- ------- ----- -----
<S> <C> <C> <C> <C>
Delinquencies as a % of balances(3)
60-89 days past due................................. 1.96% 1.99% 1.96% 1.66%
90-119 days past due................................ 1.53% 1.53% 1.45% 1.16%
120 days or more past due........................... 3.44% 3.46% 2.97% 2.18%
----- ----- ----- -----
Total Delinquencies.............................. 6.93% 6.98% 6.38% 5.00%
===== ===== ===== =====
</TABLE>
- ------------------
(1) For a discussion of Sears change to a new aging methodology in connection
with the conversion of its proprietary receivables processing system to the
TSYS account processing system, see "Sears Credit Business -- Collection
Efforts."
(2) We determined these percentages using the monthly percentages for all
accounts for months ended on or prior to October 31, 1998, and the monthly
percentages for the approximately 88% of accounts that had not been
converted for subsequent months.
(3) Under Sears proprietary receivables processing system, in general, Sears and
the Bank consider an account delinquent when its cumulative past due balance
is three or more times the
S-25
<PAGE> 26
scheduled minimum monthly payment. The data above reflect the percentage of
account balances for which the cumulative past due amount is three, four,
and five or more times, respectively, the scheduled minimum monthly payment.
Sears divides delinquencies as of the end of each billing cycle by balances
at the beginning of that month.
Under the TSYS processing system, Sears and the Bank determine delinquency
levels for accounts using an aging methodology that is based on the number
of billing cycles that have commenced since the customer failed to make a
required payment. The following data reflect converted accounts for which
the customer has failed to make a required payment in each of the last
three, four, and five or more billing cycles, respectively. For converted
accounts, Sears divides delinquencies as of the end of each month by
balances at the beginning of each month. The performance of the converted
accounts may not be representative of the total Sears Portfolio.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, 1999
----------------------------------------------------
UNCONVERTED ACCOUNTS CONVERTED ACCOUNTS*
(88% OF SEARS PORTFOLIO) (12% OF SEARS PORTFOLIO)
------------------------ ------------------------
<S> <C> <C>
Delinquencies as a % of balance
60-89 days past due................. 1.92% 2.29%
90-119 days past due................ 1.55% 1.80%
120 days or more past due........... 3.57% 5.19%
----- -----
Total delinquencies............ 7.04% 9.28%
===== =====
</TABLE>
- ---------------
* If Sears had calculated delinquencies for converted accounts by
dividing delinquencies as of the end of each billing cycle by balances
at the beginning of each month, as it does for unconverted accounts,
the total delinquencies as a percentage of balances for this period
would have been 10.26%.
SUMMARY PAYMENT RATE INFORMATION
The accounts in the Sears Portfolio had the following monthly payment
rates:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
FEBRUARY 28,
PAYMENT RATES 1999 1998 1997 1996
- ------------- ------------- ----- ----- -----
<S> <C> <C> <C> <C>
Average Monthly Rate........................... 6.58% 6.51% 6.14% 6.29%
Highest Monthly Rate........................... 7.06% 6.89% 6.64% 6.83%
Lowest Monthly Rate............................ 6.16% 6.15% 5.81% 5.86%
</TABLE>
Sears calculates the payment rate by dividing:
- cash received during each month; by
- the balance outstanding as of the beginning of that month.
THE CERTIFICATES
The Trust will issue the Certificates of this Series pursuant to the
Pooling and Servicing Agreement and the Series Supplement. The Series Supplement
will consist of two parts, a Series Term Sheet and an Annex. The Annex includes
detailed definitions, cash flows, payment provisions and other important
provisions of this Series. The Annex is designed to be used for a variety of
different types of series and, accordingly, contains some provisions that do not
apply to this Series. The Series Term Sheet sets forth the specific terms of
this Series and identifies which provisions of the Annex apply to this Series.
Although we summarize the Series Supplement in this section, our summary is not
complete and we encourage you to review the Series Supplement and the Pooling
S-26
<PAGE> 27
and Servicing Agreement. If you write to the Trustee at its principal corporate
office, the Trustee will send you, without charge, a copy of the Series
Supplement (without exhibits) and the Pooling and Servicing Agreement (without
exhibits). Although the Class B Certificates and Class C Certificates will be
part of this Series, you may not purchase them in this offering.
INVESTED AMOUNTS
Your Certificate will initially have an invested amount equal to its face
amount. Your invested amount will decrease by:
- the amount of principal we pay you; and
- the amount of any investor loss you incur if we cannot fully reimburse
the charge-offs allocated to your Certificate.
The "Class A Invested Amount" will initially be $500,000,000, the "Class B
Invested Amount" will initially be $35,300,000, and the "Class C Invested
Amount" will initially be $52,950,000. These Class Invested Amounts will equal
the face amounts of all Certificates in the Class. Each Class Invested Amount
will decrease by:
- the amount of principal we pay to investors in that Class; and
- the amount of investor losses that investors in that Class incur if we
cannot fully reimburse the charge-offs allocated to their Certificates.
The "Series Invested Amount" will be the sum of the Class Invested Amounts for
all Classes in this Series.
INVESTOR INTERESTS
Your investor interest is your interest in Principal Receivables and
certain cash amounts in the Trust. In this Series, your investor interest will
always equal your invested amount. Consequently,
- the Class A Investor Interest equals the Class A Invested Amount;
- the Class B Investor Interest equals the Class B Invested Amount;
- the Class C Investor Interest equals the Class C Invested Amount; and
- the Series Investor Interest equals the Series Invested Amount.
For other series, including Paired Series, the investor interest for a
certificate may be less than its invested amount at certain times. Accordingly,
the "Aggregate Investor Interest"--which is the sum of the series investor
interests for all series--may be less than the face amounts of all certificates
issued by the Trust.
INTEREST PAYMENTS
The Trust will generally pay you interest on your invested amount at the
interest rate of 5.65% per year if you own a Class A Certificate. The Trust will
pay you this interest on the 15th day of each month (or, if not a business day,
the following business day), beginning in April 1999, if your Certificate was
registered in your name as of the last day of the preceding calendar month. The
interest payable on any interest payment date will accrue:
- for the first interest payment date, from and including the date the
Trust issues your Certificate, to but excluding the 15th day of the
calendar month in which that first interest payment date occurs; and
- for each other interest payment date, from and including the preceding
interest payment date, to but excluding that interest payment date.
S-27
<PAGE> 28
The Trust will only pay you this interest, however, to the extent that the Trust
has adequate funds to use for this payment in accordance with the terms of the
Cash Flows for this Series. We encourage you to review these Cash Flows to see
how the Trust uses its assets to pay interest on the Certificates. See "--Cash
Flows" and "Annex A--Cash Flows." As long as SRFG owns the Class B Certificates
and the Class C Certificates, the Trust will not pay interest on those
Certificates.
The Trust generally will calculate the interest payment on your Certificate
based on a 360-day year of twelve 30-day months. For the first interest payment
date, however, the Trustee will calculate the interest on your Certificate based
on the number of days elapsed from and including the date the Trust issues your
Certificate, to but excluding the 15th day of the calendar month in which that
first interest payment date occurs, assuming a 360-day year comprised of twelve
30-day months. The Trustee will generally determine your interest payment by
multiplying your invested amount by your interest rate, and dividing it by
twelve, as shown below:
Monthly Interest Payment Amount = Invested Amount x Interest Rate
-------------------------------
12
PRINCIPAL PAYMENTS
The amount of principal the Trust pays to you each month will depend on
whether this Series is in the Revolving Period, the Controlled Amortization
Period or the Rapid Amortization Period.
Revolving Period. The Trust will not pay principal to you during the
Revolving Period. Similarly, the Trust will not pay Class B principal during the
Revolving Period. However, if it is permitted to do so by the Rating Agencies,
the Trust may pay a portion of the Class C principal during the Revolving
Period. Currently, the Rating Agencies do not permit the Trust to pay Class C
principal during the Revolving Period. The Revolving Period begins on the first
day of the Due Period ending in March 1999 and ends on the day before either the
Controlled Amortization Period or the Rapid Amortization Period begins.
Controlled Amortization Period. The Trust will pay principal to you during
the Controlled Amortization Period to the extent that the Trust has available
funds to make scheduled principal payments. The Trust is scheduled to pay Class
A principal in 24 monthly installments of $20,833,333.34 starting on the April
2003 Distribution Date and continuing on each subsequent Distribution Date. The
Trust is scheduled to pay Class B principal in two monthly installments of
$17,650,000 beginning on the April 2005 Distribution Date. The Trust will not,
however, pay Class B principal until the Trust pays the Class A Invested Amount
in full. The Trust will pay up to $2,060,760.32 of Class C principal on each
Distribution Date during the Controlled Amortization Period, until the first
month after the Class C Invested Amount has been reduced to or below
$17,647,500. After the Class B Invested Amount has been paid in full, the Trust
will pay any remaining Class C principal until the Class C Invested Amount is
paid in full.
Rapid Amortization Period. The Rapid Amortization Period begins when a
Rapid Amortization Event occurs. We have described the events that the Trust
will treat as Rapid Amortization Events for this Series in "--Rapid Amortization
Events." The Trust will pay principal to you during the Rapid Amortization
Period to the extent that it has available funds. On each Distribution Date
related to the Rapid Amortization Period, the Trust will pay Class A principal
up to the Class A Invested Amount, until the Class A Invested Amount is paid in
full.
The Trust will not pay any Class B principal during the Rapid Amortization
Period until the final Class A principal payment is made. Similarly, the Trust
will not pay any Class C principal during the Rapid Amortization Period until
the final Class B principal payment is made.
The Trust will make all payments of principal to you in accordance with and
in the amounts determined by the Cash Flows for this Series. We encourage you to
review these Cash Flows to see how the Trust will use its assets to pay your
principal. See "--Cash Flows" and "Annex A--Cash
S-28
<PAGE> 29
Flows." In no event, however, will the Trust make any principal payments to you
or any other investor in this Series after the March 2009 Distribution Date.
SUBORDINATION
The Class B Certificates will be subordinate to the Class A Certificates,
and the Class C Certificates will be subordinate to the Class A Certificates and
the Class B Certificates. Accordingly, the Trust will allocate certain funds to
the Class A Certificates before the Class B Certificates and the Class C
Certificates and will allocate certain funds to the Class B Certificates before
the Class C Certificates. The subordination provisions in the Cash Flows for
this Series are summarized in "Risk Factors" above.
We encourage you to review the Cash Flows for this Series to see how the
Trust prioritizes payments and reimbursements. See "--Cash Flows" and "Annex
A--Cash Flows."
SERIES COLLECTIONS AND CHARGE-OFFS
The Trust allocates a pro rata share of Finance Charge Collections,
Principal Collections and charge-offs to each Class of this Series on each
Distribution Date based on the Class Percentage for each Class. The Class
Percentage generally equals the numerator set forth in the table on the
following page, divided by the total amount of Principal Receivables in the
Trust (or by the sum of the numerators used to calculate that percentage, if
that sum is a greater amount).
S-29
<PAGE> 30
CLASS PERCENTAGE OF FINANCE CHARGE COLLECTIONS
<TABLE>
<CAPTION>
PERIOD: NUMERATOR:
------- ----------
<S> <C>
Revolving Period............................. Class Investor Interest* as of the beginning
of the prior calendar month.
Controlled Amortization Period............... Class Investor Interest* as of the beginning
of the prior calendar month.
Rapid Amortization Period.................... Class Investor Interest* as of the end of the
calendar month preceding the Rapid
Amortization Event.
</TABLE>
CLASS PERCENTAGE OF PRINCIPAL COLLECTIONS
<TABLE>
<CAPTION>
PERIOD: NUMERATOR:
------- ----------
<S> <C>
Revolving Period............................. Class Investor Interest* as of the beginning
of the prior calendar month.
Controlled Amortization Period:
No Fixed Principal Allocation Event..... Class Investor Interest* as of the beginning
of the prior calendar month.
Fixed Principal Allocation Event........ Class Investor Interest* as of the beginning
of the calendar month preceding the Fixed
Principal Allocation Event.
-- and Fixed Principal Allocation
Adjustment.......................... Class Investor Interest* as of the beginning
of the calendar month preceding the Fixed
Principal Allocation Event, multiplied by the
Fixed Principal Allocation Adjustment Factor
(but not less than the Class Investor
Interest as of the beginning of the prior
calendar month).
-- and paired with a Paired Series for
which a rapid amortization event has
occurred............................ To be determined by the Servicer (but not
less than the Class Investor Interest* as of
the last day of the revolving period for the
Paired Series).
Rapid Amortization Period.................... Not less than the Class Investor Interest* as
of the beginning of the calendar month in
which the Rapid Amortization Event
occurred.**
</TABLE>
CLASS PERCENTAGE FOR CHARGE-OFFS
<TABLE>
<CAPTION>
PERIOD: NUMERATOR:
------- ----------
<S> <C>
All Periods.................................. Class Investor Interest* as of the beginning
of the prior calendar month.
</TABLE>
- ------------------
* Minus, in each case, a pro rata share of funds on deposit in the Excess
Funding Account (General) and the Excess Funding Account (SRC).
** May be higher if a Fixed Principal Allocation Event has previously occurred.
S-30
<PAGE> 31
Series Finance Charge Collections. The Trust allocates a pro rata share of
Finance Charge Collections to each Class of this Series on each Distribution
Date by multiplying the Finance Charge Collections received during the previous
calendar month by the Class Percentage for that Class:
Class Finance Charge Collections = Finance Charge Collections x Class Percentage
"Series Finance Charge Collections" equal:
- Class A Finance Charge Collections; plus
- Class B Finance Charge Collections; plus
- Class C Finance Charge Collections.
As the Trust pays principal on this Series, we expect this Series to receive
fewer Finance Charge Collections in each month to reflect:
- its declining interest in the Receivables in the Trust;
- its correspondingly smaller allocation of charge-offs; and
- its interest payments on a smaller principal amount.
However, if a Rapid Amortization Event occurs, the percentage of Finance Charge
Collections allocated to this Series will no longer decline because of principal
payments. We encourage you to review clauses (e) and (f) of the definition of
"Class Percentage" in the Glossary of Terms in this Prospectus Supplement, which
describe in more detail how the Trust calculates these pro rata shares.
Series Principal Collections. The Trust allocates a pro rata share of
Principal Collections to each Class of this Series on each Distribution Date by
multiplying the Principal Collections received during the previous calendar
month by the Class Percentage for that Class:
Class Principal Collections = Principal Collections x Class Percentage
"Series Principal Collections" equal:
- Class A Principal Collections; plus
- Class B Principal Collections; plus
- Class C Principal Collections.
As the Trust pays principal on this Series, we expect this Series to
receive fewer Principal Collections in each month to reflect its declining
interest in the Receivables in the Trust. For example, if this Series typically
received $25,000,000 in Principal Collections in each month of the Revolving
Period, it might receive only $12,500,000 in Principal Collections after twelve
months of the Controlled Amortization Period. The Trust would use Principal
Collections reallocated from other series to continue to make the scheduled
monthly Class A principal payment of $20,833,333.34. If a Fixed Principal
Allocation Event occurs, however, the percentage of Principal Collections
allocated to this Series will no longer decline because of principal payments to
the investors in this Series. In general, a Fixed Principal Allocation Event may
occur:
- if this Series would not be able to make its principal payments on time
even using the amounts deposited in the Group One Principal Collections
Reallocation Account that would be available to it;
- if the Servicer elects to cause a Fixed Principal Allocation Event to
occur; or
- if a Rapid Amortization Event occurs.
If a Fixed Principal Allocation Event other than a Rapid Amortization Event
occurs, and the Trust subsequently issues a new series from which the Servicer
expects to reallocate Principal Collections to this Series, the Servicer may
lower the Class Percentage for Principal Collections for each Class of this
Series, subject to the limit described in the table above. We refer to this as a
"Fixed
S-31
<PAGE> 32
Principal Allocation Adjustment." We encourage you to review clauses (b), (c)
and (d) of the definition of "Class Percentage" and the definitions of "Fixed
Principal Allocation Event" and "Fixed Principal Allocation Adjustment" in the
Glossary of Terms in this Prospectus Supplement, which describe in more detail
how the Trust calculates these pro rata shares and when a Fixed Principal
Allocation Event or Fixed Principal Allocation Adjustment will occur.
Series Charge-offs. The Trust allocates a pro rata share of charge-offs to
each Class of this Series on each Distribution Date by multiplying:
- the amount of Receivables in the Trust that the Servicer charged off as
uncollectible during the prior Due Period; minus
- the amount of these Receivables repurchased by SRFG during that Due
Period because they were in accounts that contained Ineligible
Receivables
by the Class Percentage for that Class:
Class Charge-offs = (Charged-Off Receivables - Repurchased Receivables) x Class
Percentage
We encourage you to review clause (a) of the definition of "Class
Percentage" in the Glossary of Terms in this Prospectus Supplement, which
describes in more detail how the Trust calculates this pro rata share.
The Class B charge-offs will also increase by:
- the amount of Class B Principal Collections that the Trust uses to pay
Class A interest and reimburse Class A charge-offs in steps (17) and (21)
of the Cash Flows for this Series; and
- the amount of the Class B Investor Interest used to reimburse Class A
charge-offs in step (22) of the Cash Flows for this Series.
Similarly, the Class C charge-offs will also increase by:
- the amount of Class C Principal Collections that the Trust uses to pay
Class A interest and reimburse Class A charge-offs in steps (16) and (19)
of the Cash Flows for this Series;
- the amount of the Class C Investor Interest used to reimburse Class A
charge-offs in step (20) of the Cash Flows for this Series;
- the amount of Class C Principal Collections that the Trust uses to pay
Class B interest and reimburse Class B charge-offs in steps (18) and (23)
of the Cash Flows for this Series; and
- the amount of the Class C Investor Interest used to reimburse Class B
charge-offs in step (24) of the Cash Flows for this Series.
If the Trust cannot reimburse all of the charge-offs for any Class in any
month, it will carry forward the amount of unreimbursed charge-offs and will try
to reimburse them in the following month. The unreimbursed charge-offs on any
Distribution Date are an investor loss, and the Trust reduces the Class Investor
Interest and the Class Invested Amount for each Class by the amount of investor
loss for that Class. To the extent that the Trust subsequently reimburses these
charge-offs, it will reinstate the Class Investor Interest and the Class
Invested Amount. On any Distribution Date the Trust will not reinstate the Class
Investor Interest and the Class Invested Amount to exceed the initial Class
Investor Interest minus the aggregate amount of principal paid to investors in
that Class before the Distribution Date.
If the Trust reimburses all investor losses, it will also pay interest on
those investor losses for the periods in which the interest payments to
investors were reduced because of those investor losses. The Trust will pay this
additional interest--referred to in the Glossary of Terms in this Prospectus
Supplement as the "Reimbursed Loss Interest Gross-up Amount"--as part of Class A
interest in steps (1), (9), (16) and (17) of the Cash Flows, and as part of
Class B interest in steps (2), (10) and (18) of the Cash Flows. If the Class
Investor Interest is reduced to zero on any
S-32
<PAGE> 33
Distribution Date, it will not be reinstated. If your Class incurs an investor
loss, and the Trust does not subsequently reimburse that investor loss and
reinstate any reduction in your investor interest, the aggregate amount of
principal you ultimately receive will be less than the face amount of your
Certificates.
SERIES YIELD COLLECTIONS
The Series Supplement provides that a portion of Series Principal
Collections may be recharacterized as "Series Yield Collections." The Trust uses
Series Yield Collections in the same way it uses Series Finance Charge
Collections--to pay interest and servicing fees and to reimburse charge-offs.
Sears will calculate the amount of Series Yield Collections by multiplying:
- the Series Yield Factor, by
- the amount of Series Principal Collections.
Initially, the Series Yield Factor for this Series will be zero. Sears may
change the Series Yield Factor in the future, only if:
- Sears does not reduce the Series Yield Factor below zero;
- Sears delivers a certificate to the Trustee stating that Sears reasonably
believes that the change in the Series Yield Factor will not
- delay the payment of principal for any series outstanding on the date
of the change (including this Series), or
- cause a rapid amortization event to occur for any series outstanding
on the date of the change (including this Series); and
- the Rating Agencies advise Sears and SRFG that the proposed change in the
Series Yield Factor will not cause them to reduce or withdraw their
ratings on the certificates of any series outstanding on the date of the
change (including this Series).
Recharacterizing a portion of Series Principal Collections as Series Yield
Collections may lower the amount of principal the Trust may have available to
make payments in any month.
SERIES INVESTMENT INCOME
On each Distribution Date the Trust will allocate to this Series investment
income earned on funds allocated to this Series but not yet paid. The Trust
calculates the Series Investment Income on each Distribution Date by adding:
- the income from the investment of funds on deposit in the Series Interest
Funding Account;
- the income from the investment of funds with respect to the Series
Aggregate Excess Funding Amount;
- this Series' pro rata share of the income from the investment of funds on
deposit in the Collections Account; and
- this Series' pro rata share of the income from the investment of funds on
deposit in the Group One Collections Account,
in each case for the calendar month preceding the Distribution Date.
SERIES ADDITIONAL FUNDS
On January 30, 1998, SRFG agreed to add additional funds to the Trust.
These "Additional Funds" are a pro rata share of the amounts the Servicer
collects on the receivables that it had previously charged off as uncollectible,
including amounts received from the sale of the charged-off
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receivables. The Servicer will calculate this pro rata share by dividing the
total amount of Principal Receivables in the Trust by the total amount of
principal receivables in the Sears Portfolio. The amount of Additional Funds
added to the Trust under the agreement dated January 30, 1998, will be limited
by the amount of recoveries that SRFG receives on the portfolio of charged-off
receivables owned by SRFG. SRFG may in the future elect to add more cash to the
Trust as Additional Funds.
On each Distribution Date, the Trust will allocate to this Series a pro
rata share of the Additional Funds added to the Trust on that Distribution Date,
based on the Series Investor Interest (adjusted to reflect only this Series'
interest in the Principal Receivables in the Trust) on the first day of the
calendar month preceding the Distribution Date. The Trustee will deposit the
Additional Funds allocated to this Series into the Series Collections Account.
Because SRFG adds Additional Funds based on the total amount of Principal
Receivables in the Trust (which is generally the sum of the Series Investor
Interest for all series plus the Seller Interest) and the Servicer allocates
Additional Funds to each series based on the series investor interest (without
any allocation to the Seller Interest), the amount of Additional Funds allocated
to this Series will depend not only on the amount the Servicer collects on the
receivables it had previously charged off, but also on the size of the Seller
Interest. The Seller Interest will generally:
- increase as credit account customers generate new Receivables in the
Accounts;
- decrease when credit account customers pay Principal Receivables;
- decrease as the Trust issues new series or additional certificates;
- increase when SRFG designates Receivables in Additional Accounts to be
added to the Trust;
- decrease when SRFG designates Receivables in specified Accounts to be
removed from the Trust; and
- increase when the Trust pays principal for any series.
REALLOCATIONS
Under certain circumstances, the Trust may reallocate to this series
collections initially allocated to another series in Group One. Similarly, the
Trust may reallocate to another series in Group One collections initially
allocated to this Series. The Trust will not, however, reallocate collections
initially allocated to this Series until the Trust has made all required
payments, deposits and reimbursements for this Series. The Trust uses the Group
One Finance Charge Collections Reallocation Account and the Group One Principal
Collections Reallocation Account to reallocate collections from one series to
the other series.
Group One Finance Charge Collections Reallocation Account. After the Trust
uses Series Finance Charge Collections and other income for this Series to pay
interest and servicing fees and reimburse charge-offs for this Series on any
Distribution Date, the Trustee will deposit any remaining Series Finance Charge
Collections and other income for this Series into the Group One Finance Charge
Collections Reallocation Account. Other series in Group One have similar cash
flow provisions that require the Trust to deposit excess Finance Charge
Collections and other income in the Group One Finance Charge Collections
Reallocation Account. The Trust, if necessary, will use funds in the Group One
Finance Charge Collections Reallocation Account to pay interest and servicing
fees and to reimburse charge-offs for other series in Group One. If the Trust
has not been able to pay all interest and servicing fees and to reimburse all
charge-offs for this Series using Series Finance Charge Collections and other
income for this Series on any Distribution Date, it may draw from the Group One
Finance Charge Collections Reallocation Account, in an amount proportionate to
its needs, as described in steps (9) through (15) of the Cash Flows. Other
series will also draw from this account in proportion to their needs.
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We encourage you to review the Cash Flows in this Prospectus Supplement to
see how the Trust, if necessary, uses funds in the Group One Finance Charge
Collections Reallocation Account to pay interest and servicing fees and to
reimburse charge-offs for this Series.
Group One Principal Collections Reallocation Account. During the Revolving
Period, the Trust will deposit into the Group One Principal Collections
Reallocation Account:
- amounts the Trust uses to reimburse charge-offs for this Series; and
- Class A Principal Collections (excluding those recharacterized as Series
Yield Collections).
During the Controlled Amortization Period, the Trust will deposit into the
Series Principal Collections Account:
- amounts the Trust uses to reimburse charge-offs for this Series; and
- Class A Principal Collections (excluding those recharacterized as Series
Yield Collections).
After the Trust uses the funds on deposit in the Series Principal Collections
Account to pay principal for this Series on any Distribution Date, the Trustee
will deposit any remaining funds into the Group One Principal Collections
Reallocation Account. Other series in Group One have similar cash flow
provisions that require the Trust to deposit excess funds in their principal
collections accounts into the Group One Principal Collections Reallocation
Account. The Trust uses funds in the Group One Principal Collections
Reallocation Account to pay principal to series in Group One. If the Trust has
not been able to pay all scheduled principal payments for this Series using the
funds on deposit in the Series Principal Collections Account on any Distribution
Date, it may draw from the Group One Principal Collections Reallocation Account
in an amount proportionate to its needs, as described in steps (7) through (9)
of the Cash Flows for the Controlled Amortization Period. Other series in their
controlled amortization or controlled accumulation periods will also draw from
this account in proportion to their needs. During the Rapid Amortization Period,
if funds remain in the Group One Principal Collections Reallocation Account
after the Trust has drawn from the account for all series in their controlled
amortization or controlled accumulation periods, the Trust may draw on this
account, in an amount proportionate to its needs, as described in steps (7)
through (9) of the Cash Flows for the Rapid Amortization Period, to pay
principal for this Series. Other series in their rapid amortization periods will
also draw from the account in proportion to their needs.
We encourage you to review the Cash Flows in this Prospectus Supplement to
see how the Trust, if necessary, uses funds in the Group One Principal
Collections Reallocation Account to pay principal to this Series. If funds
remain in the Group One Principal Collections Reallocation Account after the
Trust has made all required reallocations to outstanding series (including this
Series), the Trustee will either deposit the remaining funds in the Excess
Funding Account (General) or pay them to SRFG, as required by the Cash Flows.
INVESTOR ACCOUNTS
The Trustee has established or will establish the following accounts in the
name of the Trust:
- the Series Collections Account;
- the Series Principal Collections Account;
- the Series Interest Funding Account;
- the Series Distribution Account;
- the Group One Collections Account;
- the Group One Finance Charge Collections Reallocation Account;
- the Group One Principal Collections Reallocation Account;
- the Collections Account;
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- the Excess Funding Account (General); and
- the Excess Funding Account (SRC).
Each of these accounts will be either a segregated trust account or a segregated
deposit account at a bank or other institution that satisfies certain Rating
Agency criteria described in the Definitions section of the Prospectus under
"Qualified Trust Institution" or "Eligible Institution." We refer to these
accounts as "Investor Accounts." The Servicer has the revocable power to
instruct the Trustee to make withdrawals from any Investor Account to carry out
its duties under the Pooling and Servicing Agreement and the Series Supplement.
The Paying Agent, which will initially be the Trustee, will have the revocable
power to withdraw funds from the Series Distribution Account and the Series
Interest Funding Account to pay to investors. A successor Paying Agent may be
appointed in the future.
The Trustee must invest funds on deposit in the Investor Accounts for more
than one business day in "Permitted Investments." We describe these Permitted
Investments under "Description of the Investor Certificates--Investment of Funds
in Investor Accounts" in the Prospectus.
CASH FLOWS
We have summarized the cash flow provisions for this Series and we have
used familiar terms in this summary instead of the more complex defined terms
that the Series Supplement uses. For example, we refer to "Class A interest"
where the Series Supplement refers to the "Class A Modified Required Amount."
The "Class A Modified Required Amount" is more than the simple concept of
interest, however; it includes complex provisions to pay deferred interest, to
reduce required interest if you lose a portion of your principal under the
provisions of these Cash Flows, and to compensate you for that reduced interest
to the extent that the Trust later reimburses the lost principal. We also refer
to "charge-offs" instead of "Class Cumulative Investor Charged-off Amounts,"
which includes amounts carried forward from prior months and certain amounts
related to the effect of the subordination provisions. Because these
complexities are important, we have included the full text of the Series
Supplement cash flow provisions in Annex A to this Prospectus Supplement, and we
encourage you to read Annex A and the related definitions in the Glossary of
Terms in full.
Funds Distributed to this Series. On or before each Distribution Date, the
Trustee will, acting for the Trust on the Servicer's instructions, withdraw the
following funds from the Group One Collections Account and deposit them into the
Series Collections Account:
- Series Finance Charge Collections for the preceding month;
- Series Principal Collections for the preceding month; and
- Series Excess Funding Amount (SRC) for the preceding month.
To the extent not already deposited in the Series Collections Account, the
Trustee will also deposit into the Series Collections Account other income for
this Series including:
- Series Yield Collections;
- Series Investment Income; and
- Series Additional Funds that are not used to pay the Investor Servicing
Fee.
The Trustee will distribute funds from the Series Collections Account as
described below:
Revolving Period. On each Distribution Date during the Revolving Period,
the Trustee, acting for the Trust on the Servicer's instructions, will apply
funds, to the extent they are available (but only to
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the extent necessary to make any required payment, deposit or reimbursement) in
the order set forth below to the accounts indicated below in parentheses or
otherwise:
(1) CLASS A INTEREST. The Trust will use
- Series Finance Charge Collections; and
- other income for this Series, if any,
to pay Class A interest. (To the Series Distribution Account.)
(2) CLASS B INTEREST. The Trust will use
- Series Finance Charge Collections remaining after step (1); and
- other income for this Series remaining after step (1)
to pay Class B interest, if any. (To the Series Distribution Account.)
(3) CLASS C INTEREST. The Trust will use
- Series Finance Charge Collections remaining after step (2); and
- other income for this Series remaining after step (2)
to pay Class C interest, if any. (To the Series Distribution Account.)
(4) SERIES MONTHLY SERVICING FEE. The Trust will use
- Series Finance Charge Collections remaining after step (3); and
- other income for this Series remaining after step (3)
to pay all accrued but unpaid monthly servicing fees for this Series. (To the
Series Distribution Account.)
(5) CLASS A CHARGE-OFFS. The Trust will use
- Series Finance Charge Collections remaining after step (4); and
- other income for this Series remaining after step (4)
to reimburse Class A charge-offs. (To the Group One Principal Collections
Reallocation Account.)
(6) CLASS B CHARGE-OFFS. The Trust will use
- Series Finance Charge Collections remaining after step (5); and
- other income for this Series remaining after step (5)
to reimburse Class B charge-offs. (To the Group One Principal Collections
Reallocation Account.)
(7) CLASS C CHARGE-OFFS. The Trust will use
- Series Finance Charge Collections remaining after step (6); and
- other income for this Series remaining after step (6)
to reimburse Class C charge-offs. (To the Group One Principal Collections
Reallocation Account.)
(8) REALLOCATION TO OTHER SERIES. The Trust will reallocate
- Series Finance Charge Collections remaining after step (7); and
- other income for this Series remaining after step (7)
to pay interest and monthly servicing fees and reimburse charge-offs for other
series in Group One, as described in steps (9) through (15) below. (To the Group
One Finance Charge Collections Reallocation Account.)
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(9) CLASS A INTEREST. If the Trust cannot pay Class A interest in full in
step (1), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series
to pay Class A interest. The pro rata share equals:
- the amount of Class A interest unpaid after step (1); divided by
- the amount of Class A interest unpaid for all series after step (1) of
the Cash Flows for each series (or an equivalent step).
(To the Series Distribution Account.)
(10) CLASS B INTEREST. If the Trust cannot pay Class B interest, if any, in
full in step (2), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (9) of the
Cash Flows for each series (or an equivalent step)
to pay Class B interest. The pro rata share equals:
- the amount of Class B interest unpaid after step (2); divided by
- the amount of Class B interest unpaid for all series after step (2) of
the Cash Flows for each series (or an equivalent step).
(To the Series Distribution Account.)
(11) CLASS C INTEREST. If the Trust cannot pay Class C interest, if any, in
full in step (3), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (10) of the
Cash Flows for each series (or an equivalent step)
to pay Class C interest. The pro rata share equals:
- the amount of Class C interest unpaid after step (3); divided by
- the amount of Class C interest unpaid for all series after step (3) of
the Cash Flows for each series (or an equivalent step).
(To the Series Distribution Account.)
(12) CLASS A CHARGE-OFFS. If the Trust cannot reimburse the Class A
charge-offs in full in step (5), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (11) of the
Cash Flows for each series (or an equivalent step)
to reimburse Class A charge-offs. The pro rata share equals:
- the amount of Class A charge-offs after step (5); divided by
- the amount of Class A charge-offs for all series after step (5) of the
Cash Flows for each series (or an equivalent step).
(To the Group One Principal Collections Reallocation Account.)
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(13) CLASS B CHARGE-OFFS. If the Trust cannot reimburse Class B charge-offs
in full in step (6), it will also use
- A pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (12) of the
Cash Flows for each series (or an equivalent step)
to reimburse Class B charge-offs. The pro rata share equals:
- the amount of Class B charge-offs after step (6); divided by
- the amount of Class B charge-offs for all series after step (6) of the
Cash Flows for each series (or an equivalent step).
(To the Group One Principal Collections Reallocation Account.)
(14) SERIES MONTHLY SERVICING FEE. If the Trust cannot pay the series
monthly servicing fees in full in step (4), it will also use
- a pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (13) of the
Cash Flows for each series (or an equivalent step)
to pay all accrued but unpaid monthly servicing fees for the Series. The pro
rata share equals:
- the amount of accrued but unpaid monthly servicing fees for this Series
after step (4); divided by
- the amount of accrued but unpaid monthly servicing fees for all series
after step (4) of the Cash Flows for each series (or an equivalent step).
(To the Series Distribution Account.)
(15) CLASS C CHARGE-OFFS. If the Trust cannot reimburse the Class C
charge-offs in full in step (7), it will also use
- A pro rata share of funds in the Group One Finance Charge Collections
Reallocation Account from other series remaining after step (14) of the
Cash Flows for each series (or an equivalent step)
to reimburse Class C charge-offs. The pro rata share equals:
- the amount of Class C charge-offs after step (7); divided by
- the amount of Class C charge-offs for all series after step (7) of the
Cash Flows for each series (or an equivalent step).
(To the Group One Principal Collections Reallocation Account.)
(16) CLASS A INTEREST. If the Trust cannot pay Class A interest in full in
steps (1) and (9), it will also use
- the Series Excess Funding Amount (SRC); and
- Class C Principal Collections minus the Class C Principal Collections
already used as income for this Series under the Series Yield Factor
provisions
to pay the Class A interest. Class C charge-offs will increase by the amount
used in this step. (To the Series Distribution Account.)
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(17) CLASS A INTEREST. If the Trust cannot pay Class A interest in full in
steps (1), (9) and (16), it will also use
- Class B Principal Collections minus the Class B Principal Collections
already used as income for this Series under the Series Yield Factor
provisions
to pay the Class A interest. Class B charge-offs will increase by the amount
used in this step. (To the Series Distribution Account.)
(18) CLASS B INTEREST. If the Trust cannot pay Class B interest, if any, in
full in steps (2) and (10), it will also use
- the Series Excess Funding Amount (SRC) remaining after step (16); and
- Class C Principal Collections remaining after step (16) minus the Class C
Principal Collections already used as income for this Series under the
Series Yield Factor provisions
to pay the Class B interest. Class C charge-offs will increase by the amount
used in this step. (To the Series Distribution Account.)
(19) CLASS A CHARGE-OFFS. If the Trust cannot reimburse Class A charge-offs
in full in steps (5) and (12), it will also use
- the Series Excess Funding Amount (SRC) remaining after step (18); and
- Class C Principal Collections remaining after step (18) minus the Class C
Principal Collections already used as income for this Series under the
Series Yield Factor provisions
to reimburse Class A charge-offs. Class C charge-offs will increase by the
amount used in this step. (To the Group One Principal Collections Reallocation
Account.)
(20) CLASS A CHARGE-OFFS. If the Trust cannot reimburse Class A charge-offs
in full in steps (5), (12) and (19), it will reallocate
- the Class C Investor Interest
to reimburse Class A charge-offs. The Class C charge-offs will increase by the
amount reallocated in this step. In this step, the Trust may reallocate the
Class C Investor Interest only to the extent that the cumulative Class C
charge-offs after steps (16), (18) and (19) (including unreimbursed Class C
charge-offs from prior months) do not exceed the initial Class C Investor
Interest minus any Class C principal paid in prior months pursuant to step (27)
below.
(21) CLASS A CHARGE-OFFS. If the Trust cannot reimburse Class A charge-offs
in full in steps (5), (12), (19) and (20), it will also use
- Class B Principal Collections remaining after step (17) minus the Class B
Principal Collections already used as income for this Series under the
Series Yield Factor provisions
to reimburse Class A charge-offs. Class B charge-offs will increase by the
amount used in this step. (To the Group One Principal Collections Reallocation
Account.)
(22) CLASS A CHARGE-OFFS. If the Trust cannot reimburse Class A charge-offs
in full in steps (5), (12), (19), (20) and (21), it will reallocate
- the Class B Investor Interest
to reimburse Class A charge-offs. The Class B charge-offs will increase by the
amount reallocated in this step. In this step, the Trust may reallocate the
Class B Investor Interest only to the extent that the cumulative Class B
charge-offs after steps (17), (21) and (22) (including unreimbursed Class B
charge-offs from prior months) do not exceed the initial Class B Investor
Interest. (To the Group One Principal Collections Reallocation Account.)
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(23) CLASS B CHARGE-OFFS. If the Trust cannot reimburse Class B charge-offs
in full in steps (6) and (13) as increased in steps (17), (21) and (22), it will
also use
- the Series Excess Funding Amount (SRC) remaining after step (18); and
- Class C Principal Collections remaining after step (18) minus the Class C
Principal Collections already used as income for this Series under the
Series Yield Factor provisions
to reimburse Class B charge-offs. Class C charge-offs will increase by the
amount used in this step. (To the Group One Principal Collections Reallocation
Account.)
(24) CLASS B CHARGE-OFFS. If the Trust cannot reimburse Class B charge-offs
in full in steps (6), (13) and (23) as increased in steps (17), (21) and (22),
it will reallocate
- the Class C Investor Interest
to reimburse Class B charge-offs. The Class C charge-offs will increase by the
amount reallocated in this step. In this step, the Trust may reallocate the
Class C Investor Interest only to the extent that the cumulative Class C
charge-offs after steps (16), (18), (19), (20) and (23) (including unreimbursed
Class C charge-offs from prior months) do not exceed the initial Class C
Investor Interest minus any Class C principal paid in prior months pursuant to
step (27) below.
(25) PAYMENT TO SRFG. The Trust will pay to SRFG all amounts remaining in
the Group One Finance Charge Collections Reallocation Account after steps (1)
through (24) and the equivalent steps for all other series in Group One.
(26) PRINCIPAL COLLECTIONS FROM EXCESS FUNDING ACCOUNT (GENERAL). The Trust
will first use the Principal Collections in the Excess Funding Account (General)
to pay the principal of series that are in their rapid amortization periods. To
the extent that funds remain in the account after this use, the Trustee will
deposit
- the Group One pro rata share of funds in the Excess Funding Account
(General)
into the Group One Principal Collections Reallocation Account. The Group One pro
rata share equals:
- the sum of the series investor interests of all series in Group One minus
the amount of those series investor interests represented by certificates
that SRFG owns; divided by
- the sum of the series investor interests of all series in the Trust minus
the amount of those series investor interests represented by certificates
that SRFG owns.
(To the Group One Principal Collections Reallocation Account.)
(27) CLASS C PRINCIPAL. If the Rating Agencies permit the Trust to pay
Class C principal during the Revolving Period, the Trust will use:
- first, the Series Excess Funding Amount (SRC) and Class C Principal
Collections remaining in the Series Collections Account after steps (1)
through (8), (16), (18), (19) and (23);
- second, Class B Principal Collections remaining in the Series Collections
Account after steps (1) through (8), (17) and (21); and
- third, Class A Principal Collections remaining in the Series Collections
Account after steps (1) through (8)
to pay Class C principal to the extent permitted. (To the Series Distribution
Account.)
(28) REALLOCATION TO OTHER SERIES. The Trust will reallocate
- Class A Principal Collections remaining after step (27) minus the Class A
Principal Collections already used as income for this Series under the
Series Yield Factor provisions
to pay principal for other series in Group One. (To the Group One Principal
Collections Reallocation Account.)
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(29) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) AND PAYMENT TO SRFG. To the
extent necessary to maintain the Seller Interest at the minimum level that the
Pooling and Servicing Agreement requires, the Trustee will deposit
- amounts remaining in the Series Collections Account after step (28)
into the Excess Funding Account (SRC). The Trustee will pay to SRFG any funds
remaining in the Series Collections Account after step (28) that it does not
need to deposit in the Excess Funding Account (SRC) to maintain that minimum
Seller Interest. (This provision will be applied to each series in the order in
which the series were issued.)
(30) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. To
the extent necessary to maintain the Seller Interest at the minimum level that
the Pooling and Servicing Agreement requires, the Trustee will deposit
- amounts remaining in the Group One Principal Collections Reallocation
Account
into the Excess Funding Account (General). The Trustee will pay to SRFG any
funds remaining in the Group One Principal Collections Reallocation Account that
it does not need to deposit in the Excess Funding Account (General) to maintain
that minimum Seller Interest.
