As filed with the Securities and Exchange Commission on December 2, 1999
Registration Statement No. __________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM S-3
REGISTRATION STATEMENT
Under The Securities Act of 1933
--------
SEARS CREDIT ACCOUNT MASTER TRUST II
(Issuer with respect to the Certificates)
SRFG, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0080535
(State of Incorporation) (I.R.S. Employer Identification No.)
3711 Kennett Pike
Greenville, Delaware 19087
(302) 434-3100
(Address, including zip code, and telephone number, including
area code, or registrant's principal executive offices)
George F. Slook
President and Chief Executive Officer
SRFG, Inc.
3711 Kennett Pike
Greenville, Delaware 19807
(302) 434-3100
(Names, addresses, including zip code, and telephone numbers,
including area code, of agent for service)
Copies to:
Steven M. Cook, Esq. Carl E. Witschy, Andrew M. Faulkner,
Vice Esq. Esq.
President/Deputy Latham & Watkins Skadden, Arps,
General Counsel Sears Tower, Suite Slate, Meagher
Sears, Roebuck and 5800 & Flom LLP
Co. Chicago, Illinois 919 Third Avenue
3333 Beverly Road 60606 New York, New York
Hoffman Estates, 10022-3897
Illinois 60179
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Approximate date of commencement of proposed sale to the
public: From time to time after the effective date of this
Registration Statement as determined by market conditions.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment
plans, please check the following box:
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than securities offered
only in connection with dividend or interest reinvestment plans,
check the following box: X
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box.
--------
CALCULATION OF REGISTRATION FEE
Amount Proposed Proposed
Title of Each to be Maximum Maximum Amount
Class of Registered Offering Aggregate of
Securities to Price Per Offering Registra
be Registered Unit (1) Price (1) tion Fee
Master Trust $1,000,000 100% $1,000,000 $264
Certificates of
Sears Credit
Account Master
Trust II
(1)Estimated solely for purposes of calculating the registration
fee
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The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED DECEMBER 2, 1999
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , )
$
SEARS CREDIT ACCOUNT MASTER TRUST II
% Class A Master Trust Certificates, Series
SEARS, ROEBUCK AND CO. SRFG, INC.
SERVICER SELLER
- -------------------- THE TRUST WILL ISSUE: CLASS A CERTIFICATES
YOU SHOULD CONSIDER Principal amount: $
CAREFULLY THE RISK Price to public: % ($ )
FACTORS DESCRIBED ON PAGE Underwriting discount: % ($ )
S- OF THIS PROSPECTUS Proceeds to SRFG: % ($ )
SUPPLEMENT. Interest rate: % per year
Interest paid: Monthly
THE CERTIFICATES First interestpayment date: ,
REPRESENT INTERESTS IN Scheduled first
THE TRUST AND ARE NOT principal payment date: ,
OBLIGATIONS OF SEARS, Scheduled final
ROEBUCK AND CO., SEARS principal payment date: ,
NATIONAL BANK, SRFG, INC Series termination date: ,
OR ANY OF THEIR CREDIT ENHANCEMENT:
AFFILIATES. - The trust is also issuing $ principal
amount of Class B Certificates that will be
subordinate to the Class A Certificates.
NEITHER THE FEDERAL Subordination of the Class B Certificates
DEPOSIT INSURANCE provides credit enhancement for the Class A
CORPORATION NOR ANY OTHER Certificates.
GOVERNMENTAL AGENCY HAS - The trust is also issuing $ principal amount
INSURED OR GUARANTEED THE of Class C Certificates that will be subordinate
CERTIFICATES AND THE to the Class A Certificates and the Class B
TRUST'S ASSETS. Certificates. Subordination of the Class C
Certificates provides credit enhancement for
the Class A Certificates and the Class B
Certificates.
- ---------------------
------------------------
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 , . SRFG and Sears have agreed
to indemnify the underwriters against certain liabilities under the
Securities Act of 1933.
------------------------
[Underwriters]
------------------------
The date of this prospectus supplement is ,
The information in this prospectus supplement and the prospectus is not
complete and may be changed. We cannot sell these securities until the
registration statement filed with the Securities and Exchange Commission
is effective. This prospectus supplement and the prospectus are not an
offer to sell these securities and they are not soliciting an offer to
sell these securities in any state where the offer or sale is not permitted.
S-1
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Important Notice to Investors about this
Prospectus Supplement and the Accompanying
Prospectus................................ S-
Summary of Series Terms..................... S-
Risk Factors................................ S-
Subordination of the Class B and Class C
Certificates; Limited Subordination..... S-
Limited Ability to Resell Certificates.... S-
Rating of the Certificates................ S-
Effects of the Selection Process, Seasoning
and Performance Characteristics........ S-
Ability to Change Terms of the
Receivables............................ S-
Effects of Rapid Amortization Event....... S-
Payments, Generation of Receivables
and Maturity.......................... S-
Investor Risk of Loss..................... S-
Issuance of Additional Series and
Additional Certificates............... S-
Effect and Limited Availability of
Reallocations.......................... S-
Floating Principal Allocation................ S-
Effect of Paired Series................... S-
No Recourse............................... S-
Security Interests and Insolvency
Related Matters....................... S-
Consumer Protection and Regulatory Credit
Laws.................................. S-
Legislation............................... S-
Sears Credit Business....................... S-
General................................... S-
Credit Granting Procedures................ S-
Billing and Payments...................... S-
Collection Efforts........................ S-
Effects of the Selection Process.......... S-
Composition and Historical Performance of
the Sears Portfolio....................... S-
Composition of the Sears Portfolio........ S-
The Certificates............................ S-
Invested Amounts.......................... S-
Investor Interests........................ S-
Interest Payments......................... S-
Principal Payments........................ S-
Subordination............................. S-
Series Collections and Charge-offs........ S-
Series Yield Collections.................. S-
Series Investment Income.................. S-
Series Additional Funds................... S-
Reallocations............................. S-
Investor Accounts......................... S-
Cash Flows................................ S-
Payments.................................. S-
Subordinate Series........................ S-
Sale of Class B Certificates and Class C
Certificates............................ S-
Issuance of Additional Certificates....... S-
Paired Series............................. S-
Rapid Amortization Events................. S-
S-2
Termination of Series; Clean-up Call...... S-
Servicing Compensation...................... S-
Underwriting................................ S-
Glossary of Terms........................... S-
Legal Matters............................... S-
Annex A--Cash Flows......................... S-
Annex B--Other Series....................... S-
PROSPECTUS
PAGE
----
Overview of the Information in this Prospectus and the
Prospectus Supplement.............
Prospectus Summary..........................
The Seller..................................
The Servicer................................
Year 2000 Compliance......................
The Credit Card Bank........................
The Trustee.................................
Legal Matters Relating to the Receivables...
Transfer of Receivables...................
Security Interests in Receivables.........
Insolvency Related Matters................
Consumer Protection Laws and Debtor Relief
Laws Applicable to the Receivables......
Claims and Defenses of Credit Account
Customers Against the Trust.............
The Trust...................................
Formation of the Trust....................
Collections Account and Group Collections
Accounts................................
Adjustments to Receivables................
Addition of Accounts......................
Removal of Accounts.......................
Repurchase of Trust Portfolio.............
Repurchase of Specified Receivables.......
Termination of the Trust..................
Indemnification of Trust and Trustee......
The Certificates............................
General...................................
Interest Payments.........................
Principal Payments........................
Class Percentages and Seller Percentage...
Investor Losses...........................
Reallocations and Subordination of
Collections.............................
Aggregate and Net Payments................
Additional Funds..........................
Investment of Funds in Investor Accounts..
Final Payment of Principal; Termination of
Series..................................
Description of Credit Enhancement.........
Establishing and Issuing New Series.......
Reallocation of Series Among Groups.......
Meetings..................................
Book-Entry Registration...................
Definitive Certificates...................
List of Certificateholders................
Exchange of Certificates for Seller
Interest................................
Sale of Seller Interest...................
Amendments................................
Servicer Duties, Compensation and Other
S-3
Matters...................................
Servicing Compensation and Payment of
Expenses................................
Resignation or Merger of Servicer;
Delegation of Duties....................
Servicer Termination Events...............
Reports to Certificateholders.............
Evidence as to Compliance.................
Use of Proceeds.............................
Federal Income Tax Consequences.............
General...................................
Tax Treatment of the Certificates
as Debt.................................
United States Investors...................
Foreign Investors.........................
Backup Withholding and Information
Reporting...............................
New Withholding Regulations................
Possible Characterization of the
Certificates............................
State Tax Consequences......................
General...................................
Arizona, Delaware, Georgia, Illinois, Ohio
and Texas...............................
ERISA Considerations........................
Plan of Distribution........................
Legal Matters...............................
Reports to Investors........................
Where You Can Find More Information.........
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 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
prospectus in making your investment decision.
If the terms of your series or class of certificates
vary between the prospectus supplement and the 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 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 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 prospectus to sections in each
document where you can find related discussions containing
S-4
additional information. The Tables of Contents in this
prospectus supplement and in the prospectus provide the
pages on which these sections begin.
------------------
S-5
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 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 provides more precise definitions of
some of the terms used in this summary.
THE CERTIFICATES.............. Class A Certificates:
$ % Class A Master Trust
Certificates, Series .
The trust will also issue:
Class B Certificates:
$ Class B Master Trust
Certificates, Series .
Class C Certificates:
$ Class C Master Trust
Certificates, Series .
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 % 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
.
S-6
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.
PRINCIPAL PAYMENTS............ Class A Certificates: The trust is scheduled
to pay $ of principal on the
Class A Certificates on 15th day of each
month (or, if not a business day, the next
business day) beginning in and ending in
.
Class B Certificates: The trust is scheduled
to pay $ of principal on the
Class B Certificates on (or, if not a
business day, the next business day) and on
(or, if not a business day,
the next business day).
Class C Certificates: The trust is permitted
to pay up to $ of Class C
principal on the 15th day of each month (or,
if not a business day, the next business
day) beginning in and continuing until the
first month after the Class C Invested
Amount is reduced to or below $ .
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 to the
extent that the trust has Class B and Class
C principal collections available to make
this payment. The trust is scheduled to
pay the remaining Class C principal on (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 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:
S-7
- "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 was $ ,
consisting of $ of Principal
Receivables and $ of Finance
Charge Receivables.
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 September
includes the billing cycles of each of the
Accounts that begin on various days during
August and end on various days during
September.
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
S-8
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
"The Certificates--Additional Funds" in the
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:
- $ ; minus
- 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:
- $ ; 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:
- $ ; 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.
S-9
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 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. 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 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
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
S-10
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
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
S-11
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 this series' 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
, 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
monthly payments of $ . 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 $ . 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 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
S-12
will begin on the first day of the Due
Period related to the Distribution Date in
. 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 (or, if
is not a business day, the second
business day after).
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 (or,
S-13
if is not a business day,
the second business day after ).
The "Series Termination Date" is the
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:
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- this series is in a Rapid Amortization
Period, or the proposed date of
repurchase is on or after ;
and
- 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 $ (10% of the face
amount of the Class A Certificates).
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
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Considerations" in the 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
- 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
"Federal Income Tax Consequences"
and "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
"The Certificates--Book- Entry
Registration-Definitive Certificates"
in the 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
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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
"The Certificates--Book- Entry Registration"
in the 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 .
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
Certificates."
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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 Finance Charge Collections for this series
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 Finance Charge Collections for this
series 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
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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.
LIMITED ABILITY TO RESELL CERTIFICATES
We anticipate that the underwriters will make a market in the
certificates. A secondary market, however, may not develop. If a secondary
market does develop, it might not continue until your certificates mature,
or it might not be sufficiently liquid to allow you to resell any of your
certificates.
RATING OF THE CERTIFICATES
The ratings assigned by a rating agency to the certificates are not a
recommendation to purchase, hold or sell the certificates. These ratings do
not address the market price of the certificates or whether the certificates
are suitable for you. A rating agency may lower or withdraw its rating at
any time. The rating agencies do not evaluate, and the ratings do not
address, the likelihood that the trust will pay the entire outstanding
principal amount of your certificates on or before any scheduled payment
date.
EFFECTS OF THE SELECTION PROCESS, SEASONING AND PERFORMANCE
CHARACTERISTICS
The performance of the Accounts will affect the extent to which the
trust has sufficient funds to pay principal and interest to you when
scheduled. Although Sears selected the Accounts for the trust at random
from the Sears portfolio, the performance of the Accounts may be different
from the performance of the Sears portfolio because:
- the payment performance of the obligors on the Accounts may
differ from the overall payment performance of the obligors on
the Sears portfolio;
- the pool of Receivables may not contain receivables in accounts
from every state and does not contain receivables in accounts
from Puerto Rico; and
- the pool of Receivables may not contain receivables in accounts
previously segregated into pools.
SRFG has designated additional Accounts to be included as Accounts, and,
in the future, SRFG may voluntarily, or may be obligated to, designate
additional Accounts to be included as Accounts. The performance of any
additional Accounts may be different from the performance of the Accounts
and the Sears portfolio for the reasons noted above. Additional Accounts
may include additional types of accounts issed by the Bank from time to time.
In the future, SRFG may voluntarily, or may be obligated to, add to the
Trust participation interests in pools of credit card receivables. The terms
governing those credit card receivables may be different from the terms
governing the Receivables in the Accounts and the receivables in the Sears
portfolio. Consequently, the performance of these pools of credit card
receivables may be different from the performance of the Accounts and the
Sears portfolio.
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ABILITY TO CHANGE TERMS OF THE RECEIVABLES
The Bank, Sears or their affiliates, as applicable, may change the terms
governing the Accounts so long as the Bank, Sears or their affiliates, as
applicable, also change the terms governing similarly situated accounts
arising in the same jurisdiction. The Bank, Sears or their affiliates, as
applicable, retain the right to prevent any credit account customer, or all
of the credit account customers within a particular jurisdiction, from
creating new Receivables in an Account. If the Bank, Sears or their
affiliates exercise their right to change the terms of an Account or to
prevent the creation of Receivables in an Account, then the amount of the
Receivables generated might significantly decline. That decline could cause
the Seller Interest to decline to an amount that would require SRFG to
contribute to the trust the receivables in additional Accounts or
participation interests in other pools of credit card receivables in order
to avoid a Rapid Amortization Event.
In connection with the operation of the credit business, the Bank and
Sears reserve the right to change their credit evaluation policies at any
time. The Bank and Sears cannot assure you that these policies will not
have a material adverse effect on the level of charge-offs on Accounts.
EFFECTS OF RAPID AMORTIZATION EVENT
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 the yield to
maturity to be significantly affected; and
- we cannot predict how much principal the trust will pay you 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.
PAYMENT RATES, GENERATION OF RECEIVABLES AND MATURITY
Monthly payment rates on the Receivables may vary because, among other
things, credit account customers may not make their required minimum payments,
may pay only the minimum required payments or may pay up to their entire
outstanding balance. We cannot predict the credit account customers' actual
future payment rates.
Monthly payment rates, as well as the rate at which credit account
customers purchase goods and services with their accounts, may also vary
because of a variety of social, legal and economic factors, as well as
customer's seasonal purchasing and payment habits. Because customers
may use their Accounts only to purchase goods and services sold and made
available through Sears stores and its affiliates, licensees or
concessionaires, the trust is dependent upon sales at Sears stores to
generate Receivables. The retail industry is highly competitive.
Although Sears is among the largest retailers in the world on the basis of
sales of merchandise and services, it has numerous competitors. Also, in
addition to Sears and the Bank's credit plans, customers of Sears or its
affiliates, licensees or concessionaires may use third-party credit
cards, personal checks or cash to make purchases. Because of the interest
rates and other benefits available through other credit sources, customers
may not use or carry balances on various Sears or Bank credit plans. We
cannot assure you that these economic, competitive and social factors and
the availability of these other credit sources will not reduce the rate at
which Receivables are generated.
Because we cannot predict future payment rates or assure you that
additional Receivables will be generated in the Accounts, we cannot predict
the actual rate at which the trust will pay principal to you or whether the
terms of any subsequently issued series might affect the amount or timing
S-20
of any payment of principal to you. Any delay in the payment of principal
for this series will extend the period during which the trust may allocate
charged-off Receivables to this series. In addition, increased convenience
use, where credit account customers pay their receivables within the grace
period to avoid all finance charges, might:
- decrease the effective yield on the Receivables; and
- cause the Seller Interest to decline.
A significant decline in the amount of Receivables generated in the
Accounts might cause the Seller Interest to decline to an amount that would
require SRFG to contribute to the trust the Receivables in additional Accounts
or participation interests in other pools of credit card receivables in order
to avoid a Rapid Amortization Event.
INVESTOR RISK OF LOSS
You will only receive payments of interest and principal on your
certificates to the extent that the trust has funds available to make these
payments. The trust will allocate charged-off Receivables to your
certificates each month, and will reimburse you for those charge-offs, only to
the extent that the trust has funds available to make those reimbursements.
You should review the cash flow provisions described in "The Certificates-
- -Cash Flows" to understand the priority in which the trust allocates its
assets to pay interest and principal and to reimburse charge-offs on this
series and other series. To the extent the trust cannot fully reimburse your
charge-offs, the aggregate amount of principal you ultimately receive will
be less than the face amount of your certificates. In addition, the amount
of collections allocated to your class of certificates may be related to your
Investor Interest, so reductions in your Investor Interest due to
unreimbursed charge-offs may also reduce the amount of collections allocated
to you in later months.
ISSUANCE OF ADDITIONAL SERIES AND ADDITIONAL CERTIFICATES
SRFG expects the trust to issue from time to time other series of
certificates without your review of the series terms or your consent. SRFG
may also direct the trustee to have the trust issue additional certificates
in this series. We cannot assure you that the issuance of one or more
additional series in the future, or the issuance of additional certificates
in this series, will not affect the timing and amount of the trust's payments
to you.
The trust allocates Additional Funds among the outstanding series of
certificates, but does not allocate any of the Additional Funds to SRFG
based on the Seller Interest. Accordingly, when the trust issues a new
series,the pro rata share of Additional Funds allocated to this series will
decline as the trust allocates a portion of those Additional Funds to the
new series. Similarly, when the trust issues additional certificates in
this series, the pro rata share of Additional Funds allocated to each
certificate will decline as the trust allocates a portion of Additional Funds
to the additional certificates.
EFFECT AND LIMITED AVAILABILITY OF REALLOCATIONS
Collections originally allocated to another series in your group may be
reallocated to you during the Controlled Amortization Period for this series,
and in reliance on Principal Collections from those other series the percentage
the trust uses to allocate Principal Collections to you may decline. If a
Rapid Amortization Event occurs for a series from which your series received
collections:
- you will no longer receive reallocated Principal Collections from
that series;
S-21
- the trust may not allocate enough Principal Collections to you to
pay all of your principal when scheduled; and
- the trust's payments of principal to you may be delayed or reduced.
The provisions in the Series Supplement for this series that permit the trust
to reallocate collections from other series to this series will be effective
only to the extent that the Series Supplement for another series in your
group also permits reallocations. SRFG is not obligated, however, to
establish or issue any series from which collections may be reallocated. See
"The Certificates--Reallocations and Subordination of Collections" in the
prospectus for additional information.
We cannot assure you that SRFG will not move a series from its original
group to a new group, including a new group with no other series then
outstanding. If SRFG moves this series from Group One, or moves the other
series in Group One to a new group, or moves series from another group
to Group One, you may no longer be entitled to reallocations or different
reallocation provisions may apply. We have described this in more detail in
"The Certificates--Reallocation of Series Among Groups" in the prospectus.
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.
Consequently, the trust may not be able to pay Class A principal in full and
on time. We encourage you to review the information and the definition of
"Class Percentage" in "The Certificates--Series Collections and Charge-offs"
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.
EFFECT OF PAIRED SERIES
During the Controlled Amortization Period for this series, if the trust
allocates Principal Collections based on a percentage that does not decline
as the trust pays this series' principal, the trust may issue a "Paired
Series" to finance the increase in the Seller Interest that results
when the trust pays or accumulates principal for this series. The Invested
Amount for the Paired Series 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
S-22
Amortization Event for the Paired Series occurs before the trust pays in
full the principal for this series:
- SRFG may reduce the numerator of the Class Percentages the trust uses
to allocate Principal Collections to this series, thereby reducing
the amount of Principal Collections allocated to you;
- you may receive smaller principal payments than scheduled; and
- the trust's final payment of principal to you may be delayed.
The trust will not seek your review or consent before it issues a Paired
Series. The outstanding principal amount of any Paired Series may vary over
time. The Rapid Amortization Events for a Paired Series may vary from the
Rapid Amortization Events for the series with which it is paired. In
particular, the Rapid Amortization Events for a Paired Series may include
events that are unrelated to the status of SRFG, the servicer or the
Receivables, including events that relate to the continued availability and
rating of third-party providers of credit enhancement to the Paired Series.
NO RECOURSE
The certificates represent undivided interests in the trust and are
obligations of the trust only. Sears, SRFG, the Bank and the trustee are
not required to pay principal to you and none of them will guarantee the
trust's payment of principal to you.
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 under the Assignment of
Accounts and Sale of Receivables Agreement dated as of September 15, 1994,
as amended, between the Bank and Sears, which we refer to as the "Assignment
Agreement." Because a receiver or conservator of the Bank may argue that
this transaction was a pledge of the Receivables rather than an absolute
transfer, the Bank also granted Sears a security interest in the Receivables
under the Assignment Agreement. Sears has taken certain actions to perfect
its security interest in the Receivables. In general, a security interest
in receivables is perfected if it can be enforced not only against the
person granting it but also against creditors of that person who might want
to claim those receivables. Typically, a security interest in receivables
is perfected by notice (for example, through a filing).
A receiver or conservator of the Bank should not be able to avoid Sears
security interest in, or recover payments made by credit account customers on,
the Receivables if Sears has validly perfected this security interest before
an insolvency of the Bank occurs and if Sears did not take the security
interest to hinder, delay or defraud the Bank or its creditors. If, however,
a receiver or conservator of the Bank asserts a contrary position or requires
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, the trust's payments to you may
be delayed or reduced. We have explained these issues in more detail in "The
Credit Card Bank" and "Legal Matters Relating to the Receivables-- Insolvency
Related Matters" in the prospectus.
Sears and SRFG intend the transfer of the Receivables from Sears to
SRFG to be an absolute transfer of the Receivables to SRFG and will treat
it as an absolute transfer. As an absolute transfer, the Receivables would
not be a part of any Sears bankruptcy estate and would not be available to
Sears creditors. However, if Sears became insolvent, the bankruptcy trustee,
a creditor of Sears, or Sears as debtor-in-possession could attempt to
argue that the transaction between Sears and SRFG was a pledge of the
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Receivables rather than an absolute transfer. This position, if accepted by
a court, could prevent the trust from making timely payments to you.
SRFG has taken actions required to perfect the trust's interest in the
Receivables. However, unless SRFG files continuation statements from time
to time within the time specified in the Uniform Commercial Code to continue
the perfection of the trust's security interest in the Receivables, the
perfection of the security interest will lapse. In addition, more than one
person can have a perfected security interest in the same receivables, and
the person with the higher priority--which is determined by statute--will
have the first claim to the property. Consequently, 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 those Receivables.
See "--Legislation," in this prospectus supplement and "The Credit Card Bank"
and "Legal Matters Relating to the Receivables" in the prospectus for
additional information.
If Sears short-term debt rating is increased to A-1/P- 1, Sears may use
all collections allocable to the certificates as a loan until each
Distribution Date. In the event of a bankruptcy of Sears, the trust may not
have a perfected interest in those collections loaned to Sears by the trust.
We have described these issues in more detail in "Legal Matters Relating to
the Receivables--Transfer of Receivables" in the prospectus.
CONSUMER PROTECTION AND REGULATORY CREDIT LAWS
The Accounts and the Receivables are subject to numerous federal and
state consumer protection and state regulatory laws that impose requirements
on the making and enforcement of consumer credit. These laws, and any new
laws or rulings that may be adopted, may adversely affect Sears and the Bank's
ability to collect the Receivables or maintain the current level of finance
and other charges. If Sears or the Bank does not comply with these
requirements, it could adversely affect their ability to collect the
Receivables. We do not anticipate that the trustee will examine the
Receivables or the records relating to them to establish whether defects
exist in the Accounts or for any other purpose. We discuss these issues more
fully in "Legal Matters Relating to the Receivables--Consumer Protection
Laws and Debtor Relief Laws Applicable to the Receivables" in the prospectus.
LEGISLATION
We cannot assure you that a federal or state legislature will not enact
legislation that would substantially reduce finance charge revenue or impair
collection of receivables. A reduction in finance or other charges could
reduce the yield on the Receivables and, therefore, the amounts available
to pay interest to you or to reimburse charged-off Receivables. If this
type of legislation limited finance or other charge revenue to a sufficiently
low level, the trust has structural features that SRFG could use, with
Rating Agency approval, to enhance yield. We cannot assure you, however,
that SRFG will use these structural features or that they would be
sufficient to compensate for a decline in yield.
S-24
SEARS CREDIT BUSINESS
GENERAL
The Bank issues three primary 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. We refer to all of these accounts (together with other
credit products formerly issued by Sears), 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 three primary types of accounts
are:
- Sears Card: Sears Card is the traditional charge card that 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 % of the Sears portfolio as of the end of .
- SearsCharge PLUS: Customers in most states may use SearsCharge PLUS
to purchase certain merchandise that costs at least $
(if their account is new) or $ (if they have an existing account).
SearsCharge PLUS receivables accounted for approximately % of the
Sears portfolio as of the end of .
- Sears Home Improvement Account: Under Sears Home Improvement Accounts
("SHIAs") customers may only purchase various goods and services
relating to home improvements. (SHIA and its predecessors')
receivables accounted for approximately % of the Sears portfolio as
of the end of .
Each of these three types of accounts requires different minimum monthly
payments, and the Bank imposes different finance charges on outstanding
balances under each type of account. The Bank may alter the terms of these
accounts or issue additional types of accounts from time to time.
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.
The Bank and Sears have entered into agreements under which Sears acts as
the primary servicer of all the Receivables that Sears has designated with
respect to the trust. The Sears Credit Department and the Bank employ
approximately individuals on a full-time or part-time basis.
CREDIT GRANTING PROCEDURES
Each credit account customer enters into a "Credit Agreement" with the
Bank (the "Account Issuer") governing the terms and conditions of the
account. A small percentage of existing accounts that Sears issued continue
to be governed by Credit Agreements between the customer and Sears (with
respect to these accounts, Sears is also an "Account Issuer"). Because each
state regulates retail charge accounts differently, the terms of the Credit
Agreements for accounts still owned by Sears are not identical nationally.
The Account Issuer reserves the right to change credit terms, including the
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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.
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.
The Bank periodically 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.
In the year ended , the Account Issuers approved on
average approximately new accounts each month. Approximately
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 . The number of active accounts tends to
be higher in the fourth quarter of the year.
BILLING AND PAYMENTS
The accounts have various billing cycles, which are not based on the
historical or expected performance of the accounts. Each billing 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 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 or the Bank 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.
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 daily balance owing on an account equals:
- the account balance at the start of the day; plus
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- 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 on or before the account's due date.
Currently, the equivalent annual rate of periodic finance charge on
Sears Card and SearsCharge PLUS accounts is generally 21% and the rate on
SHIAs is 15.9%. However, Sears new credit card receivables processing system,
described in "--Collection Efforts" below, allows the Bank and Sears to
change the terms of accounts based on the performance of the accounts, or
otherwise, including changing the minimum monthly payment, changing the
annual rate of periodic finance charge or offering variable rate accounts.
The Account Issuers are testing accounts with various finance charge rates,
along with other product and pricing strategies designed to increase
customers' utilization of credit. The Account Issuers have solicited new
cardholders and issued accounts with various introductory and subsequent rates.
The Bank may allow special credit promotions, in conjunction with Sears,
which permit 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 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 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,
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.
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In May 1998, Sears entered into an agreement with Total System Services,
Inc. ("TSYS") to provide processing services relating to the Sears portfolio,
including the Receivables. The new system will allow Sears and the Bank to
enhance their customer relationships and improve service support of Sears
multiple business formats. Sears converted from its proprietary processing
system to a TSYS processing system in three phases, completing the first in
October 1998 (affecting approximately 12% of the accounts in the Sears
portfolio), the second in March 1999 (affecting approximately 38% of
accounts), and the last in April 1999 (affecting the remaining 50% of
accounts). TSYS now processes all accounts.
The new processing system also has enabled Sears to change its
methodology for aging and charging off accounts. Under the new aging
methodology, a customer's account generally is considered delinquent when
the customer has failed to make a required payment in each of the last three
billing cycles. Formerly, under Sears proprietary credit system, an account
generally was considered delinquent when the customer's cumulative past due
balance was three or more times the scheduled minimum monthly payment. As a
result, accounts generally are considered delinquent earlier and charged off
sooner under the TSYS system than was the case under the former, proprietary
system. Changes in delinquency status based on changes in methodology
reflect a reclassification of account status rather than a change in actual
performance of the account.
Under the new charge-off methodology, Sears generally charges off an
account automatically when a customer has failed to make a required payment
in each of the eight billing cycles following a missed payment. Under Sears
former, proprietary system, Sears generally charged off an account
automatically when the account's cumulative past due balance was at least
eight times the scheduled minimum monthly payment. The old system permitted
and the new system permits Sears to 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 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 or
determined 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.
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 Receivables; however, SRFG has agreed to add to the trust
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certain recoveries it receives on receivables owned by it in accounts that
Sears has charged off as uncollectible. See "The 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 and SearsCharge PLUS
accounts and SHIAs. 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 at least eight months
after a customer has failed to make a payment. Thus, charge-offs for new
accounts will generally be more variable than for more seasoned accounts.
The Receivables will include delinquent Receivables and may include amounts
owed by credit account customers who 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. Receivables from
accounts from Puerto Rico represented %, % and % of the receivable
balances in the Sears portfolio as of , and ,
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
October Distribution Date, monthly collections will be based on the
September Due Period and will reflect activity for billing cycles
beginning at the opening of business on various days in August and
ending at the close of business on various days in September 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 Period ending in equaled $
and $ , respectively. Under the Pooling and Servicing Agreement,
SRFG has the right, and in some circumstances, the obligation, to designate
additional accounts to 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. See "Composition and Historical
Performance of the Sears Portfolio" below.
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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 and charge-off
calculations. The trust uses the amount of Principal
Receivables in the Accountsas the denominator for its
yield and charge-off calculations. "Principal Receivables"
include late fees, returned check fees and insurance
charges.
- The Sears portfolio's yield calculation includes late
fees in its numerator. The trust's yield calculation does not.
- 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.
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):
PERCENTAGE OF SEARS
PORTFOLIO AS OF
BILLING CYCLES ENDED
CREDIT LIMIT IN
------------ --------------------
$ 0 - $ 99(2)........................... %
100 - 499.............................. %
500 - 999.............................. %
1,000 - 1,499.............................. %
1,500 - 1,999.............................. %
2,000 - 2,999.............................. %
3,000 - 3,999.............................. %
4,000 and over.............................. %
------
100.0%
======
- ------------------
(1) Sears based this information on accounts with balances
at any time in the twenty-four months ended with the billing cycles ended
in .
(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. 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
S-30
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 , the following
five states had the largest receivables balances and number
of accounts:
SEARS PORTFOLIO CALIFORNIA FLORIDA NEW YORK PENNSYLVANIA TEXAS
--------------- ---------- ------- -------- ------------ -----
% of active accounts.. % % % % %
% of balances......... % % % % %
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 .
SEASONING
More than % of the accounts in the Sears portfolio
were at least five years old as of the billing cycles ended
in . The ages of accounts in the Sears
portfolio were distributed as follows:
PERCENTAGE OF
SEARS PORTFOLIO AS
OF BILLING
CYCLES ENDED
AGE OF ACCOUNTS IN
- --------------- ------------------
Up to 1 year................................... %
1 year up to 2 years........................... %
2 years up to 3 years.......................... %
3 years up to 4 years.......................... %
4 years up to 5 years.......................... %
5 years up to 10 years......................... %
10 years and older............................. %
------
100.0%
======
Sears based this information on accounts with balances
at any time in the twenty-four months ended with the billing
cycles ended in .
SUMMARY YIELD INFORMATION
The accounts in the Sears portfolio had the following
annualized aggregate monthly yields:
THREE MONTHS TWELVE MONTHS
ENDED ENDED
, ,
------------ ------------- ------ ------ ------
Aggregate Monthly Yield......... % % % % %
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Aggregate monthly yield is the unweighted average of
monthly yields annualized for each period shown. Sears
calculates "monthly yield" by dividing:
- monthly finance charges and late fees minus estimated accumulated
finance charges and late fees billed to accounts charged off in that
month; by
- the balance outstanding as of the beginning of the month.
For additional information concerning periodic finance
charges, see "Sears Credit Business--Billing and Payments."
SUMMARY CHARGE-OFF INFORMATION
The accounts in the Sears portfolio had the following
annualized gross charge-off and recoveries percentages:
THREE MONTHS TWELVE MONTHS
ENDED ENDED
, ,
------------ ------------ ----- ----- -----
Gross Charge-Offs as a % of
balances..... % % % % %
Recoveries as a % of
balances............ % % % % %
All rates shown are unweighted averages of monthly
rates annualized for each period shown. Sears calculates the
monthly rate by dividing:
- either (i) the amount of charged-off receivables for that month minus
estimated accumulated finance charges and late fees billed to those
accounts, 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):
MONTHS
ENDED
,
(2) (3)
------------- ------- ----- -----
Delinquencies as a % of balances(4)
60-89 days past due............. % % % %
90-119 days past due............ % % % %
120 days or more past due....... % % % %
----- ----- ----- -----
Total Delinquencies.......... % % % %
===== ===== ===== =====
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- ------------------
(1) Sears reported delinquencies for , and using data from its
proprietary receivables processing system. Sears reported delinquencies for
the ended using data from the TSYS account
processing system.
(2) Sears calculated these percentages using the monthly percentages for
accounts converted to the TSYS account processing system. For the following
months within 1999, the converted accounts represented the following
percentages of the portfolio balances: January, 14%; February, 13%; March,
45%; April, 70%; and thereafter, 100%. Prior to May, the converted portions
of the receivables may not have been representative of results for the
entire portfolio.
(3) Sears calculated 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 the months ended November 30 and December 31, 1998.
(4) The TSYS delinquency data reflect 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.
Sears calculates delinquencies reported for accounts processed under TSYS
by dividing delinquencies as of the end of each month by balances at the
beginning of each month.
The proprietary system delinquency data reflect the percentage of account
balances for which the cumulative past due amount was three, four, and five
or more times, respectively, the scheduled minimum monthly payment.
Delinquencies reported under the proprietary system were calculated by
dividing delinquencies as of the end of each billing cycle by balances at
the beginning of that month.
SUMMARY PAYMENT RATE INFORMATION
The accounts in the Sears portfolio had the following
monthly payment rates:
TWELVE MONTHS
ENDED
,
PAYMENT RATES
- ------------- ------------- ----- ----- -----
Average Monthly Rate................. % % % %
Highest Monthly Rate................. % % % %
Lowest Monthly Rate.................. % % % %
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
S-33
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 and Servicing Agreement. If you
write to the trustee at its principal corporate trust
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 $
, the "Class B Invested Amount" will initially be $
, and the "Class C Invested Amount" will initially be $ .
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 % 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
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business day, the following business day), beginning in
, 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.
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 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 monthly installments of $
starting on the Distribution Date and continuing
on each subsequent Distribution Date. The trust is scheduled
to pay Class B principal in two monthly installments of $
beginning on the 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 $ 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 $ . 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.
S-35
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 Flows." In
no event, however, will the trust make any principal
payments to you or any other investor in this series after
the 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--
Subordination of the Class B and Class C Certificates;
Limited Subordination" 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-36
CLASS PERCENTAGE OF FINANCE CHARGE COLLECTIONS
PERIOD: NUMERATOR:
------- ----------
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.
CLASS PERCENTAGE OF PRINCIPAL COLLECTIONS
PERIOD: NUMERATOR:
------- ----------
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.**
CLASS PERCENTAGE FOR CHARGE-OFFS
PERIOD: NUMERATOR:
------- ----------
All Periods................... Class Investor Interest* as of the beginning
of the prior calendar month.
- ------------------
* 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.
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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
$20,000,000 in Principal Collections in each month of the
Revolving Period, it might receive only $10,000,000 in
Principal Collections after _______ 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 $
. 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
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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 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
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- 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
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).
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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 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;
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- 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.
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
S-42
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;
- 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 in the prospectus of "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
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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 "The 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 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,
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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.)
(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
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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.)
(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
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- 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.)
(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
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- 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.)
(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
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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
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to pay principal for other series in Group One. (To the
Group One Principal Collections Reallocation Account.)
(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.)
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(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.)
(5) CLASS B PRINCIPAL. After ,
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 PrincipalCollections
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:
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- 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,
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.
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(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.)
(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
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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.)
(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
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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)
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.)
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(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.)
(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
S-56
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.
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;
S-57
- 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 in this
series, 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 this
series 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;
- 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 statingthat 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
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series. We have described those conditions under "The
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.
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;
S-59
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.