Controlled Amortization Period. On each Distribution Date during the
Controlled Amortization Period, the Trustee, acting for the Trust on the
Servicer's instructions, will apply funds, to the extent they are available (but
only to the extent necessary to make any required payment, deposit or
reimbursement) in the order set forth below to the accounts indicated below in
parentheses or otherwise:
(1) The Trustee will apply funds as described in steps (1) through (26) for
the Revolving Period, except that:
- The Trustee will deposit funds used to reimburse charge-offs in steps
(5), (6), (7), (12), (13), (15), (19), (21) and (23) into the Series
Principal Collections Account instead of the Group One Principal
Collections Reallocation Account. (The Trust will use these funds to pay
Class A principal); and
- In steps (20) and (24), the Trust may reallocate the Class C Investor
Interest only to the extent that the cumulative Class C charge-offs after
steps (16), (18), (19), (20) and (23) do not exceed the initial Class C
Investor Interest minus any Class C principal paid in prior months.
(2) PRINCIPAL COLLECTIONS. The Trustee will deposit
- Class A Principal Collections remaining after step (1) minus the Class A
Principal Collections already used as income for this Series under the
Series Yield Factor provisions
into the Series Principal Collections Account.
(3) CLASS A PRINCIPAL. The Trust will use
- funds in the Series Principal Collections Account
to pay the scheduled Class A principal payment. (To the Series Distribution
Account.)
(4) CLASS C PRINCIPAL. The Trust will use
- funds remaining in the Series Collections Account after step (2)
to pay the permitted Class C principal payment, if any. (To the Series
Distribution Account.)
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(5) CLASS B PRINCIPAL. After the Class A Expected Final Payment Date, if
the Trust has paid all Class A principal in full, the Trust will use
- funds remaining in the Series Collections Account after step (2)
to pay the scheduled Class B principal payment. (To the Series Distribution
Account.)
(6) CLASS C PRINCIPAL. On each Distribution Date after the Distribution
Date on which the Trust has paid Class B principal in full, the Trust will use
- funds remaining in the Series Collections Account after step (2)
to pay the scheduled Class C principal payment. (To the Series Distribution
Account.)
(7) CLASS A PRINCIPAL. If the Trust cannot make the scheduled Class A
principal payment in full in step (3), the Trust will also use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series
to make the scheduled Class A principal payment. The pro rata share equals:
- the amount of Class A principal unpaid after step (3); divided by
- the amount of Class A principal unpaid for all series after step (3) of
the Cash Flows for each series (or an equivalent step).
(To the Series Distribution Account.)
(8) CLASS B PRINCIPAL. If the Trust cannot make the scheduled Class B
principal payment in full in step (5), the Trust will also use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series remaining after step (7) of the
Cash Flows for each series (or an equivalent step)
to make the scheduled Class B principal payment. The pro rata share equals:
- the amount of Class B principal unpaid after step (5); divided by
- the amount of Class B principal unpaid for all series after step (5) of
the Cash Flows for the Controlled Amortization Period for each series (or
an equivalent step).
(To the Series Distribution Account.)
(9) CLASS C PRINCIPAL. If the Trust cannot make the scheduled Class C
principal payment in full in step (6), the Trust will use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series remaining after step (8) of the
Cash Flows for each series (or an equivalent step)
to make the scheduled Class C principal payment. The pro rata share equals:
- the amount of Class C principal unpaid after step (6); divided by
- the amount of Class C principal unpaid for all series after step (6) of
the Cash Flows for the Controlled Amortization Period for each series (or
an equivalent step).
(To the Series Distribution Account.)
(10) CLASS A PRINCIPAL. If the Trust cannot make the scheduled Class A
principal payment in full in steps (3) and (7), the Trust will use
- a pro rata share of funds in the Group One Pre-Funding Reallocation
Account from pre-funded series, if any,
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<PAGE> 44
to make the scheduled Class A principal payment. The pro rata share equals:
- the amount of Class A principal unpaid after steps (3) and (7); divided
by
- the amount of Class A principal unpaid for all series after steps (3) and
(7) of the Cash Flows for the Controlled Amortization Period for each
series (or equivalent steps).
(To the Series Distribution Account.)
(11) CLASS B PRINCIPAL. If the Trust cannot make the scheduled Class B
principal payment in full in steps (5) and (8), the Trust will use
- a pro rata share of funds in the Group One Pre-Funding Reallocation
Account from pre-funded series, if any, remaining after step (10) of the
Cash Flows for each series (or an equivalent step)
to make the scheduled Class B principal payment. The pro rata share equals:
- the amount of Class B principal unpaid after steps (5) and (8); divided
by
- the amount of Class B principal unpaid for all series after steps (5) and
(8) of the Cash Flows for the Controlled Amortization Period for each
series (or equivalent steps).
(To the Series Distribution Account.)
(12) CLASS C PRINCIPAL. If the Trust cannot make the scheduled Class C
principal payment in full in steps (6) and (9), the Trust will use
- a pro rata share of funds in the Group One Pre-Funding Reallocation
Account from pre-funded series, if any, remaining after step (11) of the
Cash Flows for each series (or an equivalent step)
to make the scheduled Class C principal payment. The pro rata share equals:
- the amount of Class C principal unpaid after steps (6) and (9); divided
by
- the amount of Class C principal unpaid for all series after steps (6) and
(9) of the Cash Flows for the Controlled Amortization Period for each
series (or equivalent steps).
(To the Series Distribution Account.)
(13) REALLOCATION TO OTHER SERIES. The Trustee will deposit
- funds remaining in the Series Principal Collections Account
into the Group One Principal Collections Reallocation Account.
(14) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) AND PAYMENT TO SRFG. To the
extent necessary to maintain the Seller Interest at the minimum level that the
Pooling and Servicing Agreement requires, the Trustee will deposit
- amounts remaining in the Series Collections Account
into the Excess Funding Account (SRC). The Trustee will pay to SRFG any funds
remaining in the Series Collections Account that it does not need to deposit in
the Excess Funding Account (SRC) to maintain that minimum Seller Interest. (This
provision will be applied to each series in the order in which the series were
issued.)
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<PAGE> 45
(15) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. To
the extent necessary to maintain the Seller Interest at the minimum level that
the Pooling and Servicing Agreement requires, the Trustee will deposit
- amounts remaining in the Group One Principal Collections Reallocation
Account
into the Excess Funding Account (General). The Trustee will pay to SRFG any
funds remaining in the Group One Principal Collections Reallocation Account that
it does not need to deposit in the Excess Funding Account (General) to maintain
that minimum Seller Interest.
Rapid Amortization Period. On each Distribution Date during the Rapid
Amortization Period, the Trustee, acting for the Trust on the Servicer's
instructions, will apply funds, to the extent they are available (but only to
the extent necessary to make any required payment, deposit or reimbursement) in
the order set forth below to the accounts indicated below in the parentheses or
otherwise:
(1) The Trustee will apply funds as described in steps (1) through (25) for
the Revolving Period, except that:
- The Trustee will deposit funds used to reimburse charge-offs in steps
(5), (6), (7), (12), (13), (15), (19), (21) and (23) into the Series
Principal Collections Account instead of the Group One Principal
Collections Reallocation Account. (The Trust will use these funds to pay
Class A principal);
- In steps (20) and (24), the Trust may reallocate the Class C Investor
Interest only to the extent that the cumulative Class C charge-offs after
steps (16), (18), (19), (20) and (23) do not exceed the initial Class C
Investor Interest minus any Class C principal paid in prior months; and
- In step (22), the Trust may reallocate the Class B Investor Interest only
to the extent that the cumulative Class B charge-offs after steps (17)
and (21) do not exceed the initial Class B Investor Interest minus any
Class B principal paid in prior months.
(2) PRINCIPAL COLLECTIONS FROM EXCESS FUNDING ACCOUNT (GENERAL). The
Trustee will deposit
- a pro rata share of funds in the Excess Funding Account (General)
into the Series Principal Collections Account. The pro rata share equals:
- the sum of the Series Investor Interest for this Series minus the amount
of the Series Investor Interest for this Series represented by
certificates that SRFG owns; divided by
- the sum of the series investor interests of all series in rapid
amortization periods in the Trust minus the amount of those series
investor interests represented by certificates that SRFG owns.
(To the Series Principal Collections Account.)
(3) PRINCIPAL COLLECTIONS. The Trustee will deposit
- Class A Principal Collections remaining after step (1) minus the Class A
Principal Collections already used as income for this Series under the
Series Yield Factor provisions
into the Series Principal Collections Account.
(4) CLASS A PRINCIPAL. The Trust will use
- funds deposited in the Series Principal Collections Account
to pay Class A principal. (To the Series Distribution Account.)
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<PAGE> 46
(5) CLASS B PRINCIPAL. If the Trust has paid all Class A principal in full,
the Trust will use
- funds remaining in the Series Collections Account after step (3)
to pay Class B principal. (To the Series Distribution Account.)
(6) CLASS C PRINCIPAL. On each Distribution Date after the Distribution
Date on which the Trust has paid Class B principal in full, the Trust will use
- funds remaining in the Series Collections Account after step (1)
to pay Class C principal. (To the Series Distribution Account.)
(7) CLASS A PRINCIPAL. The Trust will first use funds in the Group One
Principal Collections Reallocation Account to pay the principal of series that
are in their controlled amortization periods or controlled accumulation periods.
To the extent that funds remain in the account after this use, if the Trust
cannot pay all Class A principal in full in step (4), the Trust will also use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series
to pay Class A principal. The pro rata share equals:
- the amount of Class A principal unpaid after step (4); divided by
- the amount of Class A principal unpaid for all series in their rapid
amortization periods after step (4) of the Cash Flows for the Rapid
Amortization Period for each series (or an equivalent step).
(To the Series Distribution Account.)
(8) CLASS B PRINCIPAL. If the Trust cannot pay all Class B principal in
full in step (5), the Trust will also use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series remaining after step (7)
to pay Class B principal. The pro rata share equals:
- the amount of Class B principal unpaid after step (5); divided by
- the amount of Class B principal unpaid for all series in their rapid
amortization periods after step (5) of the Cash Flows for the Rapid
Amortization Period for each series (or an equivalent step).
(To the Series Distribution Account.)
(9) CLASS C PRINCIPAL. If the Trust cannot pay all Class C principal in
full in step (6), the Trust will use
- a pro rata share of funds in the Group One Principal Collections
Reallocation Account from other series remaining after step (8)
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<PAGE> 47
to pay Class C principal. The pro rata share equals:
- the amount of Class C principal unpaid after step (6); divided by
- the amount of Class C principal unpaid for all series in their rapid
amortization periods after step (6) of the Cash Flows for the Rapid
Amortization Period for each series (or an equivalent step).
(To the Series Distribution Account.)
(10) REALLOCATION TO OTHER SERIES. The Trustee will deposit
- Funds remaining in the Series Principal Collections Account after step
(4)
into the Group One Principal Collections Reallocation Account.
(11) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) AND PAYMENT TO SRFG. To the
extent necessary to maintain the Seller Interest at the minimum level that the
Pooling and Servicing Agreement requires, the Trustee will deposit
- amounts remaining in the Series Collections Account
into the Excess Funding Account (SRC). The Trustee will pay to SRFG any funds
remaining in the Series Collections Account that it does not need to deposit in
the Excess Funding Account (SRC) to maintain that minimum Seller Interest. (This
provision will be applied to each series in the order in which the series were
issued.)
(12) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. To
the extent necessary to maintain the Seller Interest at the minimum level that
the Pooling and Servicing Agreement requires, the Trustee will deposit
- amounts remaining in the Group One Principal Collections Reallocation
Account
into the Excess Funding Account (General). The Trustee will pay to SRFG any
funds remaining in the Group One Principal Collections Reallocation Account that
it does not need to deposit in the Excess Funding Account (General) to maintain
that minimum Seller Interest.
PAYMENTS
Interest and Monthly Servicing Fees. On each Distribution Date, after the
Trustee applies the funds as described in "--Cash Flows," the Trustee, acting
for the Trust on the Servicer's instructions, will apply funds, to the extent
they are available, in the order set forth below to the accounts indicated below
in parentheses or otherwise:
(1) CLASS A INTEREST. The Trust will use
- funds deposited into the Series Distribution Account for Class A
to pay Class A interest. (To the Series Interest Funding Account.)
(2) CLASS B INTEREST. The Trust will use
- funds deposited into the Series Distribution Account for Class B
to pay Class B interest, if any. (To the Series Interest Funding Account.)
(3) CLASS C INTEREST. The Trust will use
- funds deposited into the Series Distribution Account for Class C
to pay Class C interest, if any. (To the Series Interest Funding Account.)
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(4) INTEREST PAYMENT TO INVESTORS. the Trust will use
- funds deposited into the Series Interest Funding Account in steps (1),
(2) and (3)
to pay Class A interest, Class B interest, if any, and Class C interest, if any.
(5) SERIES MONTHLY SERVICING FEES. The Trust will use
- funds deposited into the Series Distribution Account for accrued and
unpaid monthly servicing fees for this Series
to pay accrued and unpaid monthly servicing fees for this Series to the
Servicer.
Principal. The Trustee, acting for the Trust on the Servicer's
instructions, will apply funds to the extent they are available in the order set
forth below on the following dates:
(1) CLASS A PRINCIPAL. On each Distribution Date during the Controlled
Amortization Period, the Trust will use
- funds remaining in the Series Distribution Account after the Trust pays
interest and monthly servicing fees as described above
to make the scheduled Class A principal payment.
(2) CLASS B PRINCIPAL. On each Distribution Date during the Controlled
Amortization Period after the Trust has paid Class A principal in full, the
Trust will use
- funds remaining in the Series Distribution Account after the Trust pays
interest and monthly servicing fees as described above
to make the scheduled Class B principal payment.
(3) CLASS C PRINCIPAL. On each Distribution Date during the Controlled
Amortization Period, the Trust will use
- funds remaining in the Series Distribution Account after step (1) or (2),
as applicable
to make the permitted Class C principal payment.
(4) CLASS C PRINCIPAL. On each Distribution Date during the Controlled
Amortization Period after the Trust has paid Class A principal and Class B
principal in full, the Trust will use
- funds in the Series Distribution Account
to pay all Class C principal.
(5) SERIES PRINCIPAL. On each of the following dates:
- each Distribution Date during the Rapid Amortization Period; and
- each Distribution Date after the scheduled final principal payment date
for each Class if the Trust has not paid all principal to that Class on
or before the scheduled final principal payment date,
the Trust will use
- funds remaining in the Series Distribution Account after the Trust pays
interest and monthly servicing fees as described above
in the following order:
- first, the Trust will pay Class A principal;
- second, the Trust will pay Class B principal; and
- third, the Trust will pay Class C principal.
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SUBORDINATE SERIES
This Series will not be subordinate to any other series. In the future, the
Trust may issue a series that is subordinate to this Series. If the Trust issues
a subordinate series, the Trust will use funds from that series to cover certain
shortfalls in this Series before the Trust uses funds in the Group One Finance
Charge Collections Reallocation Account to cover those shortfalls. The extent to
which any new series is subordinate to this Series will be set forth in the
Series Supplement for that series. SRFG does not at this time have any plans to
cause the Trust to issue a series subordinate to this Series and we cannot
assure you that the Trust will issue a subordinate series in the future.
SALE OF CLASS B CERTIFICATES AND CLASS C CERTIFICATES
Although SRFG initially will own the Class B Certificates and the Class C
Certificates and currently intends to keep them, it may on any date that is at
least two months before the beginning of the Controlled Amortization Period sell
or transfer all of the Class B Certificates or all of the Class C Certificates.
SRFG may also increase the interest rate on the Class B Certificates or the
Class C Certificates in connection with any sale or transfer of them. SRFG may
sell or transfer the Class B Certificates or the Class C Certificates and
increase the applicable interest rate only if:
- SRFG notifies the Trustee, the Servicer and the Rating Agencies of the
proposed sale or transfer of the Class B Certificates or the Class C
Certificates, and any proposed increase in the interest rate, at least
five days before the transfer or sale takes place;
- the Rating Agencies advise the Trustee that the proposed sale or transfer
of the Class B Certificates or the Class C Certificates, and any proposed
increase in the interest rate, will not cause them to reduce or withdraw
their ratings on the certificates of any outstanding series (including
this Series);
- SRFG delivers to the Trustee a certificate stating that SRFG reasonably
believes that the sale of the Class B Certificates or the Class C
Certificates will not have a material adverse effect on the Class A
Certificates;
- there are no outstanding investor losses for any Class of this Series on
the day that SRFG sells or transfers the Class B Certificates or the
Class C Certificates;
- the new holders of the Class B Certificates or the Class C Certificates
agree that they will not be entitled to receive Class B principal
payments or Class C principal payments, as applicable, until the Class A
Investor Interest has been reduced to zero;
- a Rapid Amortization Event for this Series has not occurred; and
- SRFG delivers to the Trustee an opinion of tax counsel that the proposed
sale or transfer will not affect the treatment of certain certificates as
debt and the treatment of the Trust as an entity not subject to tax.
ISSUANCE OF ADDITIONAL CERTIFICATES
During the Revolving Period, the Trust may issue additional Certificates
that will be identical to the Certificates described in this Prospectus
Supplement. Each time the Trust issues additional Certificates, it will issue a
pro rata principal amount of each Class of Certificates, based on the aggregate
face amount of the outstanding Certificates; the initial Class Investor Interest
and the scheduled principal payments for each Class will be increased
proportionately to reflect the aggregate face amount of the additional
Certificates.
The Trust may issue additional Certificates in any aggregate amount at any
time during the Revolving Period if:
- SRFG notifies the Trustee, the Servicer and the Rating Agencies of the
proposed issuance of the additional Certificates at least five business
days before the Trust issues them;
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<PAGE> 50
- after the Trust issues the additional Certificates, the total amount of
Principal Receivables will be greater than or equal to the minimum level
required under the Pooling and Servicing Agreement;
- SRFG delivers to the Trustee an executed copy of any agreement relating
to credit enhancement provided by a third party in connection with
issuing the additional Certificates;
- the Rating Agencies advise SRFG in writing that the proposed issuance of
additional Certificates will not cause them to reduce or withdraw their
ratings on the certificates of any outstanding series (including this
Series);
- SRFG delivers to the Trustee a certificate stating that SRFG reasonably
believes that issuing the additional Certificates will not have a
material adverse effect on the outstanding Certificates of this Series;
- there are no outstanding investor losses for any Class of this Series on
the day that the Trust issues the additional Certificates; and
- SRFG delivers to the Trustee an opinion of tax counsel that issuance of
the additional Certificates will not affect the treatment of certain
certificates as debt and the treatment of the Trust as an entity not
subject to tax.
PAIRED SERIES
During the Controlled Amortization Period and after a Fixed Principal
Allocation Event occurs, the Trust may issue a new series that is paired with
this Series. The Trust will use this "Paired Series" to finance the increase in
the Seller Interest that results when the Trust pays Class A principal. The
Trust may issue a Paired Series if it can meet the conditions that apply to the
issuance of any new series. We have described those conditions under
"Description of the Investor Certificates--Establishing and Issuing New Series"
in the Prospectus.
The Trust will pay the proceeds from the sale of the Paired Series
certificates to SRFG. We expect that the Paired Series invested amount would
equal the face amount of the Paired Series certificates, but initially the Trust
would allocate a lower amount of Principal Collections to the Paired Series than
it would if it were not a Paired Series. The numerator for the allocation
percentage for the Paired Series may increase to the level of the Paired Series
invested amount if a rapid amortization event for the Paired Series occurs.
We cannot assure you that the terms of any Paired Series will not have an
impact on the timing or amount of payments to this Series. In particular, if a
rapid amortization event for the Paired Series occurs while this Series is in
its Controlled Amortization Period or Rapid Amortization Period, SRFG may
decrease the numerator the Trust uses to calculate the Class Percentage for
Principal Collections for each Class of this Series. SRFG may not, however,
reduce this numerator below what it would have been for that Class as of the
last day of the revolving period for the Paired Series. This reduction in the
Class Percentage for this Series would result in a corresponding increase in the
class percentage used to allocate Principal Collections to the Paired Series.
Consequently, the amount of Principal Collections allocated to this Series may
decrease while the amount of Principal Collections allocated to the Paired
Series may increase. As a result, you may receive principal payments smaller
than your scheduled payments and the Trust's final payment of principal to you
may be delayed.
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RAPID AMORTIZATION EVENTS
If a Rapid Amortization Event occurs, the Rapid Amortization Period will
begin. A Rapid Amortization Event will occur if:
- SRFG fails to make any payment or deposit on the date required under the
Pooling and Servicing Agreement or the Series Supplement and fails to
make that payment or deposit within five business days after that date;
or
- SRFG materially fails to observe or perform any other material covenant
or agreement of SRFG in the Pooling and Servicing Agreement or the Series
Supplement and SRFG does not remedy the problem within 60 days after
notice is given to:
- SRFG, by the Trustee; or
- SRFG and the Trustee, by investors holding at least 25% of the Class
Invested Amount of any Class materially adversely affected by SRFG's
failure to observe or perform the covenant; or
- any representation or warranty made by SRFG in the Pooling and Servicing
Agreement or the Series Supplement, or any information required to be
given by SRFG to the Trustee to identify the Accounts, proves to have
been materially incorrect when made and continues to be materially
incorrect for 60 days after notice is given to:
- SRFG, by the Trustee; or
- SRFG and the Trustee, by investors holding at least 25% of the Class
Invested Amount of any Class materially adversely affected by the
incorrect representation or warranty; or
- any Servicer Termination Event occurs that would have a material
adverse effect on the investors in this Series;
and either the Trustee or investors whose aggregate investor interests equal at
least 51% of the Series Investor Interest declare in writing to SRFG and the
Servicer (and to the Trustee if declared by the investors) that a Rapid
Amortization Event has occurred for this Series.
A Rapid Amortization Event will occur for all series (including this
Series) without notice from the Trustee or the investors if:
- certain events of bankruptcy, insolvency or receivership relating to
SRFG, the Bank or Sears, when Sears is not the Servicer, occur; or
- SRFG becomes unable to transfer Receivables to the Trust in accordance
with the Pooling and Servicing Agreement and that inability continues for
five business days; or
- the Trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended; or
- the amount of Principal Receivables in the Trust at the end of any Due
Period is less than the minimum amount of Principal Receivables required
under the Pooling and Servicing Agreement and SRFG fails to assign
Receivables in additional Accounts or participation interests in other
pools of receivables to the Trust in at least the amount of the
deficiency by the Distribution Date related to the second subsequent Due
Period.
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A Rapid Amortization Event will occur for this Series without notice from
the Trustee or the investors if, since March 23, 1999 or the last Distribution
Date on which the investor loss for each Class of this Series equaled zero
(whichever is later), there have been three Distribution Dates on which the Net
Yield is less than the Base Rate.
- "Net Yield" equals the annualized percentage of:
- Series Finance Charge Collections and other income for this Series;
plus
- Series Finance Charge Collections and other series income that the
Trust reallocated to this Series from other series; minus
- this Series' pro rata share of the amount of Receivables in the Trust
that the Servicer charged off as uncollectible during the prior Due
Period; plus
- this Series' pro rata share of the amount of these charged-off
Receivables repurchased by SRFG during that Due Period because they
were in accounts that contained Ineligible Receivables; divided by
- the Series Invested Amount.
- "Base Rate" equals 2.00% (the investor servicing fee percentage) plus the
weighted average of the Class A, Class B and Class C interest rates.
Initially, the Base Rate will be 6.802380%.
TERMINATION OF SERIES; CLEAN-UP CALL
This Series will terminate upon the earlier of:
- the business day after the March 2009 Distribution Date; or
- the day that the Trust makes the final Class C principal payment.
If the Series Investor Interest is greater than zero after the February
2009 Distribution Date, the Trust will sell Receivables or interests in the
Receivables for an amount equal to the remaining Series Investor Interest plus
interest on the Certificates that will be accrued but unpaid on the March 2009
Distribution Date; provided, however, that the Trust may not sell more than this
Series' pro rata share of the Receivables in the Trust. That pro rata share will
equal:
- the aggregate amount of Receivables in the Trust; multiplied by
- the Series Investor Interest on the February 2009 Distribution Date;
divided by
- the Aggregate Investor Interest on the February 2009 Distribution Date.
The Trust will not sell Receivables that are materially different from the
Receivables remaining in the Trust. The Trustee will deposit the proceeds from
this sale into the Series Distribution Account. The Trust will use those
proceeds to pay the remaining Class A, Class B and Class C principal and
interest, to the extent funds are available. This will be the Trust's final
payment to the investors.
Under certain circumstances, SRFG may terminate the series by repurchasing
and canceling the Certificates. The Series Supplement provides that SRFG may
purchase the remaining Series Investor Interest from the Trust if, after the
Trust makes payments on any Distribution Date during the Controlled Amortization
Period (on or after the May 2005 Distribution Date) or the Rapid Amortization
Period,
- the Series Investor Interest; minus
- the Class B Investor Interest and the Class C Investor Interest; minus
- Class A's pro rata share of funds on deposit in the Excess Funding
Account (General) and the Excess Funding Account (SRC)
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is less than or equal to $50,000,000. If SRFG elects to purchase the remaining
Series Investor Interest, it will deposit into the Series Distribution Account
on the next Distribution Date an amount equal to:
- the Series Investor Interest at the end of the prior calendar month; plus
- all interest accrued but unpaid as of the end of the prior calendar
month.
SRFG may not purchase and cancel any Class B Certificates or Class C
Certificates until it purchases and cancels all Class A Certificates.
SERVICING COMPENSATION
The Trust will pay the Servicer a monthly servicing fee to compensate the
Servicer for its activities and to reimburse the Servicer's expenses. On each
Distribution Date, the Trust will use Series Finance Charge Collections and
other income for this Series, and this Series' pro rata share of funds in the
Group One Finance Charge Collections Reallocation Account, to the extent
available, to pay the monthly servicing fee. The Trust will calculate the
monthly servicing fee for each Class as follows:
- 2.00% of the Series Investor Interest minus this Series' pro rata share
of funds on deposit in the Excess Funding Account (General) and the
Excess Funding Account (SRC), divided by twelve; multiplied by
- the Class Investor Interest; divided by
- the Series Investor Interest.
SRFG and the Servicer may agree in the future to reduce the 2.00% investor
servicing fee percentage.
UNDERWRITING
The Underwriters named below, SRFG and Sears have entered into an
underwriting agreement. Pursuant to the underwriting agreement, SRFG has agreed
to sell to the Underwriters, and each of the Underwriters has severally agreed
to purchase, the principal amount of Class A Certificates set forth opposite its
name:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS A
UNDERWRITERS CERTIFICATES
------------ ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... $100,000,000
Bear, Stearns & Co. Inc..................................... 100,000,000
Credit Suisse First Boston Corporation...................... 100,000,000
Goldman, Sachs & Co......................................... 100,000,000
Morgan Stanley & Co. Incorporated........................... 100,000,000
------------
Total.................................................. $500,000,000
============
</TABLE>
The underwriting agreement provides that the Underwriters will be obligated
to pay for and accept delivery of the Certificates only if their counsel
approves of certain legal matters and various other conditions are met. If the
Trust issues any of the Class A Certificates, it must issue all of the Class A
Certificates. Under the terms and conditions of the underwriting agreement, the
Underwriters must take and pay for all of the Class A Certificates, if they take
any of them.
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<PAGE> 54
The Underwriters have advised SRFG that they propose to offer the Class A
Certificates:
- to the public at the price set forth on the cover page of this Prospectus
Supplement; and
- to certain dealers at the price set forth on the cover page of this
Prospectus Supplement minus concessions of up to .175% of the principal
amount of the Class A Certificates.
The Underwriters may allow, and the dealers may reallow, concessions of up to
.125% of the principal amount of the Class A Certificates to certain brokers and
dealers. After the initial public offering, the Underwriters may change the
public offering price and other selling terms.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities 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 securities originally sold by that syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of these transactions. None of SRFG, Sears or the
Underwriters represents that the Underwriters will engage in any of these
transactions. These transactions, once commenced, may be discontinued without
notice at any time.
There currently is no secondary market for the Class A Certificates, and
SRFG and the Underwriters cannot assure you that one will develop. If a
secondary market for the Class A Certificates does develop, it may not continue
until the Trust has paid the Class A Certificates in full.
SRFG has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in connection with those liabilities.
Merrill Lynch, Pierce, Fenner & Smith Incorporated has agreed to increase
or decrease the underwriting fees payable to it in connection with the offering
of the Class A Certificates by an amount determined by reference to movements in
interest rates between March 11, 1999, and March 12, 1999, which arrangement
protects SRFG from market movements with respect to United States Treasury
Securities during that period.
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have engaged and may engage in investment banking and/or
commercial banking transactions with SRFG, Sears and their affiliates.
The Underwriters and SRFG have agreed that the closing of the sale of the
Certificates to the Underwriters will occur seven business days after the date
on the cover of this Prospectus Supplement or at such later date as they may
mutually agree.
SRFG estimates that its expenses for this offering will be approximately
$600,000, excluding payments to or from Merrill Lynch, Pierce, Fenner & Smith
Incorporated in connection with the underwriting adjustment described above.
LEGAL MATTERS
Latham & Watkins and Steven M. Cook, Vice President, Law, of Sears, will
pass upon the legality of the Certificates for SRFG. Steven M. Cook owns 227
shares of Sears common stock and has been granted stock options with respect to
an additional 5,593 shares of Sears common stock. Latham & Watkins also will
pass upon certain legal matters for SRFG relating to the tax consequences of the
Certificates' issuance. Skadden, Arps, Slate, Meagher & Flom LLP will pass upon
the legality of the Certificates for the underwriters. From time to time,
Skadden, Arps, Slate, Meagher & Flom LLP performs legal services for Sears and
its affiliates.
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GLOSSARY OF TERMS
"ACCOUNT ISSUER" is defined in "Sears Credit Business--Credit Granting
Procedures."
"ACCOUNT SELECTION DATE" means, collectively, the last day of the billing
cycles ended in September 1989, November 1989, June 1990, January 1991, February
1991, March 1991, May 1991, October 1991, November 1991, December 1992, February
1993, February 1994, February 1995 and June 1995.
"AGGREGATE EXCESS FUNDING AMOUNT" means the sum of the amounts on deposit
in the Excess Funding Account (General) and the Excess Funding Account (SRC).
"BASE RATE" for each Distribution Date means 2.00% (the investor servicing
fee percentage) plus the weighted average of the Class A, Class B and Class C
interest rates. The Base Rate initially will be 6.802380%.
"CHARGED-OFF AMOUNT" means for any Distribution Date:
- the aggregate amount of Receivables in Accounts that became Charged-Off
Accounts in the related Due Period; minus
- the full amount of any of those Receivables that SRFG repurchased because
those Receivables were Ineligible Receivables.
"CLASS A CERTIFICATE INTEREST" means for any Distribution Date:
- the Class A Invested Amount for that Distribution Date; multiplied by
- 5.65%; divided by
- twelve (or, for the Distribution Date in April 1999, 360 divided by
22--the actual number of days from March 23, 1999 to but excluding April
15, 1999, assuming the month of March has 30 days).
"CLASS A CONTROLLED AMORTIZATION AMOUNT" means, for any Distribution Date
during the Controlled Amortization Period, the sum of:
- $20,833,333.34; and
- any Class A Controlled Amortization Amount Shortfall.
"CLASS A CONTROLLED AMORTIZATION AMOUNT SHORTFALL" is defined in step (3)
for the Controlled Amortization Period in "Annex A--Cash Flows."
"CLASS A CUMULATIVE INVESTOR CHARGED-OFF AMOUNT" means for any Distribution
Date:
- the Class A Cumulative Investor Charged-Off Amount remaining as of the
end of the Due Period related to the prior Distribution Date; plus
- the Class A Investor Charged-Off Amount as of the end of the Due Period
related to the applicable Distribution Date,
in each case as adjusted on each Distribution Date as described in "Annex
A--Cash Flows."
"CLASS A EXPECTED FINAL PAYMENT DATE" means the March 2005 Distribution
Date.
"CLASS A INVESTED AMOUNT" is defined in "Summary of Series Terms--Class
Invested Amounts and Class Investor Interests."
"CLASS A INVESTOR CHARGED-OFF AMOUNT" means for any Distribution Date:
- the Charged-Off Amount for that Distribution Date; multiplied by
- the Class A Percentage for the Charged-Off Amount.
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"CLASS A INVESTOR INTEREST" is defined in "Summary of Series Terms--Class
Invested Amounts and Class Investor Interests."
"CLASS A MODIFIED REQUIRED AMOUNT" means on any Distribution Date:
- the Class A Required Amount for that Distribution Date; minus
- the sum of all accrued but unpaid Class Monthly Servicing Fees for the
Class A Certificates.
"CLASS A MODIFIED REQUIRED AMOUNT SHORTFALL" on any Distribution Date,
means the amount, if any, by which the Class A Modified Required Amount exceeds
the sum of the Series Finance Charge Collections and Series Additional Allocable
Amounts on that Distribution Date.
"CLASS A PRINCIPAL COLLECTIONS" means on any day or any Distribution Date:
- the Class A Percentage for Principal Collections for the related
Distribution Date; multiplied by
- the amount of Principal Collections for such day or for the related Due
Period, as applicable.
"CLASS A RAPID AMORTIZATION AMOUNT SHORTFALL" is defined in step (4) for
the Rapid Amortization Period in "Annex A--Cash Flows."
"CLASS A REQUIRED AMOUNT" means, on any Distribution Date, the Class
Required Amount for the Class A Certificates.
"CLASS B CERTIFICATE INTEREST" means, for any Distribution Date on which
SRFG owns the Class B Certificates, zero.
"CLASS B CONTROLLED AMORTIZATION AMOUNT" means, for any Distribution Date
with respect to the Controlled Amortization Period occurring after the March
2005 Distribution Date, the sum of:
- $17,650,000; and
- any Class B Controlled Amortization Amount Shortfall.
"CLASS B CONTROLLED AMORTIZATION AMOUNT SHORTFALL" is defined in step (5)
for the Controlled Amortization Period in "Annex A--Cash Flows."
"CLASS B CUMULATIVE INVESTOR CHARGED-OFF AMOUNT" means for any Distribution
Date:
- the Class B Cumulative Investor Charged-Off Amount as of the end of the
Due Period related to the prior Distribution Date; plus
- the Class B Investor Charged-Off Amount as of the end of the Due Period
related to the applicable Distribution Date,
in each case as adjusted on each Distribution Date as described in "Annex
A--Cash Flows."
"CLASS B EXPECTED FINAL PAYMENT DATE" means the May 2005 Distribution Date.
"CLASS B INVESTED AMOUNT" is defined in "Summary of Series Terms--Class
Invested Amounts and Class Investor Interests."
"CLASS B INVESTOR CHARGED-OFF AMOUNT" means for any Distribution Date:
- the Charged-Off Amount for that Distribution Date; multiplied by
- the Class B Percentage for the Charged-Off Amount.
"CLASS B INVESTOR INTEREST" is defined in "Summary of Series Terms--Class
Invested Amounts and Class Investor Interests."
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"CLASS B MODIFIED REQUIRED AMOUNT" means on any Distribution Date:
- the Class B Required Amount for that Distribution Date; minus
- the sum of all accrued but unpaid Class Monthly Servicing Fees for the
Class B Certificates.
"CLASS B MODIFIED REQUIRED AMOUNT SHORTFALL" on any Distribution Date,
means the amount, if any, by which the Class B Modified Required Amount exceeds
the sum of the Series Finance Charge Collections and Series Additional Allocable
Amounts on that Distribution Date minus the Class A Modified Required Amount.
"CLASS B PRINCIPAL COLLECTIONS" means for any day or any Distribution Date:
- the Class B Percentage for Principal Collections for the related
Distribution Date; multiplied by
- the amount of Principal Collections for that day or for the related Due
Period, as applicable.
"CLASS B RAPID AMORTIZATION AMOUNT SHORTFALL" is defined in step (5) for
the Rapid Amortization Period in "Annex A--Cash Flows."
"CLASS B REQUIRED AMOUNT" on any Distribution Date, means the Class
Required Amount for the Class B Certificates.
"CLASS C CERTIFICATE INTEREST" means, for any Distribution Date on which
SRFG owns the Class C Certificates, zero.
"CLASS C CONTROLLED AMORTIZATION AMOUNT" means the Class C Invested Amount.
"CLASS C CONTROLLED AMORTIZATION AMOUNT SHORTFALL" is defined in step (6)
for the Controlled Amortization Period in "Annex A--Cash Flows."
"CLASS C CUMULATIVE INVESTOR CHARGED-OFF AMOUNT" means for any Distribution
Date:
- the Class C Cumulative Investor Charged-Off Amount as of the end of the
Due Period related to the prior Distribution Date; plus
- the Class C Investor Charged-Off Amount as of the end of the Due Period
related to the applicable Distribution Date,
in each case as adjusted on each Distribution Date as described in "Annex
A--Cash Flows."
"CLASS C FIXING DEADLINE" means the earliest date on which:
- a Rapid Amortization Event occurs;
- SRFG transfers or sells the Class C Certificates; or
- the Class C Invested Amount is less than or equal to $17,647,500 (3% of
the initial Series Investor Interest) or a lower amount permitted by the
Rating Agencies. (The Trust may decrease this amount without the consent
of the investors in this Series if SRFG receives written notice from the
Rating Agencies that such a decrease will not cause them to reduce or
withdraw their ratings on the certificates of any outstanding series
(including this Series).)
"CLASS C INVESTED AMOUNT" is defined in "Summary of Series Terms--Class
Invested Amounts and Class Investor Interests."
"CLASS C INVESTOR CHARGED-OFF AMOUNT" means for any Distribution Date:
- the Charged-Off Amount for that Distribution Date; multiplied by
- the Class C Percentage for the Charged-Off Amount.
"CLASS C INVESTOR INTEREST" is defined in "Summary of Series Terms--Class
Invested Amounts and Class Investor Interests."
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"CLASS C MODIFIED REQUIRED AMOUNT" means on any Distribution Date:
- the Class C Required Amount for that Distribution Date; minus
- the sum of all accrued but unpaid Class Monthly Servicing Fees for the
Class C Certificates.
"CLASS C MODIFIED REQUIRED AMOUNT SHORTFALL" on any Distribution Date,
means the amount, if any, by which the Class C Modified Required Amount exceeds
- the sum of the Series Finance Charge Collections and Series Additional
Allocable Amounts on that Distribution Date minus the sum of the Class A
Modified Required Amount and the Class B Modified Required Amount.
"CLASS C PERMITTED CONTROLLED AMORTIZATION AMOUNT," if applicable, for any
Distribution Date in the Controlled Amortization Period (before the Class C
Fixing Deadline) means an amount equal to:
- $2,060,760.32; plus
- the Class C Permitted Controlled Amortization Amount Shortfall, if any.
The Trust may increase the Class C Permitted Controlled Amortization Amount
(including designating a Class C Permitted Controlled Amortization Amount
payable during the Revolving Period) without the consent of the investors in
this Series if SRFG receives written notice from the Rating Agencies that such
an increase will not cause them to reduce or withdraw their ratings on the
certificates of any outstanding series (including this Series).
"CLASS C PERMITTED CONTROLLED AMORTIZATION AMOUNT SHORTFALL" is defined in
step (4) for the Controlled Amortization Period in "Annex A--Cash Flows." The
Class C Permitted Controlled Amortization Amount Shortfall initially will be
zero.
"CLASS C PRINCIPAL COLLECTIONS" means for any day or any Distribution Date:
- the Class C Percentage for Principal Collections for the related
Distribution Date; multiplied by
- the amount of Principal Collections for that day or for the related Due
Period, as applicable.
"CLASS C RAPID AMORTIZATION AMOUNT SHORTFALL" is defined in step (6) for
the Rapid Amortization Period in "Annex A--Cash Flows."
"CLASS C REQUIRED AMOUNT" means, on any Distribution Date, the Class
Required Amount for the Class C Certificates.
"CLASS ALTERNATIVE DEFICIENCY AMOUNT" means, for any Class, on any
Distribution Date, the Class Deficiency Amount that would have been calculated
for that Class on that Distribution Date if the aggregate unreimbursed Investor
Losses on that Distribution Date equaled zero.
"CLASS CONTROLLED AMORTIZATION AMOUNT" means the Class A Controlled
Amortization Amount, the Class B Controlled Amortization Amount or the Class C
Controlled Amortization Amount, as applicable.
"CLASS CUMULATIVE INVESTOR CHARGED-OFF AMOUNT" means the Class A Cumulative
Investor Charged-Off Amount, the Class B Cumulative Investor Charged-Off Amount,
or the Class C Cumulative Investor Charged-Off Amount, as applicable.
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"CLASS DEFICIENCY AMOUNT" means, for each Class, on any Distribution Date,
the sum of:
- interest for that Class accrued since the immediately preceding
Distribution Date;
- if, since the immediately preceding Distribution Date and before the
current Distribution Date, a Reimbursed Loss Event has occurred, the sum
of:
- the Reimbursed Loss Interest for that Class for each previous
Distribution Date since the last Distribution Date on which Investor
Losses for that Class equaled zero, and
- the Reimbursed Loss Interest Gross-up Amount for that Class for each
previous Distribution Date since the last Distribution Date on which
the aggregate amount of unreimbursed Investor Losses for that Class
equaled zero;
- the Class Deficiency Amount on the immediately preceding Distribution
Date; and
- the Class Deficiency Amount on the immediately preceding Distribution
Date multiplied by the interest rate, if any, for that Class and divided
by twelve.
"CLASS FINANCE CHARGE COLLECTIONS" means for each Class on any day or any
Distribution Date:
- the Class Percentage for Finance Charge Collections determined as of the
related Distribution Date; multiplied by
- the amount of Finance Charge Collections for that day or the related Due
Period, as applicable.
"CLASS INVESTED AMOUNT" means the Class A Invested Amount, the Class B
Invested Amount or the Class C Invested Amount, as applicable.
"CLASS INVESTOR INTEREST" means the Class A Investor Interest, the Class B
Investor Interest or the Class C Investor Interest, as applicable.