A Rapid Amortization Event will occur for this series
without notice from the trustee or the investors if, since
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 %.
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
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- 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 Distribution Date.
TERMINATION OF SERIES; CLEAN-UP CALL
This series will terminate upon the earlier of:
- the business day after the 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 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 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 Distribution Date;
divided by
- the Aggregate Investor Interest on the 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 this
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
Distribution Date) or the Rapid Amortization Period,
- the Series Investor Interest; minus
- the Class B Investor Interest and the Class C Investor Interest if SRFG
owns the Class B and Class C certificates; minus
- Class A's pro rata share of funds on deposit in the Excess Funding
Account (General) and the Excess Funding Account (SRC)
is less than or equal to $ . 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.
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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:
PRINCIPAL
AMOUNT OF
CLASS A
UNDERWRITERS CERTIFICATES
------------ ------------
.................. $
..................
..................
..................
..................
------------
Total.................................................. $
============
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.
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
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- to certain dealers at the price set forth on the cover page of this
prospectus supplement minus concessions of up to % of the principal
amount of the Class A Certificates.
The underwriters may allow, and the dealers may reallow,
concessions of up to % 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.
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 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 $ .
LEGAL MATTERS
Latham & Watkins and Steven M. Cook, Deputy General
Counsel, Transactions and Securities, of Sears, will pass
upon the legality of the certificates for SRFG. Steven M.
Cook owns shares of Sears common stock and has been
granted stock options with respect to an additional
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."
"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 % (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 %.
"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
- %; divided by
- twelve (or, for the Distribution Date in , 360 divided by
--the actual number of days from to but excluding
15, , assuming the month of has 30 days).
"CLASS A CONTROLLED AMORTIZATION AMOUNT" means, for any
Distribution Date during the Controlled Amortization Period,
the sum of:
- $ ; 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
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 Distribution Date, the sum of:
- $ ; 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 April
2003 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:
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- 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."
"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
S-66
- the Class C Invested Amount is less than or equal to $ (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."
"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:
- $ ; 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.
S-67
"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 tha t 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.
"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:
S-68
- the Class Modified Required Amount for that class forthat 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, $ ), 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
(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 InvestorInterest 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
S-69
- 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
- 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
S-70
- 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;
- 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
S-71
- 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
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 .
"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.
"FIXED PRINCIPAL ALLOCATION EVENT" means the earliest
of:
- the beginning of the Due Period immediately followingthe 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
S-72
- 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 ; 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 ; 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 aQualified Trust Institution in connection
with the pre-funding of any series in Group One.
"INTEREST PAYMENT DATE" means the 15th day of each
calendar month (or if not a business day, the next business
day), beginning in .
"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.
"INVESTOR SERVICING FEE" means for any Distribution
Date or the related Due Period:
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- the investor servicing fee percentage ( % 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 InvestedAmount.
"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 investorsin 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.
"RATING AGENCY" means Moody's Investors Service, Inc.
or Standard & Poor's Ratings Services unless otherwise set
forth in the Series Supplement for this series. "Rating
Agencies" means both Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services unless otherwise set
forth in the Series Supplement for this series.
"REIMBURSED LOSS EVENT" means, for each class, any Distribution Date on
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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.
"REIMBURSED LOSS INTEREST" means for each class for any
Distribution Date:
- the aggregate amount of Investor Losses that have notbeen reimbursed
before the beginning of the related Due Period;multiplied by
- the interest rate, if any, for the class for therelated 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 AlternativeDeficiency Amount for
the immediately preceding Distribution Date exceedsthe Class Deficiency
Amount for the immediately preceding DistributionDate, multiplied by
- the interest rate, if any, for that class for therelated 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 ,
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
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- 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 thesum 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.
"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, in sequence,
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
, .
"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.
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"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
- 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.
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"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 Supplement dated as of ,
to the Pooling and Servicing Agreement, as amended,modified or supplemented
from time to time.
"SERIES TERMINATION DATE" means the business day
following the 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.
"SHIA" is defined in "Sears Credit Business--General."
"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."
S-78
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
S-79
will be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(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.
S-80
(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.
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(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 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.
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(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.
(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:
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- 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,
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
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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
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
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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
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."
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(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 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
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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,
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:
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- 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 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:
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- 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.
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
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- 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."
(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."
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(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.
(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.
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(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 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:
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(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.
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
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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 1995-5, Series 1996-1, Series
1996-2, Series 1996-3, Series 1996-4, Series 1996-5, Series
1997-1, Series 1998-1, Series 1998-2 Series 1999-1, Series
1999-2, and Series 1999-3, 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 prospectus
by calling 1-800-SEARS-80 (1-800-732-7780).
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
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.
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
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.
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
S-96
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
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.
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
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.
5. 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
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.
6. 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
S-97
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
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.
7. 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
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.
8. 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
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.
9. 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
S-98
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
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.
10. 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
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.
11. 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
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.
12. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
SERIES 1998-1
Group................................................. One
S-99
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
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.
13. 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
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.
14. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
SERIES 1999-1
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............................. 5.65%
Class B Certificate Rate............................. 0%
Class C Certificate Rate............................. 0%
Type.................................................Controlled Amortization
Class A Scheduled Initial Principal Payment Date..... April 15, 2003
Class A Expected Final Payment Date.................. March 15, 2005
Class B Expected Final Payment Date.................. May 15, 2003
Class C Expected Final Payment Date.................. June 17, 2005
Type of Credit Enhancement........................... Subordination
Series Closing Date.................................. March 23, 1999
Series Termination Date.............................. March 17, 2009
Series 1999-1 provides for reallocation of collections
to other series in Group One to the extent provided in the series supplement
relating to such other series.
15. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
SERIES 1999-2
Group............................................... One
Class A Initial Investor Interest................... $500,000,000
Class B Initial Investor Interest................... $35,300,000
S-100
Class C Initial Investor Interest.................... $52,950,000
Class A Certificate Rate............................. 6.35%
Class B Certificate Rate............................. 0%
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 17, 2003
Class B Expected Final Payment Date.................. April 15, 2003
Class C Expected Final Payment Date.................. May 15, 2003
Type of Credit Enhancement........................... Subordination
Series Closing Date.................................. September 27, 1999
Series Termination Date.............................. February 16, 2007
Series 1999-2 provides for reallocation of collections
to other series in Group One to the extent provided in the series supplement
relating to such other series.
16. CLASS A, CLASS B AND CLASS C MASTER TRUST CERTIFICATES,
SERIES 1999-3
Group................................................ One
Class A Initial Investor Interest.................... $400,000,000
Class B Initial Investor Interest.................... $28,250,000
Class C Initial Investor Interest.................... $42,400,000
Class A Certificate Rate............................. 6.45%
Class B Certificate Rate............................. 0%
Class C Certificate Rate............................. 0%
Type.................................................Controlled Amortization
Class A Scheduled Initial Principal Payment Date..... December 15, 2003
Class A Expected Final Payment Date.................. November 15, 2005
Class B Expected Final Payment Date.................. December 15, 2005
Class C Expected Final Payment Date.................. February 15, 2006
Type of Credit Enhancement........................... Subordination
Series Closing Date.................................. November 23, 1999
Series Termination Date.............................. November 17, 2009
Series 1999-3 provides for reallocation of collections
to other series in Group One to the extent provided in the series supplement
relating to such other series.
S-101
SUBJECT TO COMPLETION, DATED DECEMBER 2, 1999
PROSPECTUS
SEARS CREDIT ACCOUNT MASTER TRUST II
MASTER TRUST CERTIFICATES
SEARS, ROEBUCK AND CO.
SERVICER
SRFG, INC.
SELLER
___________________
THE TRUST
THE CERTIFICATES - Sears, Roebuck and Co., SRFG, Inc. and
REPRESENT Bank One, National Association, as trustee,
INTERESTS IN THE formed the Sears Credit Account Master
TRUST AND ARE Trust II by entering into a Pooling and
NOT OBLIGATIONS Servicing Agreement in July 1994.
OF SEARS,
ROEBUCK AND CO., - The trust's assets include a portfolio of
SEARS NATIONAL receivables from selected charge plan
BANK, SRFG, INC. accounts originated by Sears, Sears
OR ANY OF THEIR National Bank or their affiliates.
AFFILIATES.
THE CERTIFICATES
- SRFG intends to sell up to
NEITHER THE $______________ aggregate principal amount
FEDERAL DEPOSIT of certificates, in one or more series from
INSURANCE time to time, representing interests in the
CORPORATION NOR trust.
ANY OTHER
GOVERNMENTAL - Your interest in the trust will include
AGENCY HAS the right to receive a varying percentage
INSURED OR of each month's collections of receivables.
GUARANTEED THE
CERTIFICATES AND - The trust will pay interest and principal
THE TRUST'S on each series of certificates as specified
ASSETS. in the prospectus supplement for the
series.
CREDIT ENHANCEMENT
- SRFG may provide credit enhancement to a
series or class of certificates by issuing
subordinate classes or series that require
the trust to pay principal or interest to
investors in one series or class of
certificates before the trust pays
principal or interest to investors in
another series or class. An outside party
may also provide credit enhancement to a
series or class of certificates. The
prospectus supplement for a series will
describe the types of credit enhancement
for that series or each class within that
series.
PROSPECTUS SUPPLEMENT
- SRFG and its underwriters and agents will
not sell certificates to you unless you
have received both this prospectus and a
prospectus supplement describing the terms
of that series of certificates.
1
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The information in this prospectus is not complete and may
be changed. We cannot sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
TABLE OF CONTENTS
Page
Overview of the Information in this Prospectus and the
Prospectus Supplement
Prospectus Summary
The Seller
The Servicer
Year 2000 Compliance
The Credit Card Bank
The Trustee
Legal Matters Relating to the Receivables
Transfer of Receivables
Security Interests in Receivables
Insolvency Related Matters
Consumer Protection Laws and Debtor Relief
Laws Applicable to the Receivables
Claims and Defenses of Credit Account
Customers Against the Trust
The Trust
Formation of the Trust
Collections Account and Group Collections
Accounts
Adjustments to Receivables
Addition of Accounts
Removal of Accounts
Repurchase of Trust Portfolio
Repurchase of Specified Receivables
Termination of the Trust
Indemnification of Trust and Trustee
The Certificates
General
Interest Payments
Principal Payments
Class Percentages and Seller Percentage
Investor Losses
Reallocations and Subordination of
Collections
Aggregate and Net Payments
Additional Funds
Investment of Funds in Investor Accounts
Final Payment of Principal; Termination of
Series
Description of Credit Enhancement
Establishing and Issuing New Series
Reallocation of Series Among Groups
Meetings
Book-Entry Registration
Definitive Certificates
List of Certificateholders
Exchange of Certificates for Seller Interest
Sale of Seller Interest
Amendments
Servicer Duties, Compensation and Other Matters
Servicing Compensation and Payment of
Expenses
Resignation or Merger of Servicer;
Delegation of Duties
Servicer Termination Events
Reports to Certificateholders
Evidence as to Compliance
Use of Proceeds
Federal Income Tax Consequences
General
Tax Treatment of the Certificates
as Debt
United States Investors
Foreign Investors
Backup Withholding and Information
Reporting
New Withholding Regulations
Possible Characterization of the Certificates
State Tax Consequences
General
Arizona, Delaware, Georgia, Illinois, Ohio
and Texas
ERISA Considerations
Plan of Distribution
Legal Matters
Reports to Investors
Where You Can Find More Information
2
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two
separate documents that progressively provide more detail:
- this prospectus, which provides general
information, some of which may not apply to a
particular series of certificates, including your
series; and
- the prospectus supplement, which will describe the
specific terms of your series of certificates.
The prospectus supplement will describe:
- the timing of interest and principal payments for
your class of certificates;
- financial and other information about the trust's
assets, including receivables;
- the credit enhancement for and subordination of
your class of certificates;
- the ratings for your class of certificates; and
- the method of selling the certificates.
IF THE TERMS OF YOUR SERIES OR CLASS OF CERTIFICATES VARY BETWEEN
THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT FOR YOUR SERIES, YOU
SHOULD RELY ON THE INFORMATION IN THE PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this
prospectus and the prospectus supplement. We have not authorized
anyone to provide you with different information.
We are not offering to sell or soliciting offers to buy the
certificates in any state where the offer is not permitted. We
do not claim that the information in this prospectus and the
prospectus supplement is accurate as of any date other than the
date stated on their respective covers.
We include cross-references in this prospectus and in the
prospectus supplement to sections in each document where you can
find related discussions containing additional information. The
Tables of Contents in this prospectus and in the prospectus
supplement provide the pages on which these sections begin.
3
PROSPECTUS SUMMARY
The following summary generally describes the trust,
including the typical provisions of each series of certificates.
The trust's certificates are complex financial instruments. This
summary does not include all information that SRFG believes to be
material to an investment in the certificates. The remainder of
this prospectus contains more detailed information about the
trust, as does the prospectus supplement that relates to the
specific series being issued. You should review the entire
prospectus and the prospectus supplement before deciding to
invest in the certificates. The Glossary of Terms contained in
the prospectus supplement provides more precise definitions of
some of the terms used in this summary.
General 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
those receivables.
Servicer Sears is the servicer for the
trust, and in that capacity
handles billing and collection
efforts for the receivables in
the trust. Sears principal
executive offices are located
at 3333 Beverly Road, Hoffman
Estates, Illinois 60179 (847-
286-2500). Sears is a multi-
line retailer and credit
provider. The receivables in
the trust arise from domestic
credit operations.
Seller SRFG is the seller of the
receivables to the trust.
SRFG's principal executive
offices are located at 3711
Kennett Pike, Greenville,
Delaware 19807 (302-434-3176).
SRFG, a wholly owned subsidiary
of Sears, was organized for
limited purposes, including to
facilitate the issuance of the
certificates.
Trustee Bank One, National Association
(formerly The First National
Bank of Chicago) is the
trustee. The trustee's
principal corporate trust
office is located at 1 Bank One
Plaza, Suite IL1-0126, Chicago,
Illinois 60670-0126.
Bank Sears National Bank, which we
refer to as the "Bank," is a
wholly owned subsidiary of
Sears and a "credit card bank"
under the Bank Holding Company
Act. The Bank issues the
accounts in the Sears portfolio
of credit accounts. The Bank
4
transfers to Sears all
receivables arising under the
Bank's accounts.
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. Under the
Pooling and Servicing
Agreement, SRFG has transferred
to the trust all the
receivables existing under
designated accounts. We refer
to these 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 transferred
receivables as "Receivables."
The Receivables include:
-"Principal Receivables," which
are amounts owed by credit
account customers as a result
of their purchases 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.
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
5
recoveries of receivables owned
by SRFG and charged off as
uncollectible;
-interests in other pools of
credit card receivables;
-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 "The
Certificates-Additional Funds"
for more detailed information.
Due Periods The "Due Period" for any
Account is the period included
in the monthly billing cycle of
that Account. When we refer to
a Due Period ending in a
particular month, we mean,
collectively, the Due Periods
applicable to each of the
Accounts that ended during that
month. For example, the Due
Period ending in February
includes the billing cycles of
each of the Accounts that begin
on various days during January
and end on various days during
February.
Distribution Dates A "Distribution Date" is the
date in each month (usually the
15th or the following business
6
day) on which the trust
allocates collections from the
preceding calendar month to
investors and the trustee
deposits those collections into
the appropriate accounts. A
Distribution Date may also be
the date in a particular month
on which the trust pays
interest and/or principal due
to investors. The Due Period
related to a particular
Distribution Date is the Due
Period ending in the calendar
month preceding that
Distribution Date.
Issuance of Certificates The trust issues certificates
in series. The certificates
comprising a "series" are
governed by the same general
terms. The trust may issue
different classes of
certificates within each
series. Each certificate
within a "class" has the same
characteristics as the other
certificates in that class.
The trust assigns each series
to a particular "group" for
purposes of reallocating
collections among series in a
group.
The trust has issued many
series of certificates, and
SRFG expects that the trust
will issue additional series.
The Pooling and Servicing
Agreement permits the trust to
issue additional series without
the consent of the investors in
any outstanding series. SRFG
and the trust will not request
your consent or allow you to
review the series terms before
issuing any new series in the
future.
Your certificate may reflect
your right to the benefit of
the credit enhancement
established with respect to any
series or interest rate
protection agreements for that
series.
Interest The trust will pay interest on
the certificates as specified
in the prospectus supplement.
The interest payment dates will
also be specified in the
prospectus supplement.
Principal The trust will be scheduled to
pay principal on each class of
a series either:
7
-in a single payment on a
specified date, or
-in monthly payments beginning
on a specified date.
The prospectus supplement for a
specific series will set forth
the scheduled principal
payments for each class of that
series. Under certain
circumstances, the trust may be
unable to meet the schedule.
Under other
circumstances-referred to as
"Rapid Amortization Events,"
which we describe below in this
summary-the trust may be
required to repay principal on
an expedited basis.
Each series of certificates
will have two types of maturity
dates:
-Class Expected Final Payment
Dates, which may be different
for each class in a series, and
-a Series Termination Date.
The "Class Expected Final
Payment Date" for a particular
class of certificates is the
date on which SRFG believes the
trust will make the final
principal payment to investors
in that class. If, however, a
Rapid Amortization Event
occurs, the final payment may
occur earlier or later than the
Class Expected Final Payment
Date.
The "Series Termination Date"
is the last day on which the
trust may make payments on the
certificates of a series. It
is always later than the Class
Expected Final Payment Date for
each class. If the trust owes
principal to investors during
the month before the Series
Termination Date, the trustee
will sell Receivables, in an
amount proportionate to the
series' remaining interest in
the trust, to repay the
principal. After the Series
Termination Date, the trust
will no longer allocate
8
collections to the series.
Revolving Period The "Revolving Period" for a
series begins when that series
becomes entitled to receive a
proportionate share of the
trust's collections.
Typically, the Revolving Period
begins on the first day of the
Due Period that ends in the
month the trust issues the
series, or in the following
month. For example, if the
trust issued a series in early
January, that series might be
entitled to payments due from
credit account customers on
various dates in January, which
would be allocated to investors
on the Distribution Date in
February. If the trust issued
the series in late January,
that series might first be
entitled to payments due from
credit account customers on
various dates in February,
which would be allocated to
investors on the Distribution
Date in March. The Revolving
Period ends when the trust
begins using Principal
Collections to make principal
payments or to accumulate the
cash to be used to make later
principal payments. Generally,
this will be the last business
day before the Controlled
Amortization Period or the
Controlled Accumulation Period
begins, or the day a Rapid
Amortization Event occurs.
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 allocated
to one series to pay the
principal of other series.
Controlled Amortization Period If a series requires that the
trust repay its principal in
scheduled monthly payments, the
series will have a "Controlled
Amortization Period." During
the Controlled Amortization
Period, the trust will apply
principal collections allocated
to the series to pay principal
on the certificates, up to the
amount of the scheduled monthly
principal payment.
The Controlled Amortization
9
Period will begin on the first
day of the Due Period ending in
the month preceding the month
in which the trust will make
the first principal payment for
the series, as specified in the
prospectus supplement. The
Controlled Amortization Period
will end on the earliest of:
-the day the trust repays the
principal of the series in
full,
-the day a Rapid Amortization
Event occurs, or
-the Series Termination Date.
Controlled Accumulation Period If a series requires that the
trust repay its principal in a
single payment, the series will
have a "Controlled Accumulation
Period." During the Controlled
Accumulation Period, the trust
will deposit principal
collections allocated to the
series into a trust account
named the "Series Principal
Funding Account." The trust
accumulates principal
collections in the Series
Principal Funding Account over
several months, so that it will
have enough of these
collections available to make
the final payment.
The Controlled Accumulation
Period will begin on the first
day of the Due Period ending in
the month preceding the month
in which the trust will first
deposit collections into the
Series Principal Funding
Account, as specified in the
prospectus supplement. The
Controlled Accumulation Period
will end on the earliest of:
-the day the trust repays the
principal of the series in
full,
-the day a Rapid Amortization
Event occurs, or
-the Series Termination Date.
10
A series may also have a
Controlled Accumulation Period
followed by a Controlled
Amortization Period, in which
case the Controlled
Accumulation Period will
terminate when the Controlled
Amortization Period begins.
Rapid Amortization Events "Rapid Amortization Events" are
certain events that might
impair the long-term ability of
the trust to make all required
payments. 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, 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.
Rapid Amortization Period If a Rapid Amortization Event
for a series occurs, the trust
will repay the principal of
that series on a monthly basis
and as quickly as possible
under the Cash Flows for that
series. The "Cash Flows" are
the allocation, payment and
reimbursement priorities for a
series and will be provided in
the prospectus supplement. The
"Rapid Amortization Period" for
a series begins when a Rapid
Amortization Event for that
series occurs and continues
until the trust has fully paid
the principal of that series or
11
until that series terminates.
Seller Interest SRFG owns a "Seller
Certificate" that 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 collections paid
on the Receivables based on the
Seller Interest.
Invested Amounts and Investor The "Invested Amount" for any
Interests class of certificates of a
series equals:
-the initial face amount of
the certificates of that
class; minus
-the amount of principal the
trust has previously paid to
the investors in that class of
certificates; minus
-that class's share of charge-
offs that the trust has not
reimbursed (including
unreimbursed charge-offs from
prior months); minus
-that class's share of losses
on investments of funds on
deposit, if any, in the Series
Principal Funding Account.
Generally, unless a series has
a Controlled Accumulation
Period, the "Investor Interest"
for any class of certificates
of a series equals the Invested
Amount for that class. If a
series has a Controlled
Accumulation Period, the
Investor Interest for that
class equals:
12
-the Invested Amount for that
class; minus
-the amount of funds in the
applicable Series Principal
Funding Account allocated to
that class.
The "Series Invested Amount"
for any series equals the sum
of the Invested Amounts for
each class of certificates in
that series. Similarly, the
"Series Investor Interest" for
any series equals the sum of
the Investor Interests for each
class of certificates in that
series.
Classes, Allocations and Each series may have one or
Reallocations more classes. Typically, Class
B certificates rank junior to
Class A certificates and Class
C certificates rank junior to
Class B certificates. SRFG may
own one or more of these junior
classes.
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 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
for each series will specify
the percentages of these
collections and charge-offs
13
that are allocated to each
class of that 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 that series is in
its Revolving Period, its
Controlled Amortization
Period, its Controlled
Accumulation Period or its
Rapid Amortization Period;
and
-how much principal will be
available to reallocate to
that series from other series
during the Controlled
Amortization Period or
Controlled Accumulation
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-
14
offs that the trust previously
allocated to you, thus
reinstating your interest in
Principal 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 your 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 your
series does not have enough
collections in any month, the
trust may use excess
collections from other series
to make payments to you.
Credit Enhancement A series or a class of a series
may have the benefit of
"Credit Enhancement," which
provides additional payment
protection to investors in that
series or class. For instance,
subordination provisions may
require the trust to use
collections allocated to a
junior series or class first to
make payments, deposits and
reimbursements for a senior
series or class. The trust
would make payments, deposits
and reimbursements for the
junior series or class only
when it had satisfied the
requirements of the senior
series or class.
Credit Enhancement for a series
may also provide the trust with
an additional source of funds
if the trust does not receive
sufficient collections on
receivables to make all
required payments, deposits and
reimbursements for that series
in any month. This Credit
Enhancement may include:
-cash collateral accounts or
reserve funds,
-letters of credit,
15
-surety bonds, or
-insurance policies.
The prospectus supplement may
also identify other forms of
Credit Enhancement.
Clearance and Settlement You may elect to hold your
certificates 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):
-The Depository Trust Company
(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
depositaries of Cedelbank and
Euroclear.
16
THE SELLER
SRFG was incorporated under the laws of the State of
Delaware in 1988. Sears owns all of SRFG's outstanding common
stock. SRFG was organized for the following limited purposes:
-to facilitate the issuance of certificates and similar
securities;
-to purchase, hold, own and sell receivables;
-to hold interests in securitizations such as the Seller
Certificate and subordinated classes of certificates; and
-to perform activities incidental to and necessary or
convenient to accomplish those purposes.
Neither Sears, as a stockholder of SRFG, nor SRFG's board of
directors, intends to change SRFG's business purposes. SRFG's
principal executive offices are located at 3711 Kennett Pike,
Greenville, Delaware 19807 (302-434-3176).
THE SERVICER
Sears acts as servicer of all Accounts originated by Sears
or 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 and any
of its affiliates may hold certificates.
Sears originated from an enterprise established in 1886. It
was incorporated under the laws of the State of New York in 1906.
Its principal executive offices are located at 3333 Beverly Road,
Hoffman Estates, Illinois 60179 (847-286-2500). Sears, with its
consolidated subsidiaries, is a multi-line retailer that provides
a wide array of merchandise and services. 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:
17
-Sears proprietary and third-party information systems;
-related hardware, software and data and telephone networks;
and
-information systems service providers.
Sears has completed an inventory and assessment of its
mission critical (vital to business operations) information
systems and has remediated and tested those mission critical
systems requiring remediation. Sears has substantially completed
certification (final testing and validation) for its mission critical
or retired mission critical systems.
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 Sears computer processing and its data
and voice communications network, which support 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 has converted its credit
business.
Sears has substantially completed the development of
contingency plans that identify what actions need to be taken if
a critical system or service is not available. Sears also has
substantially completed the development of its century rollover
event management procedures, and plans to test, rehearse and
refine these plans throughout the remainder of 1999.
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 compliance issue 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.
18
THE CREDIT CARD BANK
The Bank is a national banking association. The Bank is a
"credit card bank" under the Bank Holding Company Act. The Bank
issues the Sears Card, SearsCharge PLUS and Sears Home
Improvement Plan accounts.
The Bank issues Sears Card accounts to allow Sears to
operate its credit business in a more unified regulatory and
pricing environment. In general, under federal law, the maximum
finance charge that the Bank may charge 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
the credit account customer resides. Arizona law also governs
the Bank's ability to charge late fees and other fees and
charges. 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. We
cannot assure you, however, that these higher fees or charges
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 the Sears Card
(with customers repaying all balances within the grace period so
that the Bank does not assess a finance charge). Sears and the
Bank have entered into contractual arrangements under which Sears
acts as primary servicer of Accounts that have been transferred
to or originated by the Bank.
THE TRUSTEE
Bank One, National Association is the trustee for the trust.
The trustee's principal corporate trust office is located at One
Bank One Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126.
Sears, SRFG and their affiliates may from time to time enter into
normal banking and trustee relationships with Bank One that are
unrelated to the trust. The trustee and any of its affiliates
may hold certificates in their own names. In order to meet legal
requirements in certain jurisdictions, the trustee has the power
to appoint a co-trustee or separate trustee of all or part of the
trust. If the trustee appoints a co-trustee or separate trustee,
that co-trustee or separate trustee will have the same rights,
powers, duties and obligations that the trustee has under the
Pooling and Servicing Agreement. Generally, the trustee and any
co-trustee or separate trustee will exercise and perform those
rights, powers, duties and obligations jointly. However, in any
jurisdiction in which the trustee is incompetent or unqualified
to perform certain acts, the co-trustee or separate trustee will
exercise and perform those rights, powers, duties and obligations
individually, solely at the direction of the trustee.
The trustee may resign at any time. In addition, SRFG may
remove the trustee if:
-the trustee no longer meets the eligibility requirements
set forth in the Pooling and Servicing Agreement, and the
trustee does not resign after receiving a written request
from SRFG to do so;
-the trustee becomes legally unable to act; or
-the trustee becomes insolvent.
19
Sears may also remove the trustee upon 30 days' written notice
unless a Servicer Termination Event has occurred. If the trustee
resigns, or if SRFG or Sears removes the trustee:
-SRFG must appoint a successor trustee; and
-Sears must notify the Rating Agencies of the resignation or
removal and the appointment of a successor trustee.
The trustee's resignation or removal and the appointment of a
successor trustee will not be effective until the successor
trustee has accepted its appointment as trustee.
20
LEGAL MATTERS RELATING TO THE RECEIVABLES
TRANSFER OF RECEIVABLES
Sears, the Bank or their affiliates originated the
Receivables in the Accounts. The Bank has granted to Sears all
of its right, title and interest in and to any Receivables
originated by the Bank under the Assignment Agreement. 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 as of
the dates specified in the applicable transfer agreement;
and
-all Receivables created under those Accounts after the date
specified in the applicable transfer agreement.
These Receivables included all Receivables originated by the Bank
in the Accounts. Sears transferred all of the Receivables to
SRFG without recourse, and SRFG then transferred all the
Receivables to the trust. On July 31, 1994, at the same time
that Sears transferred the Receivables to SRFG and SRFG
transferred the Receivables to the trust, the trust:
-issued the Series 1994-1 certificates;
-paid to SRFG the proceeds from issuing Series 1994-1; and
-issued the Seller Certificate to SRFG.
SRFG then paid the Series 1994-1 proceeds to Sears in
consideration for Sears sale of the Receivables to SRFG, but SRFG
retained the Seller Certificate for its own benefit.
The Bank sells to Sears on a daily basis the Receivables in
Accounts that have been transferred to or originated by the Bank.
Sears then transfers those Receivables to SRFG, and SRFG
transfers them to the trust. In addition, SRFG has transferred
to the trust all the Receivables in additional Accounts as of the
dates specified in the applicable transfer agreements, and may do
so again in the future. Those additional Accounts may include
accounts originated by or transferred to the Bank. See "The
Trust-Addition of Accounts" for more information.
Sears has indicated in its computer files that Sears
transferred the Receivables to SRFG and that SRFG transferred
them to the trust. In addition, Sears has provided to SRFG,
which in turn has provided to the trustee, a computer file, hard
copy or microfiche list with a true and complete list of each
Account identified by account number. Sears will provide to
SRFG, and SRFG will provide to the trustee, a similar computer
file, hard copy or microfiche list identifying any additional
Accounts. Sears, the Bank and SRFG are not obligated to deliver
to the trustee any other records or agreements relating to the
Accounts or the Receivables. Sears and the Bank will not
segregate their records and agreements that relate to the
Accounts and the Receivables
21
from their records and agreements that relate to other credit
accounts and receivables. Similarly, Sears and the Bank will not
mark their records and agreements that relate to the Accounts and
the Receivables to reflect that SRFG has transferred the
Receivables to the trust, except to the extent that an electronic
or other indicator is necessary for them to service the Accounts
in accordance with the Pooling and Servicing Agreement. SRFG
filed UCC-1 and UCC-3 financing statements in accordance with
state law to perfect the trust's interest in the Receivables, and
in the future will file any additional UCC-3 statements necessary
to perfect the trust's interest in Receivables in additional
Accounts. The trust will also file any continuation statements
necessary to continue the perfection of the trust's interest in
the Receivables.
SECURITY INTERESTS IN RECEIVABLES
The Receivables are "accounts" or "chattel paper" within the
meaning of the Uniform Commercial Code as in effect in the State
of Delaware and "accounts," "chattel paper" or "general
intangibles" within the meaning of the Uniform Commercial Code as
in effect in the States of Illinois, New York and Arizona. To
the extent the Receivables are accounts or chattel paper, Article
9 of the Uniform Commercial Code as in effect in the States of
Delaware, Illinois, New York and Arizona governs both the sale of
the Receivables and the transfer of the Receivables as security
for an obligation. To the extent Article 9 applies, appropriate
financing statements must be filed to perfect the Bank's sale of
any Receivables to Sears, Sears sale of the Receivables to SRFG,
and SRFG's sale of the Receivables to the trust. Appropriate
financing statements covering the Receivables have been filed in:
-Arizona, to perfect the Bank's sale and transfer of
Receivables to Sears;
-Delaware and Illinois, to perfect Sears sale and transfer
of the Receivables to SRFG; and
-Delaware and Illinois, to perfect SRFG's sale and transfer
of the Receivables to the trust.
To the extent the Receivables are general intangibles and the
transfer of the Receivables is deemed to be a transfer as
security for an obligation, the provisions of Article 9 of the
Uniform Commercial Code apply to the same extent that they apply
to Receivables that are accounts or chattel paper.
If the Receivables are general intangibles and a court deems
the transfer of the Receivables to be a sale, then the Uniform
Commercial Code does not apply and no further action is required
to protect the trust's interest from third parties. However, to
the extent a court deems the transfer of Receivables that are
general intangibles to be a sale, the priority of interests in
Receivables arising after the closing date for any series is not
as clear as it would be if the priority of interests in those
Receivables was governed by the Uniform Commercial Code.
Nevertheless, the Bank, Sears and SRFG believe that it would be
inconsistent for a court to afford the trust less favorable
treatment if it deems the transfer of Receivables to be a sale
than
22
the court would afford if it deems the transfer to be a security
interest. Accordingly, the Bank, Sears and SRFG believe that a
court should conclude that a sale of Receivables consisting of
general intangibles would be deemed to have occurred as of July
31, 1994 (in the case of Receivables from the initial Accounts)
or as of the date an additional Account was added to the trust
(in the case of Receivables from that additional Account).
Under limited circumstances, if Receivables are created in
an Account after the date on which the trust acquired an interest
in all Receivables in that Account, a prior or subsequent
transferee of Receivables could have an interest in those
Receivables with priority over the trust's interest in those
Receivables. A tax or other statutory lien on property of Sears
or the Bank arising before a Receivable is created may also have
priority over the trust's interest in that Receivable.
SRFG has agreed 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 SRFG transferred
that Receivable to the trust, if the failure of the Receivable to
be an Eligible Receivable has an adverse effect on the trust's
interest in all the Receivables. We have described this issue,
including what constitutes an "Eligible Receivable," in "The
Trust-Repurchase of Specified Receivables." In addition, SRFG
has agreed that it will not sell, pledge, assign, transfer or
grant any lien on any of the Receivables (or any interest in the
Receivables) other than to the trust.
There is a significant possibility that the trust may not
have a perfected security interest in any of the Receivables
created after a petition for relief is filed by or against Sears
under the Bankruptcy Code or after a receiver or conservator is
appointed for the Bank. Nevertheless, we anticipate that the
trust will either own or have a perfected security interest in
Receivables existing on the date a petition is filed by or
against Sears under the Bankruptcy Code or after the date a
receiver or conservator is appointed for the Bank, and that the
trust will be able to pay principal and interest on the
certificates, although we cannot assure you that the trust will
make those payments on time. Because the trust's interest in the
Receivables depends upon SRFG's interest in the Receivables,
which in turn depends upon Sears interest in the Receivables, any
adverse change in the priority or perfection of SRFG's or Sears
security interest would also affect the trust's interest in the
affected Receivables.
The Pooling and Servicing Agreement provides that, as 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 for
each outstanding series within two business days after the date
it processes its receipt of those collections. As long as Sears
is the servicer, Sears may use all remaining collections as a
loan until each Distribution Date. If Sears becomes insolvent or
a receiver is appointed for Sears or, in certain circumstances, a
certain period of time lapses, the trust may not have a perfected
interest in those cash collections.
INSOLVENCY RELATED MATTERS
Transfer from Sears to SRFG. Sears and SRFG intend the
transfer of the Receivables from Sears to SRFG to be an absolute
transfer of the Receivables to SRFG and will treat it as
23
an absolute transfer. As an absolute transfer, the Receivables
would not be part of any Sears bankruptcy estate and would not be
available to Sears creditors. However, if Sears became
insolvent, the bankruptcy trustee, a creditor of Sears, or Sears
as debtor-in-possession could argue that the transaction between
Sears and SRFG was a pledge of the Receivables rather than an
absolute transfer. If a court accepted that position, the trust
might not be able to pay interest and principal on the
certificates on time.
Unless the prospectus supplement for a series specifies
otherwise, SRFG will receive on the closing date for each series
an opinion of Latham & Watkins, counsel to Sears and SRFG,
concluding on the basis of a reasoned analysis of analogous case
law, although no precedent based on directly similar facts
exists, that:
-a federal bankruptcy court would not order the substantive
consolidation of SRFG's assets and liabilities with Sears
assets and liabilities; and
-a transfer of the Receivables in the form and manner
contemplated by the transfer agreements between Sears and
SRFG would constitute an absolute sale or other transfer of
the Receivables rather than a borrowing by Sears secured by
the Receivables, so that the Receivables would not be
property of the estate of Sears under Section 541(a) of the
Bankruptcy Code and, thus, SRFG's rights to the Receivables
would not be impaired by the operation of Section 362(a) of
the Bankruptcy Code.
This opinion will be subject to the facts, assumptions and
qualifications stated in it.
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 under the Assignment
Agreement, under which 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 under the Assignment Agreement. To the extent
that Sears validly perfects that security interest before an
insolvency of the Bank occurs, and if Sears did not take that
security interest to hinder, delay or defraud the Bank or its
creditors, a receiver or conservator of the Bank should not be
able to avoid that security interest or recover payments made on
the Receivables. If, however, a receiver or conservator of the
Bank asserts a contrary position or requires the trust to
establish its right to cash collections by submitting a claim and
completing the administrative claims procedure under the Federal
Deposit Insurance Act, as amended, the trust's payments of
principal and interest on the certificates may be delayed or
reduced. 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 like the
Assignment Agreement. The Federal Deposit Insurance Act provides
that a claim for damages arising from the repudiation of a
contract is limited to "actual direct compensatory damages." In
a 1993 case involving the repudiation by the Resolution Trust
Corporation (whose responsibilities have since been assumed by
the FDIC) of certain secured zero-coupon bonds
24
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 value of the repudiated bonds
as of the date of repudiation. If the FDIC is appointed as
conservator or receiver of the Bank and then repudiates the
Assignment Agreement, the amount of collateral available for the
trust to use to pay principal and interest on the certificates
may not be sufficient to pay all outstanding principal and
accrued interest on the certificates. The FDIC has proposed a
rule under which it would not repudiate specified transfers under
some circumstances; however, we cannot assure you that the rule
will be adopted or that it will apply to a receivership or
conservatorship involving the Bank.
Unless the prospectus supplement for a series specifies
otherwise, SRFG will receive on the closing date for each series
an opinion of Latham & Watkins, counsel to Sears and SRFG,
concluding on the basis of a reasoned analysis of analogous case
law, although no precedent based on directly similar facts
exists, that:
-if the transfer of Receivables from the Bank to Sears under
the Assignment Agreement constitutes an absolute transfer,
then the transfer is a transfer to Sears of all of the
Bank's right, title and interest in and to those
Receivables; and
-if a court deems the transfer 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.
This opinion will be subject to the facts, assumptions and
qualifications stated in it.
Unless the prospectus supplement for a series specifies
otherwise, SRFG will receive on the closing date for each series
an opinion of Arizona counsel to the Bank concluding on a
reasoned basis that, if a court deems the transfer 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:
-the security interest is a perfected security interest; and
-the security interest is a first priority security
interest.
This opinion will be subject to the facts, assumptions and
qualifications stated in it.
CONSUMER PROTECTION LAWS AND DEBTOR RELIEF LAWS APPLICABLE TO THE
RECEIVABLES
Federal and state consumer protection laws and regulations
and the Uniform Commercial Code extensively regulate the
relationships among credit recipients, credit issuers and sellers
of goods and services in transactions financed by the extension
of credit under credit accounts. These laws and regulations
include the following federal laws:
25
-the Truth in Lending Act (and the Federal Reserve Board's
Regulation Z issued under that act);
-the Equal Credit Opportunity Act (and the Federal Reserve
Board's Regulation B issued under that act);
-the Fair Credit Billing Act; and
-the Fair Credit Reporting Act.
These statutes and regulations require credit issuers to disclose
certain information when an account is opened, at the end of each
monthly billing cycle and annually. In addition, credit
recipients are entitled under these laws and regulations to have
payments and credits promptly applied on their credit accounts
and to require billing errors to be promptly resolved. A credit
recipient may be entitled to assert violations of certain of
these credit protection laws through setoff against his or her
obligation to pay amounts owing on his or her account, or in
certain cases against the lender or seller. SRFG has agreed to
repurchase Receivables if all applicable requirements of these
statutes have not been complied with for those Receivables and if
that failure to comply has a material adverse effect on the
trust's interest in all Receivables.
Certain laws, including those we described above, may limit
Sears ability to collect 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 the Receivables.
CLAIMS AND DEFENSES OF CREDIT ACCOUNT 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 on an Account 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 Uniform Commercial Code and other state laws that govern
consumer credit provide that:
-unless the obligor for an Account has agreed not to assert
defenses or claims arising out of a sale, and that agreement
is enforceable, the trust's rights, as assignee of the
Account, are subject to:
-all the terms of the contract between the seller of
goods or services or the Bank and the obligor for the
Account;
-any defense or claim arising from that contract; and
-any other defense or claim of the obligor against the
seller of goods or services or the Bank that arises
before the obligor is notified of the assignment; and
-the obligor for an Account is authorized to continue to pay
the seller of goods or services or the Bank until:
26
-the obligor receives a notice that reasonably
identifies the rights assigned, that informs the
obligor that the amount due or to become due has been
assigned, and that directs the obligor to pay the
trustee directly; and
-if requested by the credit account customer, the
trustee has furnished reasonable proof of the
assignment.
27
THE TRUST
FORMATION OF THE TRUST
Sears, SRFG and the trustee formed the trust in July 1994 by
entering into the Pooling and Servicing Agreement. SRFG has
conveyed to the trust, without recourse, all of the Receivables:
-that existed under the Accounts as of the last day of the
Due Period that ended in July 1994;
-that existed under any additional Account as of the date
specified as the "Additional Account Cut-Off Date" in the
Assignment of Additional Accounts for that additional
Account; and
-created under any Account or additional Account after the
last day of the July 1994 Due Period or the Additional
Account Cut-Off Date, as applicable, for that Account or
additional Account.
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 each series of certificates. The
trust's assets include or may include:
-the 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 pools of credit card receivables;
-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.
Sears, SRFG and the trustee formed the trust to issue series
of certificates under the Pooling and Servicing Agreement and the
related Series Supplements. The trust, as a master
28
trust, can issue numerous series of certificates and remain a
trust even after a series of certificates is paid in full or
reaches its Series Termination Date. The trust has numerous
series of certificates, and we expect it to continue to issue
series of certificates from time to time. The trust will only
engage in the following business activities:
-acquiring and holding the Receivables and the proceeds of
the Receivables;
-issuing series of certificates and the Seller Certificate
and making payments on those certificates;
-investing funds on deposit in the trust's accounts as
required under the Pooling and Servicing Agreement and the
applicable Series Supplements;
-entering into credit enhancement arrangements; and
-entering into interest rate protection agreements.
Consequently, we do not expect the trust to need additional
capital resources other than Receivables in additional Accounts
or participation interests in other pools of credit card
receivables, if applicable.
COLLECTIONS ACCOUNT AND GROUP COLLECTIONS ACCOUNTS
The trustee has established and maintains in the name of the
trust:
-the Collections Account;
-the Excess Funding Account (General);
-the Excess Funding Account (SRC); and
-for each group of series, a Group Collections Account.
Each of these accounts is either a segregated trust account or a
segregated deposit account at a
Qualified Trust Institution or Eligible Institution. A
"Qualified Trust Institution" is:
-a depositary institution organized under the laws of the
United States, any state or the District of Columbia, or a
domestic branch of a foreign bank, that:
-acts as a trustee for funds deposited in segregated
trust accounts in its corporate trust department, and
-has securities that have an investment grade credit
rating from each Rating Agency; or
-any other institution that will not cause a Rating Agency
to reduce or withdraw its rating on any class of
certificates of any outstanding series.
29
An "Eligible Institution" is:
-a depositary institution organized under the laws of the
United States, any state or 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
-any other institution that will not cause a Rating Agency
to reduce or withdraw its rating on any class of
certificates of any outstanding series.
Sears as servicer will direct the trustee to invest all amounts
in each of these accounts in highly-rated short-term investments
referred to as "Permitted Investments." We have described these
Permitted Investments in "The Certificates-Investment of Funds in
Investor Accounts." The servicer has the revocable power to
instruct the trustee to make withdrawals from each of these
accounts to carry out its duties under the Pooling and Servicing
Agreement and each 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, the
servicer will be required to make daily deposits of a portion of
collections into the Collections Account for each outstanding
series within two business days after the date it processes its
receipt of those collections. The total amount to be deposited
on any day for any series will be determined pursuant to the
Series Supplement. The servicer will not have to make these
deposits if the Rating Agencies have advised the servicer that
they will not reduce or withdraw their ratings on any class of
certificates of any outstanding series if the servicer does not
make these deposits. To the extent that the required daily
deposit for any series is based upon 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 that
Distribution Date.
On or before each Distribution Date, the servicer deposits
into the Collections Account:
-all collections from the prior month that the servicer
retained as a loan; and
-the portion of the collections from the prior month that
the trust is to allocate on that Distribution Date and that
the servicer had not previously deposited into the
Collections Account.
The servicer then directs the trustee to withdraw from the
Collections Account and pay to SRFG the sum of:
-the total amount of Finance Charge Collections for the
prior month minus the aggregate amount of those Finance
Charge Collections allocated to each outstanding series; and
30
-the total amount of Principal Collections for the prior
month minus the aggregate amount of those Principal
Collections allocated to each outstanding series.
However, for any calendar month during which the servicer
deposited collections into the Collections Account on a daily
basis, the trust will be deemed to allocate the collections on
the date the servicer delivers the monthly investor statement and
the monthly servicer statement to the trustee. The trustee is
authorized, when it receives those statements, to transfer
immediately to SRFG or the servicer any funds in the Collections
Account that the trust would otherwise pay to them on the related
Distribution Date.
On or before each Distribution Date, the servicer will
direct the trustee to withdraw all amounts on deposit in the
Excess Funding Account (SRC), and to deposit those amounts in the
Collections Account. The servicer will then direct the trustee
to withdraw from the Collections Account and deposit in each
Group Collections Account the sum of:
-the Finance Charge Collections for the prior month that the
trust allocates to each series that is a member of the
applicable group;
-the Principal Collections for the prior month that the
trust allocates to each series that is a member of the
applicable group; and
-the Group Excess Funding Amount (SRC).
The trust will allocate collections, Additional Funds and amounts
on deposit in the Excess Funding Account (General) to each series
as set forth in the Series Supplement for each series.
Similarly, the trust will allocate, deposit or pay collections in
the Group Collections Account according to the terms of the
Series Supplement for each series in the applicable group. The
trust will deposit amounts, if any, from each series in each
group into the Excess Funding Account (General) and the Excess
Funding Account (SRC) on each Distribution Date according to the
terms of the applicable Series Supplement.
ADJUSTMENTS TO RECEIVABLES
The servicer may adjust the amount of Receivables in any
Account, which will change the amount of Receivables in the
trust. The servicer regularly reduces the amount of Receivables
in an Account when:
-a credit account customer returns merchandise that the
customer purchased using that Account; or
-the servicer discovers that a Receivable was created
through a fraudulent or counterfeit charge on that Account.
The servicer may also make other adjustments to the Receivables
in accordance with its customary practices. The effects of these
adjustments on the trust include:
31
-if the servicer reduces the amount of Receivables in the
trust due to returned merchandise, the servicer will reduce
by the same amount the amount of Principal Receivables used
to calculate the Seller Interest;
-if the servicer reduces the amount of Receivables in the
trust due to a fraudulent or counterfeit charge or due to
customary practices, the servicer will either:
-increase by the same amount the amount of collections
for the applicable Due Period; or
-decrease by the same amount the amount of the Seller
Interest; and
-if the servicer increases the amount of Receivables in the
trust due to customary practices, the servicer will either:
-decrease by the same amount the amount of collections
for the applicable Due Period; or
-increase by the same amount the amount of the Seller
Interest.
If any of the adjustments to the Seller Interest described above
would cause the Seller Interest to be reduced below zero, the
Seller will, no later than the business day after the Due Period
during which the servicer made the adjustment, deposit into the
Collections Account an amount equal to the deficiency in the
Seller Interest.
ADDITIONS OF ACCOUNTS
SRFG has the right, subject to the limitations and
conditions discussed below, to:
-designate additional credit accounts of Sears, the Bank or
their affiliates to be included as Accounts and add to the
trust all Receivables existing, or generated in the future,
in those additional Accounts; or
-add participation interests in other pools of credit card
receivables to the trust.
In addition, SRFG will be required to designate additional
Accounts or add participation interests to the trust if the
aggregate amount of Principal Receivables in the trust on the
last day of any month is less than the sum of the minimum
principal receivables balance for each outstanding series. The
Series Supplement for each series will specify the minimum
principal receivables balance for that series.
SRFG may, in its discretion, designate additional Accounts
and add the Receivables in those additional Accounts to the trust
if the following conditions are satisfied:
-SRFG executes and delivers a written assignment of
additional Accounts to the trust;
32
-SRFG delivers an opinion of outside counsel addressing:
-the trust's security interest in the Receivables in
the additional Accounts; and
-insolvency and other related matters as they may
affect the Receivables;
-the servicer delivers a certificate of a servicing officer
confirming that the servicer did not use any selection
procedures to select the additional Accounts, that the
servicer believes to be materially adverse to the interests
of investors in any series as of the day the servicer
selected those additional Accounts.
-unless the Rating Agencies otherwise consent, as of the
last day of any calendar year:
-the amount of Principal Receivables in Accounts
designated as additional Accounts during that calendar
year will not exceed 20% of the amount of Principal
Receivables in the trust as of the first day of that
calendar year; and
-the number of Accounts designated as additional
Accounts during that calendar year will not exceed 20%
of the number of Accounts in the trust as of the first
day of that calendar year; and
-unless the Rating Agencies otherwise consent, as of the
last day of any calendar quarter:
-the amount of Principal Receivables in Accounts
designated as additional Accounts during that calendar
quarter will not exceed 15% of the amount of Principal
Receivables in the trust as of the first day of that
calendar quarter; and
-the number of Accounts designated as additional
Accounts during that calendar quarter will not exceed
15% of the number of Accounts in the trust as of the
first day of that calendar quarter.
SRFG may replace these conditions with substitute conditions if
the Rating Agencies confirm that the substitute conditions will
not cause them to reduce or withdraw their ratings on any class
of certificates of any outstanding series.
The trust will receive all collections on Receivables in
additional Accounts in the same manner that it receives
collections on the other Receivables, except that the servicer
may estimate the amount of Finance Charge Receivables billed on
the Receivables in the additional Accounts for the Due Period
during which SRFG added the additional Accounts to the trust.
SRFG will add participation interests in other pools of
credit card receivables to the trust by amending the Pooling and
Servicing Agreement. SRFG will not be required to obtain the
consent of investors to execute that amendment. SRFG may add
participation interests to the trust if the following conditions
are satisfied:
-SRFG delivers a certificate stating that SRFG reasonably
believes that the addition of participation interests will
not be materially adverse to the investors in any class of
33
certificates of any outstanding series or to any third party
who provides credit enhancement;
-SRFG delivers an opinion of outside counsel addressing:
-the trust's security interest in the Receivables in
the participation interests; and
-insolvency and other related matters as they may
affect the participation interests; and
-the Rating Agencies confirm that the addition of the
participation interests to the trust will not cause them to
reduce or withdraw their ratings on any class of
certificates of any outstanding series.
The terms governing any additional Accounts may differ from
the terms governing the Accounts initially included in the trust.
For example, it is possible that some or all additional Accounts
will have lower periodic finance charges or fees than the initial
Accounts, which may reduce the percentage of Finance Charge
Collections relative to Principal Collections. The performance of
any additional Accounts may differ from the performance of the
Accounts and the Sears portfolio because:
-the payment performance of the obligors on the additional
Accounts may differ from the overall payment performance of
the obligors on the Accounts and the Sears portfolio;
-the additional Accounts may not contain receivables in
accounts from every state;
-the additional Accounts may not contain receivables in
accounts previously segregated into pools; and
-the additional Accounts may contain a higher or lower
percentage of newly solicited and unseasoned accounts than
the Accounts or the Sears portfolio.
The servicer uses an account selection process to segregate pools
of accounts (including the Accounts and any additional Accounts)
that is generally designed to exclude some seasoned accounts to
insure that some seasoned accounts remain available for the
servicer to include in subsequently segregated pools. The
servicer may designate previously established pools of more
seasoned accounts to become part of the trust as additional
Accounts.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth below, SRFG may remove
Accounts and their Receivables from the trust. We refer to those
Accounts as "Removed Accounts." SRFG is not required to remove
Accounts. SRFG will be permitted to designate Removed Accounts
and require reassignment to it of the Receivables from those
Removed Accounts only if the following conditions are satisfied:
34
-as of the date that the Removed Accounts are to be removed
from the trust and the Receivables from those Removed
Accounts reassigned to SRFG, the aggregate amount of
Principal Receivables in the trust, minus the aggregate
amount of Principal Receivables in those Removed Accounts,
will not be less than the sum of the minimum principal
receivables balance for each outstanding series;
-within five business days after the date SRFG designated
for removal of the Removed Accounts, SRFG will deliver to
the trustee:
-a written assignment of the Receivables in the Removed
Accounts to SRFG for the trustee to execute; and
-a computer, hard copy or microfiche list containing a
true and complete list of all Removed Accounts
identified by account number;
-SRFG represents and warrants that it did not use any
selection procedures that it believed to be materially
adverse to the investors in any outstanding series of
certificates or to any third-party provider of credit
enhancement;
-the Rating Agencies advise SRFG that the reassignment of
the Receivables in the Removed Accounts to SRFG will not
cause them to reduce or withdraw their ratings on any class
of certificates of any outstanding series; and
-SRFG delivers to the trustee an officer's certificate
confirming that the conditions listed above have been
satisfied.
At least five business days before the Receivables in the Removed
Accounts are to be removed from the trust, SRFG will notify the
trustee, the servicer, the Rating Agencies and any third party
who provides credit enhancement for any series of certificates
that the trustee is to reassign to SRFG the Receivables from
those Removed Accounts, effective as of the date specified in the
notice.
REPURCHASE OF TRUST PORTFOLIO
A "Trust Portfolio Repurchase Event" will occur if, as of
July 31, 1994, or, with respect to any additional Accounts, as of
any date on which there is an assignment of those additional
Accounts, it is not true that:
-each of the Pooling and Servicing Agreement and each 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;
-the Pooling and Servicing Agreement constitutes either:
-a valid transfer and assignment of all right, title
and interest of SRFG to the trust in and to the
Receivables
35
and the proceeds of those Receivables, including
Receivables created after the transfer date and amounts
in any account established by the trustee for the
benefit of investors; or
-the grant of a perfected security interest of first
priority (not including statutory or other non-
consensual liens) under the Delaware Uniform Commercial
Code in those Receivables and proceeds; or
-certain of SRFG's representations and warranties regarding:
-its corporate status,
-its authority to assign the Receivables to the trust
and perform its obligations under the Pooling and
Servicing Agreement; and
-the accuracy of information furnished by SRFG to the
trustee
are true and correct (unless SRFG cures any breach with
respect to these representations and warranties within
the required cure period).
If a Trust Portfolio Repurchase Event occurs, either the
trustee or investors holding at least 51% of the aggregate
invested amount (not including the invested amount for any class
of certificates owned by SRFG), by written notice to SRFG, may
direct SRFG to purchase the Receivables on any Distribution Date
within 60 days of that notice, and SRFG will be required to
comply with that direction. The notice may also grant a longer
period, up to 150 days, for SRFG to repurchase the Receivables.
If, however, the Trust Portfolio Repurchase Event occurs because
of an assignment of additional Accounts, SRFG will repurchase
only the Receivables in those additional Accounts. SRFG will not
be required to repurchase any Receivables if, on any day after
SRFG received this notice, the Trust Portfolio Repurchase Event
does not adversely affect in any material way the interests of
investors in the certificates.
If SRFG is required to repurchase all the Receivables, the
repurchase price will equal:
-the aggregate investor interest on the Distribution Date
SRFG is scheduled to purchase the Receivables; plus
-all interest accrued but unpaid through the date of
purchase; minus
-amounts on deposit in the Excess Funding Account (General),
if any; minus
-amounts on deposit in the Excess Funding Account (SRC), if
any; minus
-the sum of all pre-funding amounts for all outstanding
series, if any.
The trust will distribute that repurchase price to investors upon
presentation and surrender of their certificates.
If SRFG is required to purchase only the Receivables in
additional Accounts, the repurchase price will equal for each
series that series' pro rata share of those Receivables. Each
series' pro rata share will equal:
-the sum of the Class Percentage for Principal Receivables
for each class in that series; multiplied by
36
-the amount of Receivables attributable to the additional
Accounts.
The trust will treat that repurchase price as collections on the
Receivables in the additional Accounts and will allocate those
collections to each series in accordance with that series' Series
Supplement. The trust will deposit the amount of the repurchase
price allocated to each series into the Group Collections Account
for the group to which that series belongs.
REPURCHASE OF SPECIFIED RECEIVABLES
We refer to a Receivable as an "Eligible Receivable" if:
-that Receivable is payable in United States dollars;
-that Receivable was created in compliance, in all material
respects, with all legal requirements that apply to SRFG and
to Sears, the Bank or one of their affiliates, as
applicable;
-that Receivable was created under a contract governing the
relevant Account that complies with all legal requirements
that apply to SRFG and to Sears, the Bank or one of their
affiliates, as applicable;
-at the time that Receivable was conveyed to the trust, if
that Receivable was created before the related Account was
added to the trust, Sears, SRFG or the trust had good and
marketable title to that Receivable free and clear of all
liens (not including statutory or non-consensual liens);
-at the time that Receivable was created, if that Receivable
was created after the related Account was added to the
trust, Sears, SRFG or the trust had good and marketable
title to that Receivable free and clear of all liens (not
including statutory or non-consensual liens); and
-that Receivable is an "account," "general intangible" or
"chattel paper" as defined in Article 9 of the Uniform
Commercial Code in effect in the State of New York.
In the Pooling and Serving Agreement, SRFG represented and
warranted to the trust that, to its best knowledge:
-as of July 31, 1994, each Receivable existing on July 31,
1994, was an Eligible Receivable;
-as of the date the trust adds additional Accounts or
participation interests in pools of credit card receivables
to the trust, each Receivable in those additional Accounts
or participation interests is an Eligible Receivable; and
37
-as of the date any Receivable is created, if that
Receivable is created after the related Account is added to
the trust, that Receivable is an Eligible Receivable.
A "Receivables Repurchase Event" will occur if:
-one of SRFG's representations and warranties described
above is not true and correct, in any material respect, for
any Receivable (referred to as an "Ineligible Receivable");
-that breach of SRFG's representation and warranty has a
material adverse effect on the investors' interest in the
Receivables; and
-SRFG fails to cure that breach within 60 days (or any
longer period, not to exceed 150 days, to which the trustee
agrees) after SRFG receives written notice of the breach
from the trustee.
An officer of SRFG will determine, in that officer's sole
reasonable judgment and without considering any impact of credit
enhancement provided by a third party, whether SRFG's breach has
a material adverse effect on investors. However, if the
aggregate amount of Receivables that are not Eligible Receivables
as of the last day of the prior month exceeds 5% of the total
amount of Receivables as of that day, an officer of SRFG will be
deemed to have determined that the breach has a material adverse
effect.
When a Receivables Repurchase Event occurs, SRFG will
purchase all the Receivables in each Account containing any
Receivable that is not an Eligible Receivable. SRFG will
purchase those Receivables by directing the servicer to deduct
the face amount of each of those Receivables from the aggregate
amount of Principal Receivables in the trust. If the exclusion
of any of those Receivables from the calculation of the Seller
Interest would cause the Seller Interest to be less than zero, on
the following Distribution Date SRFG will deposit into the
Collections Account the amount of the deficiency in the Seller
Interest. The trust will treat that deposit as collections on
Principal Receivables for the applicable Due Period.
TERMINATION OF THE TRUST
The trust and the related obligations and responsibilities
of SRFG, Sears and the trustee will terminate on the earlier of:
-July 31, 2015; and
-the day after the Distribution Date on which the trust
deposits funds into the Series Distribution Accounts
sufficient to pay in full the invested amounts for all
outstanding series of certificates plus accrued and unpaid
interest on all outstanding series of certificates.
INDEMNIFICATION OF TRUST AND TRUSTEE
38
SRFG will indemnify the trust and the trustee from and
against any loss, liability, expense, damage or injury the trust
or the trustee suffers or sustains because of any acts, omissions
or alleged acts or omissions arising out of the activities of the
trust or trustee, except that SRFG will not indemnify:
-the trustee for liabilities it incurs because of its fraud,
negligence, breach of fiduciary duty or misconduct in
performing its duties under the Pooling and Servicing
Agreement;
-the trust or the investors in the certificates for
liabilities arising from actions that the trustee took at
the request of investors in the certificates; or
-the trust or the investors in the certificates with respect
to any federal, state or local income or franchise taxes (or
any related interest or penalties) that the trust or those
investors were required to pay.
39
THE CERTIFICATES
The trust will issue each series of certificates under the
terms of the Pooling and Servicing Agreement and the Series
Supplement for that series. We summarize in this section the
general terms of the certificates. The Pooling and Servicing
Agreement, together with the Series Supplement for a particular
series of certificates, will contain all of the terms of that
series of certificates. Because this section only summarizes the
terms of the certificates, you should review the Pooling and
Servicing Agreement and the Series Supplement for a series of
certificates before you decide to invest in that series. If you
write to the trustee at its principal corporate trust office, the
trustee will send to you, without charge, a copy of the Pooling
and Servicing Agreement (without exhibits) and the Series
Supplement for a particular series (without exhibits).
This prospectus is a part of a registration statement filed
with the Securities and Exchange Commission. The Pooling and
Servicing Agreement, a form of Series Supplement, and the Series
Supplement for each series of certificates have been or will be
filed as exhibits to or incorporated by reference into that
registration statement.
GENERAL
Each series of certificates will consist of one or more
classes of certificates. Each certificate will represent an
undivided interest in the trust, including the right to a
percentage of all collections on the Receivables in the trust.
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." In general, the Seller Interest is based on the size
of the interests of the trust's investors and the total amount of
the trust's Principal Receivables. For example, if the trust
contained $11 billion in Principal Receivables, interests in
other pools of receivables and other cash deposits, and the sum
of the investor interests for all series was $10 billion, the
Seller Interest would equal $1 billion. The trust will allocate
to SRFG, as holder of the Seller Certificate, a floating
percentage of all payments on the Receivables by credit account
customers, based on the size of the Seller Interest. The Seller
Interest will fluctuate in size depending upon:
-the rates at which the servicer collects and charges off
Receivables;
-the rate at which credit account customers generate new
Receivables;
-the amount of Receivables SRFG adds to or removes from the
trust;
-the amount of principal the trust pays to investors on any
Distribution Date; and
-the amount of certificates the trust issues and the timing
of those issuances.
If the Seller Interest becomes less than a required minimum
amount, SRFG will be required to designate additional Accounts or
participation interests in other pools of credit card
receivables, the Receivables of which or interests in which SRFG
will transfer to the trust. If SRFG cannot add Receivables in
additional Accounts or participation interests to the trust, a
40
Rapid Amortization Event will occur. SRFG selected the amount
of Receivables so that reasonably anticipated fluctuations in the
amount of Principal Receivables would not cause the Seller
Interest to decline to a level at which SRFG would be required to
add Receivables in additional Accounts or participation interests
to the trust. We cannot assure you, however, that the Seller
Interest will be sufficiently large to ensure that SRFG will not
be required to add Receivables or participation interests to the
trust, or to avoid a Rapid Amortization Period.
During the Revolving Period of each series, the investor
interest of each series will remain constant except in limited
circumstances. The total amount of Principal Receivables in the
trust, however, will vary each day as credit account customers
create new Principal Receivables and pay off others. Sears will
not calculate the amount of Principal Receivables 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 each series generally will
decline as the trust pays principal to or accumulates principal
for the investors in those series.
INTEREST PAYMENTS
Your certificate will accrue interest at the rate specified
in, or determined in the manner specified in, the prospectus
supplement for your series. The trust will use Finance Charge
Collections and certain other funds allocated to your series to
pay interest to you on the interest payment dates specified in
the prospectus supplement for your series unless that prospectus
supplement provides otherwise. The trust will determine how much
interest it owes you on each of those dates as described in the
prospectus supplement for your series.
PRINCIPAL PAYMENTS
The prospectus supplement for your series will specify a
period during which the trust will not distribute Principal
Collections to you. We refer to this period as the "Revolving
Period." Unless otherwise specified in the prospectus supplement
for your series, your series will have a "Controlled Accumulation
Period," a "Controlled Amortization Period," or both a Controlled
Accumulation Period and a Controlled Amortization Period. If
your series has a Controlled Accumulation Period but does not
have a Controlled Amortization Period, the trust will be
scheduled to pay your principal in full on one specified date.
If your series has a Controlled Amortization Period, the trust
will pay principal to you in installments beginning on the date
specified in the prospectus supplement for your series. If your
series has more than one class of certificates, each class may be
paid in a different manner and on different dates. If a Rapid
Amortization Event occurs for your series, the trust may begin to
pay principal to your series earlier than scheduled, and the
trust may make its final principal payment to you earlier or
later than scheduled.
CLASS PERCENTAGES AND SELLER PERCENTAGE
Each month Sears, as servicer, will allocate Finance Charge
Collections, Principal Collections and charge-offs among SRFG and
each class of each outstanding series. The Series
41
Supplement for each series will specify how to calculate a "Class
Percentage" for each of these amounts for each class in that
series. Thus, for each month, each class will have a Class
Percentage for Finance Charge Collections, a Class Percentage for
Principal Collections and a Class Percentage for charge-offs.
Sears will allocate a share of Finance Charge Collections,
Principal Collections and charge-offs to each class by
multiplying the amount of those collections or charge-offs by the
applicable Class Percentage. Similarly, Sears will allocate a
share of each of these items to SRFG by multiplying the amount of
those collections or charge-offs by the applicable Seller
Percentage. The "Seller Percentage" for collections or charge-
offs will equal 100% minus the sum of all the Class Percentages
for that type of collections or charge-offs.
For convenience, in this prospectus, we refer to the Class
Percentages for Finance Charge Collections, Principal Collections
and charge-offs for each class, and certain other percentages
relating to the outstanding series, as if those percentages will
not vary. The Class Percentages and other percentages, however,
may vary in each case as described in the "Glossary of Terms"
contained in the prospectus supplement for your series.
Under the Pooling and Servicing Agreement, the trust will
treat all collections during any calendar month, up to the amount
of Finance Charge Receivables billed at the beginning of the Due
Period ending in that month, as "Finance Charge Collections."
The trust will treat all remaining amounts collected on
Receivables during that calendar month as "Principal
Collections."
INVESTOR LOSSES
On each Distribution Date, if the trust cannot reimburse all
charge-offs allocated to a particular class, the trust will
reduce the investor interest for that class by the amount of
unreimbursed charge-offs. The investor interest may also be
increased or decreased for a particular class of a series in
accordance with the payment and allocation priorities set out in
the prospectus supplement for that series. We refer to the
amount of any reduction in the investor interest as an "Investor
Loss." To the extent you suffer an unreimbursed Investor Loss,
you will receive interest on a smaller invested amount and,
accordingly, less interest than you would otherwise receive, and
the aggregate amount of principal you ultimately receive will be
less than the face amount of your certificate.
REALLOCATIONS AND SUBORDINATION OF COLLECTIONS
Reallocations of Collections among Series. The trust may
reallocate collections originally available to one series in a
group to another series in the same group, if the Series
Supplements related to those series specify that the trust may do
so. The trust will not, however, reallocate collections
originally allocated to one series on any Distribution Date to
another series unless the trust has paid all amounts it owes to
the series to which it initially allocated those collections, or
unless that series is a subordinated series and the Series
Supplement for that series permits the reallocation. SRFG is not
obligated to issue additional series that reallocate collections
from one series to another.
42
Subordination of Class B Certificates. If a series of
certificates has two or more classes, the Class B certificates
will be subordinate to the Class A certificates, unless the
prospectus supplement for that series specifies otherwise. If
the trust does not allocate enough funds to the Class A
certificates in any month to make the scheduled Class A principal
or interest payment, the trust may use amounts originally
allocated to the Class B certificates to pay Class A principal
and interest, as specified in the cash flow provisions in the
prospectus supplement for that series. If the trust is not able
to reimburse holders of the Class B certificates for any
reallocations to the Class A certificates, the Class B investor
interest will be reduced.
Subordination of Class C Certificates. If a series of
certificates has three classes, the Class C certificates will be
subordinate to both the Class A certificates and the Class B
certificates, unless the prospectus supplement for that series
specifies otherwise. If the trust does not allocate enough funds
to the Class A certificates or the Class B certificates in any
month to make the scheduled Class A principal or interest payment
or the scheduled Class B principal or interest payment, the trust
may use amounts originally allocated to the Class C certificates
first to pay Class A principal and interest and second to pay
Class B principal and interest, in each case as specified in the
cash flow provisions in the prospectus supplement for that
series. If the trust is not able to reimburse holders of the
Class C certificates for any reallocations to the Class A
certificates or the Class B certificates, the Class C investor
interest will be reduced.
Subordinate Series. The trust may issue series of
certificates that are subordinate in right of payment, in whole
or in part, to one or more other series. A series will not be
subordinate to any other series unless the prospectus supplement
for that series states that it is a subordinate series and
describes the terms of the subordination. Unless the prospectus
supplement for a series states that no series may be subordinate
to that series, the trust may issue in the future another series
that is subordinate to that series. SRFG, however, is under no
obligation to direct the trust to issue a series that is
subordinate to another series.
AGGREGATE AND NET PAYMENTS
Rather than making several deposits to and withdrawals from
a specific account on a Distribution Date, or several payments to
a specific person on that Distribution Date, the servicer or SRFG
may make a single deposit, withdrawal or payment.
If the servicer aggregates its deposits and withdrawals to a
particular account, it will deposit an amount equal to:
-all payments it and SRFG are required to deposit in that
account; minus
-all amounts to be paid out of that account to Sears and
SRFG.
ADDITIONAL FUNDS
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The servicer may add funds to the trust as "Additional
Funds" if:
-the servicer notifies the trustee and the Rating Agencies
in writing that it intends to add Additional Funds to the
trust;
-the servicer specifies in its notice to the trustee and
Rating Agencies the method of calculating the amount of
funds to be added to the trust as of any Distribution Date
and the source of those funds; and
-the Rating Agencies confirm in writing that the proposed
addition of funds will not cause them to reduce or withdraw
their ratings on the certificates of any outstanding series.
The trust will allocate Additional Funds as directed in the
Series Supplement for each series.
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.
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 elect in the future to add
more cash to the trust as Additional Funds.
INVESTMENT OF FUNDS IN INVESTOR ACCOUNTS
Sears as servicer will direct the trustee to invest all
amounts in accounts established by trustee for the benefit of the
investors. These amounts will be invested in one of the
following types of highly-rated short-term investments, which we
refer to as "Permitted Investments":
-securities or negotiable instruments that represent:
-obligations issued or fully guaranteed by the United
States of America;
-time deposits in or banker's acceptances issued by
depository institutions or trust companies whose short-
term deposits or commercial paper have the Highest
Rating;
-commercial paper or other short-term obligations that
have the Highest Rating at the time of the trust's
investment; or
-investments in money market or common trust funds that
have the Highest Rating;
-demand deposits in any depository institution or trust
company whose short-term deposits or commercial paper have
the Highest Rating;
-certain repurchase agreements with either:
-an entity subject to the Bankruptcy Code; or
44
-a financial institution insured by the Federal Deposit
Insurance Corporation or any broker-dealer with "retail
customers" which is under the jurisdiction of the
Securities Investors Protection Corp.; and
-any other investment, including:
-shares of open-end mutual funds that invest only in
obligations issued or fully guaranteed by the United
States of America; and
-guaranteed investment contracts,
if that investment will not cause a Rating Agency to
reduce or withdraw its rating on any class of any
outstanding series.
"Highest Rating" means, 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 Rating Agency to reduce or withdraw its
rating on any class of any outstanding series. Although the
Permitted Investments are short-term, highly rated investments,
we cannot assure you that the trust will receive on time, or
recover in full, the principal amount of any Permitted
Investment. The funds the trustee invests in Permitted
Investments must be available for the trust to use on or before
the Distribution Date after the month in which the trust received
the funds, unless the Rating Agencies advise that they will not
reduce or withdraw their ratings on any class of any outstanding
series if those funds are not available at that time. The trust
will distribute income from the Permitted Investments to each
outstanding series according to the Series Supplement for that
series.
FINAL PAYMENT OF PRINCIPAL; TERMINATION OF SERIES
The trust will not make any payments of interest or
principal to a series after the date specified as the "Series
Termination Date" in the prospectus supplement for that series.
Each series will terminate on the earlier of:
-the Series Termination Date for that series; or
-the day after the Distribution Date on which the trust
makes the final payment of principal for that series.
The trust will make the final payment of principal of and
interest on a certificate only when the investor or DTC presents
and surrenders the certificate at the office or agency specified
in the notice from the trustee regarding the final distribution.
The trustee will notify investors no later than the tenth day of
the month in which the trust will make the final distribution on
their certificates.
If the investor interest for a series is greater than zero
after the Distribution Date in the month before its Series
Termination Date, after giving effect to all transfers,
withdrawals and deposits to occur on that Distribution Date, the
trust will sell Receivables or interests in the Receivables for
an amount equal to the remaining investor interest for that
series plus interest on the certificates for that series that
will be accrued but unpaid on the next Distribution Date.
45
However, the trust may not sell more than that 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 investor interest for the series on the Distribution
Date in the month before its Series Termination Date;
divided by
-the aggregate investor interest for all series on the
Distribution Date in the month before the Series Termination
Date for that series.
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 distribution account
for the applicable series. The trust will use those proceeds to
pay the remaining principal and interest to investors in that
series, to the extent funds are available. This will be the
trust's final payment to investors in that series.
If the prospectus supplement for a series permits, under
certain circumstances SRFG may terminate the series by
repurchasing and canceling the certificates of that series.
Generally, SRFG may purchase the remaining investor interest for
a series, subject to any conditions or limitations described in
the prospectus supplement for that series, if:
-the investor interest for that series; minus
-the investor interest for any class of that series that
SRFG owns; minus
-the pro rata share for each class in that series, except
any class that SRFG owns, of funds on deposit in the Excess
Funding Account (General) and the Excess Funding Account
(SRC)
is less than or equal to the amount set forth in the prospectus
supplement. This remaining investor interest will be determined
after the trust makes payments on any Distribution Date during
the Controlled Amortization Period, the Controlled Accumulation
Period or the Rapid Amortization Period for that series. The
amount set forth in the prospectus supplement for each series
will represent a specified percentage of the initial investor
interest of that series. If SRFG elects to purchase the
remaining investor interest for that series, it will deposit into
that series' distribution account on the next Distribution Date
an amount equal to:
-the investor interest for that series at the end of the
prior calendar month; plus
-all accrued but unpaid interest as of that Distribution
Date.