"CLASS MONTHLY DEFICIENCY AMOUNT" means, for any Class on any Distribution
Date, the amount, if any, by which:
- the Class Modified Required Amount for that Class for that Distribution
Date; exceeds
- the amount deposited into the Series Interest Funding Account to pay that
Class Modified Required Amount on that Distribution Date.
"CLASS MONTHLY SERVICING FEE" means for any Class on any Distribution Date:
- the Class Investor Interest divided by the Series Investor Interest (or,
in the case of the first Distribution Date, $588,250,000), in each case
on the first day of the related Due Period; multiplied by
- the amount of the Investor Servicing Fee for the related Due Period.
"CLASS PERCENTAGE" means for any Class on any Distribution Date:
(a) when used for the Charged-Off Amount, the percentage equivalent of a
fraction:
- the numerator of which will be the Class Investor Interest minus the
Supplemental Cash allocable to that Class; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the Trust, and
- the Aggregate Investor Interest minus the Excess Funding Amount
(General), the Excess Funding Amount (SRC) and the sum of the series
pre-funding amounts, if any, for all outstanding series,
in each case on the first day of the related Due Period; or
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(b) when used for Principal Collections before a Fixed Principal Allocation
Event occurs, the percentage equivalent of a fraction:
- the numerator of which will be the Class Investor Interest minus the
Supplemental Cash allocable to that Class on the first day of the related
Due Period; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the Trust on the first day of
the related Due Period, and
- the sum of the numerators used in calculating the components of the
series percentage for Principal Collections for each series then
outstanding (including this Series) as of that Distribution Date; or
(c) when used for Principal Collections on and after a Fixed Principal
Allocation Event has occurred (unless a Fixed Principal Allocation Adjustment
has occurred), the percentage equivalent of a fraction:
- the numerator of which will be the Class Investor Interest minus the
Supplemental Cash allocable to that Class on the first day of the Due
Period before the Fixed Principal Allocation Event; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the Trust on the first day of
the related Due Period; and
- the sum of the numerators used in calculating the components of the
series percentage for Principal Collections for each series then
outstanding (including this Series) as of that Distribution Date.
However, because each Class may be paired with a class of a Paired Series, SRFG
may designate a different numerator to calculate this fraction if:
- after the pairing, a rapid amortization event for the Paired Series
occurs;
- the new numerator is not less than the Class Investor Interest minus the
Supplemental Cash allocable to that Class as of the last day of the
revolving period for the Paired Series; and
- SRFG delivers to the Trustee a certificate of an authorized officer
stating that, based on the facts known to that officer at the time, in
the reasonable belief of SRFG, the designation of a different numerator
will not cause a Rapid Amortization Event or an event that, after the
giving of notice or the lapse of time, would constitute a Rapid
Amortization Event, to occur for this Series.
If a Rapid Amortization Event for this Series nonetheless occurs, then, on each
Distribution Date beginning with the Distribution Date related to the Due Period
in which the Rapid Amortization Event occurs, the numerator will not be less
than the Class Investor Interest minus the Supplemental Cash allocable to that
Class as of the first day of the Due Period in which that Rapid Amortization
Event occurs; or
(d) when used for Principal Collections on and after the date the Servicer
has made a Fixed Principal Allocation Adjustment, the percentage equivalent of a
fraction:
- the numerator of which will be the greater of:
- the amount of the Class Investor Interest minus Supplemental Cash
allocable to such Class on the first day of the Due Period before the
Fixed Principal Allocation Event multiplied by the Fixed Principal
Allocation Adjustment Factor; and
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- the amount of the Class Investor Interest minus the Supplemental Cash
allocable to that Class on the first day of that Due Period; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the Trust on the first day of
the related Due Period; and
- the sum of the numerators used in calculating the components of the
series percentage for Principal Collections for each series then
outstanding (including this Series) as of the Distribution Date.
However, after a Rapid Amortization Event for this Series, on each Distribution
Date beginning with the Distribution Date related to the Due Period in which the
Rapid Amortization Event occurred, the numerator will be the Class Investor
Interest minus the Supplemental Cash allocable to that Class on the first day of
the Due Period in which the Rapid Amortization Event occurred; or
(e) when used for Finance Charge Collections during the Revolving Period or
the Controlled Amortization Period, the percentage equivalent of a fraction:
- the numerator of which will be the amount of the applicable Class
Investor Interest minus the Supplemental Cash allocable to that Class on
the first day of the related Due Period; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the Trust on the first day of
the related Due Period; and
- the sum of the numerators used in calculating the components of the
series percentage for Finance Charge Collections for each series then
outstanding (including this Series) as of that Distribution Date; or
(f) when used for Finance Charge Collections during the Rapid Amortization
Period, on each Distribution Date beginning with the Distribution Date related
to the Due Period in which the Rapid Amortization Event occurs, the percentage
equivalent of a fraction:
- the numerator of which will be the amount of the Class Investor Interest
minus the Supplemental Cash allocable to that Class on the last day of
the related Due Period before the Rapid Amortization Event; and
- the denominator of which will be the greater of:
- the amount of Principal Receivables in the Trust on the first day of
the related Due Period; and
- the sum of the numerators used in calculating the components of the
series percentage for Finance Charge Collections for each series then
outstanding (including this Series) as of that Distribution Date.
"CLASS PRINCIPAL COLLECTIONS" means the Class A Principal Collections, the
Class B Principal Collections and the Class C Principal Collections, as
applicable.
"CLASS RAPID AMORTIZATION AMOUNT" means, for each Class on any Distribution
Date during the Rapid Amortization Period, the Class Investor Interest for that
Class.
"CLASS REQUIRED AMOUNT" means, for any Class on any Distribution Date, the
sum of:
- interest for that Class for that Distribution Date;
- the Class Monthly Deficiency Amount on the immediately preceding
Distribution Date;
- the Class Deficiency Amount on the immediately preceding Distribution
Date multiplied by the interest rate, if any, for the Class plus two
percent per year divided by twelve;
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- if on the immediately preceding Distribution Date a Reimbursed Loss Event
occurred, the sum of:
- the Reimbursed Loss Interest for each previous Distribution Date since
the last Distribution Date on which the aggregate amount of
unreimbursed Investor Losses for the Class equaled zero;
- the Reimbursed Loss Interest Gross-up Amount for each previous
Distribution Date since the last Distribution Date on which the
aggregate amount of unreimbursed Investor Losses for the Class equaled
zero; and
- for any Distribution Date following the Distribution Date immediately
following the Reimbursed Loss Event to and including the next
Distribution Date, the Reimbursed Loss Interest Gross-up Amount for
the Class for the Distribution Date; and
- the sum of all accrued but unpaid Class Monthly Servicing Fees.
"CONTROLLED AMORTIZATION PERIOD" means the period commencing at the opening
of business on the first day of the Due Period related to the Distribution Date
in April 2003 and ending upon the earliest to occur of:
- the date on which a Rapid Amortization Event for this Series occurs;
- the payment in full of the Series Invested Amount; and
- the Series Termination Date.
"CREDIT AGREEMENT" is defined in "Sears Credit Business--Credit Granting
Procedures."
"DETERMINATION DATE" for any month means the second Business Day before the
Distribution Date for the month.
"DISTRIBUTION DATE" means the 15th day of each calendar month (or, if not a
business day, the next business day), beginning in April 1999.
"EXCESS FUNDING AMOUNT (GENERAL)" for any Distribution Date means the
amount on deposit in the Excess Funding Account (General) less investment
earnings.
"EXCESS FUNDING AMOUNT (SRC)" for any Distribution Date means the amount on
deposit in the Excess Funding Account (SRC) less investment earnings.
"FIXED PRINCIPAL ALLOCATION ADJUSTMENT" means, if:
- a Fixed Principal Allocation Event has occurred; and
- a Rapid Amortization Event has not occurred,
an adjustment by the Servicer of the Class Percentage for Principal Collections
in accordance with the provisions of the Series Supplement and set forth in the
Monthly Servicer Certificate.
"FIXED PRINCIPAL ALLOCATION ADJUSTMENT FACTOR" means, for any Class for any
Distribution Date, a fraction:
- the numerator of which is the Class Controlled Amortization Amount, and
- the denominator of which is the sum of:
- the Class Controlled Amortization Amount; and
- the Group Available Principal Amount (as adjusted to deduct any
portion of the Group Available Principal Amount used, in the
discretion of the Servicer, to determine the Fixed Principal
Allocation Adjustment Factor for any class of any of the other series
in Group One) on the Distribution Date.
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"FIXED PRINCIPAL ALLOCATION EVENT" means the earliest of:
- the beginning of the Due Period immediately following the Due Period
related to the Distribution Date during the Controlled Amortization
Period of this Series on which the Series Available Principal Amount is
less than zero;
- the date on which a Rapid Amortization Event for this Series occurs; or
- a date selected by the Servicer, if any, provided that the Servicer
provides notification of that date to SRFG, the Trustee and the Rating
Agencies no later than two Business Days before the selected date.
"GROUP AVAILABLE PRINCIPAL AMOUNT" means for each Distribution Date:
- the amount remaining on deposit in the Group One Principal Collections
Reallocation Account on that Distribution Date after all withdrawals have
been made from that account for the benefit of any series in Group One
(including this Series), but before that amount is withdrawn from the
Group One Principal Collections Reallocation Account and paid to SRFG;
minus
- the amount deposited in the Group One Principal Collections Reallocation
Account from the series collections accounts of any series in Group One
that has a controlled amortization period or controlled accumulation
period, as applicable, beginning before June 15, 2005; minus
- the amount deposited in the Group One Principal Collections Reallocation
Account from the series principal collections accounts of any series in
Group One that has a controlled amortization period or controlled
accumulation period, as applicable, ending before June 15, 2005; minus
- the amount deposited in the Group One Principal Collections Reallocation
Account from the series principal collections account of any series in
Group One that is in its rapid amortization period.
"GROUP EXCESS FUNDING AMOUNT" means:
- the Aggregate Excess Funding Amount; multiplied by
- the sum of the numerators used in calculating the class percentage for
Principal Collections for all classes of all series (including the
Classes of this Series) in Group One; divided by
- the sum of the numerators used in calculating the class percentage for
principal collections for all classes (including the Classes of this
Series) of all outstanding series.
"GROUP ONE" is defined in "Summary of Series Terms--Participation with
Other Series."
"GROUP ONE PRE-FUNDING REALLOCATION ACCOUNT" means an account established
with an Eligible Institution or a Qualified Trust Institution in connection with
the pre-funding of any series in Group One.
"HIP" is defined in "Sears Credit Business--General."
"INTEREST PAYMENT DATE" means the 15th day of each calendar month (or if
not a business day, the next business day), beginning in April 1999.
"INVESTOR ACCOUNTS" is defined in "The Certificates--Investor Accounts."
"INVESTOR LOSS" means, for each Class as of any Distribution Date, the
Class Cumulative Investor Charged-Off Amount after giving effect to the
allocations and payments on that Distribution Date, and if the Receivables are
sold in connection with the termination of the Trust or this Series, the amount,
if any, by which the Class Investor Interest (determined immediately before the
sale) exceeds the net proceeds of the sale that are payable to the Class.
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"INVESTOR SERVICING FEE" means for any Distribution Date or the related Due
Period:
- the investor servicing fee percentage (2.00% per year), divided by
twelve; multiplied by
- the Series Investor Interest minus the Supplemental Cash, if any,
allocable to this Series on the first day of the related Due Period.
"MCP" is defined in "Sears Credit Business--General."
"MINIMUM SELLER INTEREST" for any day or Distribution Date means the
positive difference, if any, between:
- the Minimum Principal Receivables Balance; and
- the Aggregate Investor Interest minus the sum of:
- the series pre-funding amounts, if any, for all outstanding series;
- the Excess Funding Amount (General); and
- the Excess Funding Amount (SRC),
for that day or Distribution Date.
"MONTHLY SERVICER CERTIFICATE" means the certificate of an officer of the
Servicer, in the form attached as an exhibit to the Series Supplement.
"NET YIELD" means, for any Due Period or any Distribution Date, the
annualized percentage equivalent of a fraction:
- the numerator of which is:
- the sum of the Series Finance Charge Collections, Series Additional
Allocable Amounts, and finance charge collections and series
additional allocable amounts, if any, reallocated to this Series;
minus
- the Series Investor Charged-Off Amount; and
- the denominator of which is the Series Invested Amount.
"PAIRED SERIES" is defined in "The Certificates--Paired Series."
"RAPID AMORTIZATION EVENT" means any event specified in "The
Certificates--Rapid Amortization Events."
"RAPID AMORTIZATION PERIOD" means the period from, and including, the date
on which a Rapid Amortization Event occurs to, and including, the earlier of:
- the date of the final distribution to the investors in this Series; or
- the Series Termination Date.
The first Distribution Date of the Rapid Amortization Period will be the
Distribution Date in the calendar month following the date on which a Rapid
Amortization Event occurs.
"REIMBURSED LOSS EVENT" means, for each Class, any Distribution Date on
which the aggregate amount of unreimbursed Investor Losses for that Class is
reduced to zero; provided that if the Class Invested Amounts for all Classes
senior to that Class have been reduced to zero and the Reimbursed Loss Event
occurs on the Expected Final Payment Date for that Class, the Reimbursed Loss
Event will be deemed to occur on the current Distribution Date for the purposes
of calculating the Class Modified Required Amount for that Class.
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"REIMBURSED LOSS INTEREST" means for each Class for any Distribution Date:
- the aggregate amount of Investor Losses that have not been reimbursed
before the beginning of the related Due Period; multiplied by
- the interest rate, if any, for the Class for the related Due Period
divided by twelve.
"REIMBURSED LOSS INTEREST GROSS-UP AMOUNT" means for each Class for any
Distribution Date:
- the amount, if any, by which the Class Alternative Deficiency Amount for
the immediately preceding Distribution Date exceeds the Class Deficiency
Amount for the immediately preceding Distribution Date, multiplied by
- the interest rate, if any, for that Class for the related Due Period
divided by twelve.
"REQUIRED DAILY DEPOSIT" will mean during any month the Servicer is
required to deposit Collections into the Collections Account on a daily basis
pursuant to the Pooling and Servicing Agreement, amounts that will be available
to pay interest and principal, as applicable, under the Cash Flows, up to the
amount of interest and principal expected to be paid to investors in this Series
on the related Distribution Date, as more fully specified in the Series
Supplement.
"REVOLVING PERIOD" is defined in "Summary of Series Terms--Revolving
Period."
"SERIES" and "THIS SERIES" means Sears Credit Account Master Trust II,
Master Trust Certificates, Series 1999-1, established pursuant to the Pooling
and Servicing Agreement and the Series Supplement.
"SERIES ADDITIONAL ALLOCABLE AMOUNTS," if any, means, for any Distribution
Date, the sum of:
- Series Yield Collections;
- Series Investment Income; and
- Series Additional Investor Funds.
"SERIES ADDITIONAL FUNDS," if any, means, for any Distribution Date, the
Additional Funds deposited into the Series Collections Account on that
Distribution Date.
"SERIES ADDITIONAL INVESTOR FUNDS," if applicable, means, for any
Distribution Date, the Series Additional Funds, if any, that the Trust does not
apply to pay the Investor Servicing Fee.
"SERIES AGGREGATE EXCESS FUNDING AMOUNT" means:
- the Series Investor Interest; divided by
- the sum of the series investor interests for all outstanding series in
Group One; multiplied by
- the Group Excess Funding Amount.
"SERIES ALLOCABLE INVESTMENT AMOUNT" means, for any Distribution Date, the
sum of:
- the investment income on funds on deposit in the Collections Account for
the related Due Period, multiplied by the sum of the numerators for all
Classes in this Series used in calculating the Class Percentage for
Finance Charge Collections, divided by the sum of the numerators used in
calculating the class percentage for Finance Charge Collections for all
classes of all outstanding series; plus
- the investment income on funds on deposit in the Group One Collections
Account for the related Due Period, multiplied by the sum of the
numerators for all Classes in this Series used in calculating the Class
Percentage for Finance Charge Collections, divided by the sum of the
numerators used in calculating the class percentage for Finance Charge
Collections for all classes of all series in Group One.
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"SERIES AVAILABLE PRINCIPAL AMOUNT" means, for any Distribution Date, for
each series in Group One (including this Series) that is in its controlled
amortization period or controlled accumulation period, as applicable, an amount
calculated as follows: For each such series, seriatim, beginning with the series
with the largest series investor interest as of that Distribution Date (and if
more than one series has the same series investor interest on that Distribution
Date, beginning with whichever of such series has the longest time remaining in
its controlled amortization period or controlled accumulation period, as
applicable (assuming that no rapid amortization event occurs with respect to
that series)), an amount equal to:
- the Group Available Principal Amount; minus
- the difference between the series required principal amount and the
amount of such series' controlled amortization amount or controlled
accumulation amount, as applicable, that was funded on the Distribution
Date (including any portion of the amount that was funded by amounts
withdrawn from the Group One Principal Collections Reallocation Account
as described in "Annex A--Cash Flows").
For purposes of calculating the series available principal amount for each other
such series, the Group Available Principal Amount shall be reduced by the amount
calculated in the second bullet point above for each prior series for which the
series available principal amount was calculated.
"SERIES CUT-OFF DATE" means the last day of the Due Period ending in
February 1999.
"SERIES EXCESS FUNDING AMOUNT (SRC)" means:
- the Group Excess Funding Amount (SRC); multiplied by
- the sum of the numerators used in calculating the Class Percentage for
Class B Principal Collections and Class C Principal Collections divided
by the sum of the numerators used in calculating the class percentage for
principal collections for all seller retained classes in Group One.
"SERIES EXCESS SERVICING" is defined in "Annex A--Cash Flows."
"SERIES FINANCE CHARGE COLLECTIONS" means, for any day or any Distribution
Date, the sum of the amount of Class Finance Charge Collections for each Class
of this Series for that day or for the related Due Period, as applicable.
"SERIES INVESTED AMOUNT" with respect to any Distribution Date, means the
sum of the Class Invested Amounts for each Class of this Series on that
Distribution Date.
"SERIES INVESTMENT INCOME" means, for any Distribution Date, the sum of:
- the income from the investment of funds on deposit in the Series Interest
Funding Account;
- the income from the investment of funds with respect to the Series
Aggregate Excess Funding Amount; and
- the Series Allocable Investment Amount.
"SERIES INVESTOR INTEREST" means for any Distribution Date the sum of the
Class Investor Interests for each Class of this Series on that Distribution
Date.
"SERIES INVESTOR CHARGED-OFF AMOUNTS" means the sum of the Class Investor
Charged-Off Amounts for all Classes of this Series.
"SERIES MINIMUM PRINCIPAL RECEIVABLES BALANCE" means, for this Series, on
any Determination Date the greater of:
- the Series Investor Interest minus Supplemental Cash on that
Determination Date, divided by 0.909; or
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- if a Fixed Principal Allocation Event has occurred (and a Fixed Principal
Allocation Adjustment has not occurred), the Series Investor Interest
minus Supplemental Cash as of the first day of the Due Period before the
Fixed Principal Allocation Event (this may be reduced if a Rapid
Amortization Event occurs for any series with which this Series is
paired, to an amount equal to the sum of the then applicable numerators
for the class percentages for Principal Collections for all classes in
the Paired Series); or
- if a Fixed Principal Allocation Adjustment has occurred, the Series
Investor Interest minus Supplemental Cash as of the first day of the Due
Period before the Fixed Principal Allocation Event multiplied by the
Fixed Principal Allocation Adjustment Factor; provided, however, that
after a Rapid Amortization Event, this amount will be the Series Investor
Interest minus Supplemental Cash as of the first day of the Due Period
before the Rapid Amortization Event.
SRFG may, upon 30 days' prior notice to the Trustee and the Rating Agencies,
reduce the Series Minimum Principal Receivables Balance by increasing the
divisor set forth above, if:
- SRFG receives written notice from the Rating Agencies that such an
increase will not cause them to reduce or withdraw their ratings on the
certificates of any outstanding series (including this Series); and
- the divisor used to calculate the Series Minimum Principal Receivables
Balance is not increased to more than 0.980.
"SERIES MONTHLY SERVICING FEE" means, for any Distribution Date, the sum of
the Class Monthly Servicing Fees for each Class of this Series on that
Distribution Date.
"SERIES PERCENTAGE" for any specified type of collections or charge-offs
means, on any Distribution Date, the sum of the Class Percentages for that
specified type of collections or charge-offs for each Class of this Series on
that Distribution Date.
"SERIES PRINCIPAL COLLECTIONS" means, for any day or any Distribution Date,
the sum of the amount of Class Principal Collections for each Class of this
Series for that day or for the related Due Period, as applicable.
"SERIES REQUIRED PRINCIPAL AMOUNT" means, for each Distribution Date and
each series in Group One (including this Series) that is in its controlled
amortization period or controlled accumulation period, as applicable:
- 1.20; multiplied by
- the controlled amortization amount or the controlled accumulation amount,
as applicable, for the series for each Distribution Date.
"SERIES SUPPLEMENT" means the Series 1999-1 Supplement dated as of March
23, 1999 to the Pooling and Servicing Agreement, as amended, modified or
supplemented from time to time.
"SERIES TERMINATION DATE" means the business day following the March 2009
Distribution Date.
"SERIES YIELD COLLECTIONS" means for any day or any Distribution Date:
- the Series Yield Factor; multiplied by
- the amount of Series Principal Collections for that day or the related
Due Period, as applicable.
"SERIES YIELD FACTOR" is initially zero, but may be increased in accordance
with the terms of the Series Supplement.
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"SUPPLEMENTAL CASH" for any Distribution Date means the Series Aggregate
Excess Funding Amount for that Distribution Date. For purposes of this
Prospectus Supplement, allocations of Supplemental Cash for any Class shall be
made according to the following calculation:
- the Supplemental Cash; multiplied by
- the Class Investor Interest for that Class divided by the Series Investor
Interest.
"TSYS" is defined in "Sears Credit Business--Collection Efforts."
"UNDERWRITERS" means Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Bear, Stearns & Co. Inc., Credit Suisse First Boston Corporation, Goldman, Sachs
& Co. and Morgan Stanley & Co. Incorporated.
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ANNEX A
CASH FLOWS
We provide below descriptions of the Cash Flows that use the language of
the Series Supplement. We refer you also to the summaries of these provisions in
"The Certificates--Cash Flows."
Deposits to Series Collections Account or Series Principal Collections
Account. On or before each Distribution Date, the Trustee, acting for the Trust
pursuant to the Servicer's instructions, will withdraw from the Group One
Collections Account and deposit into the Series Collections Account an amount
equal to:
- the sum of the Series Finance Charge Collections and the Series Principal
Collections; and
- the Series Excess Funding Amount (SRC),
each for the related Due Period. On or before each Distribution Date, the
Trustee, acting for the Trust pursuant to the Servicer's instructions, will also
deposit the Series Additional Allocable Amounts, if any, which have not
previously been deposited into the Series Collections Account.
Allocation of Interest, Fees and Other Items During the Revolving
Period. On each Distribution Date during the Revolving Period, the Trustee,
acting for the Trust pursuant to the Servicer's instructions, will apply funds
to be paid or deposited in the following order of priority, to the extent those
amounts are available on that Distribution Date.
(1) CLASS A INTEREST. An amount equal to the lesser of:
- the Class A Modified Required Amount; and
- the sum of any Series Finance Charge Collections and Series Additional
Allocable Amounts
will be withdrawn from the Series Collections Account and deposited in the
Series Distribution Account.
(2) CLASS B INTEREST. An amount equal to the lesser of:
- the Class B Modified Required Amount, if any; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account.
(3) CLASS C INTEREST. An amount equal to the lesser of:
- the Class C Modified Required Amount, if any; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account.
(4) SERIES MONTHLY SERVICING FEE. An amount equal to the lesser of:
- the sum of the Series Monthly Servicing Fee and all accrued but unpaid
Series Monthly Servicing Fees as of the prior Distribution Date; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account.
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(5) CLASS A CHARGE-OFFS. An amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and deposited into the
Group One Principal Collections Reallocation Account. The Class A Cumulative
Investor Charged-Off Amount will be reduced by the amount of this deposit.
(6) CLASS B CHARGE-OFFS. An amount equal to the lesser of:
- the Class B Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and deposited into the
Group One Principal Collections Reallocation Account. The Class B Cumulative
Investor Charged-Off Amount will be reduced by the amount of this deposit.
(7) CLASS C CHARGE-OFFS. An amount equal to the lesser of:
- the Class C Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Finance Charge Collections and any
remaining Series Additional Allocable Amounts
will be withdrawn from the Series Collections Account and deposited into the
Group One Principal Collections Reallocation Account. The Class C Cumulative
Investor Charged-Off Amount will be reduced by the amount of this deposit.
(8) REALLOCATION TO OTHER SERIES. An amount equal to any remaining Series
Finance Charge Collections and any remaining Series Additional Allocable Amounts
(together, "Series Excess Servicing") will be withdrawn from the Series
Collections Account and deposited into the Group One Finance Charge Collections
Reallocation Account.
(9) CLASS A INTEREST. If one or more other series included in Group One
which is outstanding with respect to the Distribution Date provides for the
reallocation of finance charge collections and series additional allocable
amounts, series excess servicing relating to that series will be deposited into
the Group One Finance Charge Collections Reallocation Account. An amount equal
to the lesser of:
- the Class A Modified Required Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class A Modified Required
Amount Shortfall and the denominator of which is the sum of the class
modified required amount shortfalls for all classes with the same
alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for the purpose of covering class
modified required amount shortfalls,
will be withdrawn from the Group One Finance Charge Collections Reallocation
Account and deposited into the Series Distribution Account. The Class A Modified
Required Amount Shortfall will be reduced by the amount of this deposit.
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(10) CLASS B INTEREST. An amount equal to the lesser of:
- the Class B Modified Required Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class B Modified Required
Amount Shortfall and the denominator of which is the sum of the class
modified required amount shortfalls for all classes with the same
alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for any class with the same alphabetical
designation and after any withdrawals from that account for the
benefit of classes of those other series with a higher alphabetical
designation,
will be withdrawn from the Group One Finance Charge Collections Reallocation
Account and deposited into the Series Distribution Account. The Class B Modified
Required Amount Shortfall will be reduced by the amount of this deposit.
(11) CLASS C INTEREST. An amount equal to the lesser of:
- the Class C Modified Required Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class C Modified Required
Amount Shortfall and the denominator of which is the sum of the class
modified required amount shortfalls for all classes with the same
alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for any class with the same alphabetical
designation and after any withdrawals from that account for the
benefit of classes with a higher alphabetical designation of those
other series,
will be withdrawn from the Group One Finance Charge Collections Reallocation
Account and deposited into the Series Distribution Account. The Class C Modified
Required Amount Shortfall will be reduced by the amount of this deposit.
(12) CLASS A CHARGE-OFFS. An amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the product of:
- a fraction the numerator of which is the Class A Cumulative Investor
Charged-Off Amount and the denominator of which is the sum of the
class cumulative investor charged-off amounts for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for the purpose of covering cumulative
investor charged-off amounts for any class with the same alphabetical
designation,
will be withdrawn from the Group One Finance Charge Collections Reallocation
Account and deposited into the Group One Principal Collections Reallocation
Account. The Class A Cumulative Investor Charged-Off Amount will be reduced by
the amount of this deposit.
(13) CLASS B CHARGE-OFFS. An amount equal to the lesser of:
- the Class B Cumulative Investor Charged-Off Amount; and
- the product of:
- a fraction the numerator of which is the Class B Cumulative Investor
Charged-Off Amount and the denominator of which is the sum of the
class cumulative investor
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charged-off amounts for all classes with the same alphabetical
designation for all series in Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for the purpose of covering cumulative
investor charged-off amounts for any class with the same alphabetical
designation and after any withdrawals from that account for the
benefit of classes of such other series with a higher alphabetical
designation,
will be withdrawn from the Group One Finance Charge Collections Reallocation
Account and deposited into the Group One Principal Collections Reallocation
Account. The Class B Cumulative Investor Charged-Off Amount will be reduced by
the amount of this deposit.
(14) SERIES MONTHLY SERVICING FEE. An amount equal to the lesser of:
- all accrued but unpaid Series Monthly Servicing Fees; and
- the product of:
- a fraction the numerator of which is all accrued but unpaid Series
Monthly Servicing Fees and the denominator of which is the sum of all
accrued but unpaid monthly servicing fees for all series in Group One;
and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account pursuant
to a comparable clause in the applicable series supplement with
respect to any other series to cover payment of accrued but unpaid
monthly servicing fees,
will be withdrawn from the Group One Finance Charge Collections Reallocation
Account and deposited into the Series Distribution Account.
(15) CLASS C CHARGE-OFFS. An amount equal to the lesser of:
- the Class C Cumulative Investor Charged-Off Amount; and
- the product of:
- a fraction the numerator of which is the Class C Cumulative Investor
Charged-Off Amount and the denominator of which is the sum of the
class cumulative investor charged-off amounts for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Finance Charge Collections
Reallocation Account before any withdrawals from that account with
respect to any other series pursuant to a comparable clause in the
applicable series supplement for the purpose of covering cumulative
investor charged-off amounts for any class with the same alphabetical
designation and after any withdrawals from that account for the
benefit of classes of such other series with a higher alphabetical
designation,
will be withdrawn from the Group One Finance Charge Collections Reallocation
Account and deposited into the Group One Principal Collections Reallocation
Account. The Class C Cumulative Investor Charged-Off Amount will be reduced by
the amount of this deposit.
(16) CLASS A INTEREST. An amount equal to the lesser of:
- the Class A Modified Required Amount Shortfall; and
- the sum of the Series Excess Funding Amount (SRC) and Class C Principal
Collections less Series Yield Collections allocable to the Class C
Investor Interest
will be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account. The Class A Modified Required Amount Shortfall will
be reduced by the amount of this deposit, and the Class C Cumulative Investor
Charged-Off Amount will be increased by the amount of this deposit.
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(17) CLASS A INTEREST. An amount equal to the lesser of:
- the Class A Modified Required Amount Shortfall; and
- the Class B Principal Collections less Series Yield Collections allocable
to the Class B Investor Interest
will be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account. The Class A Modified Required Amount Shortfall will
be reduced by the amount of this deposit, and the Class B Cumulative Investor
Charged-Off Amount will be increased by the amount of this deposit.
(18) CLASS B INTEREST. An amount equal to the lesser of:
- the Class B Modified Required Amount Shortfall; and
- the sum of any remaining Series Excess Funding Amounts (SRC) and any
remaining Class C Principal Collections less Series Yield Collections
allocable to the Class C Investor Interest
will be withdrawn from the Series Principal Collections Account and deposited
into the Series Distribution Account. The Class B Modified Required Amount
Shortfall will be reduced by the amount of this deposit, and the Class C
Cumulative Investor Charged-Off Amount will be increased by the amount of this
deposit.
(19) CLASS A CHARGE-OFFS. An amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Excess Funding Amounts (SRC) and any
remaining Class C Principal Collections less Series Yield Collections
allocable to the Class C Investor Interest
will be withdrawn from the Series Collections Account and deposited into the
Group One Principal Collections Reallocation Account. The Class A Cumulative
Investor Charged-Off Amount will be reduced by the amount of this deposit, and
the Class C Cumulative Investor Charged-Off Amount will be increased by the
amount of this deposit.
(20) CLASS A CHARGE-OFFS. The Class A Cumulative Investor Charged-Off
Amount will be reduced by an amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the Class C Investor Interest,
and the Class C Cumulative Investor Charged-Off Amount will be increased by this
amount; provided, however, that the Class C Cumulative Investor Charged-Off
Amount would not, as a result, exceed the initial Class C Investor Interest.
(21) CLASS A CHARGE-OFFS. An amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- any remaining Class B Principal Collections less Series Yield Collections
allocable to the Class B Investor Interest
will be withdrawn from the Series Collections Account and deposited into the
Group One Principal Collections Reallocation Account. The Class A Cumulative
Investor Charged-Off Amount will be reduced by the amount of this deposit, and
the Class B Cumulative Investor Charged-Off Amount will be increased by the
amount of this deposit.
(22) CLASS A CHARGE-OFFS. The Class A Cumulative Investor Charged-Off
Amount will be reduced by an amount equal to the lesser of:
- the Class A Cumulative Investor Charged-Off Amount; and
- the Class B Investor Interest,
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and the Class B Cumulative Investor Charged-Off Amount will be increased by this
amount; provided, however, that the Class B Cumulative Investor Charged-Off
Amount would not, as a result, exceed the initial Class B Investor Interest.
(23) CLASS B CHARGE-OFFS. An amount equal to the lesser of:
- the Class B Cumulative Investor Charged-Off Amount; and
- the sum of any remaining Series Excess Funding Amounts (SRC) and any
remaining Class C Principal Collections less Series Yield Collections
allocable to the Class C Investor Interest
will be withdrawn from the Series Collections Account and deposited into the
Group One Principal Collections Reallocation Account. The Class B Cumulative
Investor Charged-Off Amount will be reduced by the amount of this deposit, and
the Class C Cumulative Investor Charged-Off Amount will be increased by the
amount of this deposit.
(24) CLASS B CHARGE-OFFS. The Class B Cumulative Investor Charged-Off
Amount will be reduced by an amount equal to the lesser of:
- the Class B Cumulative Investor Charged-Off Amount; and
- the Class C Investor Interest,
and the Class C Cumulative Investor Charged-Off Amount will be increased by this
amount; provided, however, that the Class C Cumulative Investor Charged-Off
Amount would not, as a result, exceed the initial Class C Investor Interest.
(25) PAYMENT TO SRFG. An amount equal to all remaining amounts on deposit
in the Group One Finance Charge Collections Reallocation Account, after all
other allocations from this account pursuant to the series supplements for any
series in Group One, will be withdrawn from the Group One Finance Charge
Collections Reallocation Account and paid to SRFG.
(26) PRINCIPAL COLLECTIONS FROM EXCESS FUNDING ACCOUNT (GENERAL). If no
series is in its rapid amortization period, or if amounts remain on deposit in
the Excess Funding Account (General) after all allocations to other series that
are in their rapid amortization periods, an amount equal to the product of:
- a fraction the numerator of which is the sum of the series investor
interests for all series in Group One less the sum of class investor
interests with respect to seller retained classes for all series in Group
One and the denominator of which is the Aggregate Investor Interest less
the sum of all class investor interests with respect to seller retained
classes for all outstanding series; and
- the amount on deposit in the Excess Funding Account (General) before any
withdrawals from that account with respect to any other series pursuant
to a comparable clause in the applicable series supplement,
will be withdrawn from the Excess Funding Account (General) and deposited into
the Group One Principal Collections Reallocation Account.
(27) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Permitted Controlled Amortization Amount; and
- the remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account.
(28) REALLOCATIONS TO OTHER SERIES. An amount equal to the remaining Series
Principal Collections minus:
- Series Yield Collections, if any; and
- remaining Class B Principal Collections and Class C Principal Collections
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will be withdrawn from the Series Collections Account and deposited into the
Group One Principal Collections Reallocation Account.
(29) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) AND PAYMENT TO SRFG. An amount
equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest (after giving effect to all such
payments to SRFG, beginning with the series (including this Series)
having the earliest series closing date and continuing seriatim); and
- any remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and paid to SRFG. If after
this payment, amounts remain on deposit in the Series Collections Account, these
amounts will be deposited into the Excess Funding Account (SRC). For purposes of
this provision, the Seller Interest will be deemed to include:
- all amounts on deposit in the Series Collection Account after step (28);
- all amounts on deposit in the Group One Principal Collections
Reallocation Account after step (28), plus comparable amounts on deposit
in comparable accounts for other Series; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that Distribution Date pursuant to
cash flow provisions for other Series.
(30) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. An
amount equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest; and
- the product of:
- any remaining amounts on deposit in the Group One Principal
Collections Reallocation Account; and
- a fraction the numerator of which is the remaining amounts on deposit
in the Group One Principal Collections Reallocation Account and the
denominator of which is the sum of the remaining amounts on deposit in
all group principal collections reallocation accounts (including the
Group One Principal Collections Reallocation Account),
will be withdrawn from the Group One Principal Collections Reallocation Account
and paid to SRFG. If after this payment, amounts remain on deposit in the Group
One Principal Collections Reallocation Account, these amounts will be deposited
into the Excess Funding Account (General). For purposes of this provision, the
Seller Interest will be deemed to include:
- all amounts on deposit in the Group One Principal Collections
Reallocation Account and in all other group principal collection
reallocation accounts; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that Distribution Date pursuant to
the cash flow provisions for other series.
This provision will be applied before any comparable provisions in any
previously issued series.
Allocation of Principal, Interest, Fees and Other Items During the
Controlled Amortization Period. On each Distribution Date during the Controlled
Amortization Period, the Trustee, acting pursuant to the Servicer's
instructions, will apply funds to be paid or deposited in the following order of
priority, to the extent these amounts are available on that Distribution Date.
(1) The allocations and payments described in items 1 through 26 in
"--Allocation of Interest, Fees and Other Items During the Revolving Period"
will be made; provided, however, that, with respect to items 5, 6, 7, 12, 13,
15, 19, 21 and 23 of that subsection, amounts specified to be
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deposited into the Group One Principal Collections Reallocation Account will
instead be deposited in the Series Principal Collections Account and provided,
further, that with respect to the reduction of the Class A Cumulative Investor
Charged-Off Amount or the Class B Cumulative Investor Charged-Off Amount, as
applicable, as set forth in items 20 and 24 of that subsection, the increased
Class C Cumulative Investor Charged-Off Amount will not exceed the initial Class
C Investor Interest minus any principal payments made with respect to the Class
C Certificates.
(2) PRINCIPAL COLLECTIONS. An amount equal to the remaining Series
Principal Collections minus:
- Series Yield Collections, if any; and
- remaining Class B Principal Collections and Class C Principal Collections
will be withdrawn from the Series Collections Account and deposited into the
Series Principal Collections Account.
(3) CLASS A PRINCIPAL. An amount equal to the lesser of:
- the Class A Controlled Amortization Amount; and
- amounts on deposit in the Series Principal Collections Account
will be withdrawn from the Series Principal Collections Account and deposited
into the Series Distribution Account. The amount by which the Class A Controlled
Amortization Amount exceeds this deposit will be the "Class A Controlled
Amortization Amount Shortfall."
(4) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Permitted Controlled Amortization Amount; and
- remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account. The amount by which the Class C Permitted
Controlled Amortization Amount exceeds this deposit will be the "Class C
Permitted Controlled Amortization Amount Shortfall."
(5) CLASS B PRINCIPAL. On the Distribution Date following the Class A
Expected Final Payment Date if the Class A Invested Amount has been paid in
full, or on and after the Distribution Date on which the Class A Invested Amount
has been paid in full if the Distribution Date is after the Class A Expected
Final Payment Date, an amount equal to the lesser of:
- the Class B Controlled Amortization Amount; and
- remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Principal Collections Account and deposited
into the Series Distribution Account. The amount by which the Class B Controlled
Amortization Amount exceeds this deposit will be the "Class B Controlled
Amortization Amount Shortfall."
(6) CLASS C PRINCIPAL. On each Distribution Date after the Distribution
Date on which the Class B Invested Amount is paid in full, an amount equal to
the lesser of:
- the Class C Controlled Amortization Amount; and
- remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account. The amount by which the Class C Controlled
Amortization Amount exceeds this deposit will be the "Class C Controlled
Amortization Amount Shortfall."
(7) CLASS A PRINCIPAL. For so long as each previously issued series is
included in Group One, and if one or more other series included in Group One
provides for the reallocation of principal
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collections, excess principal collections relating to such series will be
deposited into the Group One Principal Collections Reallocation Account. An
amount equal to the lesser of:
- the Class A Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class A Controlled
Amortization Amount Shortfall and the denominator of which is the sum
of the class controlled accumulation amount shortfalls and class
controlled amortization amount shortfalls for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of covering
class controlled amortization amount shortfalls and class controlled
accumulation amount shortfalls for any class with the same
alphabetical designation,
will be withdrawn from the Group One Principal Collections Reallocation Account
and deposited in the Series Distribution Account. The Class A Controlled
Amortization Amount Shortfall will be reduced by the amount of this deposit.
(8) CLASS B PRINCIPAL. An amount equal to the lesser of:
- the Class B Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class B Controlled
Amortization Amount Shortfall and the denominator of which is the sum
of the class controlled accumulation amount shortfalls and class
controlled amortization amount shortfalls for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of covering
class controlled amortization amount shortfalls and class controlled
accumulation amount shortfalls for any class with the same
alphabetical designation and after any withdrawals from that account
for the benefit of classes of such other series with a higher
alphabetical designation,
will be withdrawn from the Group One Principal Collections Reallocation Account
and deposited in the Series Distribution Account. The Class B Controlled
Amortization Amount Shortfall will be reduced by the amount of this deposit.
(9) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class C Controlled
Amortization Amount Shortfall and the denominator of which is the sum
of the class controlled accumulation amount shortfalls and class
controlled amortization amount shortfalls for all classes with the
same alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of covering
class controlled amortization amount shortfalls and class controlled
accumulation amount shortfalls for any class with the same
alphabetical designation and after any withdrawals from that account
for the benefit of classes of such other series with a higher
alphabetical designation,
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<PAGE> 78
will be withdrawn from the Group One Principal Collections Reallocation Account
and deposited in the Series Distribution Account. The Class C Controlled
Amortization Amount Shortfall will be reduced by the amount of this deposit.
(10) CLASS A PRINCIPAL. To the extent that funds are available in the Group
One Pre-Funding Reallocation Account as a result of a future series in Group One
being pre-funded in accordance with the terms of the series supplement for such
series, an amount equal to the lesser of:
- the Class A Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class A Controlled
Amortization Amount Shortfall and the denominator of which is the sum
of the class controlled amortization amount shortfalls and class
controlled accumulation amount shortfalls for all classes with the
same alphabetical designation for all series not in their rapid
amortization periods in Group One; and
- the amount on deposit in the Group One Pre-Funding Reallocation
Account, if any, before any withdrawals from that account with respect
to any other series in Group One pursuant to a comparable clause in
the applicable series supplement for the purpose of covering class
controlled amortization amount shortfalls and class controlled
accumulation amount shortfalls for any class with the same
alphabetical designation,
will be withdrawn from the Group One Pre-Funding Reallocation Account and
deposited in the Series Distribution Account. The Class A Controlled
Amortization Amount Shortfall will be reduced by the amount of this deposit.