SRFG may not repurchase and cancel any class of certificates that
it owns until it repurchases and cancels all classes of
certificates in that series that are senior to SRFG's
certificates. The investors in a series will have no further
rights in connection with their certificates after SRFG
repurchases and cancels the certificates and deposits the
purchase price into the appropriate account. If SRFG for any
reason fails to deposit the purchase price for the repurchased
certificates, the trust will continue to make payments on those
certificates.
46
DESCRIPTION OF CREDIT ENHANCEMENT
SRFG may provide credit enhancement to a series or class of
certificates in the following ways:
-by including subordination provisions that require the
trust to pay principal or interest to investors in a certain
series or class of certificates before the trust pays
principal or interest to investors in other series or
classes;
-by creating and funding reserve accounts; or
-by arranging for an outside party to provide credit
enhancement in the form of a cash collateral account, a
letter of credit, a surety bond, an insurance policy or any
other form described in the prospectus supplement for a
series.
The prospectus supplement for your series will describe any
credit enhancement SRFG will provide to your series. The
description will include information about:
-the amount payable under the credit enhancement;
-any conditions to that payment;
-the circumstance under which the credit enhancement is
available;
-the class or classes of your series that will benefit
directly from the credit enhancement; and
-the conditions under which the amount payable under the
credit enhancement may be terminated, reduced or replaced.
ESTABLISHING AND ISSUING NEW SERIES
SRFG may direct the trustee to issue from time to time new
series of certificates. SRFG, the servicer, the trustee and the
trust will not obtain the consent of, or allow prior review by,
any investors in any outstanding series before the trustee issues
a new series. The trustee may issue a new series only if:
-at least two business days before the trustee will issue
the new series, SRFG notifies the trustee in writing of the
following:
-the name of the new series;
-the dates on which the trust will be scheduled to pay
principal and interest on the new series;
-the date from which interest on the new series will
accrue;
-the initial investor interest of investors in the new
series;
-the interest rates, or method of calculating the
interest rates, for each class of certificates in the
new series;
-the Series Termination Date for the new series; and
-any other material terms of the new series;
47
-SRFG delivers to the trustee a Series Supplement, executed
by SRFG, the servicer and the trustee, setting forth the
terms of the new series either expressly or by reference to
other documentation previously delivered to the trustee;
-the Rating Agencies confirm in writing that issuance of the
new series will not cause them to reduce or withdraw their
ratings on the certificates of any outstanding series;
-SRFG delivers to the trustee and the Rating Agencies an
opinion of tax counsel that issuance of the new series will
not affect the treatment of certain certificates as debt and
the treatment of the trust not as an entity subject to tax;
-SRFG delivers to the trustee an officer's certificate
confirming that the Pooling and Servicing Agreement will not
require SRFG to add additional Accounts to the trust as a
result of the trustee issuing the new series; and
-SRFG satisfies any additional conditions for issuing a new
series that are set forth in any Series Supplement.
If these conditions are satisfied, the trustee will issue
certificates for the new series for SRFG to execute. SRFG will
execute the new certificates and redeliver them to the trustee
for the trustee to authenticate.
SRFG may offer to sell the certificates of any new series
under a prospectus or other disclosure document in transactions
either registered with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or exempt from
registration under that act. Except as otherwise provided in the
Series Supplement for a new series, the Seller Interest will
decrease by the amount of the initial investor interest of the
investors in the new series. SRFG intends to offer to sell
certificates from new series from time to time. SRFG, however,
is not required to issue any new series.
REALLOCATION OF SERIES AMONG GROUPS
SRFG may elect, at any time, by written notice to the
trustee and to Sears, to move any series from one group to
another group if:
-both groups have the same Distribution Date;
-the servicer certifies to the trustee that the servicer
reasonably believes that moving the series will not:
-delay the payment of principal for any outstanding
series; or
-cause a Rapid Amortization Event for any outstanding
series; and
48
-the Rating Agencies advise SRFG, the trustee and Sears that
moving the series will not cause them to reduce or withdraw
their ratings on the certificates of any outstanding series.
SRFG may move a series to a new group even if that series will be
the only series in the new group.
MEETINGS
Unless otherwise specified in the prospectus supplement for
a series, the Pooling and Servicing Agreement and any Series
Supplement will not provide for any annual or other meetings of
investors.
49
BOOK-ENTRY REGISTRATION
The information in this section concerning The Depository
Trust Company, Cedelbank, and Euroclear and their book-entry
systems and procedures will apply to each series of certificates
unless otherwise specified in the prospectus supplement for a
series. SRFG and the trust have obtained this information from
sources they believe to be reliable, but SRFG and the trust take
no responsibility for the accuracy of the information in this
section.
You may hold your certificates in the United States through
DTC or in Europe through Cedelbank or Euroclear. The
certificates will be registered in the name of the nominee of
DTC. Cedelbank and Euroclear will hold omnibus positions on
behalf of their respective participants, organizations or
customers, through customers' securities accounts in Cedelbank's
or Euroclear's name on the books of their respective
depositaries. These depositaries will in turn hold those
positions in customers' securities accounts in the depositaries'
names on the books of DTC. DTC has informed SRFG that DTC's
nominee will be Cede & Co. Accordingly, SRFG expects Cede & Co.
to be the holder of record of the certificates whether you hold
your certificates through DTC, Cedelbank or Euroclear. You may
purchase the certificates in book-entry form in minimum
denominations of $1,000 and integral multiples of $1,000. Unless
and until the trust issues definitive certificates as described
below in "-Definitive Certificates":
-you will not be entitled to receive a physical certificate
representing your interest in the trust;
-all references in this prospectus to actions by investors
in the certificates will refer to actions taken by DTC upon
instructions from its participating organizations; and
-all references in this prospectus to distributions and
notices to investors in the certificates will refer to
distributions and notices to DTC or Cede & Co., as the
registered holder of the certificates, for distribution to
you in accordance with DTC procedures.
The Depository Trust Company. DTC is:
-a limited-purpose trust company organized under the New
York Banking Law;
-a "banking organization" under the New York Banking Law;
-a member of the Federal Reserve System;
-a "clearing corporation" under the New York Uniform
Commercial Code; and
-a "clearing agency" registered under the provisions of
Section 17A of the Securities Exchange Act of 1934.
50
DTC holds securities that its Direct Participants deposit
with DTC. DTC also facilitates the settlement among Direct
Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized
book-entry changes in Direct Participants' accounts, thereby
eliminating the need for physical movement of securities
certificates. "Direct Participants" of DTC include securities
brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. "Indirect
Participants," such as securities brokers and dealers, banks and
trust companies, can also access the DTC system if they maintain
a custodial relationship with a Direct Participant. If you are
not a Direct Participant or an Indirect Participant and you wish
to purchase, sell or otherwise transfer ownership of, or other
interests in, certificates, you must do so through a Direct
Participant or an Indirect Participant. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. The Securities and
Exchange Commission has on file a set of the rules applicable to
DTC and its Direct Participants.
Cedelbank. Cedelbank was incorporated as a limited company
under Luxembourg law. Cedel International, societe anonyme, owns
Cedelbank. Cedel International's shareholders are banks,
securities dealers and financial institutions. Cedel
International currently has approximately 100 shareholders,
including U.S. financial institutions or their subsidiaries. No
single entity may own more than twenty percent of Cedel
International's stock.
Cedelbank holds securities for its customers and facilitates
the clearance and settlement of securities transactions between
Cedelbank customers through electronic book-entry changes in
accounts of Cedelbank customers, thus eliminating the need for
physical movement of certificates. Cedelbank provides to its
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 over 30 countries.
Cedelbank has established an electronic bridge with Morgan
Guaranty Trust Company of New York, the operator of the Euroclear
System, to facilitate settlement of trades between Cedelbank and
Euroclear. Cedelbank currently accepts over 110,000 securities
issues on its books.
As a registered bank 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 and
clearing corporations. Currently, Cedelbank has approximately
2,000 customers located in over 80 countries, including all major
European countries, Canada and the United States. In the United
States, Cedelbank customers are limited to securities brokers and
dealers. Cedelbank customers may include the underwriters of
your series of certificates. Other institutions that maintain a
custodial relationship with a Cedelbank customer may obtain
indirect access to Cedelbank. Cedelbank is an Indirect
Participant in DTC.
The Euroclear System. The Euroclear System was created in
1968 to hold securities for participants of the Euroclear System
and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery
against payment, thus eliminating the need for physical movement
of certificates and risk from lack of simultaneous
51
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 below.
The Euroclear System is operated by Morgan Guaranty Trust Company
of New York through its Brussels, Belgium office (the "Euroclear
Operator"), under contract with Euroclear Clearance System, S.C.,
a Belgian cooperative corporation (the "Cooperative"). The
Euroclear Operator conducts all operations, and all Euroclear
securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf
of Euroclear participants. Euroclear participants include banks
(including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the
underwriters of your series of certificates. Indirect access to
the Euroclear System is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly. Euroclear is an
Indirect Participant in DTC.
The Euroclear Operator is the Belgian branch of a New York
banking corporation which is a member bank of the Federal Reserve
System. The Board of Governors of the Federal Reserve System, the
New York State Banking Department and the Belgian Banking
Commission regulate and examine the Euroclear Operator.
The Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and
applicable Belgian law, which we refer to as the "Terms and
Conditions," govern securities clearance accounts and cash
accounts with the Euroclear Operator. Specifically, 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
securities through Euroclear participants.
Book-Entry Format. Under the book-entry format, the trustee
will pay interest or principal to Cede & Co., as nominee of DTC.
DTC will forward the payment to the Direct Participants, who will
then forward the payment to the Indirect Participants (including
Cedelbank or Euroclear) or to you as the beneficial owner. You
may experience some delay in receiving your payments under this
system.
DTC is required to make book-entry transfers on behalf of
its Direct Participants and is required to receive and transmit
payments of principal, premium, if any, and interest on the
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certificates. Any Direct Participant or Indirect Participant
with which you have an account is similarly required to make book-
entry transfers and to receive and transmit payments with respect
to the certificates on your behalf.
The trustee will not recognize you as an "Investor
Certificateholder" under the Pooling and Servicing Agreement or
any applicable Series Supplement, and you can only exercise the
rights of an Investor Certificateholder indirectly through DTC
and its Direct Participants. DTC has advised the trust that it
will only take action regarding a certificate if one or more of
the Direct Participants to whom the certificate is credited
direct DTC to take such action. DTC can only act on behalf of
its Direct Participants. Your ability to pledge certificates to
non-Direct Participants, and to take other actions, may be
limited because you will not possess a physical certificate that
represents your certificates. Cedelbank or Euroclear will credit
payments 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. These
payments 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 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 those actions on its behalf
through DTC.
DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of certificates among
participants or customers of DTC, Cedelbank and Euroclear.
However, they are under no obligation to perform or continue to
perform those procedures, and they may discontinue those
procedures at any time.
Transfers within and among Book-Entry Systems. Transfers
between DTC's Direct 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.
DTC will effect 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, in accordance with DTC rules on
behalf of the relevant European international clearing system by
its Depositary. However, cross-market transactions will require
delivery of instructions to the relevant European international
clearing system by the counterparty in that 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, instruct its Depositary 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 resulting from a transaction with a DTC
Direct Participant will be made during the subsequent
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securities settlement processing, dated the business day
following the DTC settlement date. Those credits or any
transactions in those securities settled during that processing
will be reported to the relevant Cedelbank customer or Euroclear
participant on that 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 Direct
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.
Same-Day Settlement and Payment. Underwriters will settle
the certificates in immediately available funds. The trust will
make principal and interest payments on the certificates in
immediately available funds or the equivalent. Secondary market
trading between DTC Direct Participants will occur in accordance
with DTC rules and will be settled in immediately available funds
using DTC's Same-Day Funds Settlement System. Secondary market
trading between Cedelbank customers and Euroclear participants
will occur in accordance with the applicable rules and operating
procedures of Cedelbank and Euroclear and will be settled using
the procedures applicable to conventional eurobonds in
immediately available funds.
DEFINITIVE CERTIFICATES
The trust will issue definitive certificates in fully
certificated registered form to you or your nominees, rather than
to DTC or its nominees only if:
-SRFG advises the trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities
as depositary for the certificates;
-SRFG elects to terminate the book-entry system through DTC;
or
-after a Servicer Termination Event occurs for any series,
investors representing 51% of the invested amount of that
series advise DTC in writing through DTC participants that
the continuation of a book-entry system through DTC (or its
successor) is no longer in the best interest of the
investors.
If any of these events occur, the trustee must notify all
investors that definitive certificates in fully certificated
registered form are available through DTC. DTC will then
surrender the global certificate representing the certificates
along with instructions for re-registration. The trustee will
reissue the certificates in fully certificated registered form
and the trustee will recognize the registered holders of those
definitive certificates as "Investor Certificateholders" under
the Pooling and Servicing Agreement.
The trustee will pay principal and interest on the
certificates directly to the holders of definitive certificates
in accordance with the procedures set forth in this prospectus
and the Pooling and Servicing Agreement. The trustee will pay
principal and interest on each Distribution Date to each person
in whose name a definitive certificate was registered at the
close of business on the last day of the prior month by mailing a
check to the address for that person that appears on the
trustee's register. The trustee will make the final payment on a
certificate
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(whether a definitive certificate or a certificate registered in
the name of Cede & Co.) only when that certificate is presented
and surrendered at the office or agency specified in the
trustee's notice of the final distribution. The trustee must
provide the notice of final distribution to each registered
holder no later than the tenth day of the month in which the
trustee will make the payment.
Holders of definitive certificates may transfer and exchange
them at the trustee's offices, or at any other office that SRFG
designates. The trustee, or any other transfer agent, will not
impose a service charge for registering any transfer or exchange,
but may require payment to cover any tax or other governmental
charge imposed in connection with the registration of the
transfer or exchange.
LIST OF CERTIFICATEHOLDERS
If the trust issues definitive certificates for a series,
and three or more registered holders of certificates whose
invested amounts represent at least 5% of the invested amount for
that series so request in writing, the trustee must provide those
holders access during business hours to the current list of
holders so that they may communicate with other holders about
their rights under the Pooling and Servicing Agreement. The
requesting holders, however, must indemnify the trustee for all
costs and expenses related to their request.
EXCHANGE OF CERTIFICATES FOR SELLER INTEREST
On any Distribution Date, after the trust has made all
required payments and allocations, SRFG may cancel any
certificates that SRFG owns by notifying the trustee as to which
of SRFG's certificates it wishes to cancel. SRFG, however, may
not cancel any of its certificates that are subordinate to
another class of certificates unless the Rating Agencies have
notified SRFG that the cancellation of those certificates will
not cause them to reduce or withdraw their ratings on any class
of certificates in any outstanding series. When SRFG cancels
certificates in a series:
-the investor interest for that series will decrease;
-the aggregate interest in the assets of the trust
represented by certificates will decrease (because the
principal amount of outstanding certificates decreased); and
-the Seller Interest will increase (because the interest in
the trust not represented by certificates increased).
When SRFG cancels its certificates, it exchanges those
certificates for a larger Seller Interest. Your interest in the
trust's assets represented by your certificate will not decrease
when SRFG cancels any of its certificates.
SALE OF SELLER INTEREST
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The trust has issued the Seller Certificate to SRFG. SRFG
may not transfer, assign, sell or pledge or grant a security
interest in any portion of the Seller Interest represented by the
Seller Certificate, except that SRFG may transfer a portion of
the Seller Interest if:
-the terms of the transfer are substantially similar to the
Pooling and Servicing Agreement;
-the agreements and other documentation relating to the
transfer:
-are consistent with, and subject to, the terms of the
Pooling and Servicing Agreement and the Series
Supplements;
-do not require the servicer, SRFG or the trustee to
perform any action that is prohibited by the Pooling
and Servicing Agreement or any Series Supplement; and
-do not prohibit the servicer, SRFG or the trustee from
performing any action that is required by the Pooling
and Servicing Agreement or any Series Supplement or
that is necessary to protect the interests of the
investors in the certificates; and
-the Rating Agencies advise SRFG that the transfer would not
cause them to reduce or withdraw their ratings on any class
of certificates of any outstanding series. (This advice from
the Rating Agencies is not required if SRFG is transferring
the Seller Interest to comply with regulatory requirements.)
AMENDMENTS
Sears, SRFG and the trustee may amend the Pooling and
Servicing Agreement or any Series Supplement, without the consent
of any investor in the certificates, for the following purposes:
-to add to the covenants and agreements of the Pooling and
Servicing Agreement or any Series Supplement for the benefit
of investors in the certificates;
-to surrender any right or power granted to Sears or SRFG in
the Pooling and Servicing Agreement or any Series
Supplement;
-to add provisions to or change or remove any provision of
the Pooling and Servicing Agreement or any Series
Supplement, if the addition, change or removal will not
adversely affect in any material respect the investors in
any class of any outstanding series;
-to cure any ambiguity or to correct or supplement any
inconsistent provision of the Pooling and Servicing
Agreement or any Series Supplement;
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-to change the procedures for issuing a single temporary or
permanent global certificate representing the certificates
of any series or class; or
-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
those agreements, if those provisions will not adversely
affect in any material respect the investors in any class of
any outstanding series.
Sears, SRFG and the trustee may also amend the Pooling and
Servicing Agreement or any Series Supplement, without the consent
of any investor in the certificates, for the following purposes,
but only if the Rating Agencies confirm in writing that the
amendment will not cause them to reduce or withdraw their ratings
on any class of certificates of any outstanding series:
-to accommodate the addition to the trust of participation
interests in other pools of credit card receivables;
-to change the credit enhancement for any class or series of
certificates;
-to accommodate the issuance of additional certificates in
an outstanding series; and
-to accommodate the issuance of variable funding
certificates.
In addition, Sears, SRFG and the trustee may amend the
Pooling and Servicing Agreement or any Series Supplement if:
-investors holding certificates that represent 66-2/3% of
the invested amount of any class that is adversely affected
by the proposed amendment consent to the proposed amendment;
and
-the Rating Agencies confirm in writing that the amendment
will not cause them to reduce or withdraw their ratings on
any class of certificates of any outstanding series.
That proposed amendment, however, may not:
-increase or reduce the amount, or delay or accelerate the
timing, of distributions the trust is required to make for
any class of certificates unless all investors in that class
of certificates consent to the change; or
-reduce the percentage of the invested amount of any class
required to consent to the proposed amendment unless all
investors in each affected class consent to the reduction.
Promptly after Sears, SRFG and the trustee execute any amendment
that required the consent of investors, the trustee will provide
written notice of the substance of the amendment to each holder
of an interest in a certificate.
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SERVICER DUTIES, COMPENSATION AND OTHER MATTERS
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The trust will pay a monthly servicing fee to Sears on
behalf of each series as compensation for Sears servicing
activities and reimbursement for its expenses. The Series
Supplement for each series will specify the amount of the monthly
servicing fee. Under certain circumstances, to the extent
permitted in the Series Supplement for a series, Sears may be
entitled to additional servicing compensation from that series.
The trust generally will use collections of Finance Charge
Receivables allocated to a series to pay the monthly servicing
fee for that series, although the trust may use Additional Funds
to pay a portion of the monthly servicing fee if the Series
Supplement for that series permits.
The servicer will use its servicing compensation to pay
certain expenses it incurs in connection with servicing the
Receivables, including:
-the fees of and other payments to the trustee and
independent public accountants; and
-other fees that the Pooling and Servicing Agreement or the
related Series Supplement do not require the trust or the
investors to pay.
The servicer is not required to use its servicing compensation to
pay the trust's federal, state and local income and franchise
taxes, if any.
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, unless it
determines that those duties are no longer permissible under
applicable law. If Sears does resign under those circumstances,
its resignation will not be effective until the trustee or a
successor to Sears has assumed the responsibilities and
obligations of the servicer under the Pooling and Servicing
Agreement.
Although the servicer may delegate any of its duties under
the Pooling and Servicing Agreement or any Series Supplement, the
delegation of any duties will not relieve the servicer of its
liabilities and responsibilities with respect to those duties.
The servicer's delegation of duties will not constitute a
resignation of the servicer.
Any individual, partnership, corporation, joint stock
company, business trust or other similar association:
-into which Sears merges or consolidates in accordance with
the Pooling and Servicing Agreement;
-resulting from any merger or consolidation to which Sears
is a party; or
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-succeeding to the business of Sears
will be the successor to Sears as servicer upon the execution of
a supplement to the Pooling and Servicing Agreement.
SERVICER TERMINATION EVENTS
A "Servicer Termination Event" will occur if:
-the servicer fails to make any payment, transfer or deposit
on or before the date required under the Pooling and
Servicing Agreement or the applicable Series Supplement and
fails to make that payment, transfer or deposit within five
business days after that date;
-the servicer fails to observe or perform duly any other
covenant or material agreement of the servicer in the
Pooling and Servicing Agreement or any Series Supplement and
the servicer does not remedy the problem within 60 days
after notice is given to:
-the servicer, by the trustee; or
-the servicer and the trustee, by investors holding at
least 25% of the invested amount of any class of
certificates materially affected by the servicer's
failure to observe the covenant or material agreement;
-any representation, warranty or certification made by the
servicer in the Pooling and Servicing Agreement or any
Series Supplement proves to have been incorrect when made,
which has a material adverse effect on the investors in any
class of any series, and which continues to be materially
incorrect for 60 days after notice is given to:
-the servicer, by the trustee; or
-the servicer and the trustee, by investors holding at
least 25% of the invested amount of any class of
certificates materially adversely affected by the
incorrect representation, warranty or certification;
-certain events of bankruptcy, insolvency or receivership of
the servicer occur; or
-any other event that a Series Supplement specifies is a
Servicer Termination Event occurs.
If a Servicer Termination Event occurs, either the trustee or
investors holding at least 51% of the aggregate invested amount
of certificates may terminate all of the rights and obligations
of the servicer under the Pooling and Servicing Agreement after
notice is given to:
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-the servicer, by the trustee; or
-the servicer and the trustee, by the investors.
The trustee will as promptly as possible appoint a successor
servicer. If the trustee has not appointed a successor servicer,
or the successor servicer has not accepted its appointment, by
the time Sears ceases to act as servicer, all authority, power
and obligations of the servicer under the Pooling and Servicing
Agreement will pass to and be vested in the trustee.
If the Servicer Termination Event consists of the filing of
a bankruptcy petition by or against the servicer, and the
servicer is subject to the Bankruptcy Code, the bankruptcy court
may prevent the trustee or investors from terminating the
servicer's rights and obligations and appointing a successor
servicer. Similarly, if the Servicer Termination Event consists
of the appointment of a conservator or receivership of the
servicer or the insolvency of the servicer, and the servicer is
an FDIC insured depository institution, the FDIC may have the
power to prevent the trustee or investors from terminating the
servicer's rights and obligations and appointing a successor
servicer.
REPORTS TO CERTIFICATEHOLDERS
For each Distribution Date, the trustee will execute a
statement based on information provided by Sears as servicer
setting forth:
-the total amount the trust paid to investors;
-the amount of principal the trust paid to, or accumulated
for, investors on that Distribution Date;
-the amount of interest the trust paid to investors on that
Distribution Date;
-the total amount of collections of Principal Receivables
Sears processed during the prior month and the amount the
trust allocated to the certificates and to the Seller
Certificate;
-the total amount of collections of Finance Charge
Receivables that Sears processed during the prior month and
the amount the trust allocated to the certificates and to
the Seller Certificate;
-the aggregate amount of Principal Receivables and the
amount of the investor interest for each series of
certificates on that Distribution Date after the trust made
all required payments on that Distribution Date;
-the charge-offs for that Distribution Date and the
cumulative amount of charge-offs;
-the amount of Investor Losses for that Distribution Date,
the aggregate amount of Investor Losses and the amount of
Investor Losses that the trust reimbursed;
-the amount of the investor servicing fee for the related
Due Period; and
-any other customary information that the trustee, Sears or
SRFG deems necessary.
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Investors may request copies of these reports, free of charge, by
calling ____________. In addition, on or before January 31 of
each calendar year, the paying agent for the trust, currently the
corporate trust office of the trustee, will prepare a statement
from information provided by Sears setting forth:
-the total amount the trust paid to investors during the
prior calendar year;
-the amount of principal the trust paid to, or accumulated
for, investors on each Distribution Date during the prior
calendar year;
-the amount of interest the trust paid to investors on each
Distribution Date during the prior calendar year; and
-any other customary information that the trustee, Sears or
SRFG deems necessary or desirable for the investors to
prepare their tax returns.
EVIDENCE AS TO COMPLIANCE
On or about April 15 of each calendar year, Sears as
servicer will cause a firm of nationally recognized independent
public accountants to furnish a report to the trustee covering
the prior annual period stating that:
-that the accountants have performed certain agreed-upon
procedures on certain documents and records relating to the
servicing of the Accounts;
-that the accountants compared the information contained in
the monthly certificates the servicer delivered during the
period covered by the report with those documents and
records; and
-on the basis of those procedures, the extent to which
matters, if any, came to the attention of the accountants
that caused them to believe that the servicer's servicing of
the Accounts did not comply with the Pooling and Servicing
Agreement or any Series Supplement.
In addition, each report will set forth the procedures the
accountants performed to compare the mathematical calculations of
the amounts contained in the servicer's monthly certificates with
the servicer's computer reports, and the conclusions reached. If
the accountants conclude that the servicer did not comply with
the Pooling and Servicing Agreement or any Series Supplement, or
if the amounts in the reports are not in agreement, the
accountants will set out their exceptions in the report unless
they believe them to be immaterial. The procedures to be
followed by the accountants will not constitute an audit
conducted in accordance with generally accepted auditing
standards.
Sears as servicer is required to deliver to the trustee, on
or about April 15 of each calendar year, an annual statement
signed by an officer of Sears stating that:
-the officer, in the course of that officer's duties as an
officer of Sears, would normally obtain knowledge of any
Servicer Termination Event;
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-whether or not that officer has obtained knowledge of any
Servicer Termination Event; and
-if the officer has knowledge of a Servicer Termination
Event, the nature of the Servicer Termination Event.
USE OF PROCEEDS
SRFG conveyed the Receivables to the trust on July 31, 1994,
at the same time that it sold the Series 1994-1 certificates and
received the net proceeds from the sale of those certificates.
SRFG paid those proceeds to Sears in consideration for Sears sale
of a part of the Receivables to SRFG. SRFG has used and will use
proceeds from the sale of certificates:
-to purchase additional Receivables from Sears;
-to loan or return funds to Sears; or
-for general corporate purposes.
Unless the prospectus supplement for a series specifies
otherwise, Sears will add proceeds it receives from SRFG to its
general funds and initially use the proceeds to reduce its short-
term borrowings.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This summary of the material federal income tax consequences
to investors in certificates of any series is based on the
opinion of Latham & Watkins, special tax counsel to Sears and
SRFG. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations and judicial
and administrative rulings and decisions as of the date of this
prospectus. We cannot assure you that the Internal Revenue
Service (the "IRS") will agree with the conclusions in this
summary, and we have not sought and will not seek a ruling from
the IRS on the expected federal tax consequences described in
this summary. Subsequent legislative, judicial or administrative
changes-which may or may not be applied retroactively-could
change these tax consequences.
Although we provide certain limited discussions of
particular topics, in general we have not considered your
particular tax consequences in this summary if you are subject to
special treatment under the federal income tax laws, such as:
-a life insurance company;
-a tax-exempt organization;
-a financial institution;
-a broker-dealer;
-an investor that has a functional currency other than the
United States dollar; or
-an investor that holds certificates as part of a hedge,
straddle or conversion transaction.
We also do not deal with all aspects of federal income taxation
that may affect you in light of your individual circumstances.
WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISORS ABOUT THE
FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENSES TO
YOU OF PURCHASING, OWNING AND DISPOSING OF CERTIFICATES.
This summary assumes that your certificate:
-is issued in registered form;
63
-has all payments denominated in United States dollars and
not determined by reference to the value of any other
currency;
-has a term that exceeds one year;
-has an interest formula that meets the requirements for
"qualified stated interest" under Treasury Regulations
relating to original issue discount ("OID") unless Section
1272(a)(6) of the Code applies to the certificate; and
-does not have any OID arising from any excess of its
"stated redemption price at maturity" (generally, the
principal amount of the certificate) over its issue price,
or has only a de minimis amount of OID (i.e., less than 1/4%
of the certificate's principal amount multiplied by the
number of years, computed on a weighted-average basis taking
into account when each principal payment is due, until the
certificate's maturity date).
If these conditions are not satisfied, we will describe
additional tax considerations in the prospectus supplement for
your series. This summary assumes that you hold your certificate
as a capital asset (generally, property held for investment)
within the meaning of Section 1221 of the Code. This summary
does not apply to any certificates of a series that are retained
by SRFG.
TAX TREATMENT OF THE CERTIFICATES AS DEBT
Sears and SRFG will treat the certificates of each series as
debt for federal, state and local income and franchise tax
purposes. By accepting a certificate, you also will commit to
treat your certificates as debt for federal, state and local
income and franchise tax purposes. However, the Pooling and
Servicing Agreement and each Series Supplement generally refer to
the transfer of Receivables as a "sale," and SRFG has informed
its tax counsel that:
-SRFG's accountants use different criteria to determine the
nontax accounting treatment of the transaction; and
-for regulatory and financial accounting purposes, SRFG will
treat the transfer of the Receivables under the Pooling and
Servicing Agreement and each Series Supplement as a transfer
of an ownership interest in the Receivables and not as the
creation of a debt obligation.
In general, whether for federal income tax purposes a
transaction constitutes a purchase or a loan secured by the
transferred property is a question of fact. This question is
generally resolved based on the economic substance of the
transaction, rather than its form. In the case of the
certificates of a series, the issue is whether the investors have
loaned money or have purchased Receivables (through ownership of
the certificates). In some cases, courts have held that a
taxpayer is bound by the form of the transaction even if the
substance does not comport with its form. Although the matter is
not free from doubt, Sears and SRFG's tax counsel believes that
the rationale of those cases will not apply to this transaction,
based, in part, upon:
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-Sears and SRFG's expressed intent to treat the certificates
of each series for federal, state and local income and
franchise tax purposes as debt secured by the Receivables
and other assets held in the trust, and
-each investor's commitment, by accepting a certificate of a
series, similarly to treat the certificate for federal,
state and local income and franchise tax purposes as debt.
Although the IRS and the courts have established several
factors to be considered in determining whether, for federal
income tax purposes, a transaction in substance constitutes a
sale or a loan secured by the transferred property (including the
form of the transaction), it is the opinion of tax counsel to
Sears and SRFG that the primary factor in this case is whether
the investors (through ownership of the certificates) have
assumed the benefits and burdens of ownership of the Receivables.
Unless the prospectus supplement for a series specifies
otherwise, tax counsel to Sears and SRFG has concluded for
federal income tax purposes that, although the matter is not free
from doubt, the benefits and burdens of ownership of the
Receivables have not been transferred to the investors (through
ownership of the certificates).
Unless the prospectus supplement for a series specifies
otherwise, for the reasons described above, tax counsel to Sears
and SRFG will advise Sears and SRFG that, in their opinion, under
applicable law, the certificates of a series will be treated as
debt for federal income tax purposes and the IRS will continue to
not treat the trust as an entity subject to federal income tax,
although the matter is not free from doubt as the IRS or the
courts may not agree. See "-Possible Characterization of the
Certificates" for a discussion of your federal income tax
consequences if your certificates are not treated as debt for
federal income tax purposes. Except for that discussion, the
following discussion assumes that your certificates will be
treated as debt for federal income tax purposes.
UNITED STATES INVESTORS
The rules set forth below apply to you only if you are a
"United States Holder." A "United States Holder" is a "United
States Person" who is a beneficial owner of a certificate. A
"United States Person" generally is:
-a citizen or resident of the United States;
-a corporation or partnership, including an entity treated
as a corporation or partnership for federal income tax
purposes, created or organized in the United States or under
the laws of the United States or of any state;
-an estate the income of which is subject to United States
federal income taxation regardless of the source of that
income; or
-a trust if a court within the United States is able to
exercise primary supervision over the trust's
administration, and one or more United States Persons have
the authority to control all substantial decisions of the
trust. Notwithstanding the preceding clause, to
65
the extent provided in Treasury Regulations, certain trusts
in existence on August 20, 1996 and treated as United States
Persons under the Code and Treasury Regulations prior to
such date, that elect to continue to be treated as United
States Persons, will also be considered United States
Persons.
Interest on Certificates. Subject to the discussion below:
-If you use the cash method of accounting for tax purposes,
you generally will be taxed on the interest on your
certificate at the time it is paid to you.
-If you use the accrual method of accounting for tax
purposes, you generally will be taxed on the interest on
your certificate at the time it accrues.
-The interest on your certificate will be treated as
ordinary income and will generally constitute "investment
income" for purposes of certain limitations of the Code
concerning the deductibility of investment interest expense.
Original Issue Discount. The certificates of a series will
be issued with OID to the extent that a certificate's "stated
redemption price at maturity" (generally, the certificate's
principal amount) exceeds its "issue price." The "issue price"
of a certificate will be the first price at which a substantial
amount of the certificates are sold for money, excluding sales to
bond houses or brokers acting in the capacity of underwriters,
placement agents or wholesalers.
If you purchase a certificate upon its original issue for
the issue price, and the amount of OID is less than 1/4% of your
certificate's principal amount multiplied by the number of years,
computed on a weighted-average basis taking into account when
each principal payment is due, until the certificate's maturity
date, then the amount of OID ("the de minimis OID") will be
includible in your gross income as principal payments are made on
your certificate and will be treated as gain on disposition of a
certificate, subject to tax in accordance with the rules
described below in "--Dispositions of Certificates." The portion
of the de minimis OID that will be includible in your gross
income with respect to each principal payment is equal to a
fraction, the numerator of which is the amount of the principal
payment and the denominator of which is the principal amount of
your certificate.
If your certificates are issued with OID that equals or
exceeds the de minimis amount, you generally will be required to
include OID in income for each accrual period before you receive
the cash representing the OID. You will be required to recognize
as ordinary income the amount of OID on your certificates as the
discount accrues, in accordance with a constant yield method.
The prospectus supplement for your series will advise you if your
certificates have been issued with OID that equals or exceeds the
de minimis amount.
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 because of other events to the extent specified
in Treasury Regulations. If your certificate has OID, and
Section 1272(a)(6) applies, you must compute your OID (and market
66
discount, see "-Market Discount") by taking into account
both the prepayment assumptions used in pricing your certificates
and the actual prepayment experience. As a result, the amount of
OID on your certificates that would accrue in any given accrual
period might either increase or decrease depending on the actual
prepayment rate. Because no Treasury Regulations have been
issued under Section 1272(a)(6), you should consult your own tax
advisors about the possible impact of these OID rules if your
certificates are issued with OID.
Market Discount. You should be aware that if you resell
your certificate, you may be affected by the market discount
provisions of the Code. In general, subject to a statutorily-
defined de minimis exception, you will have acquired your
certificate at a "market discount" if you acquire the certificate
at a price that is less than the certificate's "stated redemption
price at maturity" (generally, the certificate's principal
amount) and
-you acquire your certificate upon its original issue at a
price that is less than the certificate's issue price; or
-you acquire your certificate subsequent to its original
issue and, if the certificate was issued with OID, at a
price that is less than the certificate's "revised issue
price." A certificate's "revised issue price" should
generally be its issue price plus the amount of OID
previously includible in income by all prior holders of the
certificate less the amount of principal payments previously
made on the certificate.
The market discount rules generally provide that, if you
acquire a certificate at a market discount and you later
recognize gain upon a disposition of the certificate, you must
treat as ordinary interest income at the time of disposition the
lesser of your gain or the portion of the market discount that
accrued while you held the certificate. Similarly, if you
dispose of the certificate in certain nonrecognition
transactions, such as a gift, you will be treated for purposes of
the market discount rules as realizing an amount equal to the
fair market value of the certificate and you must treat as
ordinary interest income at the time of disposition the lesser of
your deemed gain or the portion of the market discount that
accrued while you held the certificate. If you acquire a
certificate with market discount, you should contact your own tax
advisors as to the possible application of Section 1272(a)(6) of
the Code and its effect on your accrual of market discount. See
"-Original Issue Discount." In addition, you may also be
required to defer a portion of any interest expense that you
might otherwise be able to deduct on any debt you incurred or
maintained to purchase or carry the certificate until you dispose
of the certificate in a taxable transaction.
If you acquire a certificate at a market discount, you will
generally be required to treat as ordinary interest income the
portion of any principal payment, including a payment on
maturity, attributable to accrued market discount on your
certificate. If you acquire a certificate with market discount
that is de minimis, the rules described above will not apply to
you and you should include in your gross income at the time you
receive a principal payment an amount equal to the de minimis
amount of market discount, multiplied by the amount of the
principal payment, divided by the amount of remaining principal
payments on the certificate.
67
If you acquire your certificate at a market discount, you
may elect to include market discount in income as the discount
accrues, either on a ratable basis or, if you so elect, on a
constant interest rate basis. Once you make this election, it
applies to all market discount obligations that you acquire on or
after the first day of the first taxable year to which your
election applies, and you may not revoke the election without the
consent of the IRS. In addition, if you make this election, you
will not have to recognize ordinary income on sales, principal
payments and certain other dispositions of the certificates and
you will not have to defer interest deductions on debt related to
the certificates in accordance with the rules discussed above.
Amortizable Bond Premium. Generally, if the price you paid
for your certificate or your tax basis in your certificate
exceeds the sum of all amounts payable on the certificate after
your acquisition date (other than payments of qualified stated
interest), the excess may constitute amortizable bond premium
that you may elect to amortize under the constant interest rate
method over the period from your acquisition date to the
certificate's maturity date. If your certificates are subject to
Section 1272(a)(6) of the Code, the application of the
amortizable bond premium rules is unclear, as the amortizable
bond premium Treasury Regulations specifically exclude from their
application instruments subject to Section 1272(a)(6). Because
no Treasury Regulations have been issued interpreting Section
1272(a)(6), you should contact your own tax advisors about the
possible impact of Section 1272(a)(6) if you acquire a
certificate at a premium. See the discussion of Section
1272(a)(6) in "-Original Issue Discount." You may generally
treat amortizable bond premium as an offset to interest income on
the certificate, rather than as a separate interest deduction
item subject to the investment interest limitations of the Code.
If you elect to amortize bond premium, you must generally reduce
your tax basis in the related certificate by the amount of bond
premium used to offset interest income. If your certificate is
redeemed in full before its maturity and you have elected to
amortize bond premium, you may be entitled to a deduction for any
remaining unamortized bond premium in the taxable year of
redemption.
Dispositions of Certificates. In general, you will
recognize gain or loss upon the sale, exchange, redemption or
other taxable disposition of your certificate measured by the
difference between:
-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) for the
certificate, and
-your tax basis in the certificate (as increased by any OID
or market discount, including de minimis amounts, that you
previously included in income, and as decreased by any
deductions previously allowed to you for amortizable bond
premium and by any payments reflecting principal or OID that
you received with respect to the 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 gain or loss generally will be
68
long-term capital gain or loss. The excess of net long-term
capital gains over net short-term capital losses may be taxed at
a lower rate than ordinary income for individuals, estates and
trusts. The deductibility of capital losses may be subject to
limitation.
FOREIGN INVESTORS
The following summary of the United States federal income
and estate tax consequences of the purchase, ownership, sale or
other disposition of a certificate applies to you only if you are
a "non-United States Holder." You generally are a "non-United
States Holder" if, for United States federal income tax purposes,
you are:
-a nonresident alien individual,
-a foreign corporation,
-a foreign partnership, or
-a foreign estate or trust,
as each term is defined in the Code. Some non-United States
Holders (including certain residents of certain United States
possessions or territories) may be subject to special rules not
discussed in this summary.
Interest (including OID, if any) paid to you on your
certificate will not be subject to withholding of United States
federal income tax, provided that:
-these interest payments are effectively connected with your
conduct of a trade or business within the United States and
you submit, under current Treasury Regulations, a properly
executed Internal Revenue Service Form 4224 (Exemption from
Withholding of Tax or Income Effectively Connected With the
Conduct of a Trade or Business in the United States); or
-you are not a "10 percent shareholder" of the holder of the
Seller Certificate or a "controlled foreign corporation"
with respect to which the holder of the Seller Certificate
is a "related person" within the meaning of the Code, and,
under current Treasury Regulations, either (i) you represent
that you are not a United States Person and provide your
name and address to SRFG or its paying agent on a properly
executed Internal Revenue Service Form W-8 (Certificate of
Foreign Status), or a suitable substitute form, signed under
penalties of perjury; or (ii) a securities clearing
organization, bank or other financial institution that holds
customers' securities in the ordinary course of its business
holds your certificate on your behalf, certifies to SRFG or
its paying agent under penalties of perjury that it has
received Form W-8 or a suitable substitute form from you or
from another qualifying financial institution intermediary,
and provides a copy to SRFG or its paying agent.
69
If these exceptions do not apply to you, interest (including OID,
if any) paid to you generally will be subject to withholding of
United States federal income tax at a 30% rate. You may,
however, be able to claim the benefit of a reduced withholding
tax rate under an applicable income tax treaty. The required
information for claiming treaty benefits is generally submitted,
under current Treasury Regulations, on Form 1001 (Ownership,
Exemption, or Reduced Rate Certificate).
You generally will not be subject to United States federal
income tax on gain realized on the sale, exchange or redemption
of your certificate (other than gain attributable to accrued
interest or OID, which is addressed in the preceding paragraph),
provided that:
-the gain is not effectively connected with your conduct of
a trade or business within the United States; and
-if you are an individual,
-you have not been present in the United States
for 183 days or more in the taxable year of the
sale, exchange or redemption; or
-you do not have a "tax home" in the United States
and the gain is not attributable to an office or
other fixed place of business that you maintain in
the United States.
If the interest or gain on your certificate is effectively
connected with your conduct of a trade or business within the
United States, then although you will be exempt from the
withholding of tax previously discussed if you provide an
appropriate statement, you 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 Investors." In
addition, if you are a foreign corporation, you may be subject to
a branch profits tax equal to 30% of your "effectively connected
earnings and profits" within the meaning of the Code for the
taxable year, as adjusted for certain items, unless you qualify
for a lower rate under an applicable tax treaty.
If you are an individual and are not a citizen or resident
of the United States at the time of your death, your certificates
will generally not be subject to United States federal estate tax
as a result of your death if, immediately before death,
-you were not a "10 percent shareholder" of the holder of
the Seller Certificate, and
-your interest on the certificate was not effectively
connected with your conduct of a trade or business within
the United States.
THE ABOVE DESCRIPTION OF THE POTENTIAL UNITED STATES FEDERAL
INCOME AND ESTATE TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
IS NECESSARILY INCOMPLETE. YOU ARE URGED TO CONSULT YOUR OWN TAX
ADVISORS ABOUT THESE MATTERS.
70
BACKUP WITHHOLDING AND INFORMATION REPORTING
If you are a United States Holder but not a corporation,
financial institution or certain other type of entity,
information reporting requirements will apply to certain payments
of principal and interest (including accrued OID, if any) on a
certificate and to proceeds of certain sales of a certificate
before maturity. In addition, if you do not provide a correct
taxpayer identification number and other required information, or
do not comply with certain other requirements or otherwise
establish an exemption, the holder of the Seller Certificate, a
paying agent, or a broker, as the case may be, will be required
to withhold from its payments to you a tax equal to 31% of each
payment.
If you are a non-United States Holder, backup withholding
and information reporting will not apply to payments of principal
and interest (including accrued OID, if any) on a certificate to
you if you certify under penalties of perjury that you are not a
United States Person or otherwise establish an exemption,
provided that neither the holder of the Seller Certificate nor
its paying agent has actual knowledge that you are a United
States Person or that the conditions of any other exemption are
not in fact satisfied. Information reporting, but not backup
withholding, requirements will apply to payments of the proceeds
of your sale of a 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 connected
with the conduct of a trade or business within the United States
for a specified three-year period, unless:
-you are an exempt recipient; or
-the broker has evidence in its records that you are not a
United States Person and no actual knowledge that the
evidence is false, and certain other conditions are met.
Information reporting and backup withholding will apply to
payments of the proceeds of your sale of a certificate to or
through a United States office of a broker unless:
-you provide your name and address and certify under
penalties of perjury as to your status as a non-United
States Person and certain other qualifications, and no agent
of the broker who is responsible for receiving or reviewing
your statement has actual knowledge that it is incorrect; or
-you otherwise establish an exemption.
If you provide the IRS with the information it requires, you
will receive a refund or a credit against your United States
federal income tax liability for any amounts withheld from your
payments under the backup withholding rules.
NEW WITHHOLDING REGULATIONS
The Treasury Department has promulgated final regulations
regarding certain withholding and information reporting rules
discussed above that are generally effective for
71
payments made after December 31, 2000, subject to certain
transition rules (the "New Withholding Regulations"). In
general, the New Withholding Regulations do not significantly
alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms
and clarify reliance standards. The New Withholding Regulations
combine several existing forms, including Form W-8, Form 4224 and
Form 1001 into an expanded Form W-8. The new Forms W-8 include
Form W-8BEN (Certificate of Foreign Status of Beneficial Owner
for United States Tax Withholding) that replaces the existing
Forms W-8 and 1001; Form W-8ECI (Certificate of Foreign Person's
Claim for Exemption From Withholding on Income Effectively
Connected With the Conduct of a Trade or Business in the United
States) that replaces existing Form 4224; and Form W-8IMY
(Certificate of Foreign Intermediary, Foreign Partnership, or
Certain U.S. Branches for United States Tax Withholding).
Special rules apply that permit the shifting of primary
responsibility for withholding to certain financial
intermediaries acting on behalf of beneficial owners.
Certifications satisfying the requirements of the New
Withholding Regulations will be deemed to satisfy the
requirements of the Treasury Regulations now in effect. You
must, however, provide certifications that comply with the
provisions of the New Withholding Regulations, where required,
with respect to payments made after December 31, 2000, if you
remain as a holder of a certificate on that date, unless you
receive payments on a certificate through a qualified
intermediary, as defined in the New Withholding Regulations, that
has provided a proper certification on your behalf (although you
may have to provide such certifications to the qualified
intermediary).
THE ABOVE SUMMARY OF THE NEW WITHHOLDING REGULATIONS IS
NECESSARILY INCOMPLETE. YOU ARE URGED TO CONSULT YOUR OWN TAX
ADVISORS TO DETERMINE HOW THE NEW WITHHOLDING REGULATIONS WILL
AFFECT YOUR PARTICULAR CIRCUMSTANCES.
POSSIBLE CHARACTERIZATION OF THE CERTIFICATES
The above discussion assumes that the certificates of a
series will be treated as debt for federal income tax purposes.
However, although Sears and SRFG's tax counsel will render an
opinion to that effect with respect to each series of
certificates, the matter is not free from doubt, and we cannot
assure you that the IRS or the courts will agree with that
opinion. If the IRS were to contend successfully that some or
all of the certificates of a series are not debt for federal
income tax purposes, it could find that the arrangement created
by the Pooling and Servicing Agreement and the related Series
Supplement constitutes a partnership that could be treated as a
"publicly traded partnership" taxable as a corporation.
If your certificates 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), the partnership would not be subject to federal income
tax. Rather, you would be required to include in income your
share of the income and deductions generated by the assets of the
trust, as determined under partnership tax accounting rules. In
that event, the amount, timing
72
and character of the income required to be included in your
income could differ materially from the amount, timing and
character of income if your certificates were characterized as
debt. 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 you, as a partner
in such a partnership, could be taxed on your share of the
partnership's income in those states.
In addition, if you are a non-United States Holder and such
a partnership were 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) you and you would be credited for
your share of the withholding tax paid by the partnership.
Moreover, you generally would be subject to United States federal
income tax at regular federal income tax rates, and possibly a
branch profits tax (if you are a corporation), as previously
described. See "-Foreign Investors." 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 would be required if you are a non-United States
Holder that is engaged in a trade or business within the United
States to which the 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 a certificate is not otherwise
effectively connected with the conduct of a trade or business
within the United States by a non-United States Holder, the non-
United States Holder would be subject to United States federal
income tax and withholding at a rate of 30% (unless reduced by an
applicable treaty) on its distributive share of the partnership's
interest income.
If some or all of the 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
subject to federal income tax and any income tax imposed by
certain states where the entity would be considered to be engaged
in business, at corporate rates, which would reduce the amounts
available for distribution to certificateholders. See "State Tax
Consequences." Under these circumstances, your 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 you could be treated as dividends and, if
you are a non-United States Holder, could be subject to United
States federal income tax and withholding at a rate of 30%
(unless reduced by an applicable treaty). In addition, if you
are a non-United States Holder of a certificate that is treated
as debt of an entity taxable as a corporation and you actually or
constructively own 10% or more of the outstanding principal
amount of certificates that are treated as equity of that entity,
you may be treated as a "10 percent shareholder." See "-Foreign
Investors."
Based on the advice of tax counsel to Sears and SRFG as to
the likely treatment of the 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 for a series to comply with the federal or
state income tax reporting requirements applicable to
partnerships or corporations. If this arrangement were later
held to constitute a partnership or
73
corporation, it is not clear how we would make the
arrangement comply with applicable tax reporting requirements.
You should consult your own tax advisors as to the risk that
the certificates will not be treated as debt, and the possible
tax consequences of potential alternative treatments.
STATE TAX CONSEQUENCES
This summary of the material state tax consequences to
investors in certificates of any series is based on the opinion
of Latham & Watkins, special tax counsel to Sears and SRFG. This
summary is based upon currently applicable tax laws of certain
states as of the date of this prospectus. We cannot assure you
that the taxing authorities of any state will agree with the
conclusions in this summary, and we have not sought and will not
seek a ruling from the taxing authorities of any state on the
expected state tax consequences described in this summary.
Subsequent legislative, judicial or administrative changes-which
may or may not be applied retroactively-could change these tax
consequences. Except as discussed below, this summary assumes
that the certificates of each series will be treated as debt for
federal income tax purposes and the trust will continue to not be
treated as an entity subject to federal income tax. This summary
does not apply to any certificates of a series that are retained
by SRFG.
GENERAL
Your state tax consequences will depend upon the provisions
of the state tax laws to which you are 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 the
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
investors 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 servicing and collecting the
Receivables will take place in Arizona, Delaware, Georgia,
Illinois, Ohio and Texas. Tax counsel to Sears and SRFG has
advised them that, in their opinion, under applicable law,
although the matter is not free from doubt, the certificates 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 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 certificates are treated as debt in those
states, investors not otherwise subject to taxation in those
states will not become subject to taxation in those states solely
because they own certificates.
74
Generally, you are required to pay, in states in which you
are already subject to state tax, additional state tax as a
result of interest earned on your certificates. Moreover, a
state could claim that the trust has undertaken activities within
that state and therefore the trust is subject to taxation by that
state. Were any state to make and sustain that claim, the
treatment of the certificates would be determined under that
state's tax laws, and it is possible that the certificates would
not be treated as debt or that the trust would be treated as an
entity subject to tax for purposes of that state's tax laws.
If some or all of your certificates were treated as
interests in a partnership, a corporation, or a business trust,
your state tax consequences could be materially different than
those described above, especially in states that may be
considered to have a business connection with the Receivables.
See "Federal Income Tax Consequences-Possible Characterization of
the Certificates."
THE ABOVE DESCRIPTION OF THE POTENTIAL STATE TAX
CONSEQUENCES IS INCOMPLETE. YOU ARE URGED TO CONSULT YOUR OWN
TAX ADVISORS ABOUT THESE MATTERS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Code impose certain requirements on
those employee benefit plans, including Individual Retirement
Accounts and Individual Retirement Annuities (collectively
"IRAs"), to which they apply ("Plans") and on fiduciaries of
those Plans. To comply with ERISA's general fiduciary standards,
before investing in certificates, a Plan fiduciary should
determine whether such an investment is permitted under the
governing Plan instruments and is 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 the Plan's 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 the disqualification of
the IRAs. Thus, a Plan fiduciary considering an investment in
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 the entity (such as the trust) for
purposes of ERISA and the Code. Unless the Plan's investment is
an "equity interest," the underlying assets of the entity will
not be considered assets of the Plan under the Regulation. Under
the Regulation, a beneficial ownership in a trust is deemed to be
an equity interest. The DOL has ruled in an opinion letter,
which is not binding upon Sears, SRFG,
75
the trustee or any underwriter, that similar "pass through"
certificates in a trust constituted equity interests.
Assuming that the certificates are equity interests, the
Regulation contains an exception that provides that if a Plan
acquires a "publicly-offered security," then 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:
-freely transferable,
-part of a class of securities that is owned by 100 or more
investors independent of the issuer and of one another by
the conclusion of the offering, and
-either is
-part of a class of securities registered under section
12(b) or 12(g) of the Securities Exchange Act of 1934,
or
-sold to the Plan as part of an offering of securities
to the public pursuant to an effective registration
statement under the Securities Act of 1933, if the
class of securities of which the security is a part is
registered under the Securities Exchange Act of 1934
within 120 days (or such later time as may be allowed
by the Securities and Exchange Commission) after the
end of the fiscal year of the issuer during which the
offering of the securities to the public occurred.
If the certificates are deemed to be debt and not equity for
ERISA purposes, the purchase of the 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 extension of credit under Section 406 of ERISA and
Section 4975 of the Code unless an exemption applies. There are
at least four prohibited transaction class exemptions issued by
the DOL that might apply, depending in part on who decided to
acquire the 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 90-1 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts); and
-PTE 96-23 (Class Exemption for Plan Asset Transactions
Determined by In-House Asset Managers).
76
Moreover, whether the certificates are debt or equity for
ERISA purposes, a purchaser of certificates might violate the
prohibited transaction rules if the purchase were made during the
offering with assets of a Plan and Sears, the trustee, any
underwriter or any of their affiliates was a fiduciary with
respect to that Plan. Under ERISA and the Code, a person is a
"fiduciary" with respect to a Plan to the extent:
-he or she exercises any discretionary authority or
discretionary control respecting management of that Plan or
exercises any authority or control respecting management or
disposition of its assets,
-he or she renders investment advice for a fee or other
compensation, direct or indirect, with respect to any moneys
or other property of that Plan, or has any authority or
responsibility to do so, or
-he or she has any discretionary authority or discretionary
responsibility in the administration of that Plan.
Accordingly, the fiduciaries of any Plan should not purchase
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 certificates should consult their own benefits
counsel or other appropriate counsel regarding the application of
ERISA and the Code to their purchase of the certificates.
In particular, insurance companies considering the purchase
of certificates 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) 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
effectively provides an exemption from this portion of the
holding in JOHN HANCOCK. Section 401(c) of ERISA was added by
the Small Business Job Protection Act of 1996 and requires the
Secretary of Labor to issue regulations which are to provide
guidance for the purpose of determining, in cases where an
insurer issues one or more policies (supported by the assets of
the insurer's general account) to or for the benefit of an
employee benefit plan, which assets of the 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. On December 22, 1997, the DOL
issued proposed regulations under Section 401(c) of ERISA.
29 CFR 2550.401c-1. These regulations apply only to policies
that are issued by an insurer on or before December 31, 1998, to
or for the benefit of an employee benefit plan that is supported
by the assets of the insurer's general account. These regulations
will take effect at the end of the 18-month period following the
date on which they become final. Section
77
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
that is 18 months after the date the regulations become final.
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 effect on their
purchase of certificates.
PLAN OF DISTRIBUTION
SRFG may sell certificates:
-through underwriters or dealers;
-directly to one or more purchasers; or
-through agents.
SRFG will receive net proceeds from the offering equal to:
-the public offering price of the certificates less the
discount (in the case of an underwriter),
-the purchase price of the certificates less the commission
(in the case of an agent), or
-the purchase price of the certificates (in the case of a
dealer),
less, in each case, SRFG's other expenses associated with the
issuance and distribution of the certificates. The prospectus
supplement for a series will set forth the terms under which the
certificates in that series will be offered for sale, including:
-the name or names of any underwriters;
-the purchase price of the certificates;
-the amount of proceeds SRFG will receive from the sale of
the certificates;
-the amount of any underwriting discounts and other items
constituting underwriter's compensation;
-any initial offering price; and
-any discounts or concessions allowed or reallowed or paid
to dealers.
The underwriters for a series of certificates will be only those
underwriters named in the prospectus supplement for that series.
If underwriters are used in the sale, the underwriters
will acquire the certificates for their own account and may
resell the certificates from time to time in one or more
transactions, including negotiated transactions, at a fixed
price, at varying prices determined at the time of sale or at
negotiated prices. Underwriters may offer the certificates to
the public on
78
their own or through underwriting syndicates represented by
managing underwriters. The obligations of the underwriters to
purchase the certificates will be subject to conditions described
in the underwriting agreement, and the underwriters will be
obligated to purchase all the certificates of a series offered
for sale to the public if they purchase any of them. Any initial
public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
SRFG may also sell the certificates of any series directly
to investors or through agents designated by SRFG. The
prospectus supplement for a series will name any agents involved
in the sale of the certificates of that series and will set forth
any commissions SRFG has agreed to pay to those agents. Unless
the prospectus supplement for a series specifies otherwise, any
agent is acting solely as an agent for the period of its
appointment.
If the prospectus supplement for a series so indicates, SRFG
will authorize agents, underwriters or dealers to solicit offers
from certain institutional investors to purchase the certificates
of that series with payment and delivery to occur on a future
date specified in the prospectus supplement. There may be
limitations on the minimum amount of certificates that an
institutional investor may purchase or on the portion of the
aggregate principal amount of the certificates of that series
that SRFG may sell pursuant to delayed delivery and payment
arrangements. Institutional investors from whom delayed delivery
and payment offers may be solicited, when authorized, include:
-commercial and savings banks;
-insurance companies;
-pension funds;
-investment companies;
-educational and charitable institutions; and
-other institutions that SRFG approves.
Unless the prospectus supplement for a series specifies
otherwise, the obligations of institutional investors under any
delayed delivery and payment arrangements will not be subject to
any conditions except:
-the laws of any jurisdiction of the United States to which
the institution is subject must not at the time of delivery
prohibit the institution's purchase of the certificates; and
-if SRFG is selling certificates to underwriters, SRFG will
sell to those underwriters the total principal amount of
those certificates minus the principal amount of those
certificates covered by delayed delivery and payment
arrangements.
79
Underwriters will not be responsible for the validity of the
delayed delivery and payment arrangements or the performance of
SRFG or the institutional investors under those arrangements.
Underwriters, dealers and agents who participate in the
distribution of the certificates:
-may be deemed to be underwriters under the Securities Act
of 1933, as amended, and any discounts or commissions they
receive from SRFG and any profit on their resale of the
certificates may be deemed to be underwriting discounts and
commissions under that act; and
-under arrangements with SRFG, may be entitled to be
indemnified by SRFG against certain civil liabilities,
including liabilities under the Securities Act of 1933, as
amended, or to contribution for payments that they make with
respect to those civil liabilities.
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 the prospectus supplement for a series specifies
otherwise:
-The Sears Law Department and Latham & Watkins will pass
upon the legality of the certificates for SRFG;
-Latham & Watkins will pass upon legal matters relating to
the material tax consequences of the issuance of the
certificates for SRFG; and
-Skadden, Arps, Slate, Meagher & Flom LLP will pass upon the
legality of the certificates for the underwriters.
Skadden, Arps, Slate, Meagher & Flom LLP from time to time
performs legal services for Sears and its affiliates.
REPORTS TO INVESTORS
If you invest in certificates, you may call the trustee at
(312) 407-5483 to request that the trustee send to you free of
charge monthly and annual reports containing information about
the trust. These reports will be prepared by the trustee based
on information provided to the trustee by Sears as servicer.
Independent public accountants will not have examined or reported
on the financial information in the reports. Sears and SRFG do
not intend to send any of their financial reports to you.
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 of
the documents incorporated herein by reference (other than
exhibits to such documents) upon request by calling 1-800-SEARS-
80 (1-800-732-7780).
80
WHERE YOU CAN FIND MORE INFORMATION
SRFG, as originator of the trust, has filed a registration
statement with the SEC on behalf of the trust relating to the
certificates offered by this prospectus and any prospectus
supplement accompanying this prospectus.
You may read and copy any reports, statements or other
information SRFG files at the SEC's public reference rooms 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.
You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at
(800) SEC-0330 for further information on the operation of the
public reference rooms. SEC filings relating to the trust are
also available to the public on the SEC Internet site
(http://www.sec.gov). The trust is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended,
and in accordance with that act, SRFG, on behalf of the trust,
files reports and other information with the Commission. You may
obtain copies of the Registration Statement together with all
amendments and exhibits, as well as filings relating to the
trust, from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The SEC allows us to "incorporate by reference" information
we file with it, which means that we can disclose important
information to you by referring you to those documents. The
information incorporated by reference is considered to be part of
this prospectus. Information that we file later with the SEC
will automatically update the information in this prospectus. In
all cases, you should rely on the later information over
different information included in this prospectus or the
prospectus supplement for any series. We incorporate by
reference any future annual, monthly and special SEC reports and
proxy materials filed by or on behalf of the trust until we
terminate our offering of the certificates.
We incorporated 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:
(1) Annual Report on Form 10-K for the year ended December
31, 1998; and
(2) Current Reports on Form 8-K filed January 15,
February 9, February 16, February 19, March 12,
March 15, March 19, March 22, March 25, April 15,
May 17, June 15, July 15, August 16, September 15,
September 16, September 22, September 23, September 29,
October 15, November 12, and November 15, 1999.
81
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 after the date of this prospectus and before the
termination of the offering of the certificates will be deemed to
be incorporated by reference into this prospectus and to be a
part of it.
As a recipient of this prospectus, you may request a copy of
any document we incorporate by reference, except exhibits to the
documents (unless the exhibits are specifically incorporated by
reference), at no cost, by calling Sears, as servicer at: 1-800-
SEARS-80 (1-800-732-7780).
82
Part II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
S.E.C. Registration Fee $ 264
*Printing *__________
*Trustee's Fees *__________
*Legal Fees and Expenses *__________
*Blue Sky Fees and Expenses *__________
*Accountants' Fees and Expenses *__________
*Rating Agency Fees *__________
*Miscellaneous Fees *__________
Total $*
----------
- -----
* [estimated] [to be provided by amendment]
Item 15. Indemnification of Directors and Officers.
SRFG is a Delaware corporation. Section 145 of the General
Corporation Law of the State of Delaware ("GCL") provides that a
Delaware corporation has the power to indemnify its officers and
directors in certain circumstances.
Subsection (a) of Section 145 of the GCL empowers a
corporation to indemnify any director or officer, or former
director or officer, who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation), against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or
proceeding provided that such director or officer acted in good
faith in a manner reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any
criminal action or proceeding, provided that such director or
officer had no cause to believe his or her conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to
indemnify any director or officer, or former director or officer,
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including
attorney's fees) actually and reasonably incurred in connection
with the defense or settlement of such action or suit provided
that such director or officer acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests
of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such director
or officer shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of
Chancery or the court in which such action was brought shall
determine that despite the adjudication of liability such
director or officer is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director
or officer of a corporation has been successful in the defense of
any action, suit or proceeding referred to in subsections (a) and
(b) or in the defense of any claim, issue or matter therein, he
or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her
in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and the corporation
may purchase and maintain insurance
II-1
on behalf of a director or officer of the corporation against any
liability asserted against him or her or incurred by him or her
in any such capacity or arising out of his or her status as such
whether or not the corporation would have the power to indemnify
him or her against such liabilities under Section 145.
Article III of SRFG's by-laws (incorporated by reference to
Exhibit 3.2 to Amendment No. 1 to Registration Statement No. 33-
79186) provides for indemnification of SRFG's officers and
directors to the fullest extent permitted by applicable law.
Sears, the of SRFG, has in effect insurance
policies in the amount of $150 million covering all of Sears and
SRFG's directors and officers in certain instances where by law
they may not be indemnified by Sears or SRFG.
Item 16. Exhibits.
The "Exhibit Index" attached to this Registration Statement
is incorporated herein by reference.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar
value of securities offered would not exceed that which
was registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration
statement;
Provided, however, that paragraphs (i) and
(ii) shall not apply if the information required
to be included in a post-effective amendment by
those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration
statement.
II-2
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
provisions described in this registration statement above, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on
Form S-3 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Greenville, State of Delaware, on the
2nd day of December.
SRFG, INC., as originator of
the Trust
(Registrant)
By: George F. Slook*
George F. Slook
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Registration Statement to be
signed on its behalf by the following persons in the capacities
and on the dates indicated.
Signature Title Date
George F. Slook* President, Chief December 2, 1999
Executive Officer
and Director
(Principal Executive
Officer)
Keith E. Trost* Vice President, December 2, 1999
Treasurer and
Assistant Secretary
(Principal Financial
and Accounting
Officer)
Thomas N. Beckmann* Director December 2, 1999
Larry R. Raymond* Director December 2, 1999
B.T. Reidy* Director December 2, 1999
Norman Tucker* Director December 2, 1999
Perry N. Weine* Director December 2, 1999
*By /s/ George F. Slook, Individually and as Attorney-in-fact
George F. Slook
II-4
EXHIBIT INDEX
Sequentially
Exhibit Description Numbered
Number Page
*1.1 Form of Underwriting Agreement
*3.1 Certificate of Incorporation of SRFG, Inc., as
amended.
3.2 By-Laws of SRFG, Inc. (incorporated by
reference to Exhibit 3.2 to Amendment No. 1 to
Registration Statement No. 33-79186).
4.1 Pooling and Servicing Agreement among Sears,
Roebuck and Co. as Servicer, SRFG, Inc.
(formerly Sears Receivables Financing Group,
Inc.) as Seller and Bank One, National
Association (formerly The First National Bank
of Chicago) as Trustee, dated as of July 31,
1994 (incorporated by reference to Exhibit 4.1
to the Trust's Current Report on Form 8-K for
August 16, 1994 (File No. 0-24776)).
4.2 Amendment No. 1 to the Pooling and Servicing
Agreement among Sears as Servicer, SRFG, Inc.
(formerly Sears Receivables Financing Group,
Inc.) as Seller and Bank One, National
Association (formerly The First National Bank
of Chicago) as Trustee, dated as of March 31,
1995 (incorporated by reference to Exhibit 4.2
to the Trust's Current Report on Form 8-K for
May 8, 1995 (File No. 0-24776)).
4.3 Amendment No. 2 to the Pooling and Servicing
Agreement among Sears, Roebuck and Co. as
Servicer, SRFG, Inc. (formerly Sears
Receivables Financing Group, Inc.) as Seller
and Bank One, National Association (formerly
The First National Bank of Chicago) as
Trustee, dated as of December 21, 1995
(incorporated by reference to Exhibit 4.3 to
the Trust's Form 8-A dated March 23, 1999).
*4.4 Form of Series Supplement among Sears, Roebuck
and Co. as Servicer, SRFG, Inc. as Seller and
Bank One, National Association as Trustee,
including form of Investor Certificates.
4.5 Assignment of Additional Funds between SRFG,
Inc. as Seller and Bank One, National
Association (formerly The First National Bank
of Chicago) as Trustee, dated as of January
30, 1998 (incorporated by reference to Exhibit
4.1 to the Trust's Current Report on Form 8-K
for January 30, 1998).
*4.6 Form of Agreement among Bank One, National
Association as Trustee, SRFG, Inc. and The
Depository Trust Company.
*5.1 Opinion of Steven M. Cook.
II-5
*5.2 Form of Opinion of Latham & Watkins as to
certain creditors' rights matters.
*5.3 Form of Opinion of Latham & Watkins relating
to certain matters with respect to Sears
National Bank.
*5.4 Form of Opinion of Greenberg Traurig relating
to certain matters with respect to Sears
National Bank.
*8.1 Opinion of Latham & Watkins as to certain tax
matters.
10.1 First Amended and Restated Purchase Agreement
between Sears, Roebuck and Co. and SRFG, Inc.
(formerly Sears Receivables Financing Group,
Inc.) dated as of July 31, 1994 (incorporated
by reference to Exhibit 4.5 to the Trust's
Current Report on Form 8-K for May 8, 1995
(File No. 0-24776)).
10.2 First Amended and Restated Contribution
Agreement between Sears, Roebuck and Co. and
SRFG, Inc. (formerly Sears Receivables
Financing Group, Inc.) dated as of July 31,
1994 (incorporated by reference to Exhibit 4.4
to the Trust's Current Report on Form 8-K for
May 8, 1995 (File No. 0-24776)).
*10.3 Receivables Warehouse Agreement between Sears,
Roebuck and Co. and SRFG, Inc. (formerly Sears
Receivables Financing Group, Inc.) dated as of
December 21, 1995.
23.1 Consent of Steven M. Cook (included in Exhibit
5.1).
*23.2 Consent of Latham & Watkins (also included in
Exhibit 8.1).
*23.3 Consent of Greenberg Traurig
*24.1 Power of Attorney for certain officers and
directors of SRFG, Inc.
----
* Filed herewith.
II-6
SEARS CREDIT ACCOUNT MASTER TRUST II
Master Trust Certificates
Underwriting Agreement
___________, 1999
Name of Lead Underwriter
Address of Lead Underwriter
As Representative of the several Underwriters
Ladies and Gentlemen:
SRFG, Inc. (formerly known as Sears Receivables
Financing Group, Inc.) (the "Company"), as originator of Sears
Credit Account Master Trust II (the "Trust") and holder of the
Seller Certificate, proposes, subject to the terms and conditions
stated herein, to cause to be issued and sold from time to time
certain of the Master Trust Certificates registered under the
registration statement referred to in Section 2(a) (the
"Securities"). The Company intends to enter into one or more
Pricing Agreements (each a "Pricing Agreement") in the form
attached hereto, with such additions and deletions as the parties
thereto may determine, and, subject to the terms and conditions
stated herein and therein, to issue and sell to the firms named
in Schedule 1 to the applicable Pricing Agreement (such firms
constituting the "Underwriters" with respect to such Pricing
Agreement and the securities specified therein) the Securities
specified in such Pricing Agreement (with respect to such Pricing
Agreement, the "Designated Securities"). The Designated
Securities will be issued by the Trust pursuant to a Pooling and
Servicing Agreement, dated as of July 31, 1994, as amended (the
"Pooling and Servicing Agreement"), as supplemented by a Series
Supplement (the "Series Supplement") relating to the specific
series of Certificates issued thereunder, by and among the
Company as Seller, Sears, Roebuck and Co. ("Sears") as Servicer
and Bank One, National Association as Trustee (the "Trustee").
To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Pooling and Servicing
Agreement or the Series Supplement, as the case may be.
1. Particular sales of Designated Securities may be
made from time to time to the Underwriters of such Securities,
for whom you will act as representatives. This Underwriting
Agreement shall not be construed as an obligation of the Company
to sell or cause to be sold any of the Securities or as an
obligation of any of the Underwriters to purchase the Securities.
The obligation of the Company to cause to be issued and sold any
of the Securities and the obligation of any of the Underwriters
to purchase any of the Securities shall be evidenced by the
Pricing Agreement with respect to the Designated Securities
specified therein. Each Pricing Agreement shall specify the
initial principal amount of such Designated Securities, the
public offering price of such Designated Securities or the method
by which the price at which such Securities will be sold will be
determined, the purchase price to the Underwriters of such
Designated Securities, the names of the Underwriters of such
Designated Securities and the principal amount of such Designated
Securities to be purchased by each Underwriter and shall set
forth the date, time and manner of delivery of such Designated
Securities and payment therefor. The Pricing Agreement shall
also describe, in a manner consistent with the Pooling and
Servicing Agreement, the Series Supplement relating to the
Designated Securities, and the registration statement and
prospectus with respect thereto, the principal terms of such
Designated Securities. A Pricing Agreement shall be in the form
of an executed writing (which may be in counterparts), and may be
evidenced by an exchange of telegraphic communications or any
other rapid transmission device designed to produce a written
record of communications transmitted. The obligations of the
Underwriters under this Agreement and each Pricing Agreement
shall be several and not joint.
1
2. The Company represents and warrants to, and agrees
with, each of the Underwriters that:
(a) A registration statement in respect of the
Securities has been filed with the Securities and Exchange
Commission (the "Commission"); such registration statement and
any post-effective amendment thereto, each in the form heretofore
delivered or to be delivered to you, excluding exhibits to such
registration statement, but including all documents incorporated
by reference in the prospectus included therein, to you for each
of the other Underwriters have been declared effective by the
Commission in such form (any preliminary prospectus included in
such registration statement being hereinafter called a
"Preliminary Prospectus"; the various parts of such registration
statement, including all exhibits thereto, each as amended at the
time such part became effective, being hereinafter collectively
called the "Registration Statement"; the prospectus relating to
the Securities, in the form in which it has most recently been
filed with the Commission on or prior to the date of this
Agreement, being hereinafter called the "Prospectus"; any
reference herein to any Preliminary Prospectus or the Prospectus
shall be deemed to include the documents, if any, incorporated by
reference therein pursuant to the applicable form under the
Securities Act of 1933, as amended (the "Act"), as of the date of
such Preliminary Prospectus or Prospectus, as the case may be;
any reference to any amendment or supplement to any Preliminary
Prospectus or the Prospectus shall be deemed to include any
documents filed after the date of such Preliminary Prospectus or
Prospectus, as the case may be, under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and so incorporated by
reference; and any reference to the Prospectus as amended or
supplemented shall be deemed to refer to the Prospectus as
amended or supplemented in relation to the applicable Designated
Securities in the form in which it is first filed with the
Commission pursuant to Rule 424(b) of Regulation C under the Act,
including any documents incorporated by reference therein as of
the date of such filing);
(b) Except for statements in such documents which
do not constitute part of the Registration Statement or the
Prospectus pursuant to Rule 412 of Regulation C under the Act and
after substituting therefor any statements modifying or
superseding such excluded statements (i) the documents
incorporated by reference in the Prospectus, when they became
effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Act
or the Exchange Act, as applicable, and the rules and regulations
of the Commission thereunder, and none of such documents, when
they became effective or were so filed, as the case may be,
contained, in the case of documents which became effective under
the Act, an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and, in the case
of documents which were filed under the Exchange Act with the
Commission, an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading, and (ii) any further documents so filed and
incorporated by reference when they become effective or are filed
with the Commission, as the case may be, will conform in all
material respects to the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain, in the case of
documents which become effective under the Act, an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and, in the case of documents which are
filed under the Exchange Act with the Commission, an untrue
statement of a material fact or omit to state a material fact
2
necessary in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading;
provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the
Company by an Underwriter of Designated Securities through you
expressly for use therein;
(c) Except for statements in documents
incorporated therein by reference which do not constitute part of
the Registration Statement or the Prospectus pursuant to Rule 412
of Regulation C under the Act and after substituting therefor any
statements modifying or superseding such excluded statements, the
Registration Statement and the Prospectus conformed, and any
amendments or supplements thereto will, when they become
effective or are filed with the Commission, as the case may be,
conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and
did not, and will not, as of the applicable effective date as to
the Registration Statement and as of the applicable filing date
as to the Prospectus, contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter of Designated Securities
through you expressly for use in the Prospectus as amended or
supplemented relating to such Securities.