(11) CLASS B PRINCIPAL. An amount equal to the lesser of:
- the Class B Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class B Controlled
Amortization Amount Shortfall and the denominator of which is the sum
of the class controlled amortization amount shortfalls and class
controlled accumulation amount shortfalls for all classes with the
same alphabetical designation for all series not in their rapid
amortization periods in Group One; and
- the amount on deposit in the Group One Pre-Funding Reallocation
Account, if any, before any withdrawals from that account with respect
to any other series in Group One pursuant to a comparable clause in
the applicable series supplement for the purpose of covering class
controlled amortization amount shortfalls and class controlled
accumulation amount shortfalls for any class with the same
alphabetical designation and after any withdrawals from that account
for the benefit of classes of such other series with a higher
alphabetical designation,
will be withdrawn from the Group One Pre-Funding Reallocation Account and
deposited in the Series Distribution Account. The Class B Controlled
Amortization Amount Shortfall will be reduced by the amount of this deposit.
(12) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Controlled Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class C Controlled
Amortization Amount Shortfall and the denominator of which is the sum
of the class controlled amortization amount shortfalls and class
controlled accumulation amount shortfalls for all classes with the
same alphabetical designation for all series not in their rapid
amortization periods in Group One; and
- the amount on deposit in the Group One Pre-Funding Reallocation
Account, if any, before any withdrawals from that account with respect
to any other series in Group One
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pursuant to a comparable clause in the applicable series supplement
for the purpose of covering class controlled amortization amount
shortfalls and class controlled accumulation amount shortfalls for any
class with the same alphabetical designation and after any withdrawals
from that account for the benefit of classes of such other series with
a higher alphabetical designation,
will be withdrawn from the Group One Pre-Funding Reallocation Account and
deposited in the Series Distribution Account. The Class C Controlled
Amortization Amount Shortfall will be reduced by the amount of this deposit.
(13) REALLOCATION TO OTHER SERIES. An amount equal to all remaining amounts
on deposit in the Series Principal Collections Account will be withdrawn from
the Series Principal Collections Account and deposited into the Group One
Principal Collections Reallocation Account.
(14) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) AND PAYMENT TO SRFG. An amount
equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest (after giving effect to all such
payments to SRFG, beginning with the series (including this Series)
having the earliest series closing date and continuing seriatim); and
- any remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and paid to SRFG. If after
this payment, amounts remain on deposit in the Series Collections Account, these
amounts will be deposited into the Excess Funding Account (SRC). For purposes of
this provision, the Seller Interest will be deemed to include:
- all amounts on deposit in the Series Collection Account after step (13);
and
- all amounts on deposit in the Group One Principal Collections
Reallocation Account after step (13), plus comparable amounts on deposit
in comparable accounts for other Series; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that Distribution Date pursuant to
cash flow provisions for other series.
(15) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. An
amount equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest; and
- the product of:
- any remaining amounts on deposit in the Group One Principal
Collections Reallocation Account; and
- a fraction the numerator of which is the remaining amounts on deposit
in the Group One Principal Collections Reallocation Account and the
denominator of which is the sum of the remaining amounts on deposit in
all group principal collections reallocation accounts (including the
Group One Principal Collections Reallocation Account),
will be withdrawn from the Group One Principal Collections Reallocation Account
and paid to SRFG. If after this payment, amounts remain on deposit in the Group
One Principal Collections Reallocation Account, these amounts will be deposited
into the Excess Funding Account (General). For purposes of this provision, the
Seller Interest will be deemed to include:
- all amounts on deposit in the Group One Principal Collections
Reallocation Account and in all other group principal collection
reallocation accounts; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that Distribution Date pursuant to
cash flow provisions for other series.
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This provision will be applied before any comparable provisions in any
previously issued Series.
Allocation of Principal, Interest, Fees and Other Items During the Rapid
Amortization Period. On each Distribution Date during the Rapid Amortization
Period, the Trustee, acting pursuant to the Servicer's instructions, will apply
funds to be paid or deposited in the following order of priority, to the extent
those amounts are available on the Distribution Date.
(1) The allocations and payments described in items 1 through 25 in
"--Allocation of Interest, Fees and Other Items During the Revolving Period"
will be made; provided, however, that, with respect to items 5, 6, 7, 12, 13,
15, 19, 21 and 23 of that subsection, amounts specified to be deposited into the
Group One Principal Collections Reallocation Account will instead be deposited
in the Series Principal Collections Account and provided, further, that:
- with respect to the reduction of the Class A Cumulative Investor
Charged-Off Amount, as set forth in item 20 of such subsection, the
increased Class C Cumulative Investor Charged-Off Amount will not exceed
the initial Class C Investor Interest minus any principal payments made
with respect to the Class C Certificates;
- with respect to the reduction of the Class A Cumulative Investor
Charged-Off Amount, as set forth in item 22 of such subsection, the
increased Class B Cumulative Investor Charged-Off Amount will not exceed
the initial Class B Investor Interest minus any principal payments made
with respect to the Class B Certificates; and
- with respect to the reduction of the Class B Cumulative Investor
Charged-Off Amount, as set forth in item 24 of such subsection, the
increased Class C Cumulative Investor Charged-Off Amount will not exceed
the initial Class C Investor Interest minus any principal payments made
with respect to the Class C Certificates.
(2) PRINCIPAL COLLECTIONS FROM EXCESS FUNDING ACCOUNT (GENERAL). An amount
equal to the product of:
- the sum of the Series Investor Interests for all Series in Group One
minus the sum of Class Investor Interests with respect to Seller Retained
Classes for all series in Group One, divided by the Aggregate Investor
Interest minus the sum of all Class Investor Interests with respect to
Seller Retained Classes for all outstanding Series; and
- the amount on deposit in the Excess Funding Account (General) before any
withdrawals from that account with respect to any other series pursuant
to a comparable clause in the applicable series supplement
will be withdrawn from the Excess Funding Account (General) and deposited into
the Group One Principal Collections Reallocation Account.
(3) PRINCIPAL COLLECTIONS. An amount equal to the remaining Series
Principal Collections minus the sum of:
- Series Yield Collections, if any; and
- remaining Class B Principal Collections and Class C Principal Collections
will be withdrawn from the Series Collections Account and deposited in the
Series Principal Collections Account.
(4) CLASS A PRINCIPAL. An amount equal to the lesser of:
- the Class A Rapid Amortization Amount; and
- the amount on deposit in the Series Principal Collections Account
will be withdrawn from the Series Principal Collections Account and deposited
into the Series Distribution Account. The amount by which the Class A Rapid
Amortization Amount exceeds this deposit will be the "Class A Rapid Amortization
Amount Shortfall."
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(5) CLASS B PRINCIPAL. On and after the Distribution Date on which the
Class A Invested Amount is paid in full, an amount equal to the lesser of:
- the Class B Rapid Amortization Amount; and
- the amount on deposit in the Series Collections Account
will be withdrawn from the Series Principal Collections Account and deposited
into the Series Distribution Account. The amount by which the Class B Rapid
Amortization Amount exceeds this deposit will be the "Class B Rapid Amortization
Amount Shortfall."
(6) CLASS C PRINCIPAL. On each Distribution Date after the Distribution
Date on which the Class B Rapid Amortization Amount is paid in full, an amount
equal to the lesser of:
- the Class C Rapid Amortization Amount; and
- the amount on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account. The amount by which the Class C Rapid Amortization
Amount exceeds this deposit will be the "Class C Rapid Amortization Amount
Shortfall."
(7) CLASS A PRINCIPAL. An amount equal to the lesser of:
- the Class A Rapid Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class A Rapid Amortization
Amount Shortfall and the denominator of which is the sum of the class
rapid amortization amount shortfalls for all classes with the same
alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of covering
rapid amortization amount shortfalls for any class with the same
alphabetical designation,
will be withdrawn from the Group One Principal Collections Reallocation Account
and deposited in the Series Distribution Account. The Class A Rapid Amortization
Amount Shortfall will be reduced by the amount of this deposit.
(8) CLASS B PRINCIPAL. An amount equal to the lesser of:
- the Class B Rapid Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class B Rapid Amortization
Amount Shortfall and the denominator of which is the sum of the class
rapid amortization amount shortfalls for all classes with the same
alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of covering
rapid amortization amount shortfalls for any class with the same
alphabetical designation and after any withdrawals from that account
for the benefit of classes of such other series with a higher
alphabetical designation,
will be withdrawn from the Group One Principal Collections Reallocation Account
and deposited in the Series Distribution Account. The Class B Rapid Amortization
Amount Shortfall will be reduced by the amount of this deposit.
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<PAGE> 82
(9) CLASS C PRINCIPAL. An amount equal to the lesser of:
- the Class C Rapid Amortization Amount Shortfall; and
- the product of:
- a fraction the numerator of which is the Class C Rapid Amortization
Amount Shortfall and the denominator of which is the sum of the class
rapid amortization amount shortfalls for all classes with the same
alphabetical designation for all series in Group One; and
- the amount on deposit in the Group One Principal Collections
Reallocation Account before any withdrawals from that account with
respect to any other series in Group One pursuant to a comparable
clause in the applicable series supplement for the purpose of covering
rapid amortization amount shortfalls for any class with the same
alphabetical designation and after any withdrawals from that account
for the benefit of classes of such other series with a higher
alphabetical designation,
will be withdrawn from the Group One Principal Collections Reallocation Account
and deposited in the Series Distribution Account. The Class C Rapid Amortization
Amount Shortfall will be reduced by the amount of this deposit.
(10) REALLOCATION TO OTHER SERIES. An amount equal to all remaining amounts
on deposit in the Series Principal Collections Account will be withdrawn from
the Series Principal Collections Account and deposited into the Group One
Principal Collections Reallocation Account.
(11) DEPOSIT TO EXCESS FUNDING ACCOUNT (SRC) AND PAYMENT TO SRFG. An amount
equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest (after giving effect to all such
payments to SRFG, beginning with the series (including this Series)
having the earliest series closing date and continuing seriatim); and
- any remaining amounts on deposit in the Series Collections Account
will be withdrawn from the Series Collections Account and paid to SRFG. If after
this payment, amounts remain on deposit in the Series Collections Account, these
amounts will be deposited into the Excess Funding Account (SRC). For purposes of
this provision, the Seller Interest will be deemed to include:
- all amounts on deposit in the Series Collection Account after step (9);
- all amounts on deposit in the Group One Principal Collections
Reallocation Account after step (9), plus comparable amounts on deposit
in comparable accounts for other Series; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that Distribution Date pursuant to
cash flow provisions for other series.
(12) DEPOSIT TO EXCESS FUNDING ACCOUNT (GENERAL) AND PAYMENT TO SRFG. An
amount equal to the lesser of:
- the positive difference, if any, between the amount of the Seller
Interest and the Minimum Seller Interest; and
- the product of:
- any remaining amounts on deposit in the Group One Principal
Collections Reallocation Account; and
- a fraction the numerator of which is the remaining amounts on deposit
in the Group One Principal Collections Reallocation Account and the
denominator of which is the sum of the remaining amounts on deposit in
all group principal collections reallocation accounts (including the
Group One Principal Collections Reallocation Account),
will be withdrawn from the Group One Principal Collections Reallocation Account
and paid to SRFG. If after this payment, amounts remain on deposit in the Group
One Principal Collections Reallocation
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Account, these amounts will be deposited into the Excess Funding Account
(General). For purposes of this provision, the Seller Interest will be deemed to
include:
- all amounts on deposit in the Group One Principal Collections
Reallocation Account and in all other group principal collection
reallocation accounts; and
- all amounts deposited into the Excess Funding Account (SRC) and the
Excess Funding Account (General) on that Distribution Date pursuant to
cash flow provisions for other series.
This provision will be applied before any comparable provisions in any
previously issued Series.
PAYMENTS
Payments of Interest and Series Monthly Servicing Fees. On each
Distribution Date, after giving effect to the payments and allocations described
above, the Servicer will direct the Trustee to make the following deposits and
payments in the order set forth and to the extent funds are available:
(1) CLASS A INTEREST. The lesser of:
- the Class A Modified Required Amount; and
- the amount on deposit in the Series Distribution Account with respect to
the Class A Certificates
will be withdrawn from the Series Distribution Account and deposited in the
Series Interest Funding Account.
(2) CLASS B INTEREST. The lesser of:
- the Class B Modified Required Amount, if any; and
- the amount on deposit in the Series Distribution Account with respect to
the Class B Certificates
will be withdrawn from the Series Distribution Account and deposited in the
Series Interest Funding Account.
(3) CLASS C INTEREST. The lesser of:
- the Class C Modified Required Amount, if any; and
- the amount on deposit in the Series Distribution Account with respect to
the Class C Certificates
will be withdrawn from the Series Distribution Account and deposited in the
Series Interest Funding Account.
(4) INTEREST PAYMENT TO INVESTORS. On each Distribution Date, all amounts
on deposit in the Series Interest Funding Account will be withdrawn from that
account and paid to the Class A Certificateholders, the Class B
Certificateholders and the Class C Certificateholders in accordance with the
amounts deposited into that account with respect to each respective Class since
the preceding Distribution Date.
(5) SERIES MONTHLY SERVICING FEES. The lesser of:
- the sum of the Series Monthly Servicing Fees and all accrued but unpaid
Series Monthly Servicing Fees as of the prior Distribution Date; and
- the amount on deposit in the Series Distribution Account with respect to
such fees on each Distribution Date
will be withdrawn from the Series Distribution Account and paid to the Servicer.
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Payments of Principal. On each Distribution Date following the commencement
of the Controlled Amortization Period, the lesser of:
- all amounts on deposit in the Series Distribution Account; and
- the Class A Controlled Amortization Amount
will be paid to Class A Certificateholders until the Class A Invested Amount has
been paid in full. On each Distribution Date following the payment in full of
the Class A Invested Amount, or if the Class A Invested Amount is paid in full
on the Class A Expected Final Payment Date, beginning on the Distribution Date
following the Class A Expected Final Payment Date, the lesser of amounts
remaining on deposit in the Series Distribution Account following the payments
and deposits pursuant to steps (1) through (4) of "--Payments of Interest and
Series Monthly Servicing Fees" and the Class B Controlled Amortization Amount
will be paid to Class B Certificateholders. On each Distribution Date during the
Controlled Amortization Period while payments of principal are being made to the
Class A Certificateholders or the Class B Certificateholders, the lesser of
amounts remaining on deposit in the Series Distribution Account and the Class C
Permitted Controlled Amortization Amount will be paid to the Class C
Certificateholders. On each Distribution Date after the Class A Invested Amount
and the Class B Invested Amount have been paid in full, all remaining amounts on
deposit in the Series Distribution Account will be paid to the Class C
Certificateholders, up to an amount equal to the Class C Invested Amount. On
each Distribution Date of the Rapid Amortization Period, all amounts on deposit
in the Series Distribution Account up to the Class A Invested Amount will be
distributed to the Class A Certificateholders, and any remaining amounts will be
distributed first to the Class B Certificateholders in an amount up to the Class
B Invested Amount and then to the Class C Certificateholders in an amount up to
the Class C Invested Amount.
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ANNEX B
OTHER SERIES
The table below sets forth the principal characteristics of the Class A,
Class B and Class C Master Trust Certificates of Series 1994-1, Series 1995-1,
Series 1995-2, Series 1995-3, Series 1995-4, Series 1995-5, Series 1996-1,
Series 1996-2, Series 1996-3, Series 1996-4, Series 1996-5, Series 1997-1,
Series 1998-1 and Series 1998-2, the only series previously issued by the Trust
and currently outstanding. You may obtain from Sears a free copy of any of the
documents incorporated by reference into this Prospectus Supplement or the
accompanying Prospectus by calling 1-800-SEARS-80 (1-800-732-7780).
<TABLE>
<S> <C>
1. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1994-1
Group....................................................... One
Class A Initial Investor Interest........................... $750,000,000
Class B Initial Investor Interest........................... $33,500,000
Class C Initial Investor Interest........................... $98,857,000
Class A Certificate Rate.................................... 7.00%
Class B Certificate Rate.................................... 7.25%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ September 15, 1998
Class A Expected Final Payment Date......................... August 15, 2000
Class B Expected Final Payment Date......................... September 15, 2000
Class C Expected Final Payment Date......................... October 16, 2000
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... August 16, 1994
Series Termination Date..................................... January 16, 2004
</TABLE>
Series 1994-1 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C>
2. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1995-1
Group....................................................... One
Class A Initial Investor Interest........................... $200,000,000
Class B Initial Investor Interest........................... $10,000
Class C Initial Investor Interest........................... $35,285,000
Class A Certificate Rate.................................... 8.24%
Class B Certificate Rate.................................... 8.24%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ February 15, 1999
Class A Expected Final Payment Date......................... January 15, 2001
Class B Expected Final Payment Date......................... February 15, 2001
Class C Expected Final Payment Date......................... March 15, 2001
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... January 4, 1995
Series Termination Date..................................... June 16, 2004
</TABLE>
Series 1995-1 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
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<PAGE> 86
<TABLE>
<S> <C>
3. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1995-2
Group....................................................... One
Class A Initial Investor Interest........................... $600,000,000
Class B Initial Investor Interest........................... $26,966,000
Class C Initial Investor Interest........................... $78,917,000
Class A Certificate Rate.................................... 8.10%
Class B Certificate Rate.................................... 8.30%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ February 15, 1999
Class A Expected Final Payment Date......................... January 15, 2001
Class B Expected Final Payment Date......................... February 15, 2001
Class C Expected Final Payment Date......................... March 15, 2001
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... January 20, 1995
Series Termination Date..................................... June 16, 2004
</TABLE>
Series 1995-2 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C>
4. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1995-3
Group....................................................... One
Class A Initial Investor Amount............................. $500,000,000
Class B Initial Investor Amount............................. $22,500,000
Class C Initial Investor Amount............................. $65,740,000
Class A Certificate Rate.................................... 7.00%
Class B Certificate Rate.................................... 7.25%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ June 15, 1999
Class A Expected Final Payment Date......................... May 15, 2001
Class B Expected Final Payment Date......................... June 15, 2001
Class C Expected Final Payment Date......................... July 15, 2001
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... May 8, 1995
Series Termination Date..................................... October 16, 2004
</TABLE>
Series 1995-3 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C>
5. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1995-4
Group....................................................... One
Class A Initial Investor Amount............................. $500,000,000
Class B Initial Investor Amount............................. $22,500,000
Class C Initial Investor Amount............................. $61,330,000
Class A Certificate Rate.................................... 6.25%
Class B Certificate Rate.................................... 6.35%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ March 15, 1998
Class A Expected Final Payment Date......................... February 15, 1999
Class B Expected Final Payment Date......................... March 15, 1999
Class C Expected Final Payment Date......................... April 15, 1999
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... September 6, 1995
Series Termination Date..................................... January 16, 2003
</TABLE>
Series 1995-4 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
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<PAGE> 87
<TABLE>
<S> <C>
6. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1995-5
Group....................................................... One
Class A Initial Investor Amount............................. $500,000,000
Class B Initial Investor Amount............................. $22,730,000
Class C Initial Investor Amount............................. $65,520,000
Class A Certificate Rate.................................... 6.05%
Class B Certificate Rate.................................... 6.20%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ March 15, 2002
Class A Expected Final Payment Date......................... February 16, 2004
Class B Expected Final Payment Date......................... March 15, 2004
Class C Expected Final Payment Date......................... April 15, 2004
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... December 12, 1995
Series Termination Date..................................... January 16, 2008
</TABLE>
Series 1995-5 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
<TABLE>
<S> <C>
7. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1996-1
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $22,500,000
Class C Initial Investor Interest........................... $65,740,000
Class A Certificate Rate.................................... 6.20%
Class B Certificate Rate.................................... 6.35%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ April 17, 2000
Class A Expected Final Payment Date......................... March 15, 2002
Class B Expected Final Payment Date......................... April 15, 2002
Class C Expected Final Payment Date......................... May 15, 2002
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... March 26, 1996
Series Termination Date..................................... February 16, 2006
</TABLE>
Series 1996-1 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such
other series.
<TABLE>
<S> <C>
8. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1996-2
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $22,500,000
Class C Initial Investor Interest........................... $65,740,000
Class A Certificate Rate.................................... 6.50%
Class B Certificate Rate.................................... 6.65%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ December 15, 1998
Class A Expected Final Payment Date......................... November 15, 1999
Class B Expected Final Payment Date......................... December 15, 1999
Class C Expected Final Payment Date......................... January 17, 2000
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... May 17, 1996
Series Termination Date..................................... October 16, 2003
</TABLE>
Series 1996-2 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
S-87
<PAGE> 88
<TABLE>
<S> <C>
9. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1996-3
Group....................................................... One
Class A Initial Investor Amount............................. $500,000,000
Class B Initial Investor Amount............................. $22,500,000
Class C Initial Investor Amount............................. $65,740,000
Class A Certificate Rate.................................... 7.00%
Class B Certificate Rate.................................... 7.10%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ August 15, 2002
Class A Expected Final Payment Date......................... July 15, 2004
Class B Expected Final Payment Date......................... August 16, 2004
Class C Expected Final Payment Date......................... September 15, 2004
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... August 6, 1996
Series Termination Date..................................... July 16, 2008
</TABLE>
Series 1996-3 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such
other series.
<TABLE>
<S> <C>
10. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1996-4
Group.................................................... One
Class A Initial Investor Interest........................ $500,000,000
Class B Initial Investor Interest........................ $22,500,000
Class C Initial Investor Interest........................ $65,740,000
Class A Certificate Rate................................. 6.45%
Class B Certificate Rate................................. 6.65%
Class C Certificate Rate................................. 0%
Type..................................................... Controlled Amortization
Class A Scheduled Initial Principal Payment Date......... November 15, 2000
Class A Expected Final Payment Date...................... October 15, 2002
Class B Expected Final Payment Date...................... November 15, 2002
Class C Expected Final Payment Date...................... December 16, 2002
Type of Credit Enhancement............................... Subordination
Series Closing Date...................................... October 29, 1996
Series Termination Date.................................. October 17, 2006
</TABLE>
Series 1996-4 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such
other series.
<TABLE>
<S> <C>
11. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1996-5
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $25,000,000
Class C Initial Investor Interest........................... $103,931,000
Class A Certificate Rate.................................... One-month LIBOR plus
0.23%
Class B Certificate Rate.................................... One-month LIBOR plus
0.43%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ January 16, 2006
Class A Expected Final Payment Date......................... December 17, 2007
Class B Expected Final Payment Date......................... February 15, 2008
Class C Expected Final Payment Date......................... March 17, 2008
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... December 16, 1996
Series Termination Date..................................... December 16, 2011
</TABLE>
Series 1996-5 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such other
series.
S-88
<PAGE> 89
<TABLE>
<S> <C>
12. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1997-1
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $22,500,000
Class C Initial Investor Interest........................... $65,740,000
Class A Certificate Rate.................................... 6.20%
Class B Certificate Rate.................................... 6.40%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ August 15, 2001
Class A Expected Final Payment Date......................... August 15, 2003
Class B Expected Final Payment Date......................... September 15, 2003
Class C Expected Final Payment Date......................... October 15, 2003
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... July 31, 1997
Series Termination Date..................................... July 17, 2007
</TABLE>
Series 1997-1 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such
other series.
<TABLE>
<S> <C>
13. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1998-1
Group....................................................... One
Class A Initial Investor Interest........................... $500,000,000
Class B Initial Investor Interest........................... $35,300,000
Class C Initial Investor Interest........................... $52,950,000
Class A Certificate Rate.................................... 5.80%
Class B Certificate Rate.................................... 6.00%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ September 15, 2000
Class A Expected Final Payment Date......................... August 15, 2001
Class B Expected Final Payment Date......................... October 15, 2001
Class C Expected Final Payment Date......................... November 15, 2001
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... June 2, 1998
Series Termination Date..................................... August 16, 2005
</TABLE>
Series 1998-1 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such
other series.
<TABLE>
<S> <C>
14. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES, SERIES 1998-2
Group....................................................... One
Class A Initial Investor Interest........................... $450,000,000
Class B Initial Investor Interest........................... $32,000,000
Class C Initial Investor Interest........................... $48,000,000
Class A Certificate Rate.................................... 5.25%
Class B Certificate Rate.................................... 0%
Class C Certificate Rate.................................... 0%
Type........................................................ Controlled Amortization
Class A Scheduled Initial Principal Payment Date............ November 15, 2002
Class A Expected Final Payment Date......................... October 15, 2004
Class B Expected Final Payment Date......................... December 15, 2004
Class C Expected Final Payment Date......................... January 17, 2005
Type of Credit Enhancement.................................. Subordination
Series Closing Date......................................... November 9, 1998
Series Termination Date..................................... October 16, 2008
</TABLE>
Series 1998-2 provides for reallocation of Collections to other series in
Group One to the extent provided in the series supplement relating to such
other series.
S-89
<PAGE> 90
PROSPECTUS
SEARS CREDIT ACCOUNT MASTER TRUST II
MASTER TRUST CERTIFICATES
SEARS, ROEBUCK AND CO.
SERVICER
SRFG, INC.
SELLER
------------------------
SRFG, Inc. ("SRFG") intends to sell from time to time up to $1,401,504,000
aggregate initial offering price of Master Trust Certificates ("investor
certificates"), consisting of multiple series, representing an undivided
interest in Sears Credit Account Master Trust II (the "Trust"), formed pursuant
to a Pooling and Servicing Agreement among Sears, Roebuck and Co. as Servicer
("Sears"), SRFG as Seller and The First National Bank of Chicago as Trustee. The
property of the Trust includes a portfolio of credit account receivables
generated or to be generated by or through Sears, Sears National Bank (the
"Bank") or their affiliates in the ordinary course of business, all monies
received in payment of such receivables and certain additional funds. Investor
certificates will be sold from time to time under this Prospectus on terms
determined for each series at the time of sale and described in the related
Prospectus Supplement. Each series will consist of one or more classes of
investor certificates. The interest of the investor certificateholders of each
class of a series offered hereby will include the right to receive a varying
percentage of each month's collections with respect to the Receivables at the
times, in the manner and to the extent described herein and in the related
Prospectus Supplement.
Although the specific terms of each series in respect to which this Prospectus
is being delivered will be described in the related Prospectus Supplement, the
terms of such series will not be subject to prior review by, or consent of, the
holders of the investor certificates of any previously issued series.
Interest and principal payments with respect to each series offered hereby will
be made as specified in the related Prospectus Supplement. Credit Enhancement
may be provided to a series or class of investor certificates pursuant to
subordination provisions that require distributions of principal and/or interest
to be made with respect to the investor certificates of such series or class
offered hereby before distributions are made to one or more other series or
other classes of such series, to the extent described in the related Prospectus
Supplement. In addition, one or more series or classes of investor certificates
offered hereby may be entitled to the benefits of any form of Third Party Credit
Enhancement specified in the related Prospectus Supplement.
THE INVESTOR CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST AND WILL NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF SEARS, ROEBUCK AND CO., SEARS NATIONAL
BANK, SRFG, INC. OR ANY AFFILIATE THEREOF. NEITHER THE INVESTOR CERTIFICATES NOR
THE UNDERLYING ACCOUNTS OR RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The investor certificates may be sold through underwriting syndicates
represented by one or more managing underwriters, by underwriters without a
syndicate, through agents designated from time to time, or directly to
purchasers. If underwriters or agents are involved in the offering of investor
certificates, the name of the managing underwriter or underwriters or agents
will be set forth in the related Prospectus Supplement. If an underwriter or
agent or dealer is involved in the offering of investor certificates, the
underwriter's discount, the agent's commission or the dealer's purchase price
will be set forth in, or may be calculated from the information in, the related
Prospectus Supplement, and the net proceeds to SRFG from such offering will be
the public offering price of such investor certificates less such discount in
the case of an underwriter, the purchase price of such investor certificates
less such commission in the case of an agent, or the purchase price of such
investor certificates in the case of a dealer, and less, in each case, the other
expenses of SRFG associated with the issuance of such investor certificates. See
"Plan of Distribution."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF ANY SERIES OF INVESTOR
CERTIFICATES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
March 12, 1999
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Investor Certificateholders.............. 2
Incorporation of Certain Documents by Reference..... 2
Prospectus Summary.................................. 3
Risk Factors........................................ 7
The Seller.......................................... 13
The Servicer........................................ 13
Year 2000 Compliance............................... 13
The Credit Card Bank................................ 14
Certain Legal Matters Relating to the Receivables... 15
Transfer of Receivables............................ 15
Security Interests in Receivables.................. 15
Insolvency Related Matters......................... 16
Consumer Protection Laws and Debtor Relief Laws
Applicable to the Receivables.................... 18
Claims and Defenses of Credit Customers Against the
Trust............................................ 18
The Trust........................................... 18
Formation of the Trust............................. 18
Collections Account and Group Collections
Accounts......................................... 19
Adjustments to Receivables......................... 20
Addition of Accounts............................... 20
Removal of Accounts................................ 22
Repurchase of Trust Portfolio...................... 22
Repurchase of Specified Receivables................ 23
Termination of the Trust........................... 23
Description of the Investor Certificates............ 24
General............................................ 24
Interest Payments.................................. 24
Principal Payments................................. 25
Class Percentages and Seller Percentage............ 25
Investor Losses.................................... 25
Reallocations and Subordination of Collections..... 26
Aggregate and Net Payments......................... 26
Additional Funds................................... 26
Investment of Funds in Investor Accounts........... 27
Final Payment of Principal; Termination of
Series........................................... 27
Description of Credit Enhancement.................. 28
Establishing and Issuing New Series................ 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reallocation of Series Among Groups................ 29
List of Investor Certificateholders................ 29
Meetings........................................... 30
Book-Entry Registration............................ 30
Definitive Certificates............................ 33
Exchange of Investor Certificates for Seller
Interest......................................... 34
Sale of Seller Interest............................ 34
Amendments......................................... 34
The Trustee......................................... 35
Indemnification of Trust and Trustee............... 36
Certain Matters Regarding the Servicer.............. 36
Servicing Compensation and Payment of Expenses..... 36
Resignation or Merger of Servicer; Delegation of
Duties........................................... 36
Servicer Termination Events........................ 37
Reports to Investor Certificateholders............. 37
Evidence as to Compliance.......................... 38
Use of Proceeds..................................... 38
Certain Federal Income Tax Consequences............. 39
General............................................ 39
Tax Treatment of the Investor Certificates as
Indebtedness..................................... 39
United States Holders.............................. 40
United States Alien Holders........................ 42
Backup Withholding and Information Reporting....... 43
Possible Characterization of the Investor
Certificates..................................... 44
Certain State Tax Consequences...................... 45
General............................................ 45
Arizona, Delaware, Georgia, Illinois, Ohio
and Texas........................................ 45
ERISA Considerations................................ 46
Plan of Distribution................................ 48
Legal Matters....................................... 49
Available Information............................... 49
Definitions......................................... 50
Annex I--Global Clearance, Settlement and Tax
Documentation Procedures........................... 60
</TABLE>
REPORTS TO INVESTOR CERTIFICATEHOLDERS
Monthly and annual reports, containing information concerning the Trust
prepared by the Trustee, based upon information provided by Sears as Servicer,
will be sent free of charge to investor certificateholders upon request by
calling (212) 493-6928. See "Certain Matters Regarding the Servicer--Reports to
Investor Certificateholders." The annual reports will not contain financial
information that has been examined and reported on by independent public
accountants. Sears and SRFG do not intend to send any of their financial reports
to investor certificateholders.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following reports and documents filed by SRFG on behalf of the Trust
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") are hereby incorporated by reference in
this Prospectus:
(1) Annual Report on Form 10-K for the year ended December 31, 1997; and
(2) Current Reports on Form 8-K filed January 15, January 30, February
17, March 16, April 15, May 14, May 15, May 18, June 15, June 17,
July 13, July 15, August 17, September 15, October 15, October 27,
November 5, November 13, November 16 and December 15, 1998 and
January 15, February 9, February 16, February 19 and March 12, 1999.
All reports and other documents filed by SRFG on behalf of the Trust
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus and prior to the termination of the offering of the
investor certificates shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to constitute
a part of this Prospectus.
The Servicer will provide without charge to each person, including any
beneficial owner of investor certificates, to whom a copy of this Prospectus is
delivered, a copy of any and all the documents incorporated herein by reference
(other than exhibits to such documents) upon request by calling 1-800-SEARS-80
(1-800-732-7780).
2
<PAGE> 92
PROSPECTUS SUMMARY
The following summary is qualified in its entirety, with respect to any
series of investor certificates issued by the Trust and offered hereby, by the
more detailed information appearing elsewhere in this Prospectus and in the
related Prospectus Supplement. Reference is made to the Definitions contained in
this Prospectus and to the Glossary of Terms contained in the related Prospectus
Supplement for the definitions of certain capitalized terms. Unless the context
requires otherwise, capitalized terms used in this Prospectus relate separately
to individual series of investor certificates issued by the Trust.
GENERAL....................... Sears Credit Account Master Trust II has
issued, and is expected to issue, series of
investor certificates from time to time. Each
investor certificate offered in each series
will represent a fractional undivided interest
in the Trust.
The assets of the Trust include a portfolio
that consists of all of the Receivables
existing under certain open-end retail charge
plan Accounts maintained by Sears National Bank
(the "Bank"), Sears, Roebuck and Co. ("Sears"),
or another affiliate of Sears with respect to
the sale of goods or services.
Sears conducts domestic and international
merchandising and credit operations. Domestic
operations includes merchandising and credit
operations in the United States and Puerto
Rico. Sears principal executive offices are
located at 3333 Beverly Road, Hoffman Estates,
Illinois 60179 (847/286-2500).
The Receivables that have been transferred to
the Trust arise from Sears domestic credit
operations and were originated by the Bank or
Sears. The Bank, a wholly-owned subsidiary of
Sears, is a "credit card bank" under the Bank
Holding Company Act that is the issuer of most
of the open-end retail charge plan accounts in
the Sears Portfolio. The Bank transfers all
receivables arising under such accounts
(including Receivables arising under Accounts)
to Sears.
Sears transfers the Receivables in the Accounts
to SRFG, Inc. ("SRFG"), which in turn transfers
such Receivables to the Trust. SRFG, a
wholly-owned subsidiary of Sears, was organized
for limited purposes including facilitating the
issuance of securities of the type offered
hereby. SRFG's executive offices are located at
3711 Kennett Pike, Greenville, Delaware 19807
(302/888-3176).
SERVICER...................... Sears is the Servicer of all of the Accounts.
TRUSTEE....................... The First National Bank of Chicago. The
Trustee's principal executive office is located
at One First National Plaza, Chicago, Illinois
60670-0126.
ADDITIONAL INFORMATION
CONCERNING THE TRUST.......... The Trust was formed pursuant to a Pooling and
Servicing Agreement among Sears, SRFG and the
Trustee. The assets of the Trust include all of
the Receivables existing under the Accounts,
Participation Interests that may be included in
the Trust, all monies due or to become due
thereunder, all
3
<PAGE> 93
proceeds of the Receivables, all monies on
deposit in certain accounts of the Trust, funds
available with respect to the Credit
Enhancement for any outstanding series of
investor certificates, Additional Funds and any
interest rate cap or other interest rate
protection agreements for any outstanding
series of investor certificates. Upon formation
of the Trust, SRFG transferred to the Trust all
Receivables in the Accounts as of the Cut-Off
Date. In addition, SRFG has transferred the
Receivables in Additional Accounts to the Trust
(as of the applicable Additional Account
Cut-Off Date), and may transfer, or may be
obligated to transfer, the Receivables in
Additional Accounts or Participation Interests
to the Trust from time to time in the future.
The Trust, as a master trust, has issued series
of investor certificates, and is expected to
issue additional series of investor
certificates in the future, subject to certain
requirements and restrictions set forth in the
Pooling and Servicing Agreement. The consent of
the holders of investor certificates of any
outstanding series will not be required in
order for the Trust to issue additional series
of investor certificates.
The terms governing each particular series of
investor certificates are set forth in the
Pooling and Servicing Agreement (which applies
to all series issued from the Trust) and in a
related Series Supplement (which will apply to
a particular series). The Series Supplement for
each series will specify, among other things,
the number of classes of investor certificates
in the series, the size of the series, its
payment terms, and the kind and size of Credit
Enhancement, if any, for the series.
The investor certificates of each series issued
from the Trust will be entitled to receive a
specified portion of funds received in payment
of the Receivables, plus the benefit of any
Credit Enhancement for that series and any
interest rate cap or other interest rate
protection agreements for that series. The
remaining fractional undivided interest in the
Trust not represented by investor certificates
of any series is represented by the Seller
Certificate, which is owned by SRFG.
INTEREST ON INVESTOR
CERTIFICATES.................. Interest on the investor certificates will
accrue at the per annum rate either specified
in, or determined in the manner specified in,
the related Prospectus Supplement. See
"Description of the Investor
Certificates--Interest Payments."
PRINCIPAL ON INVESTOR
CERTIFICATES.................. The principal of the investor certificates of
each series offered hereby will be scheduled to
be paid either in full on the Expected Final
Payment Date applicable to such series in a
single payment, in which case such series will
have a Controlled Accumulation Period as
described below under "--Controlled
Accumulation Period," or in installments
commencing on the first Principal Payment Date
and scheduled to end on an Expected Final
Payment Date, in which case such series will
have a Controlled Amortization Period
4
<PAGE> 94
as described below under "--Controlled
Amortization Period," and may also have a
Controlled Accumulation Period, in each case as
specified in the related Prospectus Supplement.
If a series has more than one class of investor
certificates, a different method of paying
principal, Expected Final Payment Date and/or
initial Principal Payment Date may be specified
for each class. The payment of principal with
respect to the investor certificates of a
series or class offered hereby may commence
earlier than the Expected Final Payment Date or
initial Principal Payment Date specified in the
related Prospectus Supplement, and the final
principal payment with respect to the investor
certificates of such a series or class may be
made earlier or later than the Expected Final
Payment Date or other expected date specified
in the related Prospectus Supplement. See
"Description of the Investor
Certificates--Principal Payments."
REVOLVING PERIOD.............. The investor certificates of each series
offered hereby will have a Revolving Period,
which will commence on the day following the
Series Cut-Off Date specified in the related
Prospectus Supplement and continue until the
earlier of (i) the date specified in the
related Prospectus Supplement as the end of the
Revolving Period, or such earlier or later date
as the Servicer may elect or may be determined
in accordance with the applicable Series
Supplement, and (ii) the Rapid Amortization
Commencement Date with respect to such series.
CONTROLLED AMORTIZATION
PERIOD........................ If the related Prospectus Supplement specifies
that a series offered hereby will have a
Controlled Amortization Period, unless a Rapid
Amortization Event has occurred, the Controlled
Amortization Period will begin on the date
specified in such Prospectus Supplement and
continue until the earliest of (i) the payment
in full of the Series Invested Amount, (ii) the
Rapid Amortization Commencement Date with
respect to such series and (iii) the Series
Termination Date.
CONTROLLED ACCUMULATION
PERIOD........................ If the related Prospectus Supplement specifies
that a series offered hereby will have a
Controlled Accumulation Period, unless a Rapid
Amortization Event has occurred, the Controlled
Accumulation Period will begin on the date
specified in such Prospectus Supplement, or an
earlier or later date in accordance with the
applicable Series Supplement, and continue
until the earliest of (i) the payment in full
of the Series Invested Amount, (ii) the Rapid
Amortization Commencement Date with respect to
such series and (iii) the Series Termination
Date. In some circumstances, the Controlled
Accumulation Period may also terminate upon the
commencement of the Controlled Amortization
Period.
RAPID AMORTIZATION PERIOD..... The Rapid Amortization Period, if any, with
respect to a series offered hereby will begin
on the Rapid Amortization Commencement Date and
continue until the earlier of (i) the payment
in full of the Series Invested Amount and (ii)
the Series Termination Date. See the
description of various
5
<PAGE> 95
Rapid Amortization Events in the related
Prospectus Supplement.
CREDIT ENHANCEMENT............ Credit Enhancement may be provided to a series
or class of a series offered hereby by
subordination provisions that require
distributions of principal and/or interest to
be made with respect to the investor
certificates of such series or class before
distributions are made to one or more other
series or other classes of such series. Credit
Enhancement with respect to such a series also
may include a cash collateral account, a letter
of credit, a surety bond, an insurance policy
or any other form of credit enhancement
described in the related Prospectus Supplement.
See "Risk Factors--Effect of Subordination,"
"Description of the Investor
Certificates--Principal Payments" and
"--Description of Credit Enhancement."
CLEARANCE AND SETTLEMENT...... Unless otherwise specified in the related
Prospectus Supplement, investor
certificateholders may elect to hold their
investor certificates through any of DTC (in
the United States) or Cedelbank or Euroclear
(in Europe). Transfers within DTC, Cedelbank or
Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. Cross-market
transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
through Cedelbank or Euroclear, on the other
hand, will be effected in DTC through the
relevant Depositaries of Cedelbank or
Euroclear. See "Description of the Investor
Certificates--Book-Entry Registration."
6
<PAGE> 96
RISK FACTORS
Limited Liquidity. It is anticipated that, to the extent permitted, the
underwriters of each series, if any, will make a market in the investor
certificates for such series. There can be no assurance, however, that a
secondary market will develop or, if a secondary market does develop, that it
will provide holders of investor certificates of any particular series with
adequate liquidity or that it will continue until the termination of any such
series.
Rating of the Investor Certificates. Any rating assigned to the investor
certificates of a series or class of a series by a rating agency will not be a
recommendation to purchase, hold or sell investor certificates, inasmuch as such
rating does not comment as to market price or suitability for a particular
investor. There is no assurance that the rating will remain for any given period
of time or that the rating will not be lowered or withdrawn entirely if, in the
judgment of such agency, circumstances in the future so warrant. The rating
agencies do not evaluate, and the rating of the investor certificates does not
address, the likelihood that the entire outstanding principal amount of the
investor certificates will be paid on or prior to any scheduled payment date.
Book-Entry Registration. Unless otherwise specified in the related
Prospectus Supplement, the investor certificates (other than the Seller Retained
Classes) of each series offered hereby initially will be represented by one or
more global investor certificates registered in the name of Cede & Co. ("Cede"),
the nominee for The Depository Trust Company ("DTC"), and will not be registered
in the names of the investor certificateholders or their nominees. As a result,
unless and until Definitive Certificates are issued, such investor
certificateholders will not be recognized by the Trustee as "Investor
Certificateholders" (as that term is used in the Pooling and Servicing
Agreement). Therefore, until such time, such investor certificateholders will
only be able to exercise the rights of investor certificateholders indirectly
through DTC and its Participants. See "Description of the Investor
Certificates--Book-Entry Registration" and "--Definitive Certificates."
Effects of the Selection Process, Seasoning and Performance
Characteristics. The Accounts were selected at random from the entire United
States; however, accounts from Puerto Rico are not included and there can be no
assurance that all fifty states are represented. Because the pool of Receivables
does not contain receivables in accounts from Puerto Rico, may not contain
receivables in accounts from every state and may not contain receivables in
accounts previously segregated into pools (some of which have been sold), the
performance of the Accounts may be different from the performance of the Sears
Portfolio. There can be no assurance that the payment performance of the
obligors on the Accounts will be representative of the Sears Portfolio in all
material respects. Based on historical experience, fixed pools of accounts (such
as the Accounts) in general experience somewhat higher yields and charge-offs
and more volatile performance characteristics (particularly in the first few
months following the selection of such fixed pools of accounts) than the
portfolios of the accounts from which they are selected (such as the Sears
Portfolio). The account selection process used to segregate pools of accounts
(including the Accounts) generally is designed to preserve the availability of
seasoned accounts for inclusion in subsequently segregated pools. In addition,
certain accounts in previously established pools have ceased to be segregated
and have become available for inclusion in newly segregated pools, which may
benefit from the inclusion of such seasoned accounts, but may be adversely
affected with respect to payment rate or in other respects as compared to the
Sears Portfolio. Previously established pools will also cease to be segregated
from time to time in the future and credit accounts from such previously
segregated pools may become part of the Trust as Additional Accounts. In
addition, previously established pools of more seasoned accounts may become part
of the Trust as Additional Accounts. See "The Trust--Addition of Accounts."
Assignment of Additional Accounts. SRFG has designated, and may
voluntarily, and in some cases may be obligated to, designate Additional
Accounts to be included as Accounts or add Participation Interests to the Trust.
See "The Trust--Addition of Accounts." The designation of Additional Accounts or
any Participation Interests is subject to the satisfaction of certain conditions
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described herein under "The Trust--Addition of Accounts." Because any such
Additional Accounts will not contain receivables in accounts from Puerto Rico
and may not contain receivables in accounts from every state or in accounts
previously segregated into pools (some of which have been sold), the performance
of any such Additional Accounts may be different from the performance of the
Accounts and from the performance of the Sears Portfolio. Because any Additional
Accounts may be selected from previously segregated pools of seasoned accounts
and may be selected from accounts not previously segregated into pools, on the
date any such Additional Accounts are selected, such Additional Accounts may
contain a higher or lower percentage of newly solicited and unseasoned accounts
than either the Accounts or the Sears Portfolio. The account selection process
used to segregate pools of accounts (including the Accounts and any such
Additional Accounts) generally is designed to preserve the availability of
seasoned accounts for inclusion in subsequently segregated pools. See "--Effects
of the Selection Process, Seasoning and Performance Characteristics."
Ability to Change Terms of the Receivables. The Pooling and Servicing
Agreement provides that the Bank, Sears or their affiliates, as applicable, may
change the terms governing the Accounts subject to certain limitations so long
as similarly situated accounts arising in the same jurisdiction are also
changed. In addition, the Bank, Sears or their affiliates, as applicable, retain
the right to prevent the creation of new Receivables in the Account of any
credit customer, or of all the credit customers within a particular
jurisdiction. A significant decline in the amount of Receivables generated might
result in a decline in the Seller Interest to an amount which would require SRFG
to contribute to the Trust the Receivables in Additional Accounts or
Participation Interests in order to avoid a Rapid Amortization Event and,
accordingly, commencement of the Rapid Amortization Period. See "--Payments and
Maturity."
The Pooling and Servicing Agreement provides that the Seller shall cause
the Servicer to administer, process and enforce the Accounts no differently than
the Bank's, Sears or their affiliates' similarly situated accounts. The Pooling
and Servicing Agreement also provides that the Bank, Sears and their affiliates
may change the terms governing the Accounts only if, in good faith, it is
believed that the change will not reduce the annualized yield of the Accounts to
less than the percentage equivalent of a fraction, the numerator of which is the
sum of the several products obtained by multiplying the weighted average
Certificate Rate of each outstanding series by the Invested Amount of each such
series and the denominator of which is the Aggregate Invested Amount, plus 1%
per annum, unless such change is required by law or is deemed by the Bank, Sears
or one of their affiliates to be necessary to maintain its credit card business
on a competitive basis. Except as set forth above, the Pooling and Servicing
Agreement does not and each Series Supplement will not contain any restrictions
on the ability of the Bank, Sears or their affiliates to change the terms of the
Accounts.
The Bank and Sears use statistical scoring models to evaluate applications
for new accounts that provide, in the event of an approval, a recommended line
of credit. These models enhance the Bank's and Sears ability to evaluate
applicant creditworthiness and manage their exposure to high credit risk
individuals. The Bank and Sears also regularly use scoring models to evaluate
existing accounts, modify credit limits on certain accounts and approve
purchases in excess of previously established credit limits, and from time to
time use other methods to review existing accounts. Although there can be no
assurance as to the effect of these increases in credit limits, the Bank and
Sears do not believe that these practices will have a material adverse effect on
the level of charge-offs on Sears Card accounts. In connection with the
operation of the credit business, the Bank and Sears reserve the right to change
credit evaluation policies at any time.
Payments and Maturity. The Receivables may be paid at any time and there is
no assurance that there will be additional Receivables created in the Accounts
or that any particular pattern of payments will occur. Changes in credit use and
payment patterns may result from a variety of social, legal and economic
factors. A significant decline in the amount of Receivables generated might
result in a decline in the Seller Interest to an amount that would require SRFG
to contribute to the
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Trust the Receivables in Additional Accounts or Participation Interests in order
to avoid a Rapid Amortization Event and, accordingly, commencement of the Rapid
Amortization Period. In addition, increased convenience use, where obligors pay
their Receivables within the grace period to avoid all finance charges, might
decrease the effective yield on the Receivables and also could result in a
decline in the Seller Interest, as well as decreased protection to investor
certificateholders against charged-off Receivables. Conversely, the terms
governing the Accounts require only a minimum monthly payment, and a significant
decrease in the percentage of repayment by obligors could delay the payment of
principal. Any delay in the payment of principal with respect to any series will
extend the period during which charged-off Receivables may be allocated to the
investor certificates of such series.
Investor Risk of Loss. Payments to investor certificateholders are made
from Collections on Receivables allocated to the investor certificateholders and
from the Credit Enhancement, if any, available for their benefit. If Receivables
are charged-off as uncollectible to such an extent that such Collections and
Credit Enhancement, if any, are insufficient to fully repay the investor
certificateholders, the investor certificateholders will incur losses. Any
reduction in the Investor Interest of the investor certificates of any class
resulting from such losses may cause the Class Percentage of Principal
Collections and Finance Charge Collections allocable to such class on future
Distribution Dates to be reduced, and future payments of interest and principal
with respect to such class may be reduced or delayed. Neither SRFG nor Sears has
any obligation to make payments of principal or interest on the investor
certificates.
Effect of Subordination. With respect to any series offered hereby having a
class or classes of subordinated certificates (referred to herein as the
"Subordinate Certificates"), the Subordinate Certificates will be subordinated
in right of payment to the senior certificates to the extent described herein
and in the related Prospectus Supplement. See "Description of the Investor
Certificates--Reallocations and Subordination of Collections--Subordination of
Class B Certificates" and "--Subordination of Class C Certificates." If the
Investor Interest of any Subordinate Certificates suffers a reduction as a
result of such subordination, the Class Percentage of Finance Charge Collections
and Principal Collections of such Subordinate Certificates on future
Distribution Dates may be reduced and future payments of interest and principal
with respect to such Subordinate Certificates may be reduced or delayed.
Issuance of Additional Series and Additional Investor Certificates;
Maturity Considerations. The Trust, as a master trust, has issued, and in the
future is expected to issue, from time to time series of investor certificates.
Although the terms of any series will be specified in the Series Supplement
creating such series, the provisions of such Series Supplement, and, therefore,
the terms of any particular series, will not be subject to the prior review or
consent of holders of the investor certificates of any previously issued series.
Such terms may include methods for determining applicable investor percentages
and allocating collections, provisions establishing one or more classes of
investor certificates (including one or more classes subordinated to other
classes of such series), provisions creating different or additional security or
Credit Enhancement, provisions subordinating a subsequent series to the investor
certificates of a prior series (if the Series Supplement relating to the
subsequent series so permits) and any other terms or provisions that are made
applicable only to such series. SRFG may also cause the Trustee to issue
additional investor certificates in existing series. With respect to Additional
Funds that are allocated among series without any allocation to the Seller
Interest, the issuance of new series (or of additional investor certificates in
any series) will cause the pro rata share of such Additional Funds allocated to
each series (or investor certificate) to decline as a portion of such Additional
Funds are allocated to the new series (or the additional investor certificates).
The Trustee will authenticate and deliver a new series of investor
certificates only upon satisfaction of certain conditions, including written
confirmation from the Rating Agencies that the issuance of the new series will
not result in the reduction or withdrawal of ratings with respect to any rated
class of any outstanding series (any such reduction or withdrawal is referred to
herein as a
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"Ratings Event"). There can be no assurance, however, that the issuance of one
or more additional series from time to time hereafter might not have an impact
on the timing and amount of payments received by an investor certificateholder
of any previously issued series. See "Description of the Investor
Certificates--Establishing and Issuing New Series."
Under certain circumstances, as provided in the related Series Supplement,
Collections originally available to one series in a Group may be reallocated to
another series in such Group. Unless otherwise provided in the related Series
Supplement, under no circumstances will Collections originally allocated to one
series on any Distribution Date be reallocated to any other series unless all
amounts to be funded with respect to the first series by the Collections
allocated to such series on that Distribution Date have been funded.
Reallocations of Collections among series may permit either a reduction in the
Class Percentage with respect to Principal Collections allocable to a class
receiving reallocations of Principal Collections from other series during the
Controlled Accumulation Period or Controlled Amortization Period applicable to
such series, or in the shortening of the Controlled Accumulation Period
applicable to such series. If a Rapid Amortization Event were to occur with
respect to any such other series during the Controlled Accumulation Period or
Controlled Amortization Period for such a series the amount of Principal
Collections allocable to such class may not be sufficient to make final payments
of principal with respect thereto on the applicable Expected Final Payment Date;
therefore, payments of principal with respect to such class may be delayed or
reduced.
Provisions that would facilitate such reallocations to a series may be
included in the related Series Supplement for such series, but such provisions
would only be effective upon the issuance of another series that provides for
reallocations from such series. The Seller, however, is under no obligation to
establish or issue any series from which Collections may be reallocated. There
can be no assurance that any series will not be moved from its original Group to
any other Group, including a new Group with no other series then outstanding, in
which event provisions allowing such reallocations with respect to the original
Group may not be operative and reallocation provisions with respect to the other
Group may apply. See "Description of the Investor Certificates--Reallocations
and Subordination of Collections" and "--Reallocation of Series Among Groups."
SRFG may, during the Controlled Amortization Period or Controlled
Accumulation Period, if so specified in the related Prospectus Supplement for a
series offered hereby, cause the Trust to issue another series as a Paired
Series with respect to such series to finance the increase in the Seller
Interest caused by the amortization of principal of such series or the
accumulation of principal in the Series Principal Funding Account. If a Rapid
Amortization Event were to occur with respect to any such Paired Series prior to
the payment in full of the certificates of the original series, the numerator of
Class Percentages applicable to the allocation of Principal Collections for the
original series may be reduced by the amount of the Investor Interest of such
Paired Series and the payments of the principal with respect to the
certificateholders of such original series may be delayed or reduced. The terms
of the Paired Series will not be subject to the prior review or consent of the
holders of the investor certificates of the original series. The outstanding
principal amount of such Paired Series may vary from time to time and the Rapid
Amortization Events with respect to such Paired Series may vary from the Rapid
Amortization Events with respect to the original series and may include Rapid
Amortization Events that are unrelated to the status of SRFG, the Servicer or
the Receivables, such as Rapid Amortization Events related to the continued
availability and rating of certain Third Party Credit Enhancement Providers, if
any, to such Paired Series.
The Pooling and Servicing Agreement permits the issuance of one or more
series that would be subordinate in right of payment to another series. The
terms of any such subordination will be set forth in the Series Supplement for
the Subordinate Series. Such Subordinate Series would not be entitled to payment
unless and until the series to which it was subordinate has been paid in full.
Unless otherwise specified in the related Series Supplement, a series will not
be subordinated to any other series. The Seller may, but is under no obligation
to, issue a series in the future that is
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subordinate in right of payment to one or more series. See "Description of the
Investor Certificates --Reallocations and Subordination of
Collections--Subordinate Series."
Security Interests and Insolvency Related Matters. The Bank has granted to
Sears all of its right, title and interest in and to any Receivables originated
by the Bank pursuant to the Assignment of Accounts and Sale of Receivables
Agreement dated September 15, 1994, as amended, between the Bank and Sears (the
"Assignment Agreement"). It is possible that a receiver or conservator of the
Bank may argue that the transaction between the Bank and Sears pursuant to the
Assignment Agreement is a pledge of such Receivables rather than an absolute
transfer. Accordingly, the Bank has granted Sears a security interest in the
Receivables pursuant to the Assignment Agreement. To the extent that this
security interest is validly perfected prior to an insolvency of the Bank and
not taken with the intent to hinder, delay, or defraud the Bank or its
creditors, this security interest should not be subject to avoidance by a
receiver or conservator of the Bank, and payments made in respect of the
Receivables should not be subject to recovery by a receiver or conservator of
the Bank. If, however, a receiver or conservator of the Bank were to assert a
contrary position or were to require the Trust to establish its right to cash
Collections by submitting a claim and completing the administrative claims
procedure established under the Federal Deposit Insurance Act, as amended,
delays in payment on the Certificates and possible reductions in the amount of
those payments could occur. See "The Credit Card Bank" and "Certain Legal
Matters Relating to the Receivables--Insolvency Related Matters."
Sears and SRFG will treat the transfer of the Receivables from Sears to
SRFG as an absolute transfer of the Receivables to SRFG. As an absolute
transfer, the Receivables would not be part of any Sears bankruptcy estate and
would not be available to Sears creditors. However, in the event of the
insolvency of Sears it is possible that the bankruptcy trustee or a creditor of
Sears or Sears as debtor in possession may argue that the transaction between
Sears and SRFG is a pledge of the Receivables rather than an absolute transfer.
This position, if accepted by a court, could prevent timely payments of amounts
due to investor certificateholders.
SRFG has covenanted in the Pooling and Servicing Agreement to repurchase
all the Receivables in the event that the transfer of the Receivables by it to
the Trust is neither a sale of such Receivables to the Trust nor a grant to the
Trust of a security interest in such Receivables, or if (assuming the transfer
by it to the Trust is a grant to the Trust of a security interest in the
Receivables) the Trustee does not have a perfected security interest therein of
first priority under the Uniform Commercial Code (the "UCC") as in effect in the
State of Delaware. SRFG has taken certain actions required to perfect and will
take certain actions as required to continue the Trust's interest in the
Receivables. A tax or other statutory lien on property of Sears or the Bank
arising before Receivables come into existence may have priority over the
Trust's interest in such Receivables. See "--Legislation," "The Credit Card
Bank" and "Certain Legal Matters Relating to the Receivables."
The Pooling and Servicing Agreement provides that, for so long as the
short-term debt rating of Sears remains below A-1/P-1, or if Sears is not the
Servicer, the Servicer will be required to deposit into the Collections Account
a portion of Collections at least equal to the sum of the amounts set forth in
the applicable Required Daily Deposit provisions for each outstanding series of
investor certificates. As long as Sears is the Servicer, all remaining
Collections allocable to investor certificates will be available for use by
Sears as a loan prior to each Distribution Date and, in the event of a
bankruptcy of Sears, the Trust may not have a perfected interest in such
Collections. At such time as Sears short-term debt rating is increased to
A-1/P-1, all Collections allocable to investor certificates will be available
for use by Sears as a loan prior to each Distribution Date and, in the event of
the bankruptcy of Sears, the Trust may not have a perfected interest in such
Collections. See "Certain Legal Matters Relating to the Receivables--Transfer of
Receivables."
Consumer Protection and Regulatory Credit Laws. The Accounts and the
Receivables are subject to numerous federal and state consumer protection and
state regulatory laws which impose
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requirements on the making and enforcement of extensions of consumer credit.
Such laws, as well as any new laws or rulings which may be adopted, may
adversely affect the ability to collect on the Receivables or maintain the
current level of finance and other charges, and failure by Sears or the Bank to
comply with such requirements could adversely affect the ability to collect the
Receivables. SRFG has covenanted in the Pooling and Servicing Agreement that if
a Receivable was not created in compliance in all material respects with all
requirements of such laws or if in certain other respects such Receivable is not
valid or enforceable, and if such noncompliance, invalidity or unenforceability
continues beyond the applicable cure period and has a material adverse effect on
the interest of the Trust in all the Receivables, SRFG will repurchase such
Receivables. However, it is not anticipated that the Trustee will make any
examination of the Receivables or the records relating thereto for the purpose
of establishing the presence or absence of defects in the Accounts, or for any
other purpose. See "Certain Legal Matters Relating to the Receivables--Consumer
Protection Laws and Debtor Relief Laws Applicable to the Receivables."
Legislation. The issue of federal regulation of finance and other charges
on credit cards has been debated from time to time. Although SRFG cannot predict
the effect of any such legislation or the measures that Sears as Servicer might
take in response thereto, a reduction in finance or other charges could reduce
the yield on the Receivables and, therefore, the amounts available to fund
Certificate Interest and reimburse charged-off Receivables. If such legislation
limited finance or other charge revenue to a sufficiently low level, there are
structural features within the Trust that could be invoked in order to enhance
yield. However, no assurance can be given that such structural features will be
invoked or that, if invoked, they would be sufficient to compensate for a
decline in yield.
Sears is subject to the consumer credit laws of each state in which its
customers reside, including limits on the annual percentage rate of finance
charges. As a national bank, the Bank's activities are in some cases, such as
maximum finance charge rates and permissible fees and charges, governed by the
consumer credit laws of the state of Arizona, the state in which the Bank's
charter is located, rather than the laws of each state in which its customers
reside. The United States Supreme Court in Smiley v. Citibank (South Dakota
N.A.) upheld the authority of national banks to "export" fees that are deemed
"interest" under Office of the Comptroller of the Currency Interpretive Rule
7.4001. From time to time, there are bills relating to retail consumer credit
pending in various state legislatures. These bills, if enacted, would not affect
the finance charge rate imposed in such states, but would affect certain credit
practices in such states, including, for example, disclosure of credit terms in
credit applications or periodic statements, telephone solicitation practices,
use of credit bureau reports and collection practices. There can be no assurance
that any legislation that would substantially reduce finance charge revenue or
impair collection of receivables will not be enacted at the state or federal
level.
Social and Economic Factors. Changes in account use and payment patterns by
obligors may result from a variety of social, competitive and economic factors.
Economic factors including the rate of inflation and relative interest rates
offered for various types of loans may be reflected in changes of account use
and payment patterns including increased risks of defaults by customers.
Customers' accounts from all geographic areas of the United States, with the
exception of Puerto Rico, are represented in the Accounts. Sears is unable to
determine and has no basis to predict whether, or to what extent, economic,
competitive or social factors will affect future credit use or payment patterns.
During periods of economic weakness, grantors of consumer credit (including
Sears and the Bank with regard to their credit accounts) generally experience
higher levels of charge-offs and delinquencies than in times of relative
economic stability. Additionally, heightened levels of consumer debt, large
numbers of personal bankruptcies and weakenings of the national economy or
regional economies may cause an increase in delinquencies and charge-offs in
credit card receivables underlying securities such as the investor certificates.
Competition. Sears and Bank credit plans are available for use for
purchases from Sears or its affiliates, licensees or concessionaires.
Third-party credit cards (including VISA, MasterCard,
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American Express and Discover Card), personal checks and cash are also accepted
for such purchases. Interest rates and other benefits available through other
credit sources may cause customers not to use or carry balances on various Sears
and Bank plans, though they constitute separate sources of credit.
In 1993, Sears terminated traditional catalog operations (including sales
through catalog outlet stores), while remaining in the direct response marketing
business. Also, on August 1, 1993, all Sears stores began accepting VISA,
MasterCard and American Express cards for purchases, in addition to Sears Card,
Discover Card, personal check or cash, in order to attract new customers and
incremental sales. There can be no assurance that the availability of such other
credit sources will not result in a reduction in the rate at which Receivables
are generated. If the rate at which the Receivables are generated or the finance
charges that are imposed on such Receivables decline significantly for reasons
of competition or otherwise, a Rapid Amortization Event may occur, causing the
commencement of the Rapid Amortization Period. See the description of Rapid
Amortization Events in the related Prospectus Supplement.
THE SELLER
SRFG was incorporated under the laws of the State of Delaware on April 8,
1988. All of its outstanding common stock is owned by Sears. SRFG was organized
for the limited purposes of facilitating the issuance of securities of the type
offered hereby, purchasing, holding, owning and selling receivables and any
activities incidental to and necessary or convenient for the accomplishment of
such purposes. Neither Sears, as stockholder of SRFG, nor SRFG's board of
directors, intends to change the business purpose of SRFG. The investor
certificates will not be guaranteed by Sears, the Bank or SRFG.
THE SERVICER
Sears acts as servicer of all Accounts originated by Sears and the Bank.
The Bank provides certain servicing functions for the Accounts as a
sub-servicer, including providing judgmental decision-making policy relating to
all Accounts.
Sears originated from an enterprise established in 1886. It was
incorporated under the laws of New York in 1906. Its principal executive offices
are located at 3333 Beverly Road, Hoffman Estates, Illinois. Sears, with its
consolidated subsidiaries, is a multi-line retailer which provides a wide array
of merchandise and services through five segments: retail, services, credit,
international and corporate. Sears is among the largest retailers in the world
on the basis of sales of merchandise and services.
YEAR 2000 COMPLIANCE
Year 2000 compliance is the ability of information systems to properly
recognize and process dates and date-sensitive information including the year
2000 and beyond (commonly referred to as Year 2000 or Y2K). Year 2000 compliance
is critical to Sears in its role as servicer of the Accounts because Sears and
its vendors and service providers are highly reliant on information systems to
operate their businesses.
Sears is using both internal and external resources to complete its Year
2000 compliance initiatives. The Year 2000 efforts of Sears credit and bank
operations are subject to regulatory review.
Sears information systems area includes:
- Sears proprietary and third party information systems;
- Related hardware, software and data and telephone networks; and,
- Information systems service providers.
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As of January 30, 1999, Sears has completed an inventory and assessment of
its mission critical (vital to business operations) information systems. Sears
has remediated approximately 82% of its mission critical systems and has
assessed or tested approximately 63% of them as Year 2000 compliant, subject to
final testing and validation. Sears expects to have substantially completed
remediation and testing by July 1999 and validation by November 1999.
Sears has obtained written assurances from two mission critical information
systems service providers that their systems and services will be Year 2000
compliant and is assessing their Year 2000 test plans and results. One of these
service providers is the primary provider of the Sears computer, data and voice
infrastructure, which supports merchandise procurement and distribution,
inventory control, point-of-sale and other information systems and functions.
The other service provider is providing Sears new account processing system and
operating platform to which Sears is converting its credit business.
Sears is developing contingency plans, which it expects to finalize by July
1999, that identify what actions need to be taken if a critical system or
service provider is not Year 2000 compliant.
Sears believes that its most significant Year 2000 risk factor with respect
to its role as servicer of the Trust is the failure of either of its two mission
critical information systems service providers to make their systems Year 2000
compliant. Although the occurrence of this scenario could have a material
adverse effect on the Trust, Sears does not believe that the scenario is
reasonably likely to occur. The Trust will not bear any of the expenses incurred
in connection with Sears Year 2000 plan.
The foregoing statements relating to Sears expectations as to its Year 2000
efforts are based on its best estimates, which may be updated as additional
information becomes available. Sears forward looking statements are based on
assumptions about many important factors, including the technical skills of
employees and independent contractors, representation and preparedness of third
parties and the collateral effects of the Year 2000 issues on Sears business
partners and customers. While Sears believes its assumptions are reasonable, it
cautions that it is impossible to predict the impact of certain factors that
could cause actual timetables to differ materially from the expected results.
THE CREDIT CARD BANK
The Bank is a national banking association that is a "credit card bank"
under the Bank Holding Company Act. The Bank generally issues the Sears Card,
SearsCharge PLUS and SearsCharge Home Improvement Plan accounts. Sears Card, the
traditional Sears charge card, accounted for approximately 90% of the
receivables in the Sears Portfolio as of the end of December 1998.
Issuance of Sears Card accounts by the Bank allows Sears to operate its
credit business in a more unified regulatory and pricing environment. In
general, under federal law, the maximum finance charge that may be charged by
the Bank is the rate permitted under the laws of the State of Arizona, in which
the Bank's charter is located, rather than the laws of the state in which an
account holder resides. The Bank's ability to charge late fees and other fees
and charges is similarly governed by Arizona law. Accordingly, in certain states
the Bank is imposing higher finance charge rates, and higher or additional fees
and charges, than Sears currently would be permitted to impose. There can be no
assurance, however, that such action will not result in a reduction in the
amount of new Receivables generated in the Accounts, earlier payment of
outstanding Receivables or increased "convenience" use of Sears Card (with all
balances repaid within the grace period so that no finance charge is assessed).
Sears and the Bank have entered into contractual arrangements pursuant to which
Sears continues as primary servicer of Accounts that have been transferred to or
originated by the Bank.
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CERTAIN LEGAL MATTERS RELATING TO THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Receivables in the Accounts were originated by Sears, the Bank or their
affiliates. The Bank has granted to Sears all of its right, title and interest
in and to any Receivables originated by the Bank, pursuant to the Assignment
Agreement. Pursuant to a Purchase Agreement, a Contribution Agreement and a
Receivables Warehouse Agreement, each between Sears and SRFG, Sears sold to
SRFG, contributed to the capital of SRFG, or confirmed the prior sale or
contribution to SRFG of, all of the Receivables existing under the Accounts (and
certain additional accounts that may be added to the Trust in the future) as of
the Cut-Off Date and any Additional Account Cut-Off Dates to date and all
Receivables thereafter created under the Accounts, including all Receivables
originated by the Bank in the Accounts, without recourse. SRFG then sold,
transferred, assigned and otherwise conveyed all the Receivables to the Trust.
On the Initial Closing Date, simultaneously with the transfers from Sears to
SRFG and from SRFG to the Trust, the Trust issued investor certificates for
Series 1994-1, paid the proceeds of such issuance to SRFG and issued the Seller
Certificate to SRFG. SRFG paid such proceeds to Sears in consideration for the
sale of the Receivables by Sears to it, but SRFG retained the Seller Certificate
for its own benefit.
Receivables created in Accounts that have been transferred to or originated
by the Bank are sold daily pursuant to the Assignment Agreement to Sears,
transferred by Sears to SRFG and then transferred by SRFG to the Trust. In
addition, SRFG has sold, transferred, assigned and otherwise conveyed all the
Receivables in Additional Accounts as of the applicable Additional Account
Cut-Off Dates, and may do so again in the future. See "The Trust--Addition of
Accounts." Such Additional Accounts may include accounts originated by or
transferred to the Bank.
In connection with the transfer of the Receivables to SRFG by Sears and the
transfer of the Receivables to the Trust by SRFG, Sears has indicated in its
computer files that the Receivables have been transferred to SRFG and then
transferred to the Trust. In addition, Sears has provided (and, with respect to
any Additional Accounts, will provide) to SRFG, which provided (and will
provide) to the Trustee, a computer file, hard copy or microfiche list
containing a true and complete list of each Account identified by account
number. Sears, its affiliates (including the Bank) and SRFG are not obligated to
deliver to the Trustee any other records or agreements relating to the Accounts
or the Receivables. The records and agreements relating to the Accounts and the
Receivables maintained by Sears and the Bank will not be segregated from other
documents and agreements relating to other credit accounts and receivables and
will not be marked to reflect the transfer of the Receivables to SRFG or the
Trust, except insofar as an electronic or other indicator is necessary to
service the Accounts in accordance with the Pooling and Servicing Agreement.
SRFG filed UCC-1 and UCC-3 financing statements in accordance with Delaware
state law to perfect the Trust's interest in the Receivables, and will file any
continuation statements (and, with respect to any Additional Accounts, UCC-3
financing statements) with respect thereto which may be necessary to maintain
such perfection.
SECURITY INTERESTS IN RECEIVABLES
The Receivables are either "accounts" or "chattel paper" within the meaning
of the UCC as in effect in the State of Delaware or "accounts," "chattel paper"
or "general intangibles" within the meaning of the UCC as in effect in the
States of Illinois, New York and Arizona. To the extent the Receivables
constitute accounts or chattel paper, both the sale of such Receivables and the
transfer of such Receivables as security for an obligation are governed by
Article 9 of the UCC as in effect in the States of Delaware, Illinois, New York
and Arizona, and to the extent that Article 9 is applicable, the filing of
appropriate financing statements is required to perfect the sale of such
Receivables by the Bank to Sears, if applicable, by Sears to SRFG, and by SRFG
to the Trust. Appropriate financing statements covering such Receivables have
been filed: (i) in Arizona to perfect the sale and transfer of such Receivables
by the Bank to Sears; (ii) in Delaware and Illinois to perfect the sale
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and transfer of such Receivables by Sears to SRFG; and (iii) in Delaware and
Illinois to perfect the sale and transfer of such Receivables by SRFG to the
Trust. To the extent the Receivables constitute general intangibles and the
transfer of such Receivables is deemed to be a transfer as security for an
obligation, the provisions of Article 9 of the UCC relating to the perfection of
such transfer are applicable to the same extent as they are applicable to
Receivables constituting accounts or chattel paper.
If the transfer of Receivables constituting general intangibles is deemed
to be a sale, then the UCC is not applicable and no further action is required
to protect the Trust's interest from third parties. Although, to the extent such
transfer is deemed to be a sale, the priority of general intangibles arising
after the Series Closing Date is not as clear as the priority of interests
governed by the UCC, the Bank, Sears and SRFG believe that it would be
inconsistent for a court to afford the Trust less favorable treatment if the
transfer of the Receivables is deemed to be a sale than if it were deemed to be
a security interest and that a court should conclude that a sale of Receivables
consisting of general intangibles would be deemed to have occurred as of the
Initial Closing Date or, as applicable, the relevant Addition Date.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after the Cut-Off
Date or the Additional Account Cut-Off Date, as applicable, could have an
interest in such Receivables with priority over the Trust's interest. Under the
Pooling and Servicing Agreement, SRFG has covenanted to repurchase any
Receivable that it has transferred to the Trust that was not, to the best
knowledge of SRFG, an Eligible Receivable as of the date such Receivable was
transferred to the Trust if such event has a material adverse effect on the
Trust's interest in all the Receivables. In addition, SRFG has covenanted that
it will not sell, pledge, assign, transfer or grant any lien on any of the
Receivables (or any interest therein) other than to the Trust. A tax or other
statutory lien on property of Sears or the Bank arising prior to the time a
Receivable comes into existence may also have priority over the interest of the
Trust in such Receivable. There is a significant possibility that the Trust may
not have a perfected security interest in any of the Receivables created after
the filing of a petition for relief by or against Sears under Title 11 of the
United States Code (the "Bankruptcy Code") or after the appointment of a
receiver or conservator with respect to the Bank. Nevertheless, it is
anticipated that the Trust will either own or have a perfected security interest
in Receivables existing on the date of filing a petition by or against Sears
under the Bankruptcy Code or after the date of appointment of a receiver or
conservator with respect to the Bank and will be able to make payments in
respect of principal and interest on the investor certificates, although there
can be no assurance that all of such payments would be timely. See "--Insolvency
Related Matters." Because the Trust's interest in the Receivables is dependent
upon the Seller's interest in the Receivables, any adverse change in the
priority or perfection of the Seller's security interest would correspondingly
affect the Trust's interest in the affected Receivables.
As set forth under "Risk Factors--Security Interests and Insolvency Related
Matters," under certain circumstances all or a portion of the cash Collections
of Receivables received by the Servicer will be made available for use by the
Servicer prior to each Distribution Date. In the event of the insolvency or
receivership of the Servicer or, in certain circumstances, the lapse of certain
time periods, the Trust may not have a perfected interest in those cash
Collections.
INSOLVENCY RELATED MATTERS
Transfer from Sears to SRFG. Sears and SRFG will treat the transfer of the
Receivables from Sears to SRFG as an absolute transfer of the Receivables to
SRFG. As an absolute transfer, the Receivables would not be part of any Sears
bankruptcy estate and would not be available to Sears creditors. However, in the
event of the insolvency of Sears, it is possible that the bankruptcy trustee or
a creditor of Sears or Sears as debtor in possession may argue that the
transaction between Sears and SRFG is a pledge of the Receivables rather than an
absolute transfer. This position, if accepted by a court, could prevent timely
payments of amounts due to investor certificateholders.
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Unless otherwise specified in the related Prospectus Supplement in respect
of a series offered hereby, SRFG will receive, on each Series Closing Date, an
opinion of Latham & Watkins, counsel to Sears and SRFG, concluding on the basis
of a reasoned analysis of analogous case law (although there is no precedent
based on directly similar facts) that subject to certain facts, assumptions or
qualifications specified therein, (i) a federal bankruptcy court would not order
the substantive consolidation of the assets and liabilities of SRFG with those
of Sears; and (ii)(A) a transfer of the Receivables in the form and manner
contemplated by the Purchase Agreement, the Contribution Agreement and the
Receivables Warehouse Agreement would constitute an absolute sale or other
transfer of such Receivables rather than a borrowing by Sears secured by such
Receivables, so that such Receivables would not be property of the estate of
Sears under Section 541(a) of the Bankruptcy Code, and thus (B) SRFG's rights
thereto would not be impaired by the operation of Section 362(a) of the
Bankruptcy Code. See "--Transfer of Receivables."
Transfer from the Bank to Sears. It is possible that a receiver or
conservator of the Bank may argue that the transaction between the Bank and
Sears pursuant to the Assignment Agreement, whereby the Bank has granted to
Sears all of its right, title and interest in and to the Receivables, is a
pledge of the Receivables rather than an absolute transfer. Accordingly, the
Bank has granted Sears a security interest in the Receivables pursuant to the
Assignment Agreement. To the extent that this security interest is validly
perfected prior to an insolvency of the Bank and not taken with the intent to
hinder, delay, or defraud the Bank or its creditors, this security interest
should not be subject to avoidance by a receiver or conservator of the Bank, and
payments made in respect of the Receivables should not be subject to recovery by
a receiver or conservator of the Bank. If, however, a receiver or conservator of
the Bank were to assert a contrary position or were to require the Trust to
establish its right to cash Collections by submitting a claim and completing the
administrative claims procedure established under the Federal Deposit Insurance
Act, as amended, delays in payment on the investor certificates and possible
reductions in the amount of those payments could occur. In addition, the Federal
Deposit Insurance Corporation, if appointed as conservator or receiver for the
Bank, has the power under the Federal Deposit Insurance Act, as amended, to
repudiate contracts, including contracts of the Bank such as the Assignment
Agreement. The Federal Deposit Insurance Act, as amended, provides that a claim
for damages arising from the repudiation of a contract is limited to "actual
direct compensatory damages." In the event the Federal Deposit Insurance
Corporation were to be appointed as conservator or receiver of the Bank and were
to repudiate the Assignment Agreement, then the amount payable out of available
collateral to the Investor Certificateholders could be lower than the
outstanding principal and accrued interest on the Investor Certificates. The
Federal Deposit Insurance Corporation has proposed a policy under which it would
not repudiate certain specified transfers under certain circumstances; however,
no assurance can be given that the policy will be adopted or that it would be
applicable in the event of a receivership or conservatorship involving the Bank.
In a 1993 case involving the repudiation by the Resolution Trust Corporation,
which has ceased to exist as of December 31, 1995 (the Federal Deposit Insurance
Corporation has taken over its responsibilities), of certain secured zero-coupon
bonds issued by a savings association, a United States federal district court
held that "actual direct compensatory damages" in the case of a marketable
security meant the market value of the repudiated bonds as of the date of
repudiation.
Unless otherwise specified in the related Prospectus Supplement in respect
of a series offered hereby, the Bank will receive, on each Series Closing Date,
an opinion of Latham & Watkins, special counsel to the Bank, concluding on a
reasoned basis (although there is no precedent based on directly similar facts)
that subject to certain facts, assumptions, and qualifications specified therein
(including other matters set forth in this section), (i) if the transfer of the
Receivables from the Bank to Sears pursuant to the Assignment Agreement
constitutes an absolute transfer, then the transfer is a transfer of all right,
title and interest of the Bank in and to those Receivables to Sears and (ii) if
the transfer is deemed not to be an absolute transfer, it would be treated as a
security interest created by the Assignment Agreement in favor of Sears in the
Bank's right, title and interest in and to the Receivables. Unless otherwise
specified in the related Prospectus Supplement in
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respect of a series offered hereby, the Bank will receive, on each Series
Closing Date, an opinion of Arizona counsel to the Bank, concluding on a
reasoned basis that, subject to certain facts, assumptions, and qualifications
specified therein (including other matters set forth in this section), if the
transfer is deemed not to be an absolute transfer and a security interest is
created by the Assignment Agreement in favor of Sears of the Bank's right, title
and interest in and to the Receivables, (i) the security interest is a perfected
security interest and (ii) the security interest is a first priority interest.
CONSUMER PROTECTION LAWS AND DEBTOR RELIEF LAWS APPLICABLE TO THE RECEIVABLES
The relationships among credit recipients, credit issuers and sellers of
goods and services in transactions financed by the extension of credit under
credit accounts are extensively regulated by federal and state consumer
protection laws and regulations and the UCC. Such laws and regulations include
the federal Truth in Lending Act (and the Federal Reserve Board's Regulation Z
issued thereunder), Equal Credit Opportunity Act (and the Federal Reserve
Board's Regulation B issued thereunder), Fair Credit Billing Act and Fair Credit
Reporting Act. These statutes and regulations impose disclosure requirements
when a credit account is opened, at the end of each monthly billing cycle and
annually. In addition, credit recipients are entitled under such laws and
regulations to have payments and credits promptly applied on credit accounts and
to require billing errors to be promptly resolved. A credit recipient may be
entitled to assert violations of certain of such consumer protection laws by way
of setoff against his or her obligation to pay amounts owing on his or her
account or, in certain cases, by claims against the lender or seller. SRFG has
covenanted in the Pooling and Servicing Agreement to repurchase Receivables if
all applicable requirements of such statutes have not been complied with
regarding such Receivables, provided such a failure to comply has a material
adverse effect on the Trust's interest in all the Receivables.
Certain laws, including the laws described above, may limit the ability of
Sears to collect amounts owing with respect to the Receivables regardless of any
act or omission on the part of Sears. Application of federal and state
bankruptcy and debtor relief laws may also prevent Sears from fully collecting
amounts owing on the Receivables.
CLAIMS AND DEFENSES OF CREDIT CUSTOMERS AGAINST THE TRUST
The Federal Trade Commission's Preservation of Claims and Defenses Trade
Regulation Rule has the effect of preserving claims and defenses that the
Obligor may have against the seller of goods or services or the Bank when an
account or any amount owed under an account is sold or assigned to another
creditor, including the Trust. Each Sears Card account agreement includes a
notice to this effect. In addition, the UCC and other state laws applicable to
consumer credit provide that (a) unless an Obligor has made an enforceable
agreement not to assert defenses or claims arising out of a sale, the rights of
the Trust, as assignee, are subject to (i) all the terms of the contract between
the seller of goods or services or the Bank and the Obligor, (ii) any defense or
claim arising therefrom and (iii) any other defense or claim of the Obligor
against the seller of goods or services or the Bank which accrues before the
Obligor receives notification of the assignment and (b) any Obligor is
authorized to continue to pay the seller of goods or services or the Bank until
(i) the Obligor receives notification, reasonably identifying the rights
assigned, that the amount due or to become due has been assigned and that
payment is to be made to the Trustee and (ii) if requested by the credit
customer, the Trustee has furnished reasonable proof of the assignment.
THE TRUST
FORMATION OF THE TRUST
The Trust was formed pursuant to the Pooling and Servicing Agreement among
Sears, SRFG and the Trustee. SRFG has conveyed to the Trust, without recourse,
all of the Receivables existing under the Accounts as of the Cut-Off Date and
Additional Account Cut-Off Dates to date and all
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Receivables thereunder which are thereafter created. In exchange for the
transfer of the Receivables, SRFG received the Seller Certificate and has
received and will receive the net cash proceeds from the sale of investor
certificates. The property of the Trust includes the Receivables, Participation
Interests, if any, and all monies due or to become due thereunder, all proceeds
of the Receivables, including Collections used by Sears for its own benefit
prior to each Distribution Date, the benefits of any Credit Enhancement, all
monies on deposit in certain accounts of the Trust, Additional Funds and any
interest rate cap or other interest rate protection for any outstanding series
of investor certificates.
The Trust was formed for the purpose of issuing series of investor
certificates pursuant to the Pooling and Servicing Agreement and appropriate
Series Supplements. The Trust, as a master trust, has issued and is expected to
issue series from time to time and to continue as a trust after each Series
Termination Date. The Trust will not engage in any business activity other than
acquiring and holding the Receivables and the proceeds therefrom, issuing series
of investor certificates and the Seller Certificate and making payments thereon,
and investing funds on deposit in each Investor Account pursuant to the Pooling
and Servicing Agreement and applicable Series Supplements. As a consequence, the
Trust is not expected to have any need for additional capital resources except
the Receivables in Additional Accounts or any Participation Interests, if
applicable.