(d) Upon payment therefor as provided herein and
in the Pricing Agreement relating to Designated Securities, such
Designated Securities will have been duly and validly authorized
and (assuming their due authentication by the Trustee) will have
been duly and validly issued, and will be entitled to the
benefits of the Pooling and Servicing Agreement and the Series
Supplement.
(e) The issue and sale of the Designated
Securities pursuant to any Pricing Agreement and the compliance
by the Company with all of the provisions of the Designated
Securities, the Pooling and Servicing Agreement, the Series
Supplement, the First Amended and Restated Purchase Agreement
dated as of July 31, 1994, as amended (the "Purchase Agreement"),
by and between the Company and Sears, the First Amended and
Restated Contribution Agreement dated as of July 31, 1994 (the
"Contribution Agreement"), by and between the Company and Sears,
the Receivables Warehouse Agreement dated as of December 21, 1995
(the "Receivables Warehouse Agreement"), by and between the
Company and Sears, this Agreement, the Assignment of Additional
Funds, dated as of January 30, 1998, between the Company and the
Trustee (the "Assignment of Additional Funds") and such Pricing
Agreement will not (i) conflict with or result in any breach
which would constitute a material default under, or, except as
contemplated by the Pooling and Servicing Agreement or the Series
Supplement, result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of the
Company material to the Company, pursuant to the terms of, any
indenture, loan agreement or other agreement or instrument for
borrowed money to which the Company is a party or by which the
Company may be bound or to which any of the property or assets of
the Company may be bound or to which any of the property or
assets of the Company, material to the Company, is subject, (ii)
result in any violation of the provisions of the Certificate of
Incorporation or By-Laws of the Company or, (iii) to the best
3
of the Company's knowledge, result in any material violation of
any statute or any order, rule or regulation applicable to the
Company of any court or any federal, state or other regulatory
authority or other governmental body having jurisdiction over the
Company.
(f) No consent, approval, authorization or other
order of, or filing with, any court or any Federal, State or
other regulatory authority or other governmental body having
jurisdiction over the Company is required for the issue and sale
of the Securities except as may be required under the Act, the
Exchange Act, and securities laws of the various states and other
jurisdictions which are applicable to the issue and sale of the
Designated Securities and except for the filing of any financing
or continuation statement required to perfect or continue the
Trust's and the Company's respective interests in the
Receivables.
(g) The compliance by Sears with all of the
provisions of the Pooling and Servicing Agreement, the Series
Supplement, the Assignment of Accounts and Sale of Receivables
Agreement, dated as of September 15, 1994, as amended between
Sears National Bank (the "Bank") and Sears (the "Bank Assignment
Agreement"), the Purchase Agreement, the Contribution Agreement,
the Receivables Warehouse Agreement and this Agreement will not
(i) conflict with or result in any breach which would constitute
a material default under, or, except as contemplated by the
Pooling and Servicing Agreement, the Series Supplement, the Bank
Assignment Agreement, the Purchase Agreement and the Contribution
Agreement, result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of Sears
or any subsidiary thereof, material to Sears and its subsidiaries
(whether or not consolidated) considered as a whole, pursuant to
the terms of, any indenture, loan agreement or other agreement or
instrument for borrowed money to which Sears and the Company,
Sears Roebuck Acceptance Corp., Sears DC Corp. or Sears National
Bank (collectively, the "Designated Subsidiaries") is a party or
by which Sears or any Designated Subsidiary may be bound or to
which any of the property or assets of Sears or any Designated
Subsidiary, material to Sears and its subsidiaries (whether or
not consolidated) considered as a whole, is subject, (ii) result
in any violation of the provisions of the Restated Certificate of
Incorporation, as amended, or the By-Laws of Sears or, (iii) to
the best of the Company's knowledge, result in any material
violation of any statute or any order, rule or regulation
applicable to Sears of any court or any Federal, State or other
regulatory authority or other governmental body having
jurisdiction over Sears;
(h) The Principal Receivables conveyed by the
Company to the Trust under the Pooling and Servicing Agreement
had an aggregate outstanding balance determined as of the date
set forth in the Pricing Agreement of not less than the amount
set forth in the Pricing Agreement; and
(i) The Pooling and Servicing Agreement is not
required to be qualified under the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"), and the Trust is not
required to be registered under the Investment Company Act of
1940, as amended (the "Investment Company Act").
3. Subject to the terms and conditions herein set
forth, the Company agrees to cause to be issued and sold to each
of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the
purchase price specified in the Pricing Agreement applicable to
any Designated Securities, the principal amount of Designated
Securities set forth in such Pricing Agreement.
4
4. (a) Upon the execution of the Pricing Agreement
applicable to any Designated Securities and the authorization by
you of the release of the Designated Securities, the several
Underwriters propose to offer the Designated Securities for sale
upon the terms and conditions set forth in the Prospectus as
amended or supplemented.
(b) Each Underwriter represents and agrees that
it will not offer or sell or deliver any of the Securities in any
jurisdiction except under circumstances that will result in
compliance with the applicable laws thereof.
(c) Each Underwriter represents and agrees that
it will not, at any time that such Underwriter is acting as an
"underwriter" (as defined in Section 2(11) of the Act) with
respect to any Designated Securities, transfer, deposit or
otherwise convey any such Designated Securities into a trust or
other type of special purpose vehicle that issues securities or
other instruments backed in whole or in part by, or that
represents interests in, such Designated Securities without the
prior written consent of the Company.
5. Unless otherwise specified in the Pricing
Agreement, Designated Securities to be purchased by each
Underwriter pursuant to the Pricing Agreement relating thereto
shall be delivered by or on behalf of the Company to you for the
account of such Underwriter, against payment by such Underwriter
or on its behalf of the purchase price thereof by wire transfer
to such account as the Company may designate of federal or other
immediately available funds. The place, time and date of such
delivery shall be set forth in the Pricing Agreement or at such
other place, time and date as you and the Company may agree upon
in writing, such time and date being herein called the "Time of
Delivery." Unless otherwise specified in the Pricing Agreement,
the Securities shall be represented by definitive certificates
registered in the name of Cede & Co., as nominee for The
Depository Trust Company. Such definitive certificates will be
made available for inspection at least twenty-four hours prior to
the Time of Delivery at the office of Bank One, National
Association, One North State Street, 9th Floor, Chicago, Illinois
60602.
6. The Company agrees with each of the Underwriters
of Designated Securities:
(a) Immediately following the execution of each
Pricing Agreement, the Company will prepare a Prospectus
Supplement setting forth the amount of Securities covered thereby
and the terms thereof not otherwise specified in the Prospectus,
the price at which such Securities are to be purchased by the
Underwriters from the Company, either the initial public offering
price or the method by which the price at which such Securities
are to be sold will be determined, the selling concessions and
allowances, if any, and such other information as the Company
deems appropriate in connection with the offering of such
Securities, and after the date of the Pricing Agreement relating
to such Securities and prior to the Time of Delivery for such
Securities the Company will not make any further amendment or any
supplement to the Registration Statement or Prospectus as amended
or supplemented without first having furnished you with a copy of
the proposed form thereof and given you a reasonable opportunity
to review the same; to advise you promptly of any such amendment
or supplement after such Time of Delivery and to furnish you with
copies thereof for so long as the delivery of a prospectus is
required in connection with the offering or sale of such
Securities; and during such same period to advise you, promptly
after it receives notice thereof, of the time when the
Registration Statement, or any amendment thereto, or any amended
Registration Statement has become effective or any supplement to
the Prospectus or any amended Prospectus has been filed, of the
issuance by the Commission of any stop order or of any order
5
preventing or suspending the use of any Prospectus, or the
suspension of the qualification of such Securities for offering
or sale in any jurisdiction, or the initiation or threatening of
any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and in the
event of the issuance of any such stop order or of any such order
preventing or suspending the use of any such Prospectus or
suspending any such qualification, to use promptly its best
efforts to obtain its withdrawal;
(b) Promptly from time to time to take such
action as you may reasonably request to qualify the Securities
for offering and sale under the securities laws of such
jurisdictions as you may request and to comply with such laws so
as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete
the distribution of such Securities, provided, that in connection
therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of
process in any jurisdiction;
(c) To furnish the Underwriters with copies of
the Prospectus as amended or supplemented in such quantities as
you may from time to time reasonably request and if at any time
the delivery of a prospectus is required by law in connection
with the offering or sale of such Securities and if at such time
any event shall have occurred as a result of which the Prospectus
as amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall
be necessary during such same period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and to
prepare and furnish without charge to each Underwriter and to any
dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to
the Prospectus which will correct such statement or omission or
effect such compliance and in case any Underwriter is required to
deliver a prospectus in connection with sales of any Securities
at any time nine months or more after the effective date of the
Registration Statement, upon your request but at the expense of
such Underwriter, to prepare and deliver to such Underwriter as
many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To cause the Trust to make generally
available to holders of the Securities, in accordance with Rule
158 under the Act or otherwise, as soon as practicable, but in
any event not later than forty-five days after the end of the
fourth full fiscal quarter (ninety days in the case of the last
fiscal quarter in any fiscal year) following the fiscal quarter
ending after the effective date of the Registration Statement, an
earning statement of the Trust (which need not be audited)
complying with Section 11(a) of the Act and covering a period of
at least twelve consecutive months beginning after the effective
date of such Registration Statement;
(e) To pay or cause to be paid all expenses
incident to the performance of its obligations hereunder,
including the cost of all qualifications of the Securities under
state securities laws (including reasonable fees of counsel to
the Underwriters in connection with such qualifications and in
connection with legal investment surveys) and the cost of
printing this Agreement and any blue sky and legal investment
memoranda.
6
The Company and Sears agree with each of the
Underwriters during the period beginning from the date of the
Pricing Agreement and continuing to and including the earlier of
(i) the termination of trading restrictions on the Designated
Securities, of which termination you agree to give the Company
prompt notice confirmed in writing, and (ii) the Time of
Delivery, not to offer, sell, contract to sell or otherwise
dispose of any securities of the Company or any other subsidiary
of Sears, or any other trust for which the Company or any other
subsidiary of Sears is depositor, which represent participation
interests in receivables arising under open end credit plans
offered by Sears, without your prior written consent, which
consent shall not be unreasonably withheld.
7. The obligations of the several Underwriters
hereunder and under the Pricing Agreement relating to Designated
Securities shall be subject, in their discretion, to the
condition that all representations and warranties and other
statements of the Company herein are, at and as of the Time of
Delivery for such Designated Securities, true and correct, the
condition that the Company shall have performed all of its
obligations hereunder theretofore to be performed, and the
following additional conditions:
(a) No stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have
been complied with to your reasonable satisfaction;
7
(b) All corporate proceedings and related matters
in connection with the organization of the Company, the validity
of the Bank Assignment Agreement, the Purchase Agreement, the
Contribution Agreement, the Receivables Warehouse Agreement, the
Assignment of Additional Funds, the Pooling and Servicing
Agreement and the Series Supplement and the registration,
authorization, issue, sale and delivery of the Designated
Securities shall have been satisfactory to counsel to the
Underwriters, and such counsel shall have been furnished with
such papers and information as they may reasonably have requested
to enable them to pass upon the matters referred to in this
subdivision (b);
(c) Counsel to the Company shall have furnished
to you such counsel's written opinion, dated the Time of
Delivery, in form and substance satisfactory to you in your
reasonable judgment, to the effect that:
(i) The Company and Sears have been duly
incorporated and are validly existing as corporations in
good standing under the laws of their respective states of
incorporation;
(ii) This Agreement and the Pricing Agreement
have been duly authorized, executed and delivered on the
part of the Company and Sears;
(iii) The issue and sale of the
Designated Securities and the compliance by the Company with
all of the provisions of the Designated Securities, this
Agreement, the Pricing Agreement, the Purchase Agreement,
the Contribution Agreement, the Receivables Warehouse
Agreement, the Assignment of Additional Funds, the Pooling
and Servicing Agreement and the Series Supplement will not
(a) conflict with or result in any breach which would
constitute a material default under, or, except as
contemplated by the Pooling and Servicing Agreement or the
Series Supplement, result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or
assets of the Company, material to the Company, pursuant to
the terms of, any indenture, loan agreement or other
agreement or instrument for borrowed money known to such
counsel to which the Company is a party or by which the
Company may be bound or to which any of the property or
assets of the Company, material to the Company, is subject,
(b) result in any violation of the provisions of the
Certificate of Incorporation, as amended, or the By-Laws of
the Company, or (c) to the best knowledge of such counsel,
result in any material violation of any statute or any
order, rule or regulation applicable to the Company of any
court or any Federal, State or other regulatory authority or
other governmental body having jurisdiction over the
Company, other than the Act, the Exchange Act, the Trust
Indenture Act and the Investment Company Act and the rules
and regulations under each such act and other than the
securities laws of the various states or other jurisdictions
which are applicable to the issue and sale of the Securities
and other than state laws pertaining to the perfection of
security interests;
(iv) To the best knowledge of such counsel,
no consent, approval, authorization or other order of, or
filing with, any court or any Federal, State or other
regulatory authority or other governmental body having
jurisdiction over Sears or the Company is required for the
consummation by Sears and the Company, as applicable, of the
transactions contemplated by the Bank Assignment Agreement,
the Purchase Agreement, the Contribution Agreement, the
Assignment of Additional Funds and the Receivables Warehouse
Agreement or for the issue and sale of the Securities except
as may be required under the Act, the Exchange Act, the
Trust Indenture Act and the Investment
8
Company Act and securities laws of the various states or
other jurisdictions which are applicable to the issue and
sale of the Securities and except for the filing of any
financing or continuation statement required to perfect the
respective interests of the Trust, the Company and Sears in
the Receivables;
(v) The compliance by Sears with all of the
provisions of this Agreement, the Bank Assignment Agreement,
the Purchase Agreement, the Contribution Agreement, the
Receivables Warehouse Agreement, the Pooling and Servicing
Agreement and the Series Supplement will not (a) conflict
with or result in any breach which would constitute a
material default under, or, except as contemplated by the
Bank Assignment Agreement, the Pooling and Servicing
Agreement, the Series Supplement, the Purchase Agreement,
the Contribution Agreement or the Receivables Warehouse
Agreement result in the creation or imposition of any lien,
charge or encumbrance upon any of the property or assets of
Sears or any subsidiary thereof, material to Sears and its
subsidiaries (whether or not consolidated) considered as a
whole, pursuant to the terms of, any indenture, loan
agreement or other agreement or instrument for borrowed
money known to such counsel to which Sears or any Designated
Subsidiary is a party or by which Sears or any Designated
Subsidiary may be bound or to which any of the property or
assets of Sears or any Designated Subsidiary, material to
Sears and its subsidiaries (whether or not consolidated)
considered as a whole, is subject, (b) result in any
violation of the provisions of the Restated Certificate of
Incorporation or the By-Laws of Sears, or (c) to the best
knowledge of such counsel, result in any material violation
of any statute or any order, rule or regulation applicable
to Sears of any court or any Federal, State or other
regulatory authority or other governmental body having
jurisdiction over Sears, other than the Act, the Exchange
Act, the Trust Indenture Act and the Investment Company Act
and the rules and regulations under each such act and other
than the securities laws of the various states or other
jurisdictions which are applicable to the issue and sale of
the Securities and other than state laws pertaining to the
perfection of security interests;
(vi) Each of the Pooling and Servicing
Agreement, the Series Supplement, the Purchase Agreement,
the Contribution Agreement and the Receivables Warehouse
Agreement has been duly authorized, executed and delivered
on the part of the Company and Sears and, as to each of the
Company and Sears, is a valid and binding instrument
enforceable in accordance with its terms except as the
foregoing may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter
in effect relating to creditors' rights generally or general
principles of equity (whether considered in a proceeding at
law or in equity) and the discretion of the court before
which any proceeding therefor may be brought; the Pooling
and Servicing Agreement is not required to be qualified
under the Trust Indenture Act; the Trust is not required to
be registered under the Investment Company Act; and the
Securities have been duly authorized and (assuming their due
authentication by the Trustee) have been duly executed,
issued and delivered and constitute valid and binding
obligations of the Trust in accordance with their terms,
entitled to the benefits of the Pooling and Servicing
Agreement and the Series Supplement, except as the foregoing
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect
relating to creditors' rights generally or general
principles of equity (whether considered in a proceeding at
law or in equity) and the discretion of the court before
which any proceeding therefor may be brought;
9
(vii) The Bank Assignment Agreement has
been duly authorized, executed and delivered by Sears and,
as to Sears, is a valid and binding instrument enforceable
in accordance with its terms, except as the foregoing may be
limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect
relating to creditors' rights generally or general
principles of equity (whether considered in a proceeding at
law or in equity) and the discretion of the court before
which any proceeding therefor may be brought;
(viii) The Assignment of Additional Funds
has been duly authorized, executed and delivered by the
Company and, as to the Company, is a valid and binding
instrument enforceable in accordance with its terms, except
as the foregoing may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter
in effect relating to creditors' rights generally or general
principles of equity (whether considered in a proceeding at
law or in equity) and the discretion of the court before
which any proceeding therefor may be brought;
(ix) Such counsel does not know of any
pending legal or governmental proceedings required to be
described in the Prospectus which are not described as
required;
(x) The documents incorporated by reference
in the Prospectus as amended or supplemented (other than
financial, statistical and accounting data therein, as to
which such counsel need express no opinion), when they
became effective or were filed with the Commission, as the
case may be, complied as to form in all material respects
with the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission
thereunder;
(xi) The Registration Statement and the
Prospectus as amended or supplemented (excluding the
documents incorporated by reference therein) (other than
financial, statistical and accounting data therein as to
which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the
Act and the rules and regulations thereunder; and
(xii) Such counsel does not know of any
contract or other document to which the Company or Sears is
a party required to be filed as an exhibit to the
Registration Statement or required to be incorporated in the
Prospectus as amended or supplemented or required to be
described in the Prospectus as amended or supplemented which
has not been so filed or described.
In rendering such opinion, such counsel may rely to the
extent such counsel deems appropriate upon certificates of
officers or other executives of the Company or Sears, its
business groups and its subsidiaries and of public officials as
to factual matters and upon opinions of other counsel. Such
counsel shall also state that: (a) nothing has come to such
counsel's attention which has caused such counsel to believe that
any of the documents referred to in subdivision (ix) above (other
than financial, statistical and accounting data therein, as to
which such counsel need express no belief), in each case after
excluding any statement in any such document which does not
constitute part of the Registration Statement or the Prospectus
as amended or supplemented pursuant to Rule 412 of Regulation C
under the Act and after substituting therefor any statement
modifying or superseding such excluded statement, when they
became effective or were
10
filed, as the case may be, contained, in the case of documents
which became effective under the Act, an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and, in the case of documents which were filed under
the Exchange Act with the Commission, an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and (b)
nothing has come to such counsel's attention which has caused
such counsel to believe that the Registration Statement or the
Prospectus as amended or supplemented (other than financial,
statistical and accounting data therein, as to which such counsel
need express no belief) contains an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading;
(d) Counsel to the Bank shall have furnished to
you such counsel's written opinion, dated the Time of Delivery,
in form and substance satisfactory to you in your reasonable
judgment, to the effect that:
(i) The Bank has been duly incorporated and
is validly existing as a national banking association in
good standing under the laws of the United States of
America;
(ii) The compliance by the Bank with all of
the provisions of the Bank Assignment Agreement will not (a)
conflict with or result in any breach which would constitute
a material default, or except for that created by the Bank
Assignment Agreement, result in the creation or imposition
of any lien, charge or encumbrance upon any of the property
or assets of the Bank, material to the Bank, pursuant to the
terms of, any indenture, loan agreement or other agreement
or instrument for borrowed money known to such counsel to
which the Bank is a party, or by which the Bank may be
bound, or to which any of the property or assets of the
Bank, material to the Bank, is subject, (b) result in any
violation of the provisions of the Articles of Association
or the By-Laws of the Bank, or (c) to the best knowledge of
such counsel, result in any material violation of any
statute or any order, rule or regulation applicable to the
Bank of any court or any Federal, State or other regulatory
authority or other governmental body having jurisdiction
over the Bank;
(iii) To the best knowledge of such
counsel, no consent, approval, authorization or other order
of, or filing with, any court or any Federal, State or other
regulatory authority or other governmental body having
jurisdiction over the Bank, which has not already been made
or obtained, is required for the consummation of the
transactions contemplated by the Bank Assignment Agreement,
except for the filing of any financing or continuation
statement required to perfect the interest of Sears in the
Receivables; and
(iv) The Bank Assignment Agreement has been
duly authorized, executed and delivered on the part of the
Bank and, as to the Bank, is a valid and binding instrument
enforceable in accordance with its terms, except as the
foregoing may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter
in effect relating to creditors' rights generally, general
principles of equity (whether considered in a proceeding at
law or in equity), or the discretion of the court before
which any proceeding therefor may be brought.
11
In rendering such opinion, such counsel may rely to the
extent such counsel deems appropriate upon certificates of
officers or other executives of the Company or Sears, its
business groups and its subsidiaries and of public officials as
to factual matters and upon opinions of other counsel.
(e) At the Time of Delivery for such Designated
Securities, Deloitte & Touche LLP shall have furnished to you a
letter or letters, dated the respective date of delivery thereof,
in form and substance satisfactory to you as to such matters as
you may reasonably request;
(f) (i) Sears and its subsidiaries (whether or
not consolidated) considered as a whole, shall not have
sustained, since the date of the latest audited financial
statement previously delivered to you, any material loss or
interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree
and (ii) since the date of the Pricing Agreement there shall not
have been any material change in the capital stock accounts or
long-term debt of Sears or any material adverse change in the
general affairs, financial position, shareholders' equity or
results of operations of Sears and its subsidiaries (whether or
not consolidated) considered as a whole, the effect of which in
any such case described in clause (i) or (ii), in your judgment
makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Designated Securities on the
terms and in the manner contemplated in the Prospectus as amended
or supplemented;
(g) Subsequent to the date of the Pricing
Agreement relating to such Designated Securities, no downgrading
shall have occurred in the rating accorded to Sears senior debt
securities by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Services ("Standard & Poor's");
provided, however, that this subdivision (g) shall not apply to
any such rating agencies which shall have notified you of the
rating of the Designated Securities prior to the execution of the
Pricing Agreement;
(h) Subsequent to the date of the Pricing
Agreement relating to such Designated Securities neither (i) the
United States shall have become engaged in the outbreak or
escalation of hostilities involving the United States or there
has been a declaration by the United States of a national
emergency or a declaration of war, (ii) a banking moratorium
shall have been declared by either Federal or New York State
authorities, nor (iii) trading in securities generally on the New
York Stock Exchange shall have been suspended or limited or
minimum prices shall have been established by such Exchange, any
of which events, in your judgment, renders it inadvisable to
proceed with the public offering or the delivery of the
Designated Securities;
(i) At or prior to the Time of Delivery, the
Certificates shall be assigned the ratings by Moody's and
Standard & Poor's set forth in the Pricing Agreement;
(j) The Company shall have furnished or caused to
be furnished to you at the Time of Delivery for the Designated
Securities certificates satisfactory to you as to the accuracy at
and as of such Time of Delivery of the representations,
warranties and agreements of the Company herein and as to the
performance by the Company of all its obligations hereunder to be
performed at or prior to such Time of Delivery and the Company
shall have also furnished you similar certificates satisfactory
to you as to the matters set forth in subdivision (a) of this
Section 7; and
12
(k) Counsel to the Company shall have furnished
to the Underwriters a letter stating that the Underwriters may
rely on the opinions of such counsel to the Company as delivered
to Moody's and Standard & Poor's in connection with the rating of
the Securities.
8. (a) The Company and Sears will jointly and
severally indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration
Statement, any prospectus relating to the Securities or the
Prospectus as amended or supplemented, or any amendment or
supplement thereto furnished by the Company, or arise out of or
are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or (in the case of
the Registration Statement or the Prospectus as amended or
supplemented, or any amendment or supplement thereto) necessary
to make the statements therein not misleading or (in the case of
any Preliminary Prospectus) necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by such Underwriter
in connection with investigating or defending any such action or
claim; provided, however, that neither the Company nor Sears
shall be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the
Registration Statement, the Prospectus or the Prospectus as
amended or supplemented or any such amendment or supplement in
reliance upon and in conformity with written information
furnished to the Company by any Underwriter of Designated
Securities through you expressly for use in the Prospectus as
amended or supplemented relating to such Securities; and
provided, further, that neither the Company nor Sears shall be
liable to any Underwriter or any person controlling such
Underwriter under the indemnity agreement in this subdivision (a)
with respect to the Preliminary Prospectus or the Prospectus or
the Prospectus as amended or supplemented, as the case may be, to
the extent that any such loss, claim, damage or liability of such
Underwriter or controlling person results solely from the fact
that such Underwriter sold Designated Securities to a person to
whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus (excluding
documents incorporated by reference) or of the Prospectus as then
amended or supplemented (excluding documents incorporated by
reference) if the Company has previously furnished copies thereof
to such Underwriter.
(b) Each Underwriter will indemnify and hold
harmless the Company and Sears against any losses, claims,
damages or liabilities to which the Company or Sears may become
subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement, the Prospectus, or the
Prospectus as amended or supplemented, or any amendment or
supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or (in the case of the Registration
Statement or the Prospectus or the Prospectus as amended or
supplemented, or any amendment or supplement thereto) necessary
to make the statements therein not misleading or (in the case of
any Preliminary Prospectus) necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged
13
omission was made in any Preliminary Prospectus, the Registration
Statement, the Prospectus, or the Prospectus as amended or
supplemented, or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the
Company by such Underwriter through you expressly for use
therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim.
(c) Within a reasonable period after receipt by
an indemnified party under subdivision (a) or (b) above of notice
of the commencement of any action with respect to which
indemnification is sought under such subdivision or contribution
may be sought under subdivision (d) below, such indemnified party
shall notify the indemnifying party in writing of the
commencement thereof. In case any such action shall be brought
against any indemnified party, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs
of investigation.
(d) If the indemnification provided for in this
Section 8 is unavailable to an indemnified party under
subdivision (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred
to therein, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and
the Underwriters of the Designated Securities on the other from
the offering of the Designated Securities to which such loss,
claim, damage or liability (or actions in respect thereof)
relates and also the relative fault of the Company on the one
hand and the Underwriters of the Designated Securities on the
other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the
Company on the one hand and such Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds
from the offering of such securities (before deducting expenses)
received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set
forth on the cover page of the Prospectus as amended or
supplemented. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied
by the Company on the one hand or the Underwriters on the other
and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission of the Company on the one hand or the Underwriters,
directly or through you, on the other hand. With respect to any
Underwriter, such relative fault shall also be determined by
reference to the extent (if any) to which such losses, claims,
damages or liabilities (or actions in respect thereof) with
respect to any Preliminary Prospectus result from the fact that
such Underwriter sold Designated Securities to a person to whom
there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus (excluding
documents incorporated by reference) or of the Prospectus as then
amended or supplemented (excluding documents incorporated by
reference) if the Company has previously furnished copies thereof
to such Underwriter. The
14
Company, Sears and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this subdivision
(d) were determined by per capita allocation among the
indemnifying parties (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations
referred to above in this subdivision (d). The amount paid or
payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
subdivision (d), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at
which the applicable Designated Securities underwritten by it and
distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The
obligations of the Underwriters in this subdivision (d) to
contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company and Sears
under this Section 8 shall be in addition to any liability which
the Company and Sears may otherwise have and shall extend, upon
the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 8 shall be in
addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning
of the Act.
9. (a) If any Underwriter shall default in its
obligation to purchase the Designated Securities which it has
agreed to purchase hereunder and under the Pricing Agreement
relating to such Designated Securities, you may in your
discretion arrange for yourselves or another party or other
parties to purchase such Designated Securities on the terms
contained herein. If within thirty-six hours after such default
by any Underwriter you do not arrange for the purchase of such
Designated Securities, then the Company shall be entitled to a
further period of thirty-six hours within which to procure
another party or other parties to purchase such Designated
Securities on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you
have so arranged for the purchase of such Designated Securities,
or the Company notifies you that it has so arranged for the
purchase of such Designated Securities, you or the Company shall
have the right to postpone the Time of Delivery for such
Designated Securities for a period of not more than seven days,
in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus as amended or
supplemented, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments or supplements to
the Registration Statement or the Prospectus which may thereby be
made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like
effect as if such person had originally been a party to this
Agreement with respect to such Designated Securities.
15
(b) If, after giving effect to any arrangements
for the purchase of the Designated Securities of a defaulting
Underwriter or Underwriters by you and the Company as provided in
subdivision (a) above, the aggregate principal amount of such
Designated Securities which remains unpurchased does not exceed
one-eleventh of the aggregate principal amount of the Designated
Securities, then the Company shall have the right to require each
non-defaulting Underwriter to purchase the principal amount of
Securities which such Underwriter agreed to purchase hereunder
and under the Pricing Agreement relating to such Designated
Securities and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the
principal amount of the Designated Securities which such
Underwriter agreed to purchase hereunder and under such Pricing
Agreement) of the Designated Securities of such defaulting
Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
(c) If, after giving effect to any arrangements
for the purchase of the Designated Securities of a defaulting
Underwriter or Underwriters by you and the Company as provided in
subdivision (a) above, the aggregate principal amount of
Designated Securities which remains unpurchased exceeds one-
eleventh of the aggregate principal amount of the Designated
Securities, as referred to in subdivision (b) above, or if the
Company shall not exercise the right described in subdivision
(b) above to require non-defaulting Underwriters to purchase
Designated Securities of a defaulting Underwriter or
Underwriters, then the Pricing Agreement relating to such
Designated Securities shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the
Company, except for the expenses to be borne by the Company and
the Underwriters as provided in Section 6(e) hereof and the
indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements,
representations, warranties and other statements of the Company,
Sears and the several Underwriters, as set forth in this
Agreement or made by or on behalf of them, respectively, pursuant
to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Underwriter or any
controlling person of any Underwriter, or the Company, or any
officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Securities.
Anything herein to the contrary notwithstanding, the
indemnity agreement of the Company and Sears in subdivisions (a)
and (e) of Section 8 hereof, the representations and warranties
in subdivisions (b) and (c) of Section 2 hereof and any
representation or warranty as to the accuracy of the Registration
Statement or the Prospectus as amended or supplemented contained
in any certificate furnished by the Company pursuant to
subdivision (i) of Section 7 hereof, insofar as they may
constitute a basis for indemnification for liabilities (other
than payment by the Company and Sears of expenses incurred or
paid in the successful defense of any action, suit or proceeding)
arising under the Act, shall not extend to the extent of any
interest therein of an Underwriter or a controlling person of an
Underwriter if a director, officer or controlling person of the
Company when the Registration Statement becomes effective or a
person who, with his consent, is named in the Registration
Statement as being about to become a director of the Company, is
a controlling person of such Underwriter, except in each case to
the extent that an interest of such character shall have been
determined by a court of appropriate jurisdiction as not against
public policy as expressed in the
16
Act. Unless in the opinion of counsel for the Company and Sears
the matter has been settled by controlling precedent, the Company
and Sears will, if a claim for such indemnification is asserted,
submit to a court of appropriate jurisdiction the question
whether such interest is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
11. If any Pricing Agreement shall be terminated
pursuant to Section 9 hereof, the Company shall not then be under
any liability to any Underwriter with respect to the Designated
Securities covered by such Pricing Agreement except as provided
in Section 6(e) and Section 8 hereof; but, if for any other
reason any Designated Securities are not delivered by or on
behalf of the Company as provided herein, the Company and Sears
will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and
disbursements of counsel, reasonably incurred by the Underwriters
in making preparations for the purchase, sale and delivery of
such Designated Securities, but neither the Company nor Sears
shall then be under any further liability to any Underwriter with
respect to such Designated Securities except as provided in
Section 6(e) and Section 8 hereof.
12. In all dealings hereunder, you shall act on behalf
of each of the underwriters of Designated Securities, and the
parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any
Underwriter made or given by you.
All statements, requests, notices and agreements
hereunder shall be in writing or by telegram or facsimile
transmission if promptly confirmed in writing and if to the
Underwriters shall be sufficient in all respects, if delivered or
sent by registered mail to the representative of the Underwriters
named in the Pricing Agreement at the address named therein; and
if to the Company or Sears shall be sufficient in all respects if
delivered or sent by registered mail to the Company at 3711
Kennett Pike, Greenville, Delaware 19807, Attention: Secretary.
13. This Agreement and each Pricing Agreement shall be
binding upon, and inure solely to the benefit of, the
Underwriters, Sears, the Company and, to the extent provided in
Section 8 and Section 10 hereof, the officers and directors of
the Company and each person who controls the Company or any
Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement or
any such Pricing Agreement. No purchaser of any of the
Securities from any Underwriter shall be deemed a successor or
assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement and
each Pricing Agreement.
15. This Agreement and each Pricing Agreement shall be
construed in accordance with the laws of the State of New York.
In the event of any conflict between this Agreement and the
Pricing Agreement, the Pricing Agreement shall govern.
16. This Agreement and each Pricing Agreement may be
executed by any one or more of the parties hereto and thereto in
any number of counterparts, each of which shall be deemed to be
an original, but all such respective counterparts shall together
constitute one and the same instrument.
17
If the foregoing is in accordance with your
understanding, please sign and return ten counterparts hereof and
upon the acceptance hereof by you, on behalf of each of the
Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters
and the Company.
Very truly yours,
SRFG, INC.
By:______________________________
SEARS, ROEBUCK AND CO.
By:______________________________
Accepted as of the date hereof:
LEAD UNDERWRITER
___________________________________
Authorized Signatory
As Representative of the several Underwriters
18
SEARS CREDIT ACCOUNT MASTER TRUST II
MASTER TRUST CERTIFICATES
PRICING AGREEMENT
Dated: _____________, 19__
To: SRFG, Inc., as Seller under the Pooling and Servicing
Agreement dated as of July 31, 1994, as amended.
Re: Underwriting Agreement dated _____________, 19__
Title: Sears Credit Account Master Trust II, $______________
_______ Class ____, Master Trust Certificates, Series ____.
Initial Principal Amount of Certificates: $_______________
[State by Class if more than one Class]
Class A Expected Final Payment Date: __________________
Class B Expected Final Payment Date: __________________
Series and Class Designation Schedule: [insert relevant
description of Series and Classes of Certificates]
Series Cut-Off Date: The last day of the Due Period ending in
__________________
Certificate Rating: [" " by Moody's Investors Service, Inc.]
[" " by Standard and Poor's Ratings Services] [State by Class
if more than one Class]
Aggregate outstanding balance of Principal Receivables as of the
last day of the Due Period ending in ________________.
Date of Series Supplement: ____________, 199_.
Certificate Rate: ____% per annum. [State by Class if more than
one Class]
Terms of Sale: The purchase price for the Designated Securities
to the Underwriter[s] will be ____% of the aggregate principal
amount of the Certificates as of __________, 19__, plus accrued
interest at the Certificate Rate from ____________, 19__. [State
by Class if more than one Class.]
19
Initial Public Offering Price: The initial public offering price
for the Designated Securities will be ___% of the aggregate
principal amount of the Certificates as of ___________, 199_,
plus accrued interest at the Certificate Rate from
_______________, 199_ [State by Class if more than one Class.]
Closing Location: [Latham & Watkins, Sears Tower, 58th Floor,
Chicago, Illinois 60606]
Time of Delivery: __:__ A.M., New York Time, on ___________,
19__, or at such other time as may be agreed upon in writing.
Address of Representative of the Underwriters for notices:
Notwithstanding anything in the Agreement or in this
Pricing Agreement to the Contrary, the Agreement and this Pricing
Agreement constitute the entire agreement and understanding among
the parties hereto with respect to the purchase and sale of the
Series ____-_ Certificates. This Pricing Agreement may be
amended only by written agreement of the parties hereto.