COLLECTIONS ACCOUNT AND GROUP COLLECTIONS ACCOUNTS
The Trustee has established and maintains in the name of the Trust a
"Collections Account," an "Excess Funding Account (General)," an "Excess Funding
Account (SRC)" and, for each Group of series, a "Group Collections Account."
Each such account is either (i) a non-interest bearing, segregated trust account
with the corporate trust department of an office or branch of a Qualified Trust
Institution or (ii) a non-interest bearing, segregated deposit account with an
Eligible Institution. Funds on deposit in the Collections Account, the Excess
Funding Account (General), the Excess Funding Account (SRC), or any Group
Collections Account are invested in Permitted Investments pursuant to the
Pooling and Servicing Agreement. See "Description of the Investor
Certificates--Investment of Funds in Investor Accounts." The Servicer has the
revocable power to instruct the Trustee to make withdrawals from the Collections
Account, the Excess Funding Account (General), the Excess Funding Account (SRC)
and each Group Collections Account for the purpose of carrying out its duties
under the Pooling and Servicing Agreement and any Series Supplement.
For each Distribution Date that the short-term debt rating of Sears is
below A-1/P-1 (or if Sears is not the Servicer) unless other arrangements have
been made that will not result in a Ratings Event, the Servicer shall deposit
into the Collections Account a portion of Collections at least equal to the sum
of the applicable Required Daily Deposits for each outstanding series of
investor certificates within two Business Days following the Date of Processing
of such Collections. To the extent that the Required Daily Deposit for any
series is based on an estimate of interest payable on any Distribution Date, and
a lower amount of interest is subsequently determined to be payable, the excess
amount deposited may be returned to the Servicer as a loan until the related
Distribution Date.
On or before each Distribution Date, the Servicer deposits into the
Collections Account all Collections with respect to the related Due Period
retained by the Servicer as a loan, if applicable, and that portion of
Collections with respect to the related Due Period that are to be allocated on
that Distribution Date and that have not previously been deposited into the
Collections Account and directs the Trustee to withdraw from the Collections
Account and pay to the Seller an amount equal to the sum of (x) the total amount
of Finance Charge Collections for the related Due Period less the sum of the
amount of Series Finance Charge Collections for each series then outstanding for
the related Due Period and (y) the total amount of Principal Collections for the
related Due Period less the sum of the amount of Series Principal Collections
for each series then outstanding for the related Due Period, that is to be
allocated to the Seller Interest on that Distribution Date. However,
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for any Due Period for which Collections have been deposited in the Collections
Account by the Servicer on a daily basis, the allocation of Collections shall be
deemed made on the date the Servicer delivers the monthly investor
certificateholders' statement and the monthly servicer statement to the Trustee
and the Trustee is authorized, upon receipt of the monthly investor
certificateholders' statement and the monthly servicer statement, to transfer
immediately to the Seller or the Servicer any funds in the Collections Account
that would otherwise be paid to such party on the Distribution Date related to
such Due Period. On or before each Distribution Date, the Servicer directs the
Trustee to withdraw all amounts on deposit in the Excess Funding Account (SRC),
and deposit such amounts in the Collections Account. The Servicer directs the
Trustee to withdraw from the Collections Account and pay to each Group
Collections Account, on or before the Distribution Date with respect to that
Group, the sum of (x) the Series Finance Charge Collections for each series that
is a member of that Group, (y) the Series Principal Collections for each series
that is a member of that Group and (z) the Group Excess Funding Amount (SRC).
Allocations of Collections, Additional Funds, and amounts on deposit in the
Excess Funding Account (General) to the series within each Group will be as set
forth in the applicable Series Supplement for each series within such Group.
With respect to each Group, Collections in the Group Collections Account for
such Group are allocated, deposited or paid on or prior to each Distribution
Date with respect to such Group according to the terms of the applicable Series
Supplement relating to the outstanding series of such Group. Deposits from each
series in each Group to the Excess Funding Account (General) and the Excess
Funding Account (SRC) will be made on each Distribution Date according to the
terms of the applicable Series Supplement relating to an outstanding series.
ADJUSTMENTS TO RECEIVABLES
As of the end of any Due Period, to the extent that the Servicer adjusts
the amount of any Receivable because such Receivable was created in respect of
merchandise which was returned by a credit customer (a "Return Adjustment"), the
amount of the Principal Receivables used to calculate the Seller Interest in the
Trust will be reduced by the amount of the adjustment. Unless the Servicer or an
affiliate, as applicable, elects otherwise in accordance with the Pooling and
Servicing Agreement and as described below, if a Receivable is adjusted because
it is discovered to have been created through a fraudulent or counterfeit
charge, the amount of Collections for such Due Period will be increased, and the
Receivables in the Trust will be reduced, by the amount of such adjustment. In
addition, the Servicer may make other adjustments to the Receivables in
accordance with its customary practices and will increase or decrease the amount
of Collections for such Due Period by the amount of such adjustments. The
Pooling and Servicing Agreement provides, however, that the Servicer may elect
to account for such adjustments to Receivables created through fraudulent or
counterfeit charges or for such other customary adjustments to the Receivables
by decreasing or increasing the amount of the Seller Interest in the Trust
rather than by increasing or decreasing the amount of Collections for such Due
Period. In the event that any such adjustment would cause the Seller Interest to
be an amount less than zero, the Seller shall, no later than the Business Day
following the last day of the Due Period during which such adjustment is made,
deposit into the Collections Account an amount equal to the amount of such
deficiency in the Seller Interest.
ADDITION OF ACCOUNTS
Pursuant to the Pooling and Servicing Agreement, SRFG has the right
(subject to certain limitations and conditions), and in certain circumstances
the obligation, to designate from time to time additional credit accounts of
Sears or its affiliates (including the Bank) to be included as Accounts
("Additional Accounts") or to add Participation Interests to the Trust and to
convey to the Trust all Receivables of such Additional Accounts or any
Participation Interests, whether then existing or thereafter created. In
addition, SRFG will be required to designate Additional Accounts or convey
Participation Interests to the Trust if the aggregate amount of Principal
Receivables in the
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Trust on the last day of any Due Period is less than the Minimum Principal
Receivables Balance. See "Description of the Investor Certificates--General."
Each assignment of Additional Accounts at the discretion of SRFG will be
subject to certain conditions, including the execution and delivery of a written
assignment and an opinion of outside counsel relating to the Trust's security
interest in the Receivables in the Additional Accounts and insolvency and
related matters, and delivery of a certificate of a Servicing Officer confirming
that no selection procedures believed by the Seller to be materially adverse to
the interests of the investor certificateholders of any series were used in
selecting the Accounts as of the Account Selection Date. Unless the Rating
Agencies otherwise consent, each assignment of Additional Accounts will also be
subject to the conditions that (i) as of the last day of any calendar year, the
amount of Principal Receivables in Accounts designated as Additional Accounts or
the number of Accounts designated as Additional Accounts, as applicable, with
respect to such calendar year will not exceed 20% of the amount of Principal
Receivables in the Trust, or the number of Accounts in the Trust, as applicable,
as of the first day of that calendar year; and (ii) as of the last day of any
calendar quarter, the amount of Principal Receivables in Accounts designated as
Additional Accounts or the number of Accounts designated as Additional Accounts,
as applicable, with respect to such calendar quarter will not exceed 15% of the
amount of Principal Receivables in the Trust or the number of Accounts in the
Trust, as applicable, as of the first day of such calendar quarter. The above
conditions may be superseded or replaced by SRFG with substitute conditions if
such substitute conditions will not cause a Ratings Event.
The Trust will receive all Collections in respect of Receivables in
Additional Accounts in the same manner as Collections in respect of other
Receivables, except that Finance Charge Receivables deemed billed on the
Receivables in the Additional Accounts for the Due Period during which the
Additional Accounts were added to the Trust may be an estimate of such amount
prepared by the Servicer with respect to the Additional Accounts.
The addition of Participation Interests to the Trust will be effected by an
amendment to the Pooling and Servicing Agreement that will not require the
consent of any investor certificateholders. Each conveyance of Participation
Interests to the Trust will be subject to certain conditions, including delivery
of a certificate of SRFG stating that SRFG reasonably believes that the addition
of the Participation Interests will not be materially adverse to the interests
of the Holders of any class of any series of investor certificates then
outstanding or any Third Party Credit Enhancement Provider, delivery of an
Opinion of Counsel relating to the Trust's security interest in Participation
Interests and insolvency and related matters and confirmation from the Rating
Agencies that the proposed conveyance of Participation Interests will not result
in a Ratings Event.
The terms governing any Additional Accounts may differ from the terms
governing the Accounts initially included in the Trust, including the
possibility that some or all Additional Accounts will have lower periodic
finance charges or fees than the initial Accounts, which may have the effect of
reducing the percentage of Finance Charge Collections relative to the amount of
Principal Collections. Because any such Additional Accounts will not contain
receivables in accounts from Puerto Rico, may not contain receivables in
accounts from every state or in accounts previously segregated into pools (some
of which have been sold), and will not contain Receivables in the Accounts, the
performance of any such Additional Accounts may be different from the
performance of the Accounts and from the performance of the Sears Portfolio. On
the date any such Additional Accounts are selected, such Additional Accounts may
contain a higher or lower percentage of newly solicited and unseasoned accounts
than either the Accounts or the Sears Portfolio. The account selection process
used to segregate pools of accounts (including the Accounts and any such
Additional Accounts) generally is designed to preserve the availability of
seasoned accounts for inclusion in subsequently segregated pools. Previously
segregated pools of more seasoned accounts may also be added to the Trust as
Additional Accounts. See "Risk Factors--Effects of the
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Selection Process, Seasoning and Performance Characteristics" and "--Assignment
of Additional Accounts."
REMOVAL OF ACCOUNTS
Subject to the conditions set forth in the next succeeding sentence, SRFG
may, but will not be obligated to, designate from time to time certain Accounts
for deletion and removal from the Trust (such Accounts being referred to
hereinafter as the "Removed Accounts"). SRFG will be permitted to designate and
require reassignment to it of the Receivables from Removed Accounts only upon
satisfaction of the following conditions: (i) as of the Removal Date, the
aggregate amount of Principal Receivables in the Trust, less the aggregate
amount of Principal Receivables in such Removed Accounts, will not be less than
the Minimum Principal Receivables Balance; (ii) within five Business Days after
the date designated for removal of the Removed Accounts, SRFG will have
delivered to the Trustee for execution a written assignment and a computer file,
hard copy or microfiche list containing a true and complete list of all Removed
Accounts identified by account number; (iii) SRFG will represent and warrant
that no selection procedures believed by the Seller to be materially adverse to
the interests of the investor certificateholders or any Third Party Credit
Enhancement Provider were utilized in selecting the Removed Accounts; (iv) the
Rating Agencies will have advised SRFG that such reassignment will not result in
a Ratings Event; and (v) SRFG will have delivered to the Trustee an officer's
certificate confirming the items set forth in (i), (ii), (iii), and (iv) above.
On or before the fifth Business Day prior to the Removal Date, SRFG shall give
the Trustee, the Servicer, the Rating Agencies and any Third Party Credit
Enhancement Provider written notice that the Receivables from such Removed
Accounts are to be reassigned by the Trustee to SRFG effective as of the Removal
Date.
REPURCHASE OF TRUST PORTFOLIO
If, as of the Initial Closing Date or, with respect to any Additional
Accounts, as of any date on which there is an assignment of such Additional
Accounts, it is not true that (a) each of the Pooling and Servicing Agreement
and the Series Supplement constitutes a valid and binding obligation of Sears
and SRFG, subject to usual and customary exceptions relating to bankruptcy or
insolvency and general equity principles, (b) the Pooling and Servicing
Agreement constitutes a valid transfer and assignment of all right, title and
interest of Sears to SRFG and of SRFG to the Trust in and to the Receivables,
whether then existing or thereafter created, and the proceeds thereof (including
amounts in any of the accounts established for the benefit of the
Certificateholders) or constitutes the grant of a perfected security interest of
first priority (except with regard to statutory and other non-consensual liens)
under the UCC as in effect in the State of Delaware in such Receivables and
proceeds thereof (including amounts in any of the accounts established for the
benefit of the Certificateholders), effective as to each Receivable upon the
creation thereof, or (c) certain representations and warranties by the Seller
regarding its corporate status, authority with regard to the assignment of
Receivables and performance of the Seller's obligations under the Pooling and
Servicing Agreement and the Series Supplement, and the accuracy of information
furnished by the Seller to the Trustee are true and correct and such breach is
not cured within the required period, then a Trust Portfolio Repurchase Event
shall have occurred.
Upon the occurrence of a Trust Portfolio Repurchase Event, either the
Trustee or the Holders of investor certificates evidencing fractional undivided
interests aggregating not less than 51% of the Aggregate Invested Amount (other
than with respect to any Seller Retained Class), by written notice to SRFG, may
direct SRFG, and SRFG will be obligated, to purchase the Receivables on a
Distribution Date occurring within 60 days of such notice (or such longer
period, not in excess of 150 days, as may be specified in such notice);
provided, however, that if an assignment of Additional Accounts results in a
Trust Portfolio Repurchase Event, only the Receivables in those Additional
Accounts will be repurchased. SRFG will not be required to make such purchase
if, on any day
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during the applicable period, the Trust Portfolio Repurchase Event does not
adversely affect in any material respect the interests of the investor
certificateholders.
The price for such purchase will be equal to the Aggregate Investor
Interest for the Distribution Date on which the purchase is scheduled to be made
plus an amount equal to all Certificate Interest accrued but unpaid through the
date set for such purchase minus the sum of (i) amounts on deposit in the Excess
Funding Account (General), if any, (ii) amounts on deposit in the Excess Funding
Account (SRC), if any, and (iii) the sum of all pre-funding amounts for all
outstanding series, if any; provided, however, that if an assignment of
Additional Accounts results in a Trust Portfolio Repurchase Event, only the
Receivables of such Additional Accounts shall be repurchased at a price with
respect to each series equal to the product of (i) the Series Percentage with
respect to Principal Receivables on the first day of the related Due Period
preceding the date such deposit is made and (ii) the amount of Receivables
attributable to the Additional Accounts, and such repurchase price shall be
applied as Collections in respect of such Receivables in accordance with each
applicable Series Supplement and deposited in the Group Collections Account
relating to that series. The purchase price will be distributed to the investor
certificateholders upon presentation and surrender of their investor
certificates.
REPURCHASE OF SPECIFIED RECEIVABLES
If (a) it is not true and correct in any material respect as of the date
specified that (i) as of the Initial Closing Date, each Receivable existing on
such date is, to the best knowledge of SRFG, an Eligible Receivable and, in the
case of Additional Accounts or Participation Interests, on the Addition Date
with respect to such Additional Accounts or Participation Interests, each
Receivable contained therein is, to the best knowledge of SRFG, an Eligible
Receivable, and (ii) as of the date of the creation of any Receivable subsequent
to the Cut-Off Date, such Receivable is, to the best knowledge of SRFG, an
Eligible Receivable, (b) such breach has a material adverse effect on the
certificateholders' interest in the Receivables, and (c) such breach is not
cured within 60 days (or such longer period, not in excess of 150 days, as may
be agreed to by the Trustee) after the receipt by SRFG of written notice of any
such event given by the Trustee, then a "Receivable Repurchase Event" will have
occurred. The determination of materiality referred to above will be made by an
officer of SRFG in his sole reasonable judgment without considering the impact
of Third Party Credit Enhancement, if any; provided, however, that if the
aggregate amount of Ineligible Receivables as of the last day of the immediately
preceding Due Period exceeds five percent of the total amount of Receivables in
the Trust as of the last day of the immediately preceding Due Period, an officer
of SRFG will be deemed to have made an affirmative determination of such
materiality. SRFG will purchase all the Receivables in each Account in which
there is any Receivable as to which such Receivable Repurchase Event relates on
the terms and conditions set forth below.
SRFG will purchase each Ineligible Receivable by directing the Servicer to
deduct the face amount of each such Ineligible Receivable from the aggregate
amount of Principal Receivables in the Trust. In the event that the exclusion of
an Ineligible Receivable from the calculation of the Seller Interest would cause
the Seller Interest to be an amount less than zero, on the following
Distribution Date SRFG will make a deposit in the Collections Account in
immediately available funds in an amount equal to the amount by which the Seller
Interest would be reduced below zero. Such deposit will be considered a
repayment in full of the Ineligible Receivable, and shall be treated as though
it were a Collection in respect of Principal Receivables for such Due Period.
TERMINATION OF THE TRUST
The Trust and the respective obligations and responsibilities of SRFG, the
Servicer and the Trustee will terminate on the earlier of (i) July 31, 2015 (the
"Final Trust Termination Date"), and (ii) the day after the Distribution Date on
which funds shall have been deposited into the Series Distribution Accounts
sufficient to pay in full the Aggregate Invested Amount plus accrued and unpaid
Certificate Interest on all outstanding series of investor certificates.
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DESCRIPTION OF THE INVESTOR CERTIFICATES
The investor certificates of each series will be issued pursuant to the
Pooling and Servicing Agreement and an applicable Series Supplement. The
following summary of the investor certificates does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the Pooling
and Servicing Agreement and the related Series Supplement. The Pooling and
Servicing Agreement and the form of Series Supplement have been, and the
particular Series Supplement applicable to each series of investor certificates
to which this Prospectus relates has been or will be, filed as an exhibit or
incorporated by reference in the Registration Statement of which this Prospectus
is a part. On written request to the Trustee at its principal corporate trust
office, the Trustee will provide to investor certificateholders without charge a
copy of the Pooling and Servicing Agreement (without schedules) and any
applicable Series Supplement (without exhibits).
GENERAL
Each series will consist of one or more classes of investor certificates.
Each investor certificate will represent an undivided interest in the Trust,
including the right to a percentage of all Collections on the Receivables in the
Trust. See "--Class Percentages and Seller Percentage."
The Seller Interest, represented by the Seller Certificate, constitutes the
residual interest in the Principal Receivables not represented by any series of
investor certificates. The Seller Certificate represents an undivided interest
in the Principal Receivables in the Trust, including the right to a floating
percentage (the "Seller Percentage") of all Obligor payments on the Receivables
in the Trust. See "--Class Percentages and Seller Percentage." Because the
Seller Interest is a residual interest, it will fluctuate in size depending upon
the rates at which Receivables are collected and charged-off and at which new
Receivables are originated and the additions to and removal from the Trust of
Receivables, as well as upon the timing and the size of issuances of new series
of investor certificates. See "--Establishing and Issuing New Series."
The amount of Receivables was selected in order to provide that reasonably
anticipated fluctuations in the total amount of Principal Receivables in the
Trust would not result in the decline of the Seller Interest to a level which
would require SRFG to add to the Trust the Receivables in Additional Accounts in
order to avoid a Rapid Amortization Event and, accordingly, commencement of the
Rapid Amortization Period, although there can be no assurance that the Seller
Interest will be sufficiently large to preclude these events from occurring. In
addition, SRFG will be obligated to designate Additional Accounts or
Participation Interests, the Receivables of which will be transferred to the
Trust, if the amount of the Seller Interest is less than a certain minimum
amount in certain specified periods.
During the Revolving Period of each series, the amount of the Investor
Interest of such series in the Trust will remain constant except in certain
limited circumstances. The aggregate amount of Principal Receivables in the
Trust, however, will vary each day as new Principal Receivables are created and
others are paid (although such amount will not be calculated daily). During the
Controlled Amortization Period or the Controlled Accumulation Period, and the
Rapid Amortization Period, if any, of each series, the Investor Interest of such
series in the Trust generally will decline as distributions in respect of
Principal Receivables are made to or on behalf of investor certificateholders.
INTEREST PAYMENTS
Interest will accrue on the Invested Amount of the investor certificates of
a series or class offered hereby at the per annum rate either specified in, or
determined in the manner specified in, the related Prospectus Supplement. Except
as otherwise provided herein or in the related Prospectus Supplement, Finance
Charge Collections and certain other amounts allocable to the investor
certificateholders of a series offered hereby will be used to make interest
payments to investor certificateholders of such series on each Interest Payment
Date specified in the related Prospectus
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Supplement. Interest with respect to the investor certificates of each series
offered hereby will accrue and be calculated on the basis described in the
related Prospectus Supplement.
PRINCIPAL PAYMENTS
The investor certificates of each series will have a Revolving Period
during which no distributions of Principal Collections will be made to the
investor certificateholders. Unless otherwise specified in the related
Prospectus Supplement in respect of a series offered hereby, following the
Revolving Period, unless a Rapid Amortization Period commences with respect to a
series, each series will have a Controlled Accumulation Period, a Controlled
Amortization Period or both a Controlled Accumulation Period and a Controlled
Amortization Period. If a series has a Controlled Accumulation Period but does
not have a Controlled Amortization Period, the principal of the investor
certificates of the series will be scheduled to be paid in full in a single
payment on an Expected Final Payment Date. If a series offered hereby has a
Controlled Amortization Period, the principal of the investor certificates of
the series will be paid in installments commencing on the date specified in the
related Prospectus Supplement. If a series has more than one class of investor
certificates, a different method of paying principal, Expected Final Payment
Date and/or the initial Principal Payment Date may be specified for each class.
If a Rapid Amortization Event occurs with respect to a series, the payment of
principal with respect to the investor certificates of such series may commence
earlier than the Expected Final Payment Date or the initial Principal Payment
Date, and the final principal payment with respect to the investor certificates
of such series may be made earlier or later than the Expected Final Payment Date
or other expected date.
CLASS PERCENTAGES AND SELLER PERCENTAGE
Pursuant to the Pooling and Servicing Agreement and the Series Supplements
for all series then outstanding, Sears as Servicer will allocate among the
Seller Interest and the Class Investor Interest for each class of each series
then outstanding, all amounts collected on Finance Charge Receivables, all
amounts collected on Principal Receivables and all Receivables in Charged-Off
Accounts. Sears as Servicer will make each allocation by multiplying the
relevant amount by the applicable Class Percentage. In all cases, the Seller
Percentage with respect to any item will equal 100% minus the sum of the Series
Percentages for all series of investor certificates then issued and outstanding.
For convenience, this Prospectus refers to the Class Percentage for each
class (and certain other percentages with respect to outstanding series) with
respect to Finance Charge Collections, Principal Collections and the Charged-Off
Amount as if those percentages will not in each case vary. The Class Percentages
(and certain other percentages), however, may vary in each case as detailed in
the "Glossary of Terms" contained in the related Prospectus Supplement. The
method of calculating Class Percentages and other percentages with respect to
each series of investor certificates will be set forth in the applicable Series
Supplement.
Under the Pooling and Servicing Agreement, the Collections on Receivables
for any Due Period will be allocated so that all Collections up to the amount of
Finance Charge Receivables billed at the beginning of such Due Period will be
deemed Finance Charge Collections and the remaining amount of Collections will
be deemed Principal Collections.
INVESTOR LOSSES
On any Distribution Date, the Investor Interest for each class of each
series offered hereby then outstanding will be reduced by the amount of the
Class Cumulative Investor Charged-Off Amount for such class resulting from
Principal Receivables that have been charged-off (an "Investor Loss") as
described in the related Prospectus Supplement. An Investor Loss will have the
effect of reducing the amount of the applicable investor interest.
Although the Receivables in Charged-Off Accounts are automatically
retransferred to SRFG at the time they are charged off as uncollectible, SRFG
has agreed to add to the Trust as Additional
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Funds a portion of the Recovered Amounts it receives on Seller Charged-Off
Accounts. See "--Additional Funds."
REALLOCATIONS AND SUBORDINATION OF COLLECTIONS
Reallocations of Collections among Series. As specified in the related
Prospectus Supplement in respect of a series offered hereby, Collections
originally available to one series in a Group may be reallocated to other series
in that Group. Under no circumstances will Collections originally allocated to
one series on any Distribution Date be reallocated to any other series unless
all other amounts to be funded with respect to the first series by the
Collections allocated to such series on that Distribution Date have been funded,
except as specifically provided for in the applicable Series Supplement with
respect to a subordinated series. The Seller may, but is under no obligation to,
issue additional series that reallocate Collections from one series to another
series.
Subordination of Class B Certificates. Unless otherwise specified in the
related Series Supplement, in the case of a series of investor certificates
issued with two or more classes, the Class B Certificates will be subordinated
to the Class A Certificates. Certain amounts originally allocable to the Class B
Certificates may be reallocated to the extent necessary to fund certain amounts
with respect to the Class A Certificates. If these reallocations are not
reimbursed, the Investor Interest with respect to the Class B Certificates will
be reduced.
Subordination of Class C Certificates. Unless otherwise specified in the
related Series Supplement, in the case of a series of investor certificates
issued with three classes, the Class C Certificates will be subordinated to both
the Class A Certificates and the Class B Certificates. Certain amounts
originally allocable to the Class C Certificates may be reallocated to the
extent necessary to fund certain amounts first with respect to the Class A
Certificates, and then the Class B Certificates. If these reallocations are not
reimbursed, the Investor Interest with respect to the Class C Certificates will
be reduced.
Subordinate Series. The Pooling and Servicing Agreement permits the
issuance of series of investor certificates that are subordinate in right of
payment, in whole or in part, to one or more other series (any such subordinate
series, a "Subordinate Series"). Unless otherwise specified in the related
Series Supplement, a series will not be subordinate to any other series. Unless
otherwise specified in the related Prospectus Supplement, the Series Supplement
for each series offered hereby will provide for the possibility that a
Subordinate Series with respect to such series may be issued in the future. The
Seller may, but is under no obligation to, issue a series that is subordinate to
one or more series at any time. The extent to which such Subordinate Series, if
issued, will be subordinated to one or more series will be set forth in the
Series Supplement with respect to such Subordinate Series.
AGGREGATE AND NET PAYMENTS
All payments made pursuant to the Pooling and Servicing Agreement or any
Series Supplement on or before any Distribution Date between the Servicer and
the Seller may be aggregated with all other payments to be made by any Person to
any other Person or Investor Account for such Distribution Date. Therefore,
Sears, acting as Servicer, has the option to make only one payment to each
account in satisfaction of all payments of the Seller and the Servicer pursuant
to the Pooling and Servicing Agreement or any Series Supplement, to the extent
that all payment obligations of the Servicer and of the Seller to each account
on each Distribution Date exceed all amounts to be paid out of that account to
the Servicer and the Seller on such Distribution Date.
ADDITIONAL FUNDS
In addition to any supplemental funds set forth in the applicable Series
Supplement, the Pooling and Servicing Agreement provides that the Servicer may,
from time to time, elect to add certain funds to the Trust ("Additional Funds")
by delivering a written notice of the election to the Trustee
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and the Rating Agencies, which notice will specify the method of calculating the
amount of such funds to be added to the Trust as of any Distribution Date and
the source of those funds. The Servicer may only add Additional Funds to the
Trust upon written confirmation from the Rating Agencies that such addition will
not result in a Ratings Event. Such Additional Funds shall then be allocated in
accordance with the provisions of the applicable Series Supplement.
On January 30, 1998, SRFG agreed to add to the Trust as Additional Funds a
pro rata share of the recoveries on charged-off accounts received on the entire
Sears Portfolio. The pro rata share will be based on the ratio of Principal
Receivables in the Trust to principal receivables in the total Sears Portfolio,
and will be limited to the aggregate amount of recoveries on receivables owned
by SRFG in charged-off accounts.
INVESTMENT OF FUNDS IN INVESTOR ACCOUNTS
All amounts in each Investor Account are invested by the Trustee at the
direction of Sears as Servicer in certain highly-rated short-term investments
(as hereinafter defined, the "Permitted Investments") pursuant to the Pooling
and Servicing Agreement. "Permitted Investments" means (a) securities or
negotiable instruments which evidence (i) obligations issued or fully guaranteed
by the United States of America, (ii) time deposits in, or banker's acceptances
issued by, depository institutions or trust companies, the short-term deposits
or commercial paper of which have the Highest Rating, (iii) commercial paper or
other short-term obligations having, at the time of the Trust's investment, the
Highest Rating or (iv) investments in money market or common trust funds which
have the Highest Rating, (b) demand deposits in any depository institution or
trust company referred to in (a)(ii) above, (c) shares of open-end mutual funds
which invest exclusively in obligations described in (a)(i) above and which will
not result in a Ratings Event, (d) guaranteed investment contracts which will
not result in a Ratings Event, (e) certain repurchase agreements transacted with
either (i) an entity subject to the Bankruptcy Code or (ii) a financial
institution insured by the FDIC or any broker-dealer with "retail customers"
that is under the jurisdiction of the Securities Investors Protection Corp. and
(f) any additional investment which will not result in a Ratings Event. Although
Permitted Investments consist of short-term, highly-rated investments, there can
be no assurance that the principal amount of any Permitted Investment will be
timely paid or otherwise recovered. Unless the Ratings Agencies advise that a
Ratings Event will not occur, funds invested in Permitted Investments must be
available on or prior to the next Distribution Date related to the earliest Due
Period in which funds invested in such Permitted Investments were received.
Investment income from the Investor Accounts will be distributed according to
the terms of the applicable Series Supplement relating to an outstanding series.
FINAL PAYMENT OF PRINCIPAL; TERMINATION OF SERIES
The final payment of principal and interest on investor certificates of a
series offered hereby will be made no later than the Series Termination Date
specified in the related Prospectus Supplement.
The final payment of principal of and interest on any investor certificate
will be made only upon presentation and surrender of such investor certificate
at the office or agency specified in the notice from the Trustee to the investor
certificateholders regarding the final distribution. The Trustee will provide
such notice to the investor certificateholders not later than the tenth day of
the month of the final distribution.
Each series will terminate on the earlier of (i) the Series Termination
Date with respect to such series or (ii) the day following the Distribution Date
on which the final payment of principal is made to the investor
certificateholders of such series.
If, as of the Distribution Date in the month preceding the Series
Termination Date with respect to a series (after giving effect to all transfers,
withdrawals and deposits to occur on such Distribution Date), the Series
Investor Interest with respect to such series is greater than zero, Receivables
(or interests therein) in an amount sufficient to yield proceeds equal to the
Series Investor Interest plus
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any accrued but unpaid Certificate Interest will be sold; provided, however,
that the amount of Receivables to be sold will not exceed the product of (i) the
aggregate amount of Receivables in the Trust and (ii) a fraction, the numerator
of which is the Series Investor Interest and the denominator of which is the
Aggregate Investor Interest, in each case on the Distribution Date in the month
preceding the Series Termination Date; and provided, further, that the
Receivables selected to be sold will not be materially different from the
Receivables remaining in the Trust as of that Distribution Date. The proceeds
from this sale will be deposited into the Series Distribution Account and paid
to the investor certificateholders of such series on the Distribution Date
immediately following the deposit. The payment will be deemed to be the final
distribution with respect to the investor certificates of such series.
If specified in the Prospectus Supplement with respect to any series
offered hereby, and subject to any conditions described therein, if the Servicer
determines that, as of any Distribution Date during the Rapid Amortization
Period, the Controlled Accumulation Period or the Controlled Amortization Period
of such series, the Series Investor Interest less (i) the Class Investor
Interest with respect to any Seller Retained Class and (ii) the Supplemental
Cash allocable to the Investor Interests (other than with respect to a Seller
Retained Class), if any, of such series will be less than a specified percentage
of the Series Initial Investor Interest, the Seller will have the option to
purchase and cancel the certificateholders' interest in such series. The
purchase price will be equal to the Series Investor Interest, plus all accrued
but unpaid Certificate Interest as of such Distribution Date; provided, however,
the Seller may not repurchase and cancel any investor certificates representing
a Seller Retained Class until all classes of investor certificates senior to
such Seller Retained Class have been repurchased and cancelled. Following any
such purchase and cancellation and the deposit of the aggregate purchase price
into the Series Distribution Account, the certificateholders of such series will
have no further rights with respect to the investor certificates. In the event
the Seller shall fail for any reason to deposit the aggregate purchase price for
the certificateholders' interest of such series, payments would continue to be
made to the certificateholders of such series as described herein and in the
related Prospectus Supplement.
DESCRIPTION OF CREDIT ENHANCEMENT
Credit Enhancement may be provided to a series or class of a series offered
hereby by subordination provisions that require distributions of principal
and/or interest to be made with respect to the investor certificates of such
series or class before distributions are made to one or more other series or
other classes of such series, by reserve accounts or by Third Party Credit
Enhancement with respect to a series, which may include a cash collateral
account, a letter of credit, a surety bond, an insurance policy, or any other
form of credit enhancement described in the related Prospectus Supplement.
A description of any Credit Enhancement provided with respect to a series
offered hereby will be set forth in the related Prospectus Supplement. The
description will include such information as (a) the amount payable under the
Credit Enhancement, (b) any conditions to such payment, (c) the circumstances
under which the Credit Enhancement will be available, (d) the class or classes
of the series that will receive the direct benefit of the Credit Enhancement and
(e) the conditions (if any) under which the amount payable under the Credit
Enhancement may be terminated, reduced or replaced.
ESTABLISHING AND ISSUING NEW SERIES
The Pooling and Servicing Agreement provides that, pursuant to any one or
more Series Supplements, the Seller may direct the Trustee to issue from time to
time new series subject to the conditions described below (each such issuance, a
"New Issuance"). Except as otherwise provided in the related Series Supplement,
each New Issuance will have the effect of decreasing the Seller Interest to the
extent of the Initial Investor Interest of such new series. Under the Pooling
and Servicing Agreement, the Seller may designate, with respect to any New
Issuance: (i) its Initial
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Investor Interest; (ii) its Certificate Rate or the basis for calculation of its
Certificate Rate; (iii) its Payment Dates and the date from which interest shall
accrue; (iv) its Series Termination Date; and (v) such other terms as the Seller
may deem appropriate (all such terms, the "Principal Terms" of such series).
None of the Seller, the Servicer, the Trustee or the Trust is required or
intends to obtain the consent of any investor certificateholder of any
outstanding series to issue a New Issuance. The Seller may offer for sale any
series under a prospectus or other disclosure document in transactions either
registered under the Securities Act or exempt from registration thereunder. The
Seller intends to offer, from time to time, additional series but is under no
obligation to do so.
A New Issuance may occur only upon the satisfaction of certain conditions
provided in the Pooling and Servicing Agreement. The obligation of the Trustee
to issue the investor certificates of such new series and to execute and deliver
the related Series Supplement is subject to the satisfaction of the following
conditions: (a) at least two Business Days in advance of the date upon which the
New Issuance will occur, the Seller will have given the Trustee a written notice
which will state with respect to each New Issuance the designation of each
series to be issued and, with respect to each such series: (i) its Payment Dates
and the date from which interest shall accrue, (ii) its Initial Investor
Interest, (iii) its Certificate Rate or the basis for calculation of its
Certificate Rate, (iv) its Series Termination Date and (v) any other terms that
Seller sets forth in such notice; (b) the Seller will have delivered to the
Trustee a Series Supplement, executed by the Seller, the Servicer and the
Trustee, which Series Supplement may specifically incorporate terms or
provisions by reference to other documentation previously delivered to the
Trustee; (c) the Trustee will have received written confirmation from the Rating
Agency that the newly issued series will not result in a Ratings Event; (d) the
Seller will have delivered to the Trustee and the Rating Agency a Tax Opinion
with respect to the New Issuance; and (e) the Seller will have delivered to the
Trustee an officer's certificate confirming that as a result of the New
Issuance, the Seller will not be required pursuant to the Pooling and Servicing
Agreement to designate Additional Accounts. The Series Supplement for a Series
may also provide additional conditions for New Issuances. Upon satisfaction of
such conditions, the Trustee will issue new investor certificates of the new
series for execution and redelivery to the Trustee for authentication.
REALLOCATION OF SERIES AMONG GROUPS
The Pooling and Servicing Agreement provides that the Seller may elect, at
any time, by written notice to the Trustee and to Sears, and subject to certain
conditions, to move any series from the Group of which it is then a member to
any other Group, including without limitation to a new Group established at such
time of which the series to be moved is the only series. A series may be moved
from one Group to another only if the following conditions are satisfied: (i)
the Group from which the series is moved and the Group to which the series is
moved have the same Distribution Date; (ii) the Servicer shall have certified to
the Trustee that the Servicer reasonably believes that the movement of the
applicable series would not (a) result in any delay in the payment of principal
to the investor certificateholders of any series then outstanding, or (b) cause
a Rapid Amortization Event to occur with respect to any series then outstanding;
and (iii) the Rating Agencies shall have advised the Seller, the Trustee and
Sears that the movement of the applicable series would not result in a Ratings
Event.
LIST OF INVESTOR CERTIFICATEHOLDERS
In the event that Definitive Certificates are issued, upon written request
of three or more investor certificateholders of record representing fractional
undivided interests aggregating not less than 5% of the Series Invested Amount,
after having been adequately indemnified by such investor certificateholders for
its costs and expenses, the Trustee will afford such investor certificateholders
access during business hours to the current list of investor certificateholders
for purposes of communicating with other investor certificateholders with
respect to their rights under the Pooling and Servicing Agreement. See
"--Definitive Certificates."
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MEETINGS
Unless otherwise specified in the applicable Prospectus Supplement in
respect of any series offered hereby, the Pooling and Servicing Agreement and
any Series Supplement will not provide for any annual or other meetings of
investor certificateholders.
BOOK-ENTRY REGISTRATION
The information in this section concerning DTC, Cedelbank and Euroclear and
their book-entry systems and procedures will apply to each series of investor
certificates unless otherwise specified in the related Series Supplement and has
been obtained from sources that SRFG and the Trust believe to be reliable, but
SRFG and the Trust take no responsibility for the accuracy of the information in
this section.
Certificate Owners may hold their investor certificates through DTC (in the
United States) or Cedelbank or Euroclear (in Europe). The investor certificates
will be registered in the name of the nominee of DTC. Cedelbank and Euroclear
will hold omnibus positions on behalf of the Cedelbank Customers and the
Euroclear Participants, respectively, through customers' securities accounts in
Cedelbank's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
SRFG has been informed by DTC that DTC's nominee will be Cede & Co. ("Cede").
Accordingly, Cede is expected to be the holder of record of the investor
certificates. The investor certificates will be available for purchase in
book-entry form in minimum denominations of $1,000 and integral multiples
thereof. No person acquiring an interest in the investor certificates (each, a
"Certificate Owner") will be entitled to receive a certificate representing that
person's interest in the investor certificates. Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references herein to actions by investor certificateholders will refer to
actions taken by DTC upon instructions from its Participants, as hereinafter
defined, and all references herein to distributions and notices to investor
certificateholders will refer to distributions and notices to DTC or Cede, as
the registered holder of the investor certificates, for distribution to
Certificate Owners in accordance with DTC procedures. See "--Definitive
Certificates." For additional information regarding clearance and settlement
procedures for the investor certificates, see Annex I hereto.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations, and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
DTC management is aware that some computer applications and systems used
for processing data were written using two digits rather than four to define the
applicable year, and therefore may not recognize a date using "00" as the year
2000. This could result in the inability of these systems to properly process
transactions with dates in the year 2000 and thereafter. DTC has developed and
is implementing a program to address this problem so that its applications and
systems as the same relate to the timely payment of distributions (including
principal and interest payments) to securityholders, book-entry deliveries and
settlement of trades within DTC continue to function properly. This program
includes a technical assessment and a remediation plan, each of which is
complete.
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Additionally, DTC plans to implement a testing phase of this program which is
expected to be completed within appropriate time frames.
In addition, DTC is contacting (and will continue to contact) third party
vendors that provide services to DTC to determine the extent of their year 2000
compliance, and DTC will develop contingency plans as it deems appropriate to
address failures in year 2000 compliance on the part of third party vendors.
However, there can be no assurance that the systems of third party vendors will
be timely converted and will not adversely affect the proper functioning of
DTC's services.
The information set forth in the preceding two paragraphs has been provided
by DTC for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind. SRFG makes no
representations as to the accuracy or completeness of such information.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedelbank Customers and Euroclear Participants will occur in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedelbank
Customers or Euroclear Participants, on the other hand, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Cedelbank Customers and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedelbank or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Cedelbank Customer or Euroclear Participant on such business day. Cash received
in Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank Customer or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedelbank or Euroclear cash account only as of the business day
following settlement in DTC.
Certificate Owners that are not Participants or Indirect Participants may
purchase, sell or otherwise transfer ownership of, or other interests in, the
investor certificates only through Participants and Indirect Participants. In
addition, Certificate Owners will receive all distributions of principal and
Certificate Interest from the Trustee through the Participants. Under a
book-entry format, Certificate Owners may experience some delay in their receipt
of payments, since the payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward the payments to its Participants, which
thereafter will forward them to Indirect Participants or Certificate Owners. It
is anticipated that the only investor certificateholder will be Cede, as nominee
of DTC. Certificate Owners will not be recognized by the Trustee as "Investor
Certificateholders," as that term is used in the Pooling and Servicing
Agreement, and Certificate Owners only will be permitted to exercise the rights
of investor certificateholders indirectly through the Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the investor certificates
and is required to receive and transmit distributions of the
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principal of and interest on the investor certificates. Participants and
Indirect Participants with which Certificate Owners have accounts with respect
to the investor certificates similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective Certificate
Owners.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge investor certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of those
investor certificates, may be limited due to the lack of a physical certificate
for those investor certificates.
DTC has advised SRFG that it will take any action permitted to be taken by
an investor certificateholder under the Pooling and Servicing Agreement or any
applicable Series Supplement only at the direction of one or more Participants
to whose account with DTC the investor certificates are credited. DTC may take
conflicting action with respect to other undivided interests in the investor
certificates to the extent that those actions are taken on behalf of
Participants whose holdings include those undivided interests.