The Underwriters [named in Schedule 1 hereto agree,
severally and not jointly], subject to the terms and provisions
of the Agreement, which is incorporated by reference herein and
made a part hereof, to purchase the principal amount of
Designated Securities [set forth opposite their names in Schedule
1].
Very truly yours,
[UNDERWRITERS]
By:
By:
________________________________
On behalf of each of the
Underwriters
Accepted:
SRFG, INC.
By: __________________________
20
SCHEDULE 1
Principal Principal
Amount of Amount of
Class _ Class _
Certificates Certificates
to be to be
Underwriter Purchased Purchased
. . . . . . . . . . . . . . $ $
. . . . . . . . . . . . . . $ $
. . . . . . . . . . . . . . $ $
. . . . . . . . . . . . . . $ $
Total $ $
21
RESTATED CERTIFICATE OF INCORPORATION
OF
SEARS RECEIVABLES FINANCING GROUP, INC.
Under Section 245 of the General
Corporation Law of the State of Delaware
The undersigned, being the President and the Assistant
Secretary of Sears Receivables Financing Group, Inc. (the
"Corporation"), a corporation organized and existing under
the laws of the State of Delaware, do hereby certify as
follows:
FIRST: The name of the Corporation is Sears
Receivables Financing Group, Inc. The Corporation was
incorporated in the state of Delaware on April 8, 1988.
SECOND: This Restated Certificate of Incorporation
and the amendments set forth herein have been duly adopted
in accordance with the provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware and by
the unanimous written consent of the holder of all
outstanding shares entitled to vote.
THIRD: The text of the Certificate of
Incorporation of the Corporation, as amended or
supplemented, is hereby restated, in full, as follows:
RESTATED CERTIFICATE OF INCORPORATION
OF
SEARS RECEIVABLES FINANCING GROUP, INC.
FIRST: The name of this corporation is: Sears
Receivables Financing Group, Inc.
SECOND: The address of its registered office in
the State of Delaware is 1209 Orange St., Wilmington,
Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The nature of business or purposes to be
conducted or promoted by the Corporation is to engage in the
following activities:
(a) to acquire from Sears, Roebuck and Co. ("Sears"), hold,
sell and pledge open end credit account receivables
("Receivables") and to enter into agreements for the
servicing of Receivables;
(b) to enter into any agreement (including, without
limitation, any agreement creating a trust) providing for
the authorization, issuance, sale and delivery of credit
account pass-through certificates ("Certificates") whether
directly or through a trust, secured or supported by
Receivables or collections thereon;
(c) to borrow money to facilitate any activity authorized
herein;
(d) to hold, pledge or otherwise deal with any certificates
("Seller Certificate") representing a residual interest in
Receivables;
(e) to loan or otherwise invest proceeds from Receivables,
funds received in respect of any Seller Certificate, and any
other income as determined by the Corporation's Board of
Directors and not inconsistent with this THIRD Article,
including in other Receivables; and
(f) to engage in any lawful act or activity and to exercise
any powers permitted to corporations organized under the
General Corporation Law of Delaware that are incidental to
and necessary or suitable for the accomplishment of the
purposes mentioned in (a), (b), (c), (d) or (e) above.
FOURTH: The total number of shares of all classes
of capital stock which the Corporation shall have authority
to issue is Two Thousand (2,000) shares of Common Stock, par
value $0.01 per share.
FIFTH: In furtherance and not in limitation of
the powers conferred by statute, the Board of Directors is
expressly authorized to make, alter or repeal the By-Laws of
the Corporation.
SIXTH: Election of directors need not be by
written ballot unless the By-Laws of the Corporation shall
so provide.
SEVENTH: To the fullest extent permitted by
Delaware General Corporation Law, as the same exists or may
hereafter be amended, a director of this corporation shall
not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
EIGHTH: Neither the Corporation's funds nor any
other assets of the Corporation are to be commingled with
those of any other corporate or natural person.
NINTH: The Corporation will maintain separate
corporate records and books of account from those of any
other corporate or natural person.
TENTH: The Corporation will conduct its business
at an office separate from the offices of any of its
shareholders.
ELEVENTH: Notwithstanding any other article of this
Certificate of Incorporation, the unanimous approval of the
Board of Directors is required for the filing by the
Corporation of a voluntary bankruptcy petition under Section
301 of the Bankruptcy Code, 11 U.S.C. 301.
TWELFTH: Notwithstanding any other provisions of
this Certificate of Incorporation and any provision of law
that otherwise so empowers the Corporation, the Corporation
shall not, while any Certificates are outstanding, do any of
the following unless it has been advised by the Rating
Agency that such action will not result in a reduction in,
or withdrawal of, the rating of the outstanding Certificates
by the Rating Agency:
(i) dissolve the Corporation;
(ii) other than any indebtedness to Sears in connection with
the acquisition of Receivables which indebtedness shall be
subordinated to all other obligations of the Corporation,
incur any additional indebtedness, or assume or guaranty any
indebtedness of any entity.
The "Rating Agency" shall be either or both of Standard &
Poor's Corporation or Moody's Investors Service, Inc.
("Moody's"), in each case so long as such rating agency has
rated the Certificates outstanding at the time any
determination is made under this Certificate of
Incorporation.
THIRTEENTH: The Board of Directors shall include at
least one individual who is an Independent Director and, at
all times during the existence of a Rating Event, the Board
of Directors shall include at least two individuals who are
Independent Directors; provided, however, that upon the
death, resignation, retirement, disqualification, removal,
or otherwise of any such Independent Director, or upon the
occurrence of a Rating Event if at the time of such Rating
Event the Board of Directors includes fewer than two
Independent Directors, the stockholders or directors of the
Corporation, as the case may be, shall have ninety (90) days
from the date of such resignation, retirement,
disqualification, removal or Rating Event to elect an
Independent Director in compliance with this Article of this
Certificate of Incorporation. An "Independent Director"
shall be an individual who is not at such time, and shall
not have been at any time during the preceding five years
(i) a director, officer, employee or affiliate of Sears or
any of its subsidiaries or affiliates, or (ii) the
beneficial owner at the time of such individual's
appointment as an Independent Director or at any time
thereafter while serving as an Independent Director, of five
percent (5%) of the outstanding common shares of Sears
having general voting rights; provided, however, that a
director who otherwise meets the description of Independent
Director as set forth herein shall not be disqualified from
serving as an Independent Director of this corporation if he
is also a director of another special purpose corporation
that is an affiliate of Sears with a certificate of
incorporation substantially similar to the certificate of
incorporation of the Corporation. A "Rating Event" shall be
deemed to have occurred when, and shall be deemed to exist
only for so long as, Sears long-term debt has a rating at or
below A3 by Moody's.
FOURTEENTH: The Corporation shall not amend, alter,
change or repeal the THIRD, ELEVENTH, TWELFTH OR THIRTEENTH
Articles of the Certificate of Incorporation , or this
FOURTEENTH Article of this Certificate of Incorporation,
unless it has been advised by the Rating Agency that such
action will not result in a reduction in or withdrawal of
the rating of the outstanding Certificates by the Rating
Agency. The Corporation shall not amend, alter, change or
repeal any other article of this Certificate of
Incorporation unless such action will not have a material
adverse effect on the outstanding Certificates.
IN WITNESS WHEREOF, I have signed this Certificate on
the 18th day of December, 1992.
/s/ Edward J. Condon, Jr.
Edward J. Condon, Jr.
President
(S E A L)
ATTEST:
/s/ Venrice R. Palmer
Venrice R. Palmer
Assistant Secretary
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
The undersigned, being the President and Chief
Executive Officer of Sears Receivables Financing Group, Inc.
(the "Corporation"), a corporation organized under the laws
of the State of Delaware on April 8, 1988, do hereby certify
as follows:
(1) That this amendment has been duly adopted in accordance
with Section 242 of the General Corporation Law of the State
of Delaware and by the unanimous written consent of the
holder of all outstanding shares entitled to vote.
(2) That the following article of the Certificate of
Incorporation of the Corporation be, and it hereby is,
amended to read as follows:
FIRST: The name of the Corporation is:
SRFG, Inc.
IN WITNESS WHEREOF, I have signed this Certificate this
29th day of December, 1997.
SEARS RECEIVABLES FINANCING GROUP,
INC.
/s/ George F. Slook
George F. Slook
President and Chief Executive Officer
(S E A L)
ATTEST:
/s/ Kimberly A. Griffin
Kimberly A. Griffin
Assistant Secretary
<PAGE>
SEARS, ROEBUCK AND CO.
SERVICER
SRFG, INC.
SELLER
AND
BANK ONE, NATIONAL ASSOCIATION TRUSTEE
ON BEHALF OF THE CERTIFICATEHOLDERS
------------
SERIES SUPPLEMENT
-----
DATED AS OF
-------------
TO THE
POOLING AND SERVICING AGREEMENT DATED AS
OF JULY 31, 1994
------------
$
----------------
SEARS CREDIT ACCOUNT MASTER TRUST II
MASTER TRUST CERTIFICATES, SERIES
---
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S>
<C>
ANNEX...................................................................1
SECTION 1. Definitions..............................................1
SECTION 2. Subordination...........................................23
SECTION 3. Representations and Warranties of the Seller............24
SECTION 4. Representations and Warranties of the Servicer..........24
SECTION 5. Representations and Warranties of the Trustee...........25
SECTION 6. Authentication of Certificates..........................25
SECTION 7. Establishment and Administration of Investor Accounts
and the Third Party Credit Enhancement Account,,........25
SECTION 8. Allocations of Collections..............................30
SECTION 9. Payments................................................83
SECTION 10. Third Party Credit Enhancement..........................87
SECTION 11. Calculation of Investor Losses..........................88
SECTION 12. Servicing Compensation..................................88
SECTION 13. Class Coupon Cap Agreement..............................88
SECTION 14. Interest Rate Swaps.....................................90
SECTION 15. Investor Certificateholders' Monthly Statement..........90
SECTION 16. Monthly Servicer Certificate............................90
SECTION 17. Additional Rapid Amortization Events....................90
SECTION 18. Purchase of Investor Certificates and Series
Termination.............................................92
SECTION 19. Variable Accumulation Period............................92
SECTION 20. Series Yield Factor.....................................93
SECTION 21. Issuance of Additional Investor Certificates............94
SECTION 22. Sale or Transfer of Seller Retained Classes.............95
SECTION 23. Paired Series...........................................95
SECTION 24. Fixed Principal Allocation Adjustment...................95
SECTION 25. Ratification of Pooling and Servicing Agreement.........96
SECTION 26. Counterparts............................................96
SECTION 27. Book-Entry Certificates.................................96
[SECTION 28.][Issuance of New Series]................................96
SECTION 29. Governing Law...........................................96
</TABLE>
EXHIBITS
EXHIBIT A-1 Form of Class A Certificate
EXHIBIT A-2 Form of Class B Certificate
EXHIBIT A-3 Form of Class C Certificate
EXHIBIT B Form of Investor Certificateholders'Monthly Statement
EXHIBIT C Form of Monthly Servicer Certificate
<PAGE>
SEARS CREDIT ACCOUNT MASTER TRUST II
MASTER TRUST CERTIFICATES, SERIES ________
This Series of Master Trust Certificates is established
pursuant to Section 6.07 of that certain Pooling and Servicing
Agreement dated as of July 31, 1994, as amended (the "Pooling and
Servicing Agreement"), by and among SRFG, INC. (formerly Sears
Receivables Financing Group, Inc.), a Delaware corporation ("SRFG")
as Seller, SEARS, ROEBUCK AND CO., a New York corporation ("Sears")
as Servicer, and BANK ONE, NATIONAL ASSOCIATION (formerly The First
National Bank of Chicago), a national banking association, organized
and existing under the laws of the United States (the "Trustee").
This SERIES TERM SHEET and the ANNEX attached hereto, by and among SRFG,
Sears and the Trustee, constitute the SERIES SUPPLEMENT (the
"Series Supplement") and, together with the Pooling and Servicing
Agreement, establish the Series of Master Trust Certificates to
be known as SEARS CREDIT ACCOUNT MASTER TRUST II, MASTER TRUST
CERTIFICATES, SERIES ________.
SERIES TERM SHEET
<TABLE>
<S> <C>
Date of Series Term Sheet .
---------
Group One.
Series Initial Investor Interest .
----------
Class Initial Investor Interest Class A - .
of each Class of Investor Certificates ----------
Class B - .
----------
Class C - .
----------
Seller Retained Class Initially, [Class B and] Class C.
Type of Structure Controlled Amortizing Structure.
Certificate Rates Class A - ____% per annum
[calculated on the basis
of a 360-day year of twelve 30-
day months (or in the case of
the first interest payment,
calculated on the basis of the
number of days elapsed from and
including the Series Closing
Date to but excluding the 15th
day of the calendar month in
which the first interest
payment occurs (assuming a 30-
day month) and a 360-day year
of twelve 30-day months)].
Class B - Initially, ____%;
[provided, however, that the
Seller may increase the
Certificate Rate pursuant to
Section 22].
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Class C - Initially, ____%;
provided, however, that the
Seller may increase the
Certificate Rate pursuant to
Section 22.
LIBOR Determination Date [Not applicable.]
Embedded Coupon Cap Class A - [Not applicable.]
Class B - [Not applicable.]
Class C - [Not applicable.]
Class Coupon Cap Class A - [Not applicable.]
Class B - [Not applicable.]
Class C - [Not applicable.]
Eligible for Interest Rate Swaps [No]
Swap Counterparty Payment [Not applicable.]
Swap Rate [Not applicable.]
Swap Trust Payment [Not applicable.]
Series Yield Factor Initially [zero], but may be
increased pursuant to Section 20.
Date from which Interest for First Series Closing Date.
Interest Payment Date Shall Accrue
Distribution Dates _________ 15, ____ and the 15th
day of each calendar month
thereafter, or, if such day is
not a Business Day, the next
succeeding Business Day.
Interest Payment Dates The 15th day of each month (or,
if such day is not a Business
Day, the next succeeding Business
Day), commencing in _____________.
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Principal Payment Date The 15th day of each month (or,
if such day is not a Business
Day, the next succeeding Business
Day), commencing in ___________,
and each Special Payment Date.
Class A Expected Final Payment Date The Distribution Date in .
------
Class B Expected Final Payment Date The Distribution Date in .
------
Class C Expected Final Payment Date The Distribution Date in .
------
Series Cut-Off Date .
--------------
Series Closing Date .
--------------
Revolving Period From but excluding the Series
Cut-Off Date to, but
excluding, the earlier to occur
of (i) the first day of the Due
Period related to the
______________ Distribution
Date or (ii) the Rapid
Amortization Commencement Date.
Controlled [Amortization] Period Unless a Rapid Amortization
Event shall have
occurred prior thereto, the
period commencing on the
first day of the Due Period
related to the Distribution
Date in ________________ and
ending upon the earliest to
occur of (x) the Rapid
Amortization Commencement Date,
(y) the payment in full of the
Series Invested Amount and (z)
the Series Termination Date.
Class A Controlled [Amortization] Amount $ .
--------------------------
Class B Controlled [Amortization] Amount $ .
--------------------------
Class C Controlled [Amortization] Amount Unless a Rapid Amortization
Event shall have occurred,
_______________________.
Type of Credit Enhancement Class A - [Subordination].
Class B - [Subordination].
Class C - None.
Investor Servicing Fee Percentage [2.0%] per annum calculated on
the basis of a 360-day year of
twelve 30-day months.
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Series Monthly Servicing Fee Additional
Funds Portion Percentage Not applicable.
Amount of Additional Funds [Amount specified in the
Assignment of Additional
Funds dated as of January 30,
1998 between the Seller and
the Trustee, but subject to
being increased pursuant to
Section 4.03(e) of the Pooling
and Servicing Agreement.]
Eligible for Finance Charge Collections [Yes.]
Reallocations to and from other Series in the
Group
Eligible for Principal Collections Reallocations [Yes.]
to and from other Series in the Group
Paired Series [No.]
Subject to being part of a Paired Series [Yes.]
Series Termination Date The day following _____________
the Distribution Date.
Variable Funded Series [No.]
Classes, if any, subject to ERISA
restrictions (as set forth in
Section 6.06(a)(ii) of the Pooling and
Servicing Agreement) [Class B] and Class C.
PFA Special Reserve Required Percentage [Not applicable.]
Series Pre-Funding Account [Not applicable.]
Series Pre-Funding Amount [Not applicable.]
Series Pre-Funding Deadline [Not applicable.]
Pre-Funding Special Reserve Account [Not applicable.]
Class A Early Termination Premium [Not applicable.]
Class B Early Termination Premium [Not applicable.]
Pre-Funding Special Reserve Required Amount [Not applicable.]
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Class A Investor Certificate Any one of the certificates
executed by the Seller
and authenticated by the
Trustee, substantially in the
form of Exhibit A-1.
Class B Investor Certificate Any one of the
certificates executed
by the Seller and authenticated
by the Trustee, substantially
in the form of Exhibit A-2.
Class C Investor Certificate Any one of the certificates
executed by the Seller
and authenticated by the
Trustee, substantially in the
form of Exhibit A-3.
</TABLE>
v
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have
caused this Series Supplement to be duly executed by their respective officers
as of the day and year first above written.
SRFG, INC.
as Seller
By:
---------------------------------
Name:
Title:
SEARS, ROEBUCK AND CO.
as Servicer
By:
----------------
Name:
Title:
BANK ONE, NATIONAL ASSOCIATION
as Trustee
By:
----------------
Name:
Title:
vi
<PAGE>
ANNEX
In consideration of the mutual agreements herein
contained, each party agrees as follows for the benefit of the
other parties and for the benefit of the Certificateholders:
SECTION 1. Definitions.
(a) Capitalized terms not otherwise defined in this
Series Supplement (including the Series Term Sheet) shall have
the meanings ascribed to them in the Pooling and Servicing
Agreement. Capitalized terms that refer to a Series or Class
refer to the Series or Class of the Series established hereby, as
applicable, unless the context otherwise clearly requires.
(b) The following terms have the definitions set forth below with
respect to the Series established hereby, unless the context
otherwise clearly requires:
"Additional Certificate" shall have the meaning
specified in Section 21(a).
"Additional Certificate Date" shall have the meaning specified in
Section 21(a).
"Additional Funds," if applicable, shall have the
meaning set forth in the Series Term Sheet and in the Pooling and
Servicing Agreement.
"Available Expected Principal" for any Determination
Date with respect to each Due Period and the Group to which the
Series established hereby belongs shall be equal to the excess of
(a) the Expected Monthly Principal for such Due Period over (b)
the sum of, without duplication, (i) all class controlled
amortization amounts and class controlled accumulation amounts
for all Non-Variable Accumulation Series in the Group to which
the Series established hereby belongs that are not scheduled to
be in their revolving periods as of such Due Period and (ii) the
portion of such Expected Monthly Principal projected by the
Servicer to be allocable to any other series in the Group to
which the Series established hereby belongs with respect to which
a Rapid Amortization Event shall have occurred on or prior to
such Determination Date.
"Base Rate" for each Distribution Date shall mean the
sum of (A) the weighted average Certificate Rate for all Classes
in the Series, (B) the Investor Servicing Fee Percentage and (C)
the annualized percentage equivalent of a fraction the numerator
of which is the sum of the Swap Trust Payments and the
denominator of which is the Series Invested Amount.
"Calculation Period," if applicable, shall have the
meaning specified in the applicable Class Coupon Cap Agreement
between the Trustee and the Coupon Cap Provider.
"Certificate Interest" for any Class shall mean, for any
Distribution Date, the product of (a) the Class Invested Amount
for such Class for such Distribution Date and (b) a fraction the
numerator of which is (1) with respect to each Class that has no
Subclasses, the Certificate Rate for such Class or (2) with
respect to each Class that has two or more Subclasses, the Class
Weighted Average Certificate Rate, and the denominator (which may
be calculated separately for each Subclass pursuant to subsection
(x) or (y)) of which is (x) if the relevant Certificate Rate is
to be calculated on the basis of the actual number of
<PAGE>
days elapsed and a 360-day year, 360 divided by the actual number
of days from and including the immediately preceding Distribution
Date (or, in the case of the first Distribution Date, 360 divided
by the number of days from and including the Series Closing Date
to but excluding such Distribution Date (and assuming a 30-day
month)) to but excluding the current Distribution Date or (y) if
the relevant Certificate Rate is to be calculated on the basis of
a 360-day year of twelve 30-day months, twelve (or, in the case
of the first Distribution Date, 360 divided by the number of days
from and including the Series Closing Date to but excluding such
Distribution Date (and assuming a 30-day month)).
"Certificate Principal" shall mean, with respect to each
Class, the principal payable in respect of such Class of Investor
Certificates.
"Certificate Rate," with respect to any Class or
Subclass, shall mean the certificate rate set forth in the Series
Term Sheet with respect to such Class or Subclass, as such rate
may be adjusted as of the beginning of each Interest Accrual
Period, if applicable; provided, however, that the Certificate
Rate for any Class or Subclass that does not have a fixed
Certificate Rate shall not exceed the Embedded Coupon Cap, if
any, for such Class or Subclass.
"Class A Early Termination Premium," if applicable,
shall be as set forth in the Series Term Sheet.
"Class A Early Termination Premium Shortfall," if
applicable, for any Distribution Date, shall mean the positive
difference, if any, between (i) the Class A Early Termination
Premium and (ii) the amount deposited with respect to the Class A
Early Termination Premium pursuant to Section 8(b)(17) less
amounts previously deposited with respect to the Class A Early
Termination Premium Shortfall pursuant to Section 8(b)(44),
8(c)(14) or 8(c)(43). The Class A Early Termination Premium
Shortfall initially shall be zero.
"Class Alternative Deficiency Amount" shall mean, with
respect to each Class, on any Payment Date, the Class Deficiency
Amount that would have been calculated for such Class on such
Payment Date if the aggregate unreimbursed Investor Losses on such
Payment Date equaled zero.
"Class B Early Termination Premium," if applicable,
shall be as set forth in the Series Term Sheet.
"Class B Early Termination Premium Shortfall," if
applicable, for any Distribution Date, shall mean the positive
difference, if any, between (i) the Class B Early Termination
Premium and (ii) the amount deposited pursuant to Section
8(b)(18) less amounts previously deposited with respect to the
Class B Early Termination Premium Shortfall pursuant to Section
8(b)(45), 8(c)(15) or 8(c)(44). The Class B Early Termination
Premium Shortfall initially shall be zero.
"Class C Fixing Deadline" shall mean the earliest to
occur of (i) a Rapid Amortization Event, (ii) the Seller Retained
Class Purchase Date with respect to Class C, or (iii) the date on
which the Class C Invested Amount becomes less than or equal to
3% of the Series Initial Investor Interest; provided, however,
that such percentage may be decreased without the consent of the
Certificateholders, if the Seller shall have received written
notice from the Rating Agencies that such a decrease will not
result in a Ratings Event.
2
<PAGE>
"Class C Permitted Controlled Amortization Amount," if
applicable, for any Distribution Date shall mean an amount equal
to the sum of (a) the product of (i) a fraction the numerator of
which is the Class C Initial Investor Interest and the
denominator of which is the Series Initial Investor Interest
(less the Class C Initial Investor Interest) and (ii) the Class A
Controlled Amortization Amount or the Class A Controlled
Accumulation Amount, as applicable, and (b) the Class C Permitted
Controlled Amortization Amount Shortfall, if any; provided,
however, that the Class C Permitted Controlled Amortization
Amount may be increased without the consent of the
Certificateholders, if the Seller shall have received written
notice from the Rating Agencies that such an increase will not
result in a Ratings Event; and provided, further, that the Class
C Permitted Controlled Amortization Amount shall equal zero for
all Distribution Dates on or after the Class C Fixing Deadline.
"Class C Permitted Controlled Amortization Amount
Shortfall," if applicable, with respect to each Distribution Date
shall have the meaning set forth in Sections 8(b)(48) and
8(c)(49). The Class C Permitted Controlled Amortization Amount
Shortfall initially shall be zero.
"Class Controlled Accumulation Amount," if applicable,
with respect to such Class on any Distribution Date with respect
to the Controlled Accumulation Period, shall mean the sum of (i)
the amount specified in the Series Term Sheet with respect to
such Class of the Series established hereby (reduced for each
such Distribution Date pro-rata by the aggregate amount paid to
such Class pursuant to Section 9(a)(12)) and (ii) the Class
Controlled Accumulation Amount Shortfall for such Class;
provided, however, that if the commencement of the Controlled
Accumulation Period is to be modified pursuant to Section 19,
then the Class Controlled Accumulation Amount shall mean an
amount equal to the product of (i) Available Expected Principal
for the related Due Period and (ii) a fraction the numerator of
which is the Series Initial Investor Interest less the Class
Initial Investor Interest for any Seller Retained Class and the
denominator of which is the sum of (a) the Series Initial
Investor Interest less the Class Initial Investor Interest for
any Seller Retained Class and (b) the
series initial investor interests less the class initial investor
interests for any seller retained classes of all other Variable
Accumulation Series in the Group to which the Series established
hereby belongs that are not scheduled to be in their revolving
periods as of such Due Period; and provided, further, that, for
purposes of this definition, the commencement date of the
accumulation period of each such Variable Accumulation Series
shall be deemed to have been postponed to the latest permissible
date determined as of the date of calculation and determined as
if the provisions of Section 19 applied to each such Variable
Accumulation Series with such changes as may be specified with
respect to such Variable Accumulation Series (applying such
provisions first to the Variable Accumulation Series in the Group
to which the Series established hereby belongs with the latest
Class Expected Final Payment Date and next to each additional
such Variable Accumulation Series in reverse chronological order
based on the latest Class Expected Final Payment Date of each
such Series). The sum of the aggregate Class Controlled
Accumulation Amounts for all Classes of such Series for all Due
Periods during the Controlled Accumulation Period as modified
pursuant to Section 19 shall not be less than the Series Initial
Investor Interest less the Class Initial Investor Interest for
any Seller Retained Class.
"Class Controlled Accumulation Amount Shortfall," if
applicable, with respect to each Class and any Distribution Date
shall have the meaning set forth in Section 8(c)(48), 8(c)(50) or
8(c)(51).
"Class Controlled Amortization Amount," if applicable,
with respect to such Class or any Distribution Date with respect
to the Controlled Amortization Period, shall mean the sum of (i)
amount set forth in the Series Term Sheet with respect to each
Class of the Series established hereby (reduced for each such
Distribution Date pro-rata by the aggregate amount paid to such
Class pursuant to Section
3
<PAGE>
9(a)(12)) and (ii) any existing Class Controlled Amortization
Amount Shortfalls for such Class; provided, however, that the Class
Controlled Amortization Amount shall not be less than zero and
shall not exceed an amount equal to, with respect to each Class,
the Class Invested Amount for such Class.
"Class Controlled Amortization Amount Shortfall," if
applicable, with respect to each Class and any Distribution Date
shall have the meaning set forth in Section 8(c)(48), 8(c)(50) or
8(c)(51).
"Class Coupon Cap," if applicable, shall mean the rate that is
specified as such in the Series Term Sheet and in the Class
Coupon Cap Agreement.
"Class Coupon Cap Agreement," if applicable, shall mean
the interest rate cap agreement or other interest rate protection
for the benefit of the Investor Certificateholders of such Class
or Subclass, dated on or before the Series Closing Date, between
the Trustee, acting on behalf of the Trust, and the Coupon Cap
Provider, or any Replacement Class Coupon Cap or Qualified
Substitute Cap Arrangement.
"Class Coupon Cap Payment," if applicable, shall mean
with respect to any Interest Payment Date, any payment required
to be made on such Interest Payment Date by the Coupon Cap
Provider with respect to the Class Coupon Cap Agreement.
"Class Cumulative Investor Charged-Off Amount" with
respect to each Class for any Distribution Date, shall mean the
Class Cumulative Investor Charged-Off Amount as of the end of the
Due Period related to the prior Distribution Date, plus the Class
Investor Charged-Off Amount for such Class for the Due Period
related to such Distribution Date; provided, however, that the
Class Cumulative Investor Charged-Off Amount shall further be
adjusted in accordance with the successive steps set forth in
Section 8 on such Distribution Date. The Class Cumulative
Investor Charged-Off Amount with respect to each Class initially
shall be zero.
"Class Deficiency Amount" shall mean, with respect to
each Class, on any Payment Date, the amount, if any, by which (a)
the sum of (i) Certificate Interest for such Class accrued since
the immediately preceding Payment Date, (ii) if, since the
immediately preceding Payment Date and prior to the current
Payment Date, a Reimbursed Loss Event has occurred, the sum of
(A) the Reimbursed Loss Interest for such Class for each previous
Distribution Date since the last Distribution Date on which
Investor Losses for such Class equaled zero and (B) the
Reimbursed Loss Interest Gross-up Amount for such Class for each
previous Distribution Date since the last Distribution Date on
which the aggregate amount of unreimbursed Investor Losses for
such Class equaled zero, (iii) the Class Deficiency Amount on the
immediately preceding Payment Date, and (iv) the Class Deficiency
Amount on the immediately preceding Payment Date multiplied by
the product of (A) a fraction the numerator of which is the
weighted average of the Certificate Rates or of the Class
Weighted Average Certificate Rates, as applicable, for such Class
for the relevant Due Periods and the denominator of which is (x)
if the relevant Certificate Rate is to be calculated on the basis
of the actual number of days elapsed and a 360-day year, 360
divided by the actual number of days from and including the
immediately preceding Distribution Date to but excluding the
current Distribution Date or (y) if the relevant Certificate Rate
is to be calculated on the basis of a 360-day year of twelve 30-
day months, twelve, and (B) the number of Distribution Dates from
and including the preceding Payment Date to but excluding the
current Payment Date exceeds (b) the amount deposited since the
immediately preceding Payment Date into the Series Interest
Funding Account pursuant to Section 8 with respect to such Class.
4
<PAGE>
"Class Expected Final Payment Date" with respect to each
Class, shall mean the date designated as such in the Series Term
Sheet.
"Class Finance Charge Collections" shall mean, with
respect to any Class, with respect to any day or any Distribution
Date, an amount equal to the product of (x) the Class Percentage
with respect to Finance Charge Collections for the related
Distribution Date and (y) the amount of Finance Charge
Collections for such day or for the related Due Period, as
applicable.
"Class Initial Investor Interest" shall mean, with
respect to each Class, the aggregate face amount of Investor
Certificates of such Class initially authenticated and delivered
pursuant to Section 6 as specified in the Series Term Sheet, plus
the aggregate face amount of any Additional Investor Certificates
authenticated and delivered pursuant to Section 21, minus (i)
prior amounts paid to such Class pursuant to Section 9(a)(12) and
(ii) the aggregate face amount of any Investor Certificates
cancelled pursuant to Section 6.16 of the Pooling and Servicing
Agreement.
"Class Invested Amount" shall mean, with respect to any
Class for any Distribution Date, an amount equal to the Class
Initial Investor Interest minus the sum of (a) the aggregate amount
of Certificate Principal paid to the Investor Certificateholders of
such Class prior to such Distribution Date (without duplication
with respect to any amounts paid to such Class pursuant to
Section 9(a)(12)), (b) the Investor Loss for such Class, if any,
at the beginning of such Distribution Date and (c) the aggregate
amount of losses on investments of principal of funds on deposit
for the benefit of such Class in the Series Principal Funding Account.
"Class Investor Charged-Off Amount" shall mean, with
respect to each Class for any Distribution Date, an amount equal
to the product of (a) the Charged-Off Amount for such
Distribution Date and (b) the Class Percentage with respect to
the Charged-Off Amount.
"Class Investor Interest" shall mean, with respect to
any Class for any Distribution Date, an amount equal to the Class
Invested Amount for such Class for such Distribution Date minus,
if applicable, the aggregate amount on deposit in the Series
Principal Funding Account for the benefit of such Class in
respect of Principal Collections.
"Class Modified Required Amount" with respect to any
Class on any Distribution Date, shall mean the Class Required
Amount for such Distribution Date minus the sum of all accrued
but unpaid Class Monthly Servicing Fees.
"Class Modified Required Amount Shortfall" with respect
to any Class on any Distribution Date, shall mean the positive
difference, if any, between (i) the Class Modified Required
Amount and (ii) the sum of the (A) Series Finance Charge
Collections allocable to such Class and (B) Series Additional
Allocable Amounts allocable to such Class for such Distribution
Date. The Class Modified Required Amount Shortfall initially
shall be zero.
"Class Monthly Deficiency Amount" with respect to any
Class on any Distribution Date, shall mean the amount set forth
in Section 9. The Class Monthly Deficiency Amount for each Class
initially shall be zero.
5
<PAGE>
"Class Monthly Servicing Fee" with respect to any Class
for any Distribution Date, shall mean an amount equal to the
product of (x) a fraction the numerator of which shall be the
Class Investor Interest and the denominator of which shall be the
Series Investor Interest, in each case on the first day of the
related Due Period (or in the case of the first Distribution Date
for the Series established hereby, the Series Initial Investor
Interest) and (y) the amount of the Investor Servicing Fee for
the related Due Period.
"Class Percentage" shall mean, with respect to any Class
with respect to any Distribution Date:
(a) when used with respect to the Charged-Off
Amount, the percentage equivalent of a fraction the
numerator of which shall be the amount of the Class
Investor Interest minus the Supplemental Cash allocable
to such Class and the denominator of which shall be the
greater of (i) the amount of Principal Receivables in
the Trust and (ii) the Aggregate Investor Interest minus
the sum of the (A) Excess Funding Amount (General), (B)
Excess Funding Amount (SRC) and (C) 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
(b) when used with respect to Principal
Collections prior to the occurrence of a Fixed Principal
Allocation Event, the percentage
equivalent of a fraction the numerator of which shall be
the amount of the Class Investor Interest minus the
Supplemental Cash allocable to such Class on the first
day of the related Due Period and the denominator of
which shall be the greater of (i) the amount of
Principal Receivables in the Trust on the first day of
the related Due Period or (ii) the sum of the numerators
used in calculating the components of the series
percentage with respect to Principal Collections for
each series then outstanding (including the Series
established hereby) as of such Distribution Date; or
(c) when used with respect to Principal
Collections on and after the occurrence of a Fixed
Principal Allocation Event (unless a Fixed Principal
Allocation Adjustment shall have occurred), the
percentage equivalent of a fraction the numerator of
which shall be the amount of the Class Investor Interest
minus the Supplemental Cash allocable to such Class on
the first day of the Due Period prior to the occurrence
of a Fixed Principal Allocation Event and the
denominator of which shall be the greater of (i) the
amount of Principal Receivables in the Trust on the
first day of the related Due Period or (ii) the sum of
the numerators used in calculating the components of the
Series Percentage with respect to Principal Collections
for each Series then outstanding (including the Series
established hereby) as of such Distribution Date;
provided, however, that because such Class is subject to
being paired with a Class of a Paired Series, if a Rapid
Amortization Event occurs with respect to such Paired
Series during the Controlled Accumulation Period,
Controlled Amortization Period or Rapid Amortization
Period with respect to the Series established hereby,
the Seller may, by written notice delivered to the
Trustee and the Servicer, designate a different
numerator for the foregoing fraction, provided that (A)
such numerator shall not be less than the Class Investor
Interest minus the Supplemental Cash allocable to such
Class as of the last day of the revolving period for
such Paired Series and (B) the Seller shall have
delivered to the Trustee an Officer's Certificate to the
effect that, based on the facts known to such officer at
the time, in the reasonable belief of the Seller, such
numerator designation would 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 with respect to the Series
established hereby; and provided, further, that should a
Rapid Amortization Event with respect to the Series
6
<PAGE>
established hereby nonetheless occur, then, on each
Distribution Date beginning with the Distribution Date
related to the Due Period in which the Rapid
Amortization Event occurs, such numerator shall not be
less than the Class Investor Interest minus the
Supplement Cash allocable to such Class as of the first
day of the Due Period in which such Rapid Amortization
Event occurs; or
(d) when used with respect to Principal
Collections on and after the occurrence of a Fixed
Principal Allocation Adjustment, the percentage
equivalent of a fraction (a) the numerator of which
shall be the greater of (i) the amount of Class Investor
Interest minus Supplemental Cash allocable to such Class
on the first day of the Due Period prior to the
occurrence of a Fixed Principal Allocation Event
multiplied by the Fixed Principal Allocation Adjustment
Factor and (ii) the amount of the Class Investor Interest minus the
Supplemental Cash allocable to such Class on the first
day of the related Due Period and (b) the denominator of
which shall be the greater of (i) the amount of
Principal Receivables in the Trust on the first day of
the related Due Period or (ii) the sum of the numerators
used in calculating the components of the Series
Percentage with respect to Principal Collections for
each Series then outstanding (including the Series
established hereby) as of such Distribution Date;
provided, however, that following the occurrence of a
Rapid Amortization Event, then, on each Distribution
Date beginning with the Distribution Date related to the
Due Period in which the Rapid Amortization Event occurs,
such numerator shall be the Class Investor Interest
minus the Supplemental Cash allocable to such Class on
the first day of the Due Period in which such Rapid
Amortization Event occurs; or
(e) when used with respect to Finance Charge
Collections during the Revolving Period, the Controlled
Accumulation Period or the Controlled Amortization
Period, as applicable, the percentage equivalent of a
fraction the numerator of which shall be the amount of
the Class Investor Interest minus the Supplemental Cash
allocable to such Class on the first day of the related
Due Period and the denominator of which shall be the
greater of (i) the amount of Principal Receivables in
the Trust on the first day of the related Due Period and
(ii) the sum of the numerators used in calculating the
components of the Series Percentage with respect to
Finance Charge Collections for each series then
outstanding (including the Series established hereby) as
of such Distribution Date; or
(f) when used with respect to Finance Charge
Collections during the Rapid Amortization Period, on
each Distribution Date beginning with the Distribution
Date related to the Due Period in which such Rapid
Amortization Event occurs, the percentage equivalent of
a fraction the numerator of which shall be the amount of
the Class Investor Interest minus the Supplemental Cash
allocable to such Class on the last day of the Due
Period prior to the occurrence of a Rapid Amortization
Event, and the denominator of which shall be the greater
of (i) the amount of Principal Receivables in the Trust
on the first day of the related Due Period or (ii) the
sum of the numerators used in calculating the components
of the series percentage with respect to Finance Charge
Collections for each series then outstanding (including
the Series established hereby) as of such Distribution
Date.