Cedelbank is incorporated under the laws of Luxembourg as a limited company
(a societe anonyme) and is registered as a bank in Luxembourg. Cedelbank holds
securities for its customers ("Cedelbank Customers") and facilitates the
clearance and settlement of securities transactions between Cedelbank Customers
through electronic book-entry changes in accounts of Cedelbank Customers,
thereby eliminating the need for physical movement of certificates. Transactions
may now be settled in Cedelbank in any of 36 currencies, including United States
dollars. Cedelbank provides to its Cedelbank Customers, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Cedelbank interfaces with domestic markets in several countries. As a bank
registered in Luxembourg, Cedelbank is subject to regulation by the Luxembourg
Commission for the Supervision of the Financial Sector. Cedelbank Customers are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters. Indirect
access to Cedelbank is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Cedelbank Customer, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 34
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to investor certificates held through Cedelbank
or Euroclear will be credited to the cash accounts of Cedelbank Customers or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions will be
subject to tax reporting in accordance with relevant United States tax laws and
regulations. Cedelbank or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by an investor certificateholder under
the Pooling and Servicing Agreement or any applicable Series Supplement on
behalf of a Cedelbank Customer or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to its Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of investor certificates among
participants of DTC, Cedelbank and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
DEFINITIVE CERTIFICATES
The investor certificates will be issued in fully registered, certificated
form to Certificate Owners or their nominees ("Definitive Certificates"), rather
than to DTC or its nominee only if (i) SRFG advises the Trustee in writing that
DTC is no longer willing or able to discharge properly its responsibilities as
Depositary with respect to the investor certificates, and the Trustee or SRFG is
unable to locate a qualified successor, (ii) SRFG, at its option, elects to
terminate the book-entry system through DTC, or (iii) after the occurrence of a
Servicer Termination Event, Certificate Owners representing in the aggregate not
less than 51% of the Invested Amount of such series advise DTC through
Participants in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the best interest of the Certificate
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee is required to notify all Certificate Owners of
the availability through DTC of Definitive Certificates. Upon surrender by DTC
of a definitive certificate representing the investor certificates and
instructions for re-registration, the Trustee will issue the investor
certificates as Definitive Certificates, and thereafter the Trustee will
recognize the registered holders of such Definitive Certificates as investor
certificateholders under the Pooling and Servicing Agreement ("Holders").
Distribution of principal and payments of interest on the investor
certificates will be made by the Trustee directly to Holders of Definitive
Certificates in accordance with the procedures set forth herein and in the
Pooling and Servicing Agreement. Interest payments and any principal payments on
each Distribution Date will be made to Holders in whose names the Definitive
Certificates were registered at the close of business on the related Record
Date. Payments will be made by check mailed to the address of such Holder as it
appears on the register maintained by the Trustee. The final payment on any
investor certificate (whether Definitive Certificates or the investor
certificates
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registered in the name of Cede representing the investor certificates), however,
will be made only upon presentation and surrender of such investor certificate
at the office or agency specified in the notice of final distribution to
investor certificateholders. The Trustee will provide such notice to registered
investor certificateholders not later than the tenth day of the month of such
final payment.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee, or at such other office as SRFG designates. No service
charge will be imposed for any registration of transfer or exchange, but the
Transfer Agent may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
EXCHANGE OF INVESTOR CERTIFICATES FOR SELLER INTEREST
In the event that SRFG becomes a Certificate Owner or a Holder, SRFG may
have the Trustee cancel such investor certificates on any Distribution Date
(after giving effect to all allocations and payments on such Distribution Date
in accordance with the Pooling and Servicing Agreement and the applicable Series
Supplement) by notifying the Trustee of its desire to cancel such investor
certificates (an "Exchange"); provided, however, that no Subordinate
Certificates may be cancelled unless the Seller has been advised by the Ratings
Agencies that such cancellation will not result in a Ratings Event.
Simultaneously with such cancellation, the Series Investor Interest shall be
reduced and the Seller Interest shall be increased. Accordingly, while an
Exchange will reduce the aggregate interest in the assets of the Trust
represented by the outstanding investor certificates (because a lesser principal
amount of investor certificates will be outstanding), the interest in such
assets represented by any outstanding investor certificates (including pro rata
shares of the Investor Interest and the Collections) will not be reduced.
SALE OF SELLER INTEREST
The Seller Certificate has been issued to SRFG. Pursuant to the Pooling and
Servicing Agreement, SRFG may not transfer, assign, sell or otherwise convey,
pledge or hypothecate or otherwise grant a security interest in any portion of
the Seller Interest represented by the Seller Certificate; provided, however,
that the Seller may transfer any portion of the Seller Interest on terms
substantially similar to the terms of the Pooling and Servicing Agreement so
long as the agreements and other documentation relating thereto are consistent
with, and subject to, the terms of the Pooling and Servicing Agreement and any
Series Supplement and do not require any action prohibited or prohibit any
action that is either required on the part of the Seller, the Trustee or the
Servicer by the terms of the Pooling and Servicing Agreement and any Series
Supplement or necessary to protect the interests of the investor
certificateholders; and provided, further, that the Seller is advised by the
Rating Agencies that such transfer would not result in a Ratings Event.
Notwithstanding the above, no such advice from the Rating Agencies is required
if the transfer is made in order to comply with certain regulatory requirements.
AMENDMENTS
The Pooling and Servicing Agreement and any Series Supplement may be
amended by Sears, SRFG and the Trustee, without investor certificateholder
consent, for the following purposes: (i) to add to the covenants and agreements
of the Pooling and Servicing Agreement or any Series Supplement for the benefit
of the investor certificateholders or to surrender any right or power of Sears
or SRFG granted therein; (ii) to add provisions to or change or eliminate any
provision of the Pooling and Servicing Agreement or any Series Supplement,
provided that any such addition, change or elimination shall not adversely
affect in any material respect the Holders of any class of any series then
outstanding; (iii) to cure any ambiguity or to correct or supplement any
inconsistent provision of the Pooling and Servicing Agreement or any Series
Supplement; (iv) to add provisions to or change any of the provisions of the
Pooling and Servicing Agreement or any Series Supplement (a) for the purpose of
accommodating the addition of Participation Interests to the Trust, (b) to
change the procedures for issuance of Global Certificates, (c) to change the
Credit
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Enhancement or (d) to accommodate the issuance of additional investor
certificates with respect to an outstanding series; (v) to add any other
provisions with respect to matters or questions arising under the Pooling and
Servicing Agreement or any Series Supplement which are not inconsistent with
such agreements; provided, such provisions will not adversely affect in any
material respect the interests of the investor certificateholders; or (vi) to
add or change provisions of the Pooling and Servicing Agreement or any Series
Supplement for the purpose of issuing Variable Funding Certificates; provided,
however, that with respect to clauses (iv)(a), (iv)(c), (iv)(d) and (vi) above,
such amendments shall only be effected upon receipt of written confirmation from
the Rating Agencies that such amendment shall not result in a Ratings Event.
In addition, the Pooling and Servicing Agreement and any Series Supplement
may be amended by Sears, SRFG and the Trustee with the consent of the Holders of
investor certificates evidencing fractional undivided interests aggregating not
less than 66 2/3% of the Class Invested Amount of any class adversely affected,
for the purpose of adding any provisions to, changing in any manner or
eliminating any of the provisions of the Pooling and Servicing Agreement or any
Series Supplement or modifying in any manner the rights of the investor
certificateholders. No such amendment, however, may (i) increase or reduce the
amount of, or delay or accelerate the timing of, distributions required to be
made on any investor certificate of such series without the consent of all
investor certificateholders of such series, (ii) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of all investor
certificateholders of each affected class or (iii) be adopted without written
confirmation from the Rating Agencies that such amendment will not cause a
Ratings Event. Promptly after the execution of any amendment to the Pooling and
Servicing Agreement or any Series Supplement requiring the consent of investor
certificateholders, the Trustee will furnish written notice of the substance of
such amendment to each investor certificateholder.
THE TRUSTEE
The First National Bank of Chicago is the Trustee under the Pooling and
Servicing Agreement. Sears, SRFG and their affiliates may from time to time
enter into normal banking and trustee relationships with the Trustee. The
Trustee and Sears and any of their respective affiliates may hold investor
certificates in their own names. In addition, for purposes of meeting the legal
requirements of certain jurisdictions, the Trustee has the power to appoint a
co-trustee or separate trustee of all or any part of the Trust. In the event of
such appointment, all rights, powers, duties and obligations conferred or
imposed upon the Trustee by the Pooling and Servicing Agreement will be
conferred or imposed upon the Trustee and such separate trustee or co-trustee
jointly, or, in any jurisdiction in which the Trustee will be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee who will exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event SRFG will be obligated
to appoint a successor trustee. SRFG may also remove the Trustee if (i) the
Trustee ceases to be eligible to continue as such under the Pooling and
Servicing Agreement and fails to resign after written request therefor from the
Seller, (ii) the Trustee becomes legally unable to act, or (iii) the Trustee
becomes insolvent. In addition, if no event that would constitute a Servicer
Termination Event shall have occurred, upon 30 days' notice to the Trustee,
Sears may remove the Trustee. In such circumstances, SRFG will be obligated to
appoint a successor trustee. The Servicer shall provide written notice to the
Rating Agencies of any resignation or removal of the Trustee and the appointment
of any successor trustee. Any resignation or removal of the Trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor trustee.
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INDEMNIFICATION OF TRUST AND TRUSTEE
The Pooling and Servicing Agreement provides that SRFG will indemnify the
Trust and the Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained by reason of any acts, omissions or alleged acts or
omissions arising out of the activities of the Trust or the Trustee; provided,
however, that SRFG will not indemnify (a) the Trustee for liabilities incurred
by reason of fraud, negligence, breach of fiduciary duty or misconduct by the
Trustee in the performance of its duties under the Pooling and Servicing
Agreement, (b) the Trust or the investor certificateholders for liabilities
arising from actions taken by the Trustee at the request of investor
certificateholders or (c) the Trust or the investor certificateholders with
respect to any federal, state or local income or franchise taxes (or any
interest or penalties with respect thereto) required to be paid by the Trust or
the investor certificateholders.
CERTAIN MATTERS REGARDING THE SERVICER
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Sears compensation for its servicing activities and reimbursement for its
expenses will take the form of the payment to it of a monthly servicing fee as
set forth in the related Series Supplement (the "Monthly Servicing Fee"). The
Monthly Servicing Fee will be allocated among the Seller Interest and each
series of investor certificates. Under certain circumstances, to the extent set
forth in the related Series Supplement, the Servicer may be entitled to receive
additional servicing compensation. The Monthly Servicing Fee for each series of
investor certificates will be funded from Collections of Finance Charge
Receivables allocated to the Series Investor Interest for such series (although
a portion of the Monthly Servicing Fee may be funded from Additional Funds as
specified in the related Series Supplement) and will be paid each month from the
Series Collections Account as set forth in the related Series Supplement.
The Servicer pays 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 public
accountants and other fees which are not expressly stated in the Pooling and
Servicing Agreement or the related Series Supplement to be payable by the Trust
or the investor certificateholders other than federal, state and local income
and franchise taxes, if any, of the Trust.
RESIGNATION OR MERGER OF SERVICER; DELEGATION OF DUTIES
Sears may not resign from its obligations and duties as Servicer under the
Pooling and Servicing Agreement, except upon determination that such duties are
no longer permissible under applicable law. No such resignation will become
effective until the Trustee or a successor to Sears has assumed the Servicer's
responsibilities and obligations under the Pooling and Servicing Agreement.
The Servicer may delegate any of its duties under the Pooling and Servicing
Agreement and the related Series Supplement; provided, however, the delegation
of any duties will not relieve the Servicer of its liabilities and
responsibilities with respect to such duties and will not constitute a
resignation under the Pooling and Servicing Agreement.
Any Person into which, in accordance with the Pooling and Servicing
Agreement, Sears may be merged or consolidated or any Person resulting from any
merger or consolidation to which Sears is a party, or any Person succeeding to
the business of Sears, upon execution of a supplement to the Pooling and
Servicing Agreement, will be the successor to Sears as Servicer under the
Pooling and Servicing Agreement.
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SERVICER TERMINATION EVENTS
In the event of any Servicer Termination Event, either the Trustee or
investor certificateholders evidencing fractional undivided interests
aggregating not less than 51% of the Aggregate Invested Amount, by written
notice to Sears as Servicer (and to the Trustee if given by the investor
certificateholders), may terminate all of the rights and obligations of Sears as
Servicer under the Pooling and Servicing Agreement. The Trustee will as promptly
as possible appoint a Successor Servicer, and, if no Successor Servicer has been
appointed by the Trustee and has accepted its appointment by the time Sears
ceases to act as Servicer, all authority, power and obligations of Sears as
Servicer under the Pooling and Servicing Agreement will pass to and be vested in
the Trustee.
A "Servicer Termination Event" refers to any of the following events:
(a) any failure by the Servicer to make any payment, transfer or
deposit on or before the date occurring five Business Days after the date
such payment, transfer or deposit is required to be made or given, as the
case may be, under the terms of the Pooling and Servicing Agreement or any
related Series Supplement;
(b) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or material agreements of the Servicer set
forth in the Pooling and Servicing Agreement or a related Series
Supplement, which continues unremedied for a period of 60 days after the
date on which written notice of such failure, stating that such failure is
a "Servicer Termination Event" and requiring the same to be remedied, shall
have been given to the Servicer by the Trustee, or to the Servicer and the
Trustee by the Holders of investor certificates evidencing fractional
undivided interests aggregating not less than 25% of the Class Invested
Amount of any class of any series materially adversely affected thereby;
(c) any representation, warranty or certification made by the Servicer
in the Pooling and Servicing Agreement or any related Series Supplement
shall prove to have been incorrect when made, which has a material adverse
effect on the rights of the certificateholders of any class of any series
and which continues to be incorrect in any material respect for a period of
60 days after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Servicer by the
Trustee, or to the Servicer and the Trustee by the Holders of investor
certificates evidencing fractional undivided interests aggregating not less
than 25% of the Class Invested Amount of any class of any series materially
adversely affected thereby;
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership of Sears while acting as Servicer. However, if a Servicer
Termination Event occurs with respect to a Servicer subject to the
Bankruptcy Code and consists of the filing of a bankruptcy petition by or
against such Servicer, the Trustee or investor certificateholders may be
prevented from effecting a transfer of servicing. Similarly, if Sears is
not the Servicer and a Servicer Termination Event occurs with respect to
any FDIC insured depository institution as Servicer and consists of the
appointment of a conservator or receiver of such depository institution, or
the insolvency of such other depository institution, the FDIC may have the
power to prevent the Trustee or investor certificateholders from effecting
a transfer of servicing; or
(e) any other event specified as a Servicer Termination Event in the
Series Supplement for such series.
REPORTS TO INVESTOR CERTIFICATEHOLDERS
For each Distribution Date, the Trustee will execute a statement based on
information provided by Sears as Servicer setting forth: (a) the total amount
distributed to investor certificateholders; (b) the amount of the distribution
on such Distribution Date allocated to principal on the investor certificates;
(c) the amount of such distribution allocated to interest on the investor
certificates;
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(d) the total amount of Collections of Principal Receivables processed during
the related Due Period and the amount allocated in respect of the investor
certificates and the Seller Certificate; (e) the total amount of Collections of
Finance Charge Receivables processed during the related Due Period and the
amount allocated in respect of the investor certificates and the Seller
Certificate; (f) the aggregate amount of Principal Receivables and the amount of
the Series Investor Interest for each series of investor certificates on such
Distribution Date (after giving effect to distributions made on such date); (g)
the Investor Charged-Off Amount for the Distribution Date and the Cumulative
Investor Charged-Off Amount; (h) the amount of Investor Losses for such
Distribution Date, the aggregate amount of Investor Losses and the amount of
reimbursements of Investor Losses; (i) the amount of the Investor Servicing Fee
for the related Due Period; and (j) any other customary information that the
Trustee, Sears or SRFG deems necessary. Such reports will be sent to investor
certificateholders free of charge upon request by calling (212) 493-6928. In
addition, on or before January 31 of each calendar year, beginning with 1995, a
statement prepared by the Paying Agent from information provided by Sears
containing the information required to be contained in the regular monthly
report to investor certificateholders, as set forth in clauses (a), (b) and (c)
above, aggregated for such preceding calendar year or the applicable portion
thereof, together with such other customary information as the Trustee, Sears or
SRFG deems necessary or desirable to enable the investor certificateholders to
prepare their tax returns, will be delivered in the same manner.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that on or about April 15 of
each calendar year, beginning in April 1995, Sears as Servicer will cause a firm
of nationally recognized independent public accountants to furnish a report to
the Trustee covering the preceding annual period to the effect that such
accountants have performed certain agreed-upon procedures on certain documents
and records relating to the servicing of Accounts, compared the information
contained in the Servicer's certificates delivered during the period covered by
the report with such documents and records and that, on the basis of such
procedures, nothing came to the attention of such accountants that caused them
to believe that such servicing was not conducted in compliance with the Pooling
and Servicing Agreement and the Series Supplement, except for such exceptions as
they believe to be immaterial and such other exceptions as will be set forth in
such report. In addition, each report will set forth the procedures performed to
the effect that such accountants compared the mathematical calculations of the
amounts contained in the Monthly Servicer Certificates delivered during such
annual period with the Servicer's computer reports which generated such amounts,
confirming that such amounts are in agreement, except for such exceptions as
they believe to be immaterial and such other exceptions as will be set forth in
such report. The procedures to be followed by such accountants will not
constitute an audit conducted in accordance with generally accepted auditing
standards.
The Pooling and Servicing Agreement provides for delivery to the Trustee on
or about April 15 of each calendar year, beginning in April 1995, of an annual
statement signed by an officer of Sears as Servicer to the effect that (a) in
the course of such officer's duties as an officer of Sears such officer would
normally obtain knowledge of any Servicer Termination Event, and (b) whether or
not such officer has obtained knowledge of any such Servicer Termination Event,
and if so, specifying each Servicer Termination Event of which the signing
officer has knowledge and the nature of the Servicer Termination Event.
USE OF PROCEEDS
SRFG conveyed the Receivables to the Trust on the Initial Closing Date
concurrently with the sale of investor certificates for Series 1994-1 and the
net proceeds from the sale of investor certificates were paid to SRFG. SRFG paid
such proceeds to Sears in consideration for the sale by Sears of a part of the
Receivables to SRFG. SRFG has used and will use proceeds from the sale of
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additional investor certificates to purchase additional Receivables from Sears,
to loan funds to Sears or for general corporate purposes. Unless otherwise
specified in the related Prospectus Supplement in respect of a series offered
hereby, Sears will add such proceeds to its general funds and initially will use
such proceeds to effect a reduction of short-term borrowings.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary of certain anticipated federal income tax
consequences of the purchase, ownership and disposition of investor certificates
of a series is based on the advice of Latham & Watkins ("Tax Counsel") as
counsel to Sears and SRFG. The summary is based on current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), currently applicable
Treasury regulations and judicial and administrative rulings and decisions
("Current Law"). There can be no assurance that the Internal Revenue Service
(the "IRS") will not take a contrary view, and no ruling from the IRS has been
or will be sought. Legislative, judicial or administrative changes may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any legislative, judicial or administrative changes or interpretations
may or may not be retroactive and could affect tax consequences to investor
certificateholders of one or more series.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investor certificateholders in light of
their individual circumstances, and, except for certain limited discussions of
particular topics, is not intended for investor certificateholders subject to
special treatment under the federal income tax laws (e.g., life insurance
companies, tax-exempt organizations, financial institutions, broker-dealers and
investors that have a functional currency other than the United States dollar or
hold their investor certificates as part of a hedge, straddle or conversion
transaction). PROSPECTIVE INVESTOR CERTIFICATEHOLDERS SHOULD CONSULT THEIR OWN
TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF INVESTOR
CERTIFICATES.
The discussion assumes that an investor certificate (i) is issued in
registered form, (ii) has all payments denominated in United States dollars and
not determined by reference to the value of any other currency, and (iii) has a
term that exceeds one year. Moreover, the discussion assumes that, unless
Section 1272(a)(6) of the Code applies to an investor certificate, the interest
formula for an investor certificate meets the requirements for "qualified stated
interest" under Treasury regulations relating to original issue discount
("OID"), and that any OID on an investor certificate arising from any excess of
the principal amount of the investor certificate over its issue price is de
minimis (i.e., is less than 1/4% of its principal amount multiplied by the
number of years (computed on a weighted-average basis taking into account when
principal payments are due) until its maturity date). If these conditions are
not satisfied, additional tax considerations will be disclosed in the applicable
Prospectus Supplement.
TAX TREATMENT OF THE INVESTOR CERTIFICATES AS INDEBTEDNESS
Unless otherwise specified in the related Prospectus Supplement in respect
of a series offered hereby, Tax Counsel will advise Sears and SRFG that, in
their opinion, although the matter is not free from doubt, under Current Law the
investor certificates of a series will be treated as indebtedness for federal
income tax purposes and the Trust will continue to not be treated as an entity
subject to federal income tax. There can be no assurance, however, that the IRS
or the courts will agree with this conclusion. In that regard, the Pooling and
Servicing Agreement and the Series Supplement of a series generally refer to the
transfer of the Receivables as a "sale," and SRFG has informed Tax Counsel that
(i) different criteria are used in determining the non-tax accounting
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treatment of the transaction and (ii) for regulatory and financial accounting
purposes, SRFG will treat the transfer of the Receivables under the Pooling and
Servicing Agreement and the Series Supplement with respect to such series as a
transfer of an ownership interest in the Receivables and not as the creation of
a debt obligation. Notwithstanding the foregoing, Sears and SRFG, on the one
hand, and the investor certificateholders, by acceptance of the investor
certificates, on the other hand, will agree to treat the investor certificates
of a series as indebtedness for federal, state and local income and franchise
tax purposes. Except for the discussion in "--Possible Characterization of the
Investor Certificates," the following discussion of federal income tax
consequences assumes that the investor certificates of a series will be treated
as indebtedness for federal income tax purposes and the Trust will not be
treated as an entity subject to federal income tax.
UNITED STATES HOLDERS
As used herein, "United States Holder" means an investor certificateholder
that is a United States Person. A "United States Person" is (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in the United States or under the laws of the United States or of any
state, (iii) an estate the income of which is subject to United States federal
income taxation regardless of its source or (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration of
the trust and one or more United States persons have the authority to control
all substantial decisions of the trust (or, under certain circumstances, a trust
the income of which is subject to United States federal income taxation
regardless of its source).
Stated Interest on Investor Certificates. Interest paid on the investor
certificates will be taxable as ordinary income when received or accrued by
United States Holders in accordance with their method of accounting. Generally,
interest received on the investor certificates will constitute "investment
income" for purposes of certain limitations of the Code concerning the
deductibility of investment interest expense.
Original Issue Discount. In general, the excess of the stated redemption
price at maturity of the investor certificates of a series over their issue
price will constitute OID, unless such excess is less than 1/4% of the investor
certificates' principal amount multiplied by the number of years (computed on a
weighted-average basis taking into account when principal payments are due)
until the investor certificates' maturity date in which case such excess (the
"de minimis amount") will be includible in the gross income of the investor
certificateholder as principal payments are made on the investor certificates.
The includible amount (which will be treated as a gain on disposition of an
investor certificate, as described below) with respect to each such principal
payment will equal the product of the investor certificate's de minimis amount
and a fraction, the numerator of which is the amount of the principal payment
made and the denominator of which is the stated principal amount of the investor
certificate.
If the investor certificates of a series are issued with OID, United States
Holders generally will be required to include OID in income for each accrual
period in advance of receipt of the cash representing such OID. A holder of a
debt instrument issued with OID is required to recognize as ordinary income the
amount of OID on the debt instrument as such discount accrues, in accordance
with a constant yield method. Under Section 1272(a)(6) of the Code, special
provisions apply to debt instruments on which payments may be accelerated due to
prepayments of other obligations securing those debt instruments or, to the
extent provided in Treasury regulations, by reason of other events. Under these
provisions, the computation of OID on such debt instruments must be determined
by taking into account both the prepayment assumptions used in pricing the debt
instrument and the actual prepayment experience. As a result, the amount of OID
on such debt instruments that will accrue in any given accrual period may either
increase or decrease depending upon the actual prepayment rate. Because no
Treasury regulations have been issued under these provisions, each holder should
consult its own tax advisors regarding the impact of the OID rules in the event
the investor certificates of a series are issued with OID.
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Market Discount. United States Holders should be aware that the resale of
an investor certificate may be affected by the market discount provisions of the
Code. These rules generally provide that, subject to a statutorily-defined de
minimis exception, if a United States Holder acquires an investor certificate at
a market discount (i.e., at a price below its stated redemption price at
maturity or its revised issue price if it was issued with OID) and thereafter
recognizes gain upon a disposition of the investor certificate (or disposes of
it in certain non-recognition transactions, including by gift), the lesser of
such gain (or appreciation, in the case of an applicable non-recognition
transaction) or the portion of the market discount that accrued while the
investor certificate was held by such holder will be treated as ordinary
interest income at the time of the disposition. The market discount rules also
provide that a holder who acquires an investor certificate at a market discount
may be required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry the
investor certificate until the holder disposes of the investor certificate in a
taxable transaction.
Partial principal payments on the investor certificates of a series offered
hereby may be made monthly, semi-annually or at other regular intervals as
specified in the Prospectus Supplement. A United States Holder who acquired an
investor certificate at a market discount would be required to treat as ordinary
interest income the portion of any principal payment attributable to accrued
market discount on such investor certificate. In addition, market discount that
is de minimis and thus not subject to the foregoing rules should be includible
in the gross income of the investor certificateholder as principal payments are
made on the investor certificates in an amount equal to such de minimis amount
multiplied by a fraction, the numerator of which is the amount of the principal
payment made and the denominator of which is the remaining stated principal
amount of the investor certificate.
A United States Holder who acquired an investor certificate at a market
discount may elect to include market discount in income as the discount accrues,
either on a ratable basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS. If a holder elects to include market discount in income in accordance with
the preceding sentence, the foregoing rules with respect to the recognition of
ordinary income on sales, principal payments and certain other dispositions of
the investor certificates and the deferral of interest deductions on
indebtedness related to the investor certificates will not apply.
The Clinton Administration has proposed legislation that would require an
accrual method taxpayer that acquires an investor certificate at a market
discount to include such discount in income as it accrues, subject to certain
limitations. As proposed, this provision would apply to investor certificates
acquired on or after the date of enactment. No prediction can be made regarding
whether such legislation will be enacted, or if enacted, what its ultimate form
or effective date will be.
Amortizable Bond Premium. Generally, if the price or tax basis of an
investor certificate held as a capital asset exceeds the sum of all amounts
payable on the investor certificate after the acquisition date (other than
payments of qualified stated interest), such excess may constitute amortizable
bond premium that the holder may elect to amortize under the constant interest
rate method over the period from his or her acquisition date to the investor
certificate's maturity date. Treasury regulations specifically exclude debt
instruments that are subject to Section 1272(a)(6) of the Code from the
amortizable bond premium rules contained in such regulations (see discussion of
Section 1272(a)(6) in "--Original Issue Discount" above). Amortizable bond
premium generally will be treated as an offset to interest income on the
investor certificate, rather than as a separate interest deduction item subject
to the investment interest limitations of the Code. A holder that elects to
amortize bond premium must generally reduce the tax basis in the related
investor certificate by the amount of bond premium used to offset interest
income. If an investor certificate purchased at a premium is redeemed in full
prior to its maturity, a holder who has elected to
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amortize bond premium should generally be entitled to a deduction for any
remaining unamortized bond premium in the taxable year of redemption.
Sales of Investor Certificates. In general, a United States Holder will
recognize gain or loss upon the sale, exchange, redemption or other taxable
disposition of an investor certificate measured by the difference between (i)
the amount of cash and the fair market value of any property received (other
than the amount attributable to, and taxable as, accrued but unpaid interest)
and (ii) the holder's tax basis in the investor certificate (as increased by any
OID or market discount (including de minimis amounts) previously included in
income by the holder and decreased by any deductions previously allowed for
amortizable bond premium and by any payments reflecting principal or OID
received with respect to such investor certificate).
Subject to the OID and market discount rules discussed above and to the
one-year holding period requirement for long-term capital gain treatment, any
such gain or loss generally will be long-term capital gain or loss, provided the
investor certificate was held as a capital asset. The maximum federal income tax
rate applicable to capital gains and ordinary income for corporations is 35%.
The maximum ordinary federal income tax rate for individuals, estates and trusts
is 39.6%, whereas the maximum long-term capital gains rate for such taxpayers is
20%.
UNITED STATES ALIEN HOLDERS
Set forth below is a general discussion of the United States federal income
and estate tax consequences of the purchase, ownership and disposition of an
investor certificate by an investor certificateholder that is a United States
Alien (a "United States Alien Holder"). A "United States Alien" is any person
who, for United States federal income tax purposes, is (i) a non-resident alien
individual, (ii) a foreign corporation, (iii) a foreign estate or trust, or (iv)
a foreign partnership, as such terms are defined in the Code. Some United States
Alien Holders (including certain residents of certain United States possessions
or territories) may be subject to special rules not discussed herein.
Interest (including OID, if any) paid to a United States Alien Holder
generally will be subject to withholding of United States federal income tax at
a 30% rate, or such lower rate as may be specified by an applicable income tax
treaty, unless (i) such interest payments are effectively connected with the
conduct of a trade or business of the holder within the United States or (ii)(a)
the holder is not a "10 percent shareholder" of a holder of the Seller
Certificate or a "controlled foreign corporation" with respect to which a holder
of the Seller Certificate is a "related person" within the meaning of the Code
and (b) the beneficial owner (and, if relevant, a financial institution on the
beneficial owner's behalf) provides an appropriate statement, signed under
penalties of perjury, certifying that the beneficial owner of such investor
certificate is not a United States Person and providing the beneficial owner's
name and address. The statement generally must be provided in the year a payment
occurs or in either of the two preceding years. For payments made after 1999,
Treasury regulations provide that the statement must generally be made on a Form
W-8 and provided prior to payment.
A United States Alien Holder generally will not be subject to United States
federal income tax on gain realized on the sale, exchange or redemption of an
investor certificate (other than gain attributable to accrued interest or OID,
which is addressed in the preceding paragraph); provided that (i) the gain is
not effectively connected with the conduct of a trade or business within the
United States by the holder and (ii) in the case of an individual holder, (a)
the holder is not present in the United States for 183 days or more in the
taxable year of the sale, exchange or redemption or (b) the holder does not have
a "tax home" in the United States and the gain is not attributable to an office
or other fixed place of business maintained in the United States by the holder.
If the interest or gain on an investor certificate held by a United States
Alien Holder is effectively connected with the conduct of a trade or business
within the United States by the holder, then the holder (although exempt from
the withholding of tax previously discussed if the holder provides an
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appropriate statement) generally will be subject to United States federal income
tax on the interest (including OID, if any) or gain at regular federal income
tax rates in a manner similar to a United States Person. See "--United States
Holders." In addition, if the holder is a foreign corporation, it may be subject
to a branch profits tax equal to 30% of its "effectively connected earnings and
profits" within the meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an applicable tax
treaty.
An investor certificate held by an individual who at the time of death is a
United States Alien Holder will not be subject to United States federal estate
tax as a result of such individual's death if, immediately before death, (i) the
individual was not a "10 percent shareholder" of a holder of the Seller
Certificate and (ii) interest on such investor certificate was not effectively
connected with the conduct of a trade or business within the United States by
the decedent.
THE FOREGOING DESCRIPTION OF THE POTENTIAL UNITED STATES FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS IS NECESSARILY
INCOMPLETE. UNITED STATES ALIEN HOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE FOREGOING MATTERS TO THEM.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information reporting requirements apply to certain payments of principal
of, and interest on (and the amount of OID, if any, accrued on), an obligation,
and to proceeds of certain sales of an obligation before maturity, to certain
nonexempt United States Holders. In addition, a 31% backup withholding tax also
may apply with respect to such amounts if such holders fail to provide correct
taxpayer identification numbers and other information. A holder of the Seller
Certificate, a paying agent or a broker, as the case may be, will be required to
withhold from any payment that is subject to backup withholding a tax equal to
31% of such payment unless the holder furnishes its taxpayer identification
number in the manner prescribed in applicable Treasury regulations and certain
other conditions are met.
In the case of payments of principal of, and interest on (and the amount of
OID, if any, accrued on), investor certificates to United States Alien Holders,
temporary Treasury regulations provide that backup withholding and information
reporting will not apply to payments with respect to which either requisite
certification has been received or an exemption has otherwise been established
(provided that neither a holder of the Seller Certificate nor a paying agent has
actual knowledge that the holder is a United States Person or that the
conditions of any other exemption are not in fact satisfied). Payments of the
proceeds of the sale of an investor certificate to or through a foreign office
of a broker that is a United States Person, a controlled foreign corporation for
United States federal income tax purposes or a foreign person 50% or more of
whose gross income is effectively connected with the conduct of a trade or
business within the United States for a specified three-year period are
currently subject to certain information reporting requirements, unless the
payee is an exempt recipient or such broker has evidence in its records that the
payee is not a United States Person and no actual knowledge that such evidence
is false and certain other conditions are met. Temporary Treasury regulations
indicate that such payments are not currently subject to backup withholding.
Payments of the proceeds of a sale to or through the United States office of a
broker will be subject to information reporting and backup withholding unless
the payee certifies under penalties of perjury as to his or her status as a
non-United States Person and certain other qualifications (and no agent of the
broker who is responsible for receiving or reviewing such statement has actual
knowledge that it is incorrect) and provides his or her name and address or the
payee otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to
an investor certificateholder will be allowed as a refund or a credit against
such investor certificateholder's United States federal income tax.
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The Treasury Department has promulgated final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify reliance standards. Special rules apply which permit the
shifting of primary responsibility for withholding to certain financial
intermediaries acting on behalf of beneficial owners. The final regulations are
generally effective for payments made after December 31, 1999, subject to
certain transition rules. United States Alien Holders are urged to consult their
own tax advisors with respect to these final regulations.
POSSIBLE CHARACTERIZATION OF THE INVESTOR CERTIFICATES
The foregoing discussion assumes that the investor certificates of each
series will be treated as indebtedness for federal income tax purposes. However,
although Tax Counsel will opine to such effect with respect to each series of
investor certificates, the matter is not free from doubt, and there can be no
assurance that the IRS or the courts will agree with Tax Counsel's opinion. If
the IRS were to contend successfully that some or all of the investor
certificates of any series are not indebtedness for federal income tax purposes,
it could find that the arrangement created by the Pooling and Servicing
Agreement and the Series Supplement constitutes a partnership which could be
treated as a "publicly traded partnership" taxable as a corporation.
If some or all of the investor certificates of a series were treated as
interests in a partnership, the partnership in all likelihood would be treated
as a "publicly traded partnership." If the partnership were nevertheless not
taxable as a corporation (for example, because of an exception for a "publicly
traded partnership" whose income is interest that is not derived in the conduct
of a financial business), such partnership would not be subject to federal
income tax. Rather, such investor certificateholders would be required to
include in income their share of the income and deductions generated by the
assets of the Trust, as determined under partnership tax accounting rules. In
such event, the amount, timing and character of the income required to be
recognized by the investor certificateholders could differ materially from the
amount, timing and character thereof if the investor certificates were
characterized as indebtedness. It also is possible that such a partnership could
be subject to tax in certain states where the partnership is considered to be
engaged in business, and that the investor certificateholders, as partners in
such a partnership, could be taxed on their share of the partnership's income in
such states.
In addition, if such a partnership is considered to be engaged in a trade
or business within the United States, the partnership would be subject to a
withholding tax on distributions to (or, at its election, income allocable to)
such investor certificateholders who are United States Alien Holders, and each
such holder would be credited for his or her share of the withholding tax paid
by the partnership. In such case, the holder generally would be subject to
United States federal income tax at regular federal income tax rates, and
possibly a branch profits tax (in the case of a corporate holder), as previously
described. See "--United States Alien Holders." Further, even if the partnership
is not considered to be engaged in a trade or business within the United States,
it appears that partnership withholding will be required in the case of any such
United States Alien Holder that is engaged in a trade or business within the
United States to which the investor certificate income is effectively connected.
Alternatively, although there may be arguments to the contrary, it appears
that if such a partnership is not considered to be engaged in a trade or
business within the United States and if income with respect to an investor
certificate is not otherwise effectively connected with the conduct of a trade
or business within the United States by such a United States Alien Holder, the
holder would be subject to United States federal income tax and withholding at a
rate of 30% (unless reduced by an applicable treaty) on his or her distributive
share of the partnership's interest income.
If some or all of the investor certificates of a series were treated as
interests in a "publicly traded partnership" taxable as a corporation, the
income from the assets of the Trust would be
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subject to federal income tax as well as any income tax imposed by certain
states where the entity would be considered to be engaged in business, at
corporate rates, which could reduce the amounts available for distribution to
all investor certificateholders. See "Certain State Tax Consequences." Under
such circumstances, the investor certificates may be treated as debt of an
entity taxable as a corporation or, alternatively, as equity of such an entity
in which latter case interest payments to investor certificateholders could be
treated as dividends and, if made to a United States Alien Holder, could be
subject to United States federal income tax and withholding at a rate of 30%
(unless reduced by an applicable tax treaty). In addition, a United States Alien
Holder of an investor certificate that is treated as debt of such an entity who
actually or constructively owns 10% or more of the outstanding principal amount
of investor certificates that are treated as equity of such an entity may be
treated as a "10 percent shareholder." See "--United States Alien Holders."
Based on Tax Counsel's advice as to the treatment of the investor
certificates for federal income tax purposes, Sears, SRFG and the Trust will not
attempt to cause the arrangement created by the Pooling and Servicing Agreement
and the Series Supplement with respect to a series to comply with the federal or
state income tax reporting requirements applicable to partnerships or
corporations. If such arrangement were later held to constitute a partnership or
corporation, the manner of bringing it into compliance with such requirements is
unclear.
Prospective investor certificateholders should consult their own tax
advisors as to the risk that the investor certificates will not be treated as
indebtedness, and the possible tax consequences of potential alternative
treatments.
CERTAIN STATE TAX CONSEQUENCES
The following summary of certain anticipated state tax consequences with
respect to the investor certificates of a series is based on the advice of Tax
Counsel as counsel to Sears and SRFG. The summary is based upon currently
applicable statutes, regulations and judicial and administrative rulings and
decisions of certain states. There can be no assurance that the taxing
authorities of such states will not take a contrary view, and no ruling
therefrom has been or will be sought. Legislative, judicial or administrative
changes may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to investor
certificateholders of such series. Except as set forth below, this discussion of
state tax consequences assumes that the investor certificates of a series will
be treated as indebtedness for federal tax purposes and the Trust will not be
treated as an entity subject to federal income tax.
GENERAL
State tax consequences to each investor certificateholder will depend upon
the provisions of the state tax laws to which the investor certificateholder is
subject. Most states modify or adjust the taxpayer's federal taxable income to
arrive at the amount of income potentially subject to state tax. Resident
individuals usually pay state tax on 100% of such state-modified income, while
corporations and other taxpayers generally pay state tax only on that portion of
state-modified income assigned to the taxing state under the state's own
apportionment and allocation rules. Because each state's tax laws vary, it is
impossible to predict the tax consequences to the investor certificateholders in
all of the state taxing jurisdictions in which they are already subject to tax.
ARIZONA, DELAWARE, GEORGIA, ILLINOIS, OHIO AND TEXAS
Most activities relating to the servicing and collection of the Receivables
will take place in Arizona, Delaware, Georgia, Illinois, Ohio and Texas. In the
opinion of Tax Counsel, although the matter is not free from doubt, the investor
certificates of a series will be treated as debt and the Trust will continue to
not be treated as an entity subject to tax, in each case for purposes of the
Arizona income tax, the Delaware income tax, the Georgia income and net worth
taxes, the Illinois
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income tax, the Ohio corporate franchise (to the extent based on net income) and
personal income taxes and the Texas corporate franchise tax (to the extent based
on net income). Accordingly, although the matter is not free from doubt, if the
investor certificates of a series are treated as debt in the named states, the
investor certificateholders not otherwise subject to taxation in those states
will not become subject to such taxes solely because of their ownership of the
investor certificates. However, an investor certificateholder could be required
to pay, in states in which such investor certificateholder already is subject to
state tax, additional state tax as a result of his or her investment in investor
certificates. In addition, there can be no assurance that no other state will
claim that the Trust has undertaken activities therein and is subject to
taxation by such state. Were any other state to make and sustain such a claim,
the treatment of the investor certificates of a series for purposes of such
state's tax laws would be determined thereunder, and there can be no assurance
that the investor certificates of a series would be treated as debt or that the
Trust will not be treated as an entity subject to tax for purposes of such state
taxation.
If some or all of the investor certificates of a series were treated as
interests in a partnership or a corporation, or, in the case of Ohio, as a
business trust, the state tax consequences to investor certificateholders could
be materially different, especially in states which may be considered to have a
business connection with the Receivables. See "Certain Federal Income Tax
Consequences--Possible Characterization of the Investor Certificates."
THE FOREGOING DESCRIPTION OF THE POTENTIAL STATE TAX CONSEQUENCES IS
NECESSARILY INCOMPLETE. INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE APPLICATION OF THE FOREGOING MATTERS TO THEM.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans, including
Individual Retirement Accounts and Individual Retirement Annuities
(collectively, "IRAs") to which they apply ("Plans") and on fiduciaries of those
Plans. In accordance with ERISA's general fiduciary standards, before investing
in an investor certificate, a Plan fiduciary should determine whether such an
investment is permitted under the governing Plan instruments. Additionally, the
Plan fiduciary should determine if the investor certificates are appropriate for
the Plan in view of the risks associated with the investment, the Plan's overall
investment policy and the composition and diversification of its portfolio.
ERISA and the Code prohibit certain transactions involving the assets of a Plan
and Persons who have certain specified relationships to the Plan ("parties in
interest" within the meaning of ERISA or "disqualified persons" within the
meaning of the Code). Prohibited transactions may generate excise taxes and
other liabilities. Prohibited transactions involving IRAs may result in
disqualification of the IRAs. Thus, a Plan fiduciary considering an investment
in the investor certificates should also consider whether such an investment
might constitute or give rise to a prohibited transaction under ERISA or the
Code.
Certain transactions involved in the operation of the Trust might be deemed
to constitute prohibited transactions under ERISA and the Code if assets of the
Trust were deemed to be assets of an investing Plan. ERISA and the Code do not
define "plan assets." The U.S. Department of Labor (the "DOL") has published a
regulation (the "Regulation"), which defines when a Plan's investment in an
entity will be deemed to include an interest in the underlying assets of such
entity (such as the Trust) for purposes of the provisions of ERISA and the Code.
Unless the Plan's investment is an "equity interest" the underlying assets of
such entity will not be considered assets of the Plan under the Regulation.
Under the Regulation, a beneficial ownership interest in a trust is deemed to be
an equity interest.
Assuming that the investor certificates are equity interests, the
Regulation contains an exception that provides that if a Plan acquires a
"publicly-offered security," the assets of the issuer of the security will not
be deemed to be Plan assets. A publicly-offered security is a security that is
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(i) freely transferable, (ii) part of a class of securities that is owned by 100
or more investors independent of the issuer and of one another and (iii) either
(A) part of a class of securities registered under section 12(b) or 12(g) of the
Exchange Act, or (B) sold to the Plan as part of an offering of securities to
the public pursuant to an effective registration statement under the Securities
Act and the class of securities of which such security is a part is registered
under the Exchange Act within 120 days (or such later time as may be allowed by
the Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred.
To the extent applicable, whether the investor certificates of a series
offered hereby are expected to meet the criteria of publicly-offered securities
will be set forth in the related Prospectus Supplement.
If the investor certificates are deemed to be an extension of credit for
ERISA purposes, the purchase of the investor certificates by a Plan with respect
to which SRFG or one of its affiliates is a "party in interest" or "disqualified
person" might be considered a prohibited transaction under Section 406 of ERISA
and Section 4975 of the Code unless an exemption applies. There are at least
five prohibited transaction class exemptions issued by the DOL that might apply,
depending in part on who decided to acquire the investor certificates for the
Plan; DOL Prohibited Transaction Exemption ("PTE") 84-14 (Class Exemption for
Plan Asset Transactions determined by Independent Qualified Professional Asset
Managers); PTE 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds); PTE 96-23 (Class Exemption for Plan Asset
Transactions Determined by In-House Asset Managers); PTE 95-60 (Class Exemption
for Certain Transactions Involving Insurance Company General Accounts); and PTE
90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate Accounts).
Moreover, regardless of the characterization of the investor certificates
as debt or equity for ERISA purposes, a possible violation of the prohibited
transaction rules could occur if the investor certificates were purchased during
the offering with assets of a Plan if Sears, the Trustee, any underwriter or any
of their affiliates were a fiduciary with respect to such Plan. Under ERISA and
the Code, a person is a "fiduciary" with respect to a Plan to the extent (i) he
or she exercises any discretionary authority or discretionary control respecting
management of such Plan or exercises any authority or control respecting
management or disposition of its assets, (ii) he or she renders investment
advice for a fee or other compensation, direct or indirect, with respect to any
moneys or other property of such Plan, or has any authority or responsibility to
do so, or (iii) he or she has any discretionary authority or discretionary
responsibility in the administration of such Plan. Accordingly, the fiduciaries
of any Plan should not purchase the investor certificates during the offering
with assets of any Plan if Sears, the Trustee, any underwriter or any of their
affiliates is a fiduciary with respect to the Plan.
In light of the foregoing, fiduciaries of Plans considering the purchase of
the investor certificates should consult their own benefits or other appropriate
counsel regarding the application of ERISA and the Code to their purchase of
investor certificates.
In particular, insurance companies considering the purchase of investor
certificates with assets of their general account should consult their own
benefits counsel or other appropriate counsel with respect to the United States
Supreme Court's decision in John Hancock Mutual Life Insurance Co. v. Harris
Trust & Savings Bank, 114 S. Ct. 517 (1993) ("John Hancock"), DOL PTE 95-60
(Class Exemption for Certain Transactions Involving Insurance Company General
Accounts) which was issued by the DOL on July 12, 1995 and Section 401(c) of
ERISA. In John Hancock, the Supreme Court held that the assets held in an
insurance company's general account may be deemed to be "plan assets" under
certain circumstances. Subject to numerous conditions and limitations, PTE 95-
60 provides an exemption for certain prohibited transactions that could arise as
a result of the holding in John Hancock. Section 401(c) of ERISA, which was
added by the Small Business Job Protection Act of 1996, requires the Secretary
of Labor to issue regulations providing guidance for the purpose of determining,
in cases where an insurer issues one or more policies (supported by
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the assets of the insurer's general account) to or for the benefit of an
employee benefit plan, which assets of such insurer (other than assets held in a
separate account) constitute "plan assets" for the purposes of the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code. Such
regulations shall only apply with respect to policies which are issued by an
insurer on or before December 31, 1998, to or for the benefit of an employee
benefit plan which is supported by the assets of such insurer's general account.
With respect to policies issued on or before December 31, 1998, such regulations
shall take effect at the end of the 18-month period following the date on which
such regulations become final. Section 401(c) of ERISA also provides that no
person will be subject to liability under Section 4975 of the Code and the
fiduciary responsibility provisions of ERISA on the basis of a claim that the
assets of an insurer (other than assets held in a separate account) are "plan
assets," for conduct occurring before the date which is 18 months following the
date the final regulations become final. On December 22, 1997, the DOL issued
proposed regulations under Section 401(c) of ERISA. 29 CFR 2550.401c-1.
Accordingly, investors should analyze whether John Hancock, PTE 95-60,
Section 401(c) of ERISA and any regulations issued pursuant to Section 401(c) of
ERISA may have an impact with respect to their purchase of investor
certificates.
PLAN OF DISTRIBUTION
SRFG may sell investor certificates (i) through underwriters or dealers;
(ii) directly to one or more purchasers; or (iii) through agents. The related
Prospectus Supplement in respect of a series offered hereby will set forth the
terms of the offering of such investor certificates, including the name or names
of any underwriters, the purchase price of such investor certificates and the
proceeds to SRFG from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial offering price and any
discounts or concessions allowed or reallowed or paid to dealers. Only
underwriters so named in such Prospectus Supplement shall be deemed to be
underwriters in connection with the investor certificates offered thereby.
If underwriters are used in the sale, the investor certificates will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed price or at varying prices determined at the time of sale or at negotiated
prices. Such investor certificates may be offered to the public either through
underwriting syndicates represented by managing underwriters or by underwriters
without a syndicate. The obligations of the underwriters to purchase such
investor certificates will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all the investor certificates of the
series offered by the related Prospectus Supplement if any of such investor
certificates are purchased. Any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers may be changed from time
to time.
Investor certificates may also be sold directly by SRFG or through agents
designated by SRFG from time to time. In respect of a series offered hereby, any
agent involved in the offering and sale of the investor certificates will be
named, and any commissions payable by SRFG to such agent will be set forth, in
the related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, any such agent is acting solely as an agent for the
period of its appointment.
If so indicated in the related Prospectus Supplement in respect of a series
offered hereby, SRFG will authorize agents, underwriters or dealers to solicit
offers by certain institutional investors to purchase investor certificates
providing for payment and delivery on a future date specified in such related
Prospectus Supplement. There may be limitations on the minimum amount which may
be purchased by any such institutional investor or on the portion of the
aggregate principal amount of the particular investor certificates which may be
sold pursuant to such arrangements. Institutional investors to which such offers
may be made, when authorized, include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and such other institutions as may be approved by SRFG. Unless
otherwise specified in
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the related Prospectus Supplement in respect of a series offered hereby, the
obligations of any such purchasers pursuant to such delayed delivery and payment
arrangements will not be subject to any conditions except (i) the purchase by an
institution of the particular investor certificates shall not at the time of
delivery be prohibited under the laws of any jurisdiction of the United States
to which such institution is subject, and (ii) if the particular investor
certificates are being sold to underwriters, SRFG shall have sold to such
underwriters the total principal amount of such investor certificates less the
principal amount thereof covered by such arrangements. Underwriters will not
have any responsibility in respect of the validity of such arrangements or the
performance of SRFG or such institutional investors thereunder.
Underwriters, dealers and agents that participate in the distribution of
the investor certificates may be deemed to be underwriters, and any discounts or
commissions received by them from SRFG and any profit on the resale of the
investor certificates by them may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933, as amended (the " Securities
Act"). Under arrangements which may be entered into by SRFG, underwriters,
dealers and agents who participate in the distribution of investor certificates
may be entitled to indemnification by SRFG against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments that the underwriters, dealers or agents may be required to make
with respect thereto. Underwriters, dealers and agents may engage in
transactions with, or perform services for, SRFG in the ordinary course of their
respective businesses.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement in respect
of a series offered hereby, the legality of the investor certificates will be
passed upon for SRFG by Steven M. Cook, Vice President, Law, of Sears, and
Latham & Watkins, and certain legal matters relating to the tax consequences of
the issuance of the investor certificates will be passed upon for SRFG by Latham
& Watkins. Unless otherwise specified in the related Prospectus Supplement in
respect of a series offered hereby, the legality of the investor certificates
will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom
LLP. Skadden, Arps, Slate, Meagher & Flom LLP from time to time performs legal
services for Sears and its affiliates.
AVAILABLE INFORMATION
SRFG, as originator of the Trust, has filed a Registration Statement under
the Securities Act with the Securities and Exchange Commission (the
"Commission") on behalf of the Trust with respect to the investor certificates
offered pursuant to this Prospectus and the related Prospectus Supplement. For
further information, reference is made to the Registration Statement and
amendments thereof and exhibits thereto and the reports and other documents
incorporated herein by reference as described previously under "Incorporation of
Certain Documents by Reference," which are available for inspection without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center,
Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Such reports and other
documents may also be obtained from the web site that the Commission maintains
at http://www.sec.gov. The Trust is subject to the informational requirements of
the Exchange Act, and in accordance therewith, SRFG, on behalf of the Trust,
files reports and other information with the Commission. Copies of the
Registration Statement and amendments thereof and exhibits thereto, as well as
such materials relating to the Trust, may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
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DEFINITIONS
"Account" shall mean an open-end retail charge plan for specified Persons,
maintained by Sears, the Bank or another affiliate of Sears with respect to the
sale of goods or services, receivables under which are transferred to the Trust
pursuant to the Pooling and Servicing Agreement or pursuant to an Assignment of
Additional Accounts. The term "Account" will be deemed to refer to an Additional
Account only from and after the Addition Date with respect thereto. The
definition of Account shall not include any Account the Receivables in which are
removed from the Trust after it has been reassigned to the Seller.
"Account Selection Date" for any Account shall have the meaning set forth
in the applicable Prospectus Supplement.
"Addition Date" shall mean each date as of which Additional Accounts are
included as Accounts or Participation Interests are conveyed to the Trust.
"Additional Account Cut-Off Date" shall mean, for any Additional Account,
the date specified as such in the Assignment of Additional Accounts for such
Additional Account.
"Additional Account" shall mean an open-end retail charge plan for
specified Persons, maintained by Sears, the Bank or an another affiliate of
Sears with respect to the sale of goods or services, receivables under which are
added to the Trust after the Initial Closing Date.
"Additional Funds" shall mean, with respect to any Distribution Date, (i)
an amount equal to the product of (x) the total amount of Recovered Amounts with
respect to the Sears Portfolio Accounts during the calendar month immediately
preceding such Distribution Date, which amount shall be determined based on a
good faith estimate made by the Servicer on the third business day of the
calendar month in which such Distribution Date occurs and (y) a fraction, the
numerator of which is the total amount of Principal Receivables in the Trust as
of the first day of the related Due Period and the denominator of which is the
total amount of Sears Portfolio Principal Receivables as of the first day of
such Due Period; provided, however, that such Additional Funds shall not exceed
the sum of all Recovered Amounts with respect to Seller Charged-Off Accounts
during the calendar month immediately preceding such Distribution Date, which
amount shall be determined based on a good faith estimate made by the Servicer
on the third business day of the calendar month in which such Distribution Date
occurs and (ii) any other supplemental funds that the Servicer may, from time to
time, elect to add to the Trust.
"Aggregate Invested Amount" shall mean at any time the sum of the Invested
Amounts with respect to all series of investor certificates then issued and
outstanding.
"Aggregate Investor Interest" shall mean at any time the sum of the
Investor Interests with respect to all series of investor certificates then
issued and outstanding.
"Assignment Agreement" shall have the meaning set forth in "Risk
Factors--Security Interests and Insolvency Related Matters."
"Assignment of Additional Accounts" shall mean any Assignment of Additional
Accounts among the Seller, the Servicer and the Trustee pursuant to the Pooling
and Servicing Agreement.
"Assignment of Additional Funds" shall mean the Assignment of Additional
Funds dated as of January 30, 1998, between the Seller and the Trustee.
"Bank" shall mean Sears National Bank, a national banking association.
"Bank Holding Company Act" shall mean the Bank Holding Company Act of 1956,
as amended.
"Bankruptcy Code" shall have the meaning set forth in "Certain Legal
Matters Relating to the Receivables--Security Interests in Receivables."
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banking institutions in the following locations are authorized or
obligated by law or executive order to be closed: (a) New York, New York, (b)
Chicago, Illinois, (c) the city in which the Corporate Trust Office is located,
(d) Phoenix, Arizona, (e) London, England, or (f) the city in which the
principal
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banking or executive offices of any Third Party Credit Enhancement Provider are
located; or such other day as shall be specified in the applicable Prospectus
Supplement.
"Cede" shall mean Cede & Co.
"Cedelbank" shall have the meaning set forth in "Description of the
Investor Certificates--Book-Entry Registration."
"Certificate Interest" with respect to any class of any series shall have
the meaning set forth in the applicable Prospectus Supplement.
"Certificate Owner" shall have the meaning set forth in "Description of the
Investor Certificates --Book-Entry Registration."
"Certificate Rate" with respect to any class of any series shall mean the
interest rate for that class set forth in the applicable Prospectus Supplement.
"Certificate Register" shall mean the register maintained pursuant to the
Pooling and Servicing Agreement providing for the registration of the investor
certificates in registered form and transfers and exchanges thereof.
"Certificateholder" or "Holder" shall mean an investor certificateholder, a
holder of the Seller Certificate or a Person in whose name a Certificate is
registered in the Certificate Register.
"Charged-Off Account" shall mean each Account with respect to which the
Receivables in such Account have been charged-off as uncollectible.
"Charged-Off Amount" shall have the meaning set forth in the applicable
Prospectus Supplement.
"Class Cumulative Investor Charged-Off Amount" shall have the meaning set
forth in the applicable Prospectus Supplement.
"Class Invested Amount" shall have the meaning set forth in the applicable
Prospectus Supplement.
"Class Investor Interest" shall have the meaning set forth in the
applicable Prospectus Supplement.
"Class Percentage" shall have the meaning set forth in the applicable
Prospectus Supplement.
"Clearing Agency" shall mean an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act. The initial Clearing Agency
shall be The Depository Trust Company.
"Code" shall have the meaning set forth in "Certain Federal Income Tax
Consequences--General."
"Collections" shall mean all payments by or on behalf of an Obligor
received by the Servicer or an affiliate of the Servicer, in respect of the
Receivables at one of its central administrative units charged with processing
funds and recording them in the Servicer's or the affiliate's records, as
applicable, in the form of cash, checks, wire transfers, ATM transfers or other
forms of payment. A Collection shall be deemed to have been received at the end
of the day on the Date of Processing of such Collection.
"Collections Account" shall mean a non-interest bearing, segregated trust
or deposit account established and maintained by the Trustee for the benefit of
the Certificateholders.
"Commission" shall have the meaning set forth in "Available Information."
"Contribution Agreement" shall mean the First Amended and Restated
Contribution Agreement dated as of July 31, 1994 between Sears and SRFG, as
amended or supplemented.
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"Controlled Accumulation Period," if applicable, for any series shall have
the meaning specified in the applicable Prospectus Supplement.
"Controlled Amortization Period," if applicable, for any series shall have
the meaning set forth in the applicable Prospectus Supplement.
"Cooperative" shall have the meaning set forth in "Description of the
Investor Certificates--Book-Entry Registration."
"Corporate Trust Office" means the principal corporate trust office of the
Trustee at which, at any particular time, its corporate trust business shall be
administered.
"Credit Enhancement" shall mean subordination or any Third Party Credit
Enhancement.
"Cumulative Investor Charged-Off Amount" for any class of any series shall
have the meaning set forth in the applicable Prospectus Supplement.
"Current Law" shall have the meaning set forth in "Certain Federal Income
Tax Consequences --General."
"Cut-Off Date" for any Account (other than an Additional Account) shall
mean the last day of the Due Period ending in July 1994.
"Date of Processing" for any transaction shall mean the date on which such
transaction is first recorded on the computer master file of credit accounts
maintained on behalf of the Trust at one of the central administrative units of
the Servicer or an affiliate of the Servicer charged with processing funds and
recording them in the Servicer's or such affiliate's records (without regard to
the effective date of such recordation).
"Definitive Certificates" shall have the meaning set forth in "Description
of the Investor Certificates--Definitive Certificates."
"Depositaries" shall have the meaning set forth in "Description of the
Investor Certificates--Book-Entry Registration."
"Distribution Date" for any series shall have the meaning set forth in the
applicable Prospectus Supplement.
"DOL" shall have the meaning set forth in "ERISA Considerations."
"DTC" shall mean The Depository Trust Company.
"Due Period" for any Account at any time shall mean the period included in
the monthly billing cycle applicable to such Account. When used with respect to
all the Accounts and related to a Distribution Date, "Due Period" shall mean,
collectively, the respective Due Periods applicable to each of the Accounts that
commenced in the second preceding calendar month and ended in the calendar month
next preceding such Distribution Date, and shall be referred to herein as a
"related Due Period" with reference to a Distribution Date.
"Eligible Institution" shall mean (i) a depository institution (which may
be the Trustee, the Seller or the Servicer or an affiliate thereof) organized
under the laws of the United States of America or any one of the states thereof,
including the District of Columbia, that at all times has a short-term
certificate of deposit rating of A-1+/P-1 or better by the Rating Agencies and
whose deposits are insured by the FDIC or (ii) any other institution that will
not cause a Ratings Event.
"Eligible Receivable" shall mean each Receivable:
(a) that is payable in United States dollars;
(b) that was created in compliance, in all material respects, with all
Requirements of Law applicable to the Seller and Sears, the Bank or one of
their affiliates, as applicable, and
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pursuant to a Credit Agreement that complies, in all material respects,
with all Requirements of Law applicable to the Seller and Sears, the Bank
or one of their affiliates, as applicable;
(c) as to which, if such Receivable was created before the Initial
Closing Date or the relevant Addition Date, as applicable, at the time of
the conveyance of such Receivable to the Trust, Sears, the Seller or the
Trust has or will have good and marketable title thereto free and clear of
all Liens;
(d) as to which, if such Receivable was created on or after the
Initial Closing Date or the relevant Addition Date, as applicable, at the
time of the creation of such Receivable, the Trust will have good and
marketable title thereto free and clear of all Liens arising under or
through the Seller with respect to such Receivable; and
(e) which constitutes an "account," "general intangibles" or "chattel
paper" under and as defined in Article 9 of the UCC as then in effect in
the State of New York.
"ERISA" shall have the meaning set forth in "ERISA Considerations."
"Euroclear Operator" or "Euroclear" shall have the meaning set forth in
"Description of the Investor Certificates--Book-Entry Registration."
"Euroclear Participants" shall have the meaning set forth in "Description
of the Investor Certificates--Book-Entry Registration."
"Excess Funding Account (General)" shall mean a non-interest bearing,
segregated trust or deposit account established and maintained by the Trustee
for the benefit of the certificateholders.
"Excess Funding Account (SRC)" shall mean a non-interest bearing,
segregated trust or deposit account established and maintained by the Trustee
for the benefit of the certificateholders.
"Exchange Act" shall have the meaning set forth in "Incorporation of
Certain Documents by Reference."
"Expected Final Payment Date," if applicable, shall have the meaning set
forth in the applicable Series Supplement.
"FDIC" shall mean the Federal Deposit Insurance Corporation, acting through
either the Savings Association Insurance Fund or the Bank Insurance Fund, or
successors thereto.
"Final Trust Termination Date" shall mean July 31, 2015.
"Finance Charge Collections" for any Due Period shall mean the lesser of
the aggregate amount of Finance Charge Receivables billed at the beginning of
such Due Period or Collections actually received in such Due Period.
"Finance Charge Receivables" with respect to any Account for any Due Period
shall mean the amount billed as finance charges and, if applicable, fees
accounted for as finance charges on such Account for such Due Period.
"Global Certificate" shall mean a single temporary global certificate
representing the investor certificates of any series or class, issued if the
related Series Supplement so provides.
"Group" shall mean, collectively, at any time, the one or more series of
investor certificates designated as part of the same Group at such time, whether
by the series supplements establishing such series or pursuant to the Pooling
and Servicing Agreement.
"Group Collections Account" shall mean a non-interest bearing, segregated
trust or deposit account established and maintained by the Trustee for the
benefit of the Certificateholders of a Group.
"Group Excess Funding Amount (SRC)" for any Group shall mean an amount
equal to the product of (i) all amounts on deposit in the Excess Funding Account
(SRC) and (ii) a fraction
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(a) the numerator of which is the sum of numerators used in calculating the
Class Percentage with respect to the Principal Collections for all Seller
Retained Classes in such Group and (b) the denominator of which is the sum of
the numerators used in calculating the Class Percentage with respect to the
Principal Collections for all Seller Retained Classes of all outstanding series.
"Highest Rating" shall mean, with respect to Moody's, P-1 or Aaa and, with
respect to Standard & Poor's, A-1+ or AAA, or any rating that will not cause a
Ratings Event.
"Holders" shall have the meaning set forth in the "Description of the
Investor Certificates--Definitive Certificates."
"Indirect Participants" shall have the meaning set forth in "Description of
the Investor Certificates--Book-Entry Registration."
"Ineligible Receivable" shall mean any Receivable as to which a Receivable
Repurchase Event relates.
"Initial Closing Date" shall mean July 31, 1994.
"Initial Investor Interest" for any series of investor certificates shall
mean the amount specified as the Initial Investor Interest in the applicable
Series Supplement.
"Interest Payment Date" for any series of investor certificates shall mean
the date or dates specified in the applicable Prospectus Supplement.
"Invested Amount" for any series with respect to any Distribution Date,
shall mean an amount equal to the Initial Investor Interest for such series
minus the sum of (a) the aggregate amount of payments of Certificate Principal
paid to the investor certificateholders of such series prior to such
Distribution Date, (b) the aggregate amount of Investor Losses of such series
not reimbursed prior to such Distribution Date and (c) the aggregate amount of
losses, if any, on investments of principal of funds on deposit in the Series
Principal Funding Account, if applicable.
"Investor Accounts" shall mean the Collections Account, the Group
Collections Accounts, the Excess Funding Account (General), the Excess Funding
Account (SRC) and any other segregated trust accounts specified as Investor
Accounts in any applicable Prospectus Supplement.
"investor certificates" for any series shall mean any one of the
certificates executed by the Seller and authenticated by the Trustee, other than
the Seller Certificate, substantially in the form set forth in the applicable
Series Supplement.
"Investor Charged-Off Amount" for any class of any series shall have the
meaning set forth in the applicable Prospectus Supplement.
"Investor Interest" with respect to any series shall have the meaning set
forth in the applicable Prospectus Supplement.
"Investor Loss" for any class shall have the meaning set forth in the
applicable Prospectus Supplement.
"Investor Servicing Fee" shall have the meaning set forth in the applicable
Prospectus Supplement.
"IRAs" shall have the meaning set forth in "ERISA Considerations."
"IRS" shall have the meaning set forth in "Certain Federal Income Tax
Consequences--General."
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
encumbrance, lien or other security agreement, including, without limitation,
any conditional sale or other title retention agreement, and any financing lease
having substantially the same economic effect as any of the foregoing, except
that statutory and other non-consensual liens shall not be Liens.
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"Minimum Principal Receivables Balance" shall mean, on any date of
determination, an amount equal to the sum of the Series Minimum Principal
Receivables Balances for each series then outstanding.
"Monthly Servicer Certificate" shall have the meaning set forth in the
applicable Series Supplement.
"Monthly Servicing Fee" for any series shall have the meaning set forth in
"Certain Matters Regarding the Servicer--Servicing Compensation and Payment of
Expenses."
"Moody's" shall mean Moody's Investors Service, Inc.
"New Issuance" shall have the meaning set forth in "Description of the
Investor Certificates--Establishing and Issuing New Series."
"Obligor" shall mean with respect to any Account, the Person or Persons
obligated to make payments with respect to such Account, including any guarantor
thereof.
"OID" shall have the meaning set forth in "Certain Federal Income Tax
Consequences--General."
"Opinion of Counsel" shall mean a written opinion of counsel, who may be
counsel for or an employee of the Seller or Sears or any of its affiliates.
"Paired Series," if applicable, for any series shall have the meaning set
forth in the applicable Prospectus Supplement.
"Participants" shall have the meaning set forth in "Description of the
Investor Certificates--Book-Entry Registration."
"Participation Interests" shall mean participations representing undivided
interests in a pool of assets primarily consisting of receivables in revolving
credit card accounts and collections thereon conveyed by the Seller to the Trust
in lieu of, or in addition to, Additional Accounts.
"Paying Agent" shall mean any paying agent appointed pursuant to the
Pooling and Servicing Agreement and shall initially be the Corporate Trust
Office of the Trustee.
"Payment Date" shall mean any Interest Payment Date, any Special Payment
Date, any Expected Final Payment Date, any Principal Payment Date or any
Scheduled Maturity Date.
"Permitted Investments" shall have the meaning set forth in "Description of
the Investor Certificates--Investment of Funds in Investor Accounts."
"Person" shall mean an individual, a partnership or a Corporation. The term
"Corporation" for the purposes of the preceding sentence only shall mean a
corporation, joint stock company, business trust or other similar association.
"Plans" shall have the meaning set forth in "ERISA Considerations."
"Pooling and Servicing Agreement" shall mean that certain pooling and
servicing agreement among Sears, SRFG and The First National Bank of Chicago,
dated as of July 31, 1994, as amended or supplemented.
"Principal Collections" shall mean, with respect to any Due Period, all
Collections other than Finance Charge Collections.
"Principal Payment Date" with respect to any series shall mean, if
applicable, the dates specified as such in the applicable Series Supplement.
"Principal Receivable" shall mean each Receivable other than Finance Charge
Receivables. Any Principal Receivables that the Seller is unable to convey to
the Trust as provided in the Pooling and Servicing Agreement shall not be
included in calculating the aggregate amount of Principal Receivables.
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"Principal Terms" shall have the meaning set forth in "Description of the
Investor Certificates--Establishing and Issuing New Series."
"Purchase Agreement" shall mean the First Amended and Restated Purchase
Agreement dated as of July 31, 1994 between Sears and SRFG, as amended or
supplemented.
"Purchased Class" shall have the meaning set forth in the applicable Series
Supplement.
"Qualified Trust Institution" shall mean (i) a depository institution
(which may include the Trustee) organized under the laws of the United States or
any of the states thereof, including the District of Columbia (or any domestic
branch of a foreign bank), (A) that acts as trustee for funds deposited in
segregated trust accounts in its corporate trust department, and (B) that has
securities that have a credit rating from each Rating Agency in one of such
Rating Agency's generic credit rating categories signifying investment grade or
(ii) any other institution that will not cause a Ratings Event.
"Rapid Amortization Commencement Date" shall mean the date on which the
Rapid Amortization Period begins as set forth in the applicable Prospectus
Supplement.
"Rapid Amortization Event" shall have the meaning set forth in the
applicable Prospectus Supplement.
"Rapid Amortization Period" shall have the meaning set forth in the
applicable Prospectus Supplement.
"Rating Agency" shall mean Moody's or Standard & Poor's unless otherwise
set forth in the applicable Series Supplement. "Rating Agencies" shall mean both
Moody's and Standard & Poor's unless otherwise set forth in the applicable
Series Supplement.
"Ratings Event" shall have the meaning set forth in "Risk Factors--Issuance
of Additional Series; Maturity Considerations."
"Receivable" shall mean any amount owing by any Obligor under an Account
from time to time, including, without limitation, amounts owing for the payment
of goods and services, finance charges and other charges, if any. A Receivable
shall be deemed to have been created at the end of the day on the Date of
Processing of such Receivable.
"Receivable Repurchase Event" shall have the meaning set forth in
"Description of the Investor Certificates--Repurchase of Specified Receivables."
"Receivables Warehouse Agreement" shall mean the Receivables Warehouse
Agreement dated as of December 21, 1995, by and between Sears and SRFG, as
amended or supplemented.
"Record Date" for any Distribution Date shall mean the last day of the
preceding calendar month.
"Recovered Amounts" shall mean, with respect to the Accounts, all amounts
received with respect to the Receivables that have previously been charged-off
as uncollectible and with respect to Sears Portfolio Accounts, all amounts
received with respect to receivables that have previously been charged-off as
uncollectible, including, without limitation, any proceeds from the sale of such
receivables.
"Regulation" shall have the meaning set forth in "ERISA Considerations."
"Removal Date" shall mean the date on which the Receivables in certain
designated Removed Accounts will be reassigned by the Trustee to the Seller.
"Removed Accounts" shall mean any Accounts designated for deletion and
removal from the Trust in accordance with the Pooling and Servicing Agreement.
"Required Daily Deposit" with respect to any day for any series then
outstanding shall have the meaning set forth in the applicable Prospectus
Supplement.
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"Return Adjustment" shall have the meaning set forth in "The
Trust--Adjustments to Receivables."
"Revolving Period" for any series shall mean the period specified as such
in the applicable Prospectus Supplement.
"Rules" shall have the meaning set forth in "Description of the Investor
Certificates--Book-Entry Registration."
"Scheduled Maturity Date," if applicable, shall have the meaning set forth
in the applicable Series Supplement.
"Sears" shall mean Sears, Roebuck and Co., a New York corporation, and its
successors and assigns.
"Sears Portfolio" shall mean the portfolio of open-end credit plan accounts
of Sears, the Bank or their affiliates.
"Sears Portfolio Accounts" means all open-end retail charge plans for
specified Persons maintained by Sears, the Bank or their affiliates with respect
to the sale of goods or services, including the Accounts.
"Sears Portfolio Principal Receivable" shall mean any amount owing by any
obligor under a Sears Portfolio Account from time to time that represents the
outstanding principal amount owing for the payment of goods and services.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall mean SRFG.
"Seller Accounts" means all Sears Portfolio Accounts the receivables in
which have been transferred from Sears to the Seller pursuant to the Purchase
Agreement, the Contribution Agreement or the Receivables Warehouse Agreement.
"Seller Certificate" shall mean the certificate executed by the Seller and
authenticated by the Trustee evidencing the Seller Interest.
"Seller Charged-Off Account" means each Seller Account with respect to
which the receivables in such Seller Account have been charged off as
uncollectible.
"Seller Interest" shall mean, with respect to any Distribution Date, the
difference between (A) the sum of (i) the aggregate amount of Principal
Receivables in the Trust at the end of the related Due Period, (ii)
Participation Interests and (iii) Supplemental Cash for all outstanding series
at the end of such day and (B) the Aggregate Investor Interest for all
outstanding series at the end of such day.
"Seller Percentage" shall have the meaning set forth in "Description of the
Investor Certificates--General."
"Seller Retained Class" shall have the meaning set forth in the applicable
Series Supplement.
"series" shall mean any of the series of investor certificates created
pursuant to the Pooling and Servicing Agreement.
"Series Closing Date" with respect to any series shall mean the day the
investor certificates of such series are initially issued, including the day the
Global Certificate is issued, if applicable.
"Series Collections Accounts" shall have the meaning set forth in the
applicable Prospectus Supplement.
"Series Cut-Off Date" for any series of investor certificates shall mean
the last day of the Due Period occurring in the month specified in the
applicable Prospectus Supplement.
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"Series Distribution Account" for any series shall have the meaning set
forth in the applicable Prospectus Supplement.
"Series Invested Amount" with respect to any series, with respect to any
Distribution Date with respect to such series, shall have the meaning set forth
in the applicable Prospectus Supplement.
"Series Investor Interest" with respect to any series, with respect to any
Distribution Date with respect to such series, shall have the meaning set forth
in the applicable Prospectus Supplement.
"Series Minimum Principal Receivables Balances" with respect to any series
shall have the meaning set forth in the applicable Prospectus Supplement.
"Series Percentage" with respect to any series shall have the meaning set
forth in the applicable Prospectus Supplement.
"Series Principal Funding Account," if applicable, shall have the meaning
set forth in the applicable Prospectus Supplement.
"Series Supplement" shall mean a supplement to the Pooling and Servicing
Agreement in accordance with its terms.
"Series Termination Date" for any series of investor certificates shall
mean the date specified in the applicable Prospectus Supplement.
"Servicer" initially shall mean Sears and thereafter any Person appointed
as the Successor Servicer as provided in the Pooling and Servicing Agreement to
service the Receivables.
"Servicer Termination Event" shall have the meaning set forth in "Certain
Matters Regarding the Servicer--Servicer Termination Events."
"Servicing Officer" shall mean any employee of the Servicer, or any Person
to which duties have been delegated under the Pooling and Servicing Agreement,
involved in, or responsible for, the administration and servicing of the
Receivables whose name appears on a list of servicing officers furnished to the
Trustee by the Servicer, as such list may from time to time be amended.
"Special Payment Date," if applicable, shall have the meaning set forth in
the applicable Prospectus Supplement.
"SRFG" shall mean SRFG, Inc., a Delaware corporation, and its successors
and assigns.
"Standard & Poor's" shall mean Standard & Poor's Ratings Services.
"Subordinate Certificates" shall have the meaning set forth in "Risk
Factors--Effect of Subordination."
"Subordinate Series" shall have the meaning set forth in "Description of
the Investor Certificates--Reallocations and Subordination of Collections."
"Supplemental Cash" shall have the meaning set forth in the applicable
Prospectus Supplement.
"Successor Servicer" shall mean a successor servicer appointed by the
Trustee pursuant to the Pooling and Servicing Agreement in the event of the
termination of the Servicer's obligations.
"Tax Counsel" shall have the meaning set forth in "Certain Federal Income
Tax Consequences--General."
"Tax Opinion" shall mean, (a) (i) with respect to the issuance of the first
series of the Trust, each issuance of a subsequent series under the Pooling and
Servicing Agreement and each transfer of a Purchased Class by the Seller
pursuant to a Series Supplement, an opinion of counsel to the effect that,
although not free from doubt, the investor certificates of such series (except
with respect to a Seller Retained Class) or such Purchased Class will be treated
as debt, and (ii) with respect to the issuance of the first series of the Trust,
an opinion of counsel to the effect that,
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although not free from doubt, the Trust will not be treated as an entity subject
to tax, in each case for federal income and state (for any state where the
Servicer conducts substantial servicing activities in respect of Accounts)
income and/or franchise tax purposes, and (b) with respect to each issuance of a
subsequent series under the Pooling and Servicing Agreement and each transfer of
a Purchased Class by the Seller pursuant to a Series Supplement, an opinion of
counsel to the effect that such issuance or transfer will not adversely affect
the conclusion set forth in any prior Tax Opinion as to the treatment of certain
investor certificates as debt and the treatment of the Trust as not an entity
subject to tax.
"Terms and Conditions" shall have the meaning set forth in "Description of
the Investor Certificates--Book-Entry Registration."
"Third Party Credit Enhancement" shall mean any outside or third party
credit enhancement which may include, but is not limited to, a cash collateral
account, a letter of credit, a surety bond, an insurance policy or any other
form of credit enhancement.
"Third Party Credit Enhancement Provider," if applicable, shall mean the
provider of any Third Party Credit Enhancement.
"Transfer Agent" shall mean a transfer agent designated by the Seller to
keep a register for the registered Certificates and initially shall be the
Trustee and any co-transfer agent chosen by the Transfer Agent and acceptable to
the Trustee and the Seller, including, if and so long as any class of any series
is listed on the Luxembourg Stock Exchange and such exchange shall so require, a
co-transfer agent in Luxembourg. Any reference in the Pooling and Servicing
Agreement or any Prospectus Supplement to the Transfer Agent shall include any
co-transfer agent unless the context requires otherwise.
"Trust" shall mean the trust created by the Pooling and Servicing
Agreement, the corpus of which consists of the Receivables and Participation
Interests, if any, existing as of the Cut-Off Date, or any Additional Account
Cut-Off Date or thereafter created and all monies due or to become due with
respect thereto, all proceeds (as defined in Article 9 of the UCC as in effect
in the State of Illinois or the State of Arizona, as applicable) of the
Receivables, such funds as from time to time are deposited into the Investor
Accounts and, with respect to any particular series, any additional benefits or
Third Party Credit Enhancement set forth in the applicable Series Supplement.
"Trustee" shall mean the institution executing the Pooling and Servicing
Agreement as Trustee, or its successor in interest, or any successor trustee
appointed as provided in the Pooling and Servicing Agreement.
"Trust Portfolio Repurchase Event" shall have the meaning set forth in
"Description of the Investor Certificates--Repurchase of Trust Portfolio."
"UCC" shall mean the Uniform Commercial Code, as amended from time to time,
as in effect in any specified jurisdiction.
"United States Alien" shall have the meaning set forth in "Certain Federal
Income Tax Consequences--United States Alien Holders."
"United States Alien Holder" shall have the meaning set forth in "Certain
Federal Income Tax Consequences--United States Alien Holders."
"United States Holder" shall have the meaning set forth in "Certain Federal
Income Tax Consequences--United States Holders."
"United States Person" shall have the meaning set forth in "Certain Federal
Income Tax Consequences--United States Holders."
"Variable Funding Certificates," if applicable, shall have the meaning set
forth in the applicable Prospectus Supplement.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
The information in this Annex I concerning DTC, Cedelbank, and Euroclear
and their book-entry systems and procedures has been obtained from sources that
SRFG and the Trust believe to be reliable, but SRFG and the Trust take no
responsibility for the accuracy of the information in this Annex I.
Except in certain limited circumstances, the globally offered investor
certificates (collectively, the "Global Securities") will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedelbank or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedelbank and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice.
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
Participants holding investor certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedelbank
and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedelbank and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior Sears credit account trust issues.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedelbank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds using the procedures applicable
to prior Sears credit account trust issues.
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Trading between Cedelbank Customers and/or Euroclear
Participants. Secondary market trading between Cedelbank Customers or Euroclear
Participants will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Trading between DTC seller and Cedelbank or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedelbank Customer or a Euroclear Participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank Customer or
Euroclear Participant at least one business day prior to settlement. Cedelbank
or Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date, on the basis of actual days elapsed and a
360-day year. Payment will then be made by the respective Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedelbank Customer's or Euroclear Participant's
account. The Global Securities credit will appear the next day (European time)
and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedelbank or Euroclear cash
debit will be valued instead as of the actual settlement date.
Cedelbank Customers and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedelbank or Euroclear. Under this approach,
they may take on credit exposure to Cedelbank or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank Customers or Euroclear Participants can elect not to
pre-position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedelbank Customers or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedelbank
Customer's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedelbank Customers or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedelbank or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Cedelbank Customers and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank Customer or Euroclear
Participant at least one business day prior to settlement. In these cases,
Cedelbank or Euroclear will instruct the respective Depositary, as appropriate,
to deliver the bonds to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date on the basis of
actual days elapsed and a 360-day year. The payment will then be reflected in
the account of the Cedelbank Customer or Euroclear Participant the following
day, and receipt of the cash proceeds in the Cedelbank
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Customer's or Euroclear Participant's account would be back-valued to the value
date (which would be the preceding day, when settlement occurred in New York).
Should the Cedelbank Customer or Euroclear Participant have a line of credit
with its respective clearing system and elect to be in debit in anticipation of
receipt of the sale proceeds in its account, the back-valuation will extinguish
any overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the Cedelbank Customer's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedelbank Customers or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedelbank or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedelbank or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedelbank or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedelbank
Customer or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedelbank or Euroclear (or through DTC if the holder has an address outside the
United States) will be subject to the U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless (i) each clearing system, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Holders (Form W-8). Beneficial owners of investor
certificates that are non-U.S. Holders can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
such a beneficial owner becomes a United States citizen or resident during the
period to which the Form W-8 relates, or certain other changes in circumstances
occur, such change must be communicated to the appropriate party within 30 days
thereof.
Exemption for non-U.S. Holders with effectively connected income (Form
4224). A non-U.S. Holder, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected With the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Holders resident in treaty countries
(Form 1001). Non-U.S. Holders that are Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption, or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Certificate Owner or
his or her agent.
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Exemption for U.S. Holders (Form W-9). U.S. Holders can obtain a complete
exemption from the withholding tax by filing Form W-9 (Request for Taxpayer
Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, its agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency) an investor certificate. Form W-8 and Form 1001 are
generally effective for three calendar years and Form 4224 is effective for one
calendar year.
Treasury regulations issued on October 14, 1997, which will be applicable
to payments made after 1999 (with certain transition rules), provide for the
unification and simplification of certain current certification procedures.
Under these regulations, a Form W-8 will replace Forms 1001 and 4224 and become
the only form necessary to obtain a withholding exemption or reduction for non-
U.S. Holders. Further, pursuant to these new regulations, special rules permit
the shifting of primary responsibility for withholding to certain financial
intermediaries acting on behalf of beneficial owners. Although a beneficial
owner will still be required to submit a Form W-8 to such an intermediary, such
intermediary generally will not be required to forward the Form W-8 received
from such beneficial owner to the withholding agent. Both U.S. Holders and
non-U.S. Holders are urged to consult their own tax advisors with respect to
these new regulations.
The term "U.S. Holder" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any state, (iii) an estate the income of which is includible in
gross income for United States tax purposes, regardless of its source or (iv) a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust
(or, under certain circumstances, a trust the income of which is includible in
gross income for United States tax purposes, regardless of its source).
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to holders of the Global Securities. Investors
are advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
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$500,000,000
SEARS CREDIT ACCOUNT MASTER TRUST II
5.65% Class A Master Trust Certificates, Series 1999-1
SEARS, ROEBUCK AND CO.
SERVICER
SRFG, INC.
SELLER
PROSPECTUS SUPPLEMENT
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
- --------------------------------------------------------------------------------
(LOGO)printed on recycled paper