"Class Principal Collections" shall mean, with respect
to any Class with respect to any day or any Distribution Date, an
amount equal to the product of (x) the Class Percentage with
respect to Principal Collections for the related Distribution
Date and (y) the amount of Principal Collections for such day or
for the related Due Period, as applicable.
7
<PAGE>
"Class Rapid Amortization Amount," if applicable, with
respect to each Class and any Distribution Date during the Rapid
Amortization Period shall mean the Class Investor Interest.
"Class Rapid Amortization Amount Shortfall," if
applicable, with respect to each Class and any Distribution Date
during the Rapid Amortization Period shall have the meaning set
forth in Section 8(d)(47), 8(d)(48) or 8(d)(49).
"Class Required Amount" with respect to any Class on any
Distribution Date, shall mean the sum of (i) Certificate Interest
with respect to such Class for such Distribution Date, (ii) the
Class Monthly Deficiency Amount on the immediately preceding
Distribution Date, (iii) the Class Deficiency Amount on the
immediately preceding Payment Date multiplied by a fraction the
numerator of which is the weighted average of the Certificate
Rates or of the Class Weighted Average Certificate Rates, as
applicable, for such Class plus two percent per annum for each
Due Period subsequent to the immediately preceding Payment Date
and the denominator of which is (x) if the relevant Certificate
Rate is to be calculated on the basis of the actual number of
days elapsed and a 360-day year, 360 divided by the actual number
of days from and including the immediately preceding Distribution
Date (or, in the case of the first Distribution Date, from and
including the Series Closing Date) to but excluding the current
Distribution Date or (y) if the relevant Certificate Rate is to
be calculated on the basis of a 360-day year of twelve 30-day
months, twelve (or, in the case of the first Distribution Date,
360 divided by the number of days from and including the Series
Closing Date), (iv) if on the immediately preceding Distribution
Date a Reimbursed Loss Event occurred, the sum of (A) the
Reimbursed Loss Interest for each previous Distribution Date
since the last Distribution Date on which the aggregate amount of
unreimbursed Investor Losses for such Class equaled zero, (B) 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 such Class
equaled zero and (C) for any Distribution Date following the
Distribution Date immediately following the Reimbursed Loss Event
to and including the next Payment Date, the Reimbursed Loss
Interest Gross-up Amount for such Distribution Date and (v) the
sum of all accrued but unpaid Class Monthly Servicing Fees.
"Class Weighted Average Certificate Rate," if
applicable, shall mean, for any Class composed of two or more
Subclasses, for any Distribution Date, the percentage equivalent
of a fraction the numerator of which is the sum of, for each
Subclass of such Class, the product of the Class Invested Amount
for such Subclass and the Certificate Rate for such Subclass for
such Distribution Date, and the denominator of which is the Class
Invested Amount for such Class.
"Commercial Paper Determination Date," if applicable,
shall have the meaning set forth in the Series Term Sheet.
"Commercial Paper Rate," if applicable, shall mean, with
respect to any Commercial Paper Determination Date, the rate
equal to the Money Market Yield on such Commercial Paper
Determination Date of the rate for commercial paper having a
maturity of 30 days as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15 (519),
Selected Interest Rates," or any successor publication, the rate
for dealers under the heading "Commercial Paper." In the event
that such rate is not published on such date, then the Commercial
Paper Rate will be the Money Market Yield on such date of the
rate for Commercial Paper having a maturity of 30 days as
published by the Federal Reserve Bank of New York in the daily
statistical release "Composite 3:30 p.m. Quotations for U.S.
8
<PAGE>
Government Securities" ("Composite Quotations") under the heading
"Commercial Paper." If on such date the rate for commercial paper
is not yet published in either H.15 (519) or Composite
Quotations, the Commercial Paper Rate for such date shall be
calculated by the Trustee and shall be the Money Market Yield of
the arithmetic mean (rounded to the nearest one-hundredth of a
percent, with five hundred one-thousandths of a percent rounded
upward) of the offered rates, as of 11:00 a.m., New York City
time, of three leading dealers of commercial paper in New York
City selected by the Trustee on such date, for commercial paper
having a maturity of 30 days placed for an industrial issuer
whose bond rating is "AA" or the equivalent, from either Rating
Agency. In the event that such rates are not available on such
date, then the Commercial Paper Rate shall be the Money Market
Yield of the rate for commercial paper so provided in a
comparable source. The Commercial Paper Rate shall be determined
by the Trustee. For purposes of this definition of Commercial
Paper Rate, the term "Money Market Yield" shall mean a yield
(expressed as a percentage rounded to the nearest one-hundredth
of a percent, with five hundred one-thousandths of a percent
rounded upwards) calculated in accordance with the following
formula:
Money Market Yield = D x 360 x 100
-------------
360 - (D x M)
where "D" refers to the per annum rate for commercial paper
quoted on a bank discount basis and expressed as a decimal, and
"M" refers to the actual number of days in the related Interest
Accrual Period.
"Controlled Accumulation Period," if applicable, shall
have the meaning set forth in the Series Term Sheet, subject in
the case of any Variable Accumulation Series to variation in
accordance with Section 18 hereof.
"Controlled Accumulation Period Length," if applicable,
shall have the meaning set forth in Section 18.
"Controlled Amortization Period," if applicable, shall
have the meaning set forth in the Series Term Sheet.
"Counterparty," if any, shall mean the counterparty
under each Interest Rate Swap.
"Coupon Cap Provider," if any, shall mean the entity
listed as such in the Series Term Sheet, in its capacity as
obligor under the Class Coupon Cap Agreement, or if any
Replacement Class Coupon Cap Agreement or Qualified Substitute
Cap Arrangements are obtained pursuant to Section 13, the obligor
with respect to such Replacement Class Coupon Cap Agreement or
Qualified Substitute Cap Arrangements.
"Credit Enhancement" shall have the meaning set forth in
the Series Term Sheet.
"Determination Date" for any month shall mean the second
Business Day preceding the Distribution Date for such month.
"Distribution Date" shall have the meaning set forth in
the Series Term Sheet.
"Drawing Date" shall mean the first Business Day preceding each
Distribution Date.
9
<PAGE>
"Embedded Coupon Cap," if applicable, shall have the
meaning set forth in the Series Term Sheet with respect to any
Class or Subclass.
"Excess Funding Amount (General)" for any Distribution
Date shall mean the amount on deposit in the Excess Funding
Account (General) less investment
earnings.
"Excess Funding Amount (SRC)" for any Distribution Date
shall mean the amount on deposit in the Excess Funding Account
(SRC) less investment earnings.
"Expected Monthly Principal" for the Group to which the
Series established hereby belongs shall be no greater than the
product of (i) the lowest of the monthly principal payment rates
(determined by dividing Principal Collections during a Due Period
by the amount of Principal Receivables in the Trust as of the
last day of the preceding Due Period), expressed as a decimal for
the 12 calendar months preceding the date of such calculation;
provided, however, that such calculation period may be shortened
by the Servicer if payment terms have been materially changed
during such 12 calendar month period with respect to the
Accounts, and (ii) the sum of the Series Invested Amounts for all
outstanding series in the Group to which the Series established
hereby belongs, minus the sum of all Class Invested Amounts for
any Seller Retained Classes for all outstanding series in the
Group to which the Series established hereby belongs.
"Fixed Accumulation Series" shall mean each outstanding
Series for which the commencement date of the Controlled
Accumulation Period may not be changed at the option of the
Servicer.
"Fixed Principal Allocation Adjustment" shall have the meaning
specified in Section 25.
"Fixed Principal Allocation Adjustment Factor" with
respect to any Class with respect to any Distribution Date shall
mean (i) in the case of any Class of any Variable Accumulation
Series, a fraction the numerator of which is the Controlled
Accumulation Period Length (as recalculated solely for the
purpose of determining the Fixed Principal Allocation Adjustment
Factor on the first Determination Date following the day notice
is given pursuant to Section 25) and the denominator of which is
the number of months (including the current month) remaining
until the Class Expected Final Payment Date for such Class, and
(ii) in the case of any Class having a Controlled Amortization
Amount or any Class of a Fixed Accumulation Series, a fraction
the numerator of which is the Controlled Amortization Amount or
the Controlled Accumulation Amount, as applicable, and the
denominator of which is the sum of (a) the Controlled
Amortization Amount or the Controlled Accumulation Amount, as
applicable, and (b) 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 with respect to any
Class of any other Series in the Group to which the Series
established hereby belongs) on such Distribution Date.
"Fixed Principal Allocation Event" shall mean the
earliest of (a) the beginning of the Due Period immediately
following the Due Period related to the Distribution Date during
the Controlled Amortization Period or the Controlled Accumulation
Period, as applicable, with respect to the Series established
hereby on which the Series Available Principal Amount is less
than zero; (b) the date on which a Rapid Amortization Event with
respect to the Series established hereby occurs; or (c) a date
selected by the Servicer, if any, provided that the Servicer
provides notification of such date to the Seller, the Trustee, the
10
<PAGE>
Third Party Credit Enhancement Provider, if any, and the Rating
Agencies no later than two Business Days prior to such selected date.
"Funded Third Party Credit Enhancement" shall mean any
Third Party Credit Enhancement that consists of funds on deposit
in one or more segregated trust accounts in the corporate trust
department of an office or branch of a Qualified Trust
Institution or an Eligible Institution for the benefit of the
Investor Certificateholders and, if so specified, the Third Party
Credit Enhancement Provider, of the Series established hereby,
including, without limitation, a reserve account or a cash
collateral account.
"Group Available Principal Amount" shall mean, with
respect to each Distribution Date, (i) the amount remaining on
deposit in the Group Principal Collections Reallocation Account
on such Distribution Date after all withdrawals have been made
from such account for the benefit of any Series in the same Group
as the Series established hereby (including the Series
established hereby), but before such amount is withdrawn from the
Group Principal Collections Reallocation Account and paid to the
Seller pursuant to Section 8(b)(51), 8(c)(60) or 8(d)(55) minus
(ii) (x) the amount deposited in the Group Principal Collections
Reallocation Account pursuant to any provisions similar to
Section 8(b)(49) with respect to any series in the Group to which
the Series established hereby is a member from any series that
has a controlled amortization period or controlled accumulation
period, as applicable, beginning before the latest Class Expected
Final Payment Date for the Series established hereby, (y) the
amount deposited in the Group Principal Collections Reallocation
Account pursuant to any provisions similar to Section 8(c)(58)
with respect to any series in the Group to which the Series
established hereby is a member from any series that has a
controlled amortization period or controlled accumulation period,
as applicable, ending before the latest Class Expected Final
Payment Date for the Series established hereby and (z) the amount
deposited in the Group Principal Collections Reallocation Account
pursuant to any provisions similar to Section 8(d)(53).
"Group Excess Funding Amount" shall mean an amount equal
to the product of (i) the Aggregate Excess Funding Amount and
(ii) a fraction (a) the numerator of which is the sum of the
numerators used in calculating the class percentage with respect
to the principal collections for all classes of all series
(including the Classes of the Series established hereby) in the
Group to which the Series established hereby belongs 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 classes (including the Classes of the Series
established hereby) of all outstanding series.
"Group Finance Charge Collections Reallocation Account"
shall have the meaning specified in Section 7(b).
"Group Pre-Funding Reallocation Account," if applicable,
shall have the meaning specified in Section 7(b).
"Group Principal Collections Reallocation Account" shall have the
meaning specified in Section 7(b).
"Initial Scheduled Controlled Accumulation Period Length," if
applicable, shall have the meaning set forth in the Series Term
Sheet.
11
<PAGE>
"Interest Accrual Period" shall mean, with respect to
any Interest Payment Date, the period from and including the Interest Payment
Date immediately preceding such Interest Payment Date (or, in the
case of the first Interest Payment Date, from and including the
Series Closing Date) to but excluding such Interest Payment Date.
"Interest Payment Date" shall mean each date designated
as such in the Series Term Sheet.
"Interest Rate Swap," if applicable, shall mean each
interest rate swap agreement between the Trustee and the
Counterparty for the benefit of the Investor Certificateholders
and any replacement or successor interest rate swap agreement.
"Investor Accounts" shall mean, in addition to Investor Accounts
established pursuant to the Pooling and Servicing Agreement, the
Series Collections Account, the Series Principal Collections
Account, the Series Principal Funding Account, the Series
Interest Funding Account, the Series Pre-Funding Account (if
applicable), the Pre-Funding Special Reserve Account (if
applicable), the PFA Special Reserve Account, the Series
Distribution Account, the Group Finance Charge Collections
Reallocation Account, the Group Principal Collections
Reallocation Account and the Group Pre-Funding Reallocation Account.
"Investor Loss" with respect to each Class, shall mean
the amount determined pursuant to Section 11(b) and, in the event
the Receivables are sold pursuant to Section 12.01(b) of the
Pooling and Servicing Agreement, the amount, if any, by which the
Class Investor Interest (determined immediately prior to such
sale) exceeds the net proceeds of such sale payable to such
Class.
"Investor Servicing Fee" shall mean, with respect to any
Distribution Date, an amount equal to the product of (i) the
Investor Servicing Fee Percentage and (ii) the Series Investor
Interest minus the Supplemental Cash allocable to such Series on
the first day of the related Due Period (or in the case of the
first Distribution Date for the Series established hereby, the
Series Initial Investor Interest less the Series Pre-Funding
Amount, if any).
"Investor Servicing Fee Percentage" shall mean the percentage
identified as such in the Series Term Sheet.
"LIBOR," if applicable, shall mean, with respect to any
LIBOR Determination Date, the rate for one-month deposits in
United States dollars which appears on Telerate Page 3750 as of
11:00 a.m., London time, on such day. If such rate does not
appear on Telerate Page 3750, the rate will be determined by the
Trustee on the basis of the rates at which deposits in United
States dollars are offered by four major banks in the London
interbank market, selected by the Trustee, at approximately 11:00
a.m., London time, on such day to prime banks in the London
interbank market for a period equal to the relevant Interest
Accrual Period commencing on that day. The Trustee will request
the principal London office of each such bank to provide a
quotation of its rate. If at least two such quotations are
provided, the rate will be the arithmetic mean of the quotations.
If fewer than two quotations are provided as requested, the rate
for that day will be the arithmetic mean of the rates quoted by
four major banks in New York City, selected by the Trustee, at
approximately 11:00 a.m., New York City time, on that day for
loans in United States dollars to leading European banks for a
period equal to the relevant Interest Accrual Period commencing
on that day.
12
<PAGE>
"LIBOR Business Day," if applicable, shall mean a day
other than a Saturday or a Sunday or a day on which banking institutions in
the City of London, England, in Chicago, Illinois and in New York,
New York are not required or authorized by law to be closed.
"LIBOR Determination Date," if applicable, shall have
the meaning set forth in the Series Term Sheet.
"Minimum Controlled Accumulation Period Length" shall
mean, for any Variable Accumulation Series, the number of months
so specified in the Series Term Sheet.
"Minimum Seller Interest," for any day or Distribution
Date shall mean an amount equal to the positive difference, if
any, between (i) the Minimum Principal Receivables Balance and
(ii) (A) the Aggregate Investor Interest minus (B) the sum of (x)
the series pre-funding amounts, if any, for all outstanding
series, (y) the Excess Funding Amount (General) and (z) the
Excess Funding Amount (SRC), for such day or Distribution Date.
"Net Adjusted Yield" shall mean, with respect to any
Distribution Date, the average of the percentages obtained for
each of the three preceding Due Periods by subtracting the Base
Rate from the Net Yield for such Due Period.
"Net Yield" shall mean, with respect to any Due Period
or any Distribution Date, the annualized percentage equivalent of
a fraction (a) the numerator of which is the sum of the (i)
Series Finance Charge Collections, (ii) Series Additional
Allocable Amounts, (iii) finance charge collections and
additional allocable amounts, if any, reallocated to the Series
established hereby pursuant to Sections 8(b)(27-34), 8(c)(24-31)
and 8(d)(25-32) minus (iv) the Series Investor Charged-Off
Amount, and (b) the denominator of which is the Series Invested
Amount.
"Non-Variable Accumulation Series" shall mean each
outstanding Series that is not a Variable Accumulation Series.
"Paired Series," if applicable, shall have the meaning
set forth in Section 23.
"PFA Covered Amount," if applicable, for any
Distribution Date with respect to the Controlled Accumulation
Period will be equal to (A) if the Investor Certificates are
fixed rate certificates, one-twelfth of the product of (i) the
Class Weighted Average Certificate Rate and (ii) the amount on
deposit in the Series Principal Funding Account, if any, as of
the preceding Distribution Date or (B) if the Investor
Certificates are floating rate certificates, the product of (i) a
fraction, the numerator of which is the actual number of days in
the interest period and the denominator of which is 360, (ii) the
Class Weighted Average Certificate Rate and (iii) the amount on
deposit in the Series Principal Funding Account, if any, as of
the preceding Distribution Date.
"PFA Special Reserve Account," if applicable, shall have
the meaning set forth in Section 7(g)(1).
"PFA Special Reserve Account Factor," if applicable,
shall mean, with respect to any Determination Date, the
percentage equivalent of a fraction, the numerator of which is
the number of Due Periods scheduled to be included in the
Controlled Accumulation Period as of such date and the
13
<PAGE>
denominator of which is the Initial Scheduled Controlled
Accumulation Period Length (which percentage shall never exceed
100%).
"PFA Special Reserve Account Funding Date," if
applicable, shall mean the Distribution Date with respect to the
Due Period that commences 12 months prior to the first Due Period
of the Controlled Accumulation Period (as such may be postponed
pursuant to Section 19), provided that, upon notice to the
Servicer and the Trustee, the Seller may delay the PFA Special
Reserve Account Funding Date to the Distribution Date related to
the Due Period that occurs not later than the number of months
prior to the scheduled commencement date of the Controlled
Accumulation Period determined in accordance with the following
schedule:
<TABLE>
<CAPTION>
Number of Months
Net Adjusted Yield (rounded up to nearest whole number)
------------------ ------------------------------------
<S> <C>
Less than 2% The product of (i) the PFA Special Reserve Required
Percentage divided by 1%, (ii) the PFA Special
Reserve Account Factor and (iii) 12
2% or more, but less
than 3% The product of (i) the PFA Special Reserve Required
Percentage divided by 2%, (ii) the PFA Special
Reserve Account Factor and (iii) 12
3% or more, but less
than 4% The product of (i) the PFA Special Reserve Required
Percentage divided by 3%, (ii) the PFA Special
Reserve Account Factor and (iii) 12
4% or more The product of (i) the PFA Special Reserve Required
Percentage divided by 4%, (ii) PFA Special Reserve
Account Factor and (iii) 12
</TABLE>
"PFA Special Reserve Required Amount," if applicable, shall
mean, with respect to any Distribution Date prior to the PFA
Special Reserve Account Funding Date, $0, and on or after the
PFA Special Reserve Account Funding Date, the product of (a) the
product of (i) the PFA Special Reserve Required Percentage and
(ii) the Series Invested Amount less the Class Invested Amount
of all Seller Retained Classes as of the preceding Distribution
Date (after giving effect to all changes therein on such date)
and (b) the PFA Special Reserve Account Factor as of such Distribution Date.
"PFA Special Reserve Required Amount Shortfall," if
applicable, shall mean the positive difference, if any, between
the PFA Special Reserve Required Amount and the amount on deposit
in the PFA Special Reserve Account.
"PFA Special Reserve Required Percentage," if
applicable, shall be the percentage set forth in the Series Term
Sheet.
14
<PAGE>
"Pre-Funding Covered Amount," if applicable, with
respect to the Pre-Funding Period will be equal to (A) if the
Investor Certificates are fixed rate certificates, one-twelfth of
the product of (i) the Class Weighted AverageCertificate Rate
and (ii) the amount on deposit in the Series Pre-Funding Account,
if any, as of the preceding Distribution Date or (B) if the
Investor Certificates are floating rate certificates,the product
of (i) a fraction, the numerator of which is 360 and
the denominator of which is the actual number of days in the
interest period, (ii) the Class Weighted Average Certificate Rate
and (iii) the amount on deposit in the Series Pre-Funding
Account, if any, as of the preceding Distribution Date.
"Pre-Funding Period," if applicable, shall have the
meaning set forth in Section 7(h)(3).
"Pre-Funding Special Reserve Account," if applicable,
shall have the meaning set forth in Section 7(h)(1).
"Pre-Funding Special Reserve Amount," if applicable, for
any Distribution Date shall mean the amount on deposit in the Pre-
Funding Special Reserve Account for such Distribution Date.
"Pre-Funding Special Reserve Amount Shortfall," if
applicable, shall mean the positive difference, if any between
the Pre-Funding Special Reserve Required Amount and the Pre-
Funding Special Reserve Amount.
"Pre-Funding Special Reserve Required Amount," if
applicable, shall have the meaning set forth in the Series Term
Sheet.
"Principal Payment Date," if applicable, shall mean each date
designated as such in the Series Term Sheet.
"Purchased Class" shall have the meaning specified in Section 22.
"Qualified Substitute Cap Arrangement," if applicable,
shall have the meaning specified in Section 13.
"Qualified Third Party Credit Enhancement Provider," if
applicable, shall mean (i) if the Third Party Credit Enhancement
is not Funded Third Party Credit Enhancement, an institution that
meets the Qualified Third Party Credit Enhancement Provider
rating requirements set forth in the Series Term Sheet at the
time of the funding of such Third Party Credit Enhancement, or
(ii) if the Third Party Credit Enhancement is a Funded Credit
Enhancement, an institution that meets the Qualified Third Party
Credit Enhancement Provider rating requirements set forth in the
Series Term Sheet (or, in either subsection (i) or (ii) such
lesser requirements as the applicable Rating Agency shall allow);
provided, however, that in the event the Servicer elects to
obtain Third Party Credit Enhancement that is not Funded Third
Party Credit Enhancement and is unable after the exercise of its
best efforts to obtain from a Qualified Third Party Credit
Enhancement Provider as so defined such Third Party Credit
Enhancement with respect to which the representations set forth
in Section 10(a) shall be true, the term "Qualified Third Party
Credit Enhancement Provider" shall mean a Person who satisfies
such requirements except that its long-term unsecured debt rating
by any nationally recognized rating agency may be lower than that
set forth in such requirements, but shall not be lower than the
highest credit rating of any Person who otherwise satisfies said
requirements and from whom the Servicer is able to obtain such a
Third Party Credit Enhancement.
15
<PAGE>
"Rapid Amortization Commencement Date" shall mean the
earlier of the date on which a Rapid Amortization Event is deemed
to occur pursuant to Section 9.01 of the Pooling and Servicing
Agreement or pursuant to Section 17 hereof.
"Rapid Amortization Event" shall mean any event
specified in Section 9.01 of the Pooling and Servicing Agreement
or in Section 17 hereof.
"Rapid Amortization Period" shall mean the period from,
and including, the Rapid Amortization Commencement Date to, and
including, the earlier of (i) the date of the final distribution
to Investor Certificateholders of the Series established hereby
or (ii) the Series Termination Date. The first Distribution Date
of the Rapid Amortization Period shall be the Distribution Date
in the calendar month following the Rapid Amortization
Commencement Date.
"Rating Agency" shall mean Moody's or Standard & Poor's. "Rating
Agencies" shall mean both Moody's and Standard & Poor's.
"Reimbursed Loss Event" shall mean, with respect to each
Class, any Distribution Date on which the aggregate amount of
unreimbursed Investor Losses for such Class is reduced to zero in
accordance with Section 11(b), provided that if the Class
Invested Amounts for all Classes senior to such Class have been
reduced to zero and such Reimbursed Loss Event occurs on such
Class's Final Expected Payment Date, the Reimbursed Loss Event
shall be deemed to occur on the current Distribution Date for the
purposes of calculation of such Class's Modified Required Amount.
"Reimbursed Loss Interest" shall mean, with respect to
each Class for any Distribution Date, an amount equal to the
product of (i) the aggregate amount of Investor Losses that have
not been reimbursed prior to the commencement of the related Due
Period and (ii) a fraction the numerator of which is the
Certificate Rate or the Class Weighted Average Certificate Rate,
as applicable, for such Class for the related Due Period and the
denominator of which is (x) if the relevant Certificate Rate is
to be calculated on the basis of the actual number of days
elapsed and a 360-day year, 360 divided by the actual number of
days from and including the immediately preceding Distribution
Date to but excluding the current Distribution Date or (y) if the
relevant Certificate Rate is to be calculated on the basis of a
360-day year of twelve 30-day months, twelve.
"Reimbursed Loss Interest Gross-up Amount" shall mean,
with respect to each Class for any Distribution Date, an amount
equal to the product of (i) the positive difference, if any,
between the Class Alternative Deficiency Amount for the
immediately preceding Payment Date and the Class Deficiency
Amount for the immediately preceding Payment Date and (ii) a
fraction the numerator of which is the Certificate Rate or the
Class Weighted Average Certificate Rate, as applicable, for such
Class for the related Due Period and the denominator of which is
(x) if the relevant Certificate Rate is to be calculated on the
basis of the actual number of days elapsed and a 360-day year,
360 divided by the actual number of days from and including the
immediately preceding Distribution Date to but excluding the
current Distribution Date or (y) if the relevant Certificate Rate
is to be calculated on the basis of a 360-day year of twelve 30-
day months, twelve.
"Replacement Class Coupon Cap Agreement," if any, shall mean an
interest rate cap agreement or other interest rate protection
having substantially the same terms and conditions as the Class
Coupon Cap Agreement that it replaces, and otherwise satisfying
the conditions set forth in Section 13.
16
<PAGE>
"Required Daily Deposit" for any Business Day shall mean
an amount equal to:
(a) during the Revolving Period, an amount
equal to the lesser of (A) the Series Finance Charge
Collections for such Business Day and (B) the difference
between (i) the Class Modified Required Amounts (plus,
if Sears is not the Servicer, the Series Monthly
Servicing Fee for each Business Day) for all Classes of
such Series and (ii) amounts previously deposited in the
Collections Account with respect to such amounts with
respect to the current Due Period pursuant to this
subsection (a);
(b) during the Controlled Amortization Period
or Controlled Accumulation Period, as applicable, an
amount equal to the sum of:
(1) the amount set forth in subsection (a); and
(2) the lesser of (A) the Class Principal
Collections for all Classes of such Series for
such Business Day minus any Seller Retained
Class Principal Collections for such Business
Day and (B) the positive difference, if any,
between (i) the Class Controlled Amortization
Amount or the Class Controlled Accumulation
Amount, as applicable, for each Class and (ii)
amounts previously deposited in the Collections
Account with respect to such amounts with
respect to the current Due Period pursuant to
this subsection (b); provided, however, that
such amount shall not exceed the Class
Controlled Amortization Amount or Class
Controlled Accumulation Amount, as applicable;
and
(c) during the Rapid Amortization Period, an
amount equal to the sum of (i) the Series Finance Charge
Collections for such Business Day and (ii) the Class
Principal Collections for each Class of such Series
minus (iii) any Seller Retained Class Principal
Collections for such Business Day;provided, however,
that the Series Finance Charge Collections and
Series Principal Collections received each Business Day
shall be estimated in accordance with Section 4.03(b)
of the Pooling and Servicing Agreement.
"Revolving Period" shall have the meaning set forth in
the Series Term Sheet.
"Seller Retained Class," as specified in the Series Term
Sheet, shall mean any Class of Investor Certificates owned by the
Seller.
"Seller Retained Class Principal Collections" shall
mean, with respect to any day or any Distribution Date, an amount
equal to the Class Percentage of a Seller Retained Class
multiplied by the Series Principal Collections for such day or
Distribution Date.
"Seller Retained Class Purchase Date" shall have the
meaning set forth in Section 22.
"Series Additional Allocable Amounts," if any, shall
mean, for any Distribution Date, the sum of the (i) Series Yield
Collections, (ii) Series Investment Income, (iii) Class Coupon
Cap Payment, if any, (iv) Series Additional Investor Funds, (v)
amounts withdrawn from the PFA Special Reserve Account
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pursuant to Section 7(g)(3), (vi) amounts withdrawn from the Pre-
Funding Special Reserve Account pursuant to Section 7(h)(3) and
(vii) the sum of the Swap Counterparty Payments, if any.
"Series Additional Funds," if applicable, shall mean,
for any Distribution Date, the Additional Funds deposited into
the Series Collections Account for the Series established hereby
on such Distribution Date.
"Series Additional Investor Funds," if applicable, shall
mean, for any Distribution Date, the Series Additional Funds, if
any, that are not applied to the payment of the Investor Monthly
Servicing Fee pursuant to Section 12.
"Series Aggregate Excess Funding Amount" shall mean an
amount equal to (i) a fraction (a) the numerator of which is the
Series Investor Interest and (b) the denominator of which is the
sum of the Series Investor Interests for all outstanding Series
multiplied by (ii) the Group Excess Funding Amount.
"Series Allocable Investment Amount" shall mean, with
respect to any Distribution Date, the sum of (i) the product of
(a) the investment income on funds on deposit in the Collections
Account for the related Due Period and (b) a fraction the
numerator of which is the sum of the numerators for all Classes
in this Series used in calculating the Class Percentage with
respect to Finance Charge Collections and the denominator of
which is the sum of the numerators used in calculating the class
percentage with respect to Finance Charge Collections for all
classes of all outstanding series and (ii) the product of (x) the
investment income on funds on deposit in the Group Collections
Account for the Group to which the Series established hereby is a
member for the related Due Period and (y) a fraction the
numerator of which is the sum of the numerators for all Classes
in the Series established hereby used in calculating the Class
Percentage with respect to Finance Charge Collections and the
denominator of which is the sum of the numerators used in
calculating the class percentage with respect to Finance Charge
Collections for all classes of all series in the Group to which
the Series established hereby is a member.
"Series Available Principal Amount" shall mean, for any
Distribution Date, for each series that is a member of the same
Group as the Series established hereby (including the Series
established hereby) 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
such Distribution Date (and if more than one series has the same
series investor interest on such 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 such series)), an amount equal to (x) the
Group Available Principal Amount less (y) 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 such Distribution Date
(including any portion of such amount that was funded by amounts
withdrawn from the Group Principal Collections Reallocation
Account pursuant to Sections 8(c)(52-54)). 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 clause (y) above for each
prior series for which the series available principal amount was
calculated.
"Series Closing Date" shall mean the date designated as
such in the Series Term Sheet.
"Series Collections Account" shall have the meaning specified in
Section 7(a).
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"Series Cut-Off Date" shall mean the last day of the Due Period
occurring in the month specified in the Series Term Sheet.
"Series Distribution Account" shall have the meaning specified in
Section 7(a).
"Series Excess Funding Amount (SRC)" shall mean an
amount equal to the product of (i) the Group Excess Funding
Amount (SRC) and (ii) a fraction (a) the numerator of which is
the sum of the numerators used in calculating the Class
Percentage with respect to Principal Collections for each Seller
Retained Class and (b) the denominator of which is the sum of the
numerators used in calculating the class percentage with respect
to principal collections for all seller retained classes in the
Group (including the Series established hereby) to which the
Series established hereby is a member.
"Series Excess Servicing," for any Distribution Date,
shall have the meaning set forth in Section 8(b)(19), 8(c)(16) or
8(d)(17), as applicable, for such Distribution Date.
"Series Finance Charge Collections" shall mean, with
respect to any day or any Distribution Date, the sum of the
amount of Class Finance Charge Collections for each Class of such
Series for such day or for the related Due Period, as applicable.
"Series Initial Investor Interest" shall mean an amount
equal to the sum of the Class Initial Investor Interests for all
Classes of the Series established hereby.
"Series Initial Pre-Funding Amount," if applicable,
shall mean the amount specified in the Series Term Sheet.
"Series Interest Funding Account" shall have the meaning
specified in Section 7(d).
"Series Invested Amount" with respect to any
Distribution Date, shall mean the sum of the Class Invested
Amounts for each Class of the Series established hereby on such
Distribution Date.
"Series Investment Income" with respect to any
Distribution Date, shall mean the sum of (a) the income from the
investment of funds on deposit in (i) the Series Principal
Funding Account, (ii) the Series Interest Funding Account, (iii)
the Pre-Funding Special Reserve Account, if any, (iv) the PFA
Special Reserve Account, if any, and (v) the Series Pre-Funding
Account, if any, (b) the income from the investment of funds with
respect to the Series Aggregate Excess Funding Amount and (c) the
Series Allocable Investment Amount.
"Series Investor Charged-Off Amount" shall mean an
amount equal to the sum of the Class Investor Charged-Off Amounts
for all Classes of the Series established hereby.
"Series Investor Interest" with respect to any
Distribution Date, shall mean the sum of the Class Investor
Interests for each Class of the Series established hereby on such
Distribution Date.
"Series Minimum Principal Receivables Balance" shall
mean, with respect to the Series established hereby, on any
Determination Date, the greater of (i) the Series Investor Interest
minus Supplemental Cash on such Determination Date, divided by .909,
or (ii) if a Fixed Principal Allocation
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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 prior to
the occurrence of the Fixed Principal Allocation Event, subject
to reduction, in the event that a Rapid Amortization Event occurs
with respect to any series with which this Series is paired, to
an amount equal to the sum of the then applicable numerators for
the Class Percentages with respect to all classes in such series
with respect to Principal Collections, or (iii) if a Fixed
Principal Allocation Adjustment has occurred, the Series Investor
Interest minus Supplemental Cash as of the first day of the Due
Period prior to the Fixed Principal Allocation Event multiplied
by the Fixed Principal Allocation Adjustment Factor; provided,
however, that following the occurrence of a Rapid Amortization
Event, the amount in clause (iii) shall equal the Series Investor
Interest minus Supplemental Cash as of the first day of the Due
Period prior to the occurrence of such Rapid Amortization Event;
and provided, further, that the Seller may, upon 30 days' prior
notice to the Trustee, the Rating Agencies and the Third Party
Credit Enhancement Provider, if any, reduce the Series Minimum
Principal Receivables Balance by increasing the divisors set
forth above, subject to the condition that the Seller shall have
been notified by the Rating Agencies that such reduction would
not result in a Ratings Event for any Series then outstanding;
and provided, further, that the divisor used in the calculation
of Series Minimum Principal Receivables Balance may not be
increased to more than .980.
"Series Monthly Servicing Fee" shall mean, with respect
to any Distribution Date, the sum of the Class Monthly Servicing
Fees for each Class of the Series established hereby on such
Distribution Date.
"Series Monthly Servicing Fee Additional Funds Portion,"
if applicable, shall mean the product of (i) the Series Monthly
Servicing Fee Additional Funds Portion Percentage and (ii) Series
Investor Interest minus the Supplemental Cash allocable to such
Series on the first day of the related Due Period (or in the case
of the first Distribution Date for the Series established hereby,
the Series Initial Investor Interest less the Series Pre-Funding
Amount, if any).
"Series Monthly Servicing Fee Additional Funds Portion
Percentage," if applicable, shall mean the percentage set forth
in the Series Term Sheet.
"Series Monthly Servicing Fee Additional Funds Portion
Shortfall," if applicable, shall have the meaning set forth in
Section 8(b)(6), 8(c)(4) or 8(d)(8).
"Series Percentage" shall mean, with respect to any
specified category, with respect to any Distribution Date, the
sum of the Class Percentages with respect to such category for
each Class of the Series established hereby on such Distribution
Date.
"Series Pre-Funding Account" shall have the meaning specified
in Section 7(f).
"Series Pre-Funding Amount," if applicable, for any
Distribution Date shall mean the principal amount on deposit in
the Series Pre-Funding Account for
such Distribution Date.
"Series Pre-Funding Deadline," if applicable, shall mean
the date set forth in the Series Term Sheet.
"Series Principal Collections" shall mean, with respect
to any day or any Distribution Date, the sum of the amount of
Class Principal Collections for each Class of the Series
established hereby for such day or for the related Due Period, as
applicable.
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"Series Principal Collections Account" shall have the
meaning specified in Section 7(a).
"Series Principal Funding Account" shall mean the Series
Principal Funding Account established pursuant to Section 7(c).
Amounts "on deposit in" the Series Principal Funding Account
shall be deemed to be on deposit for the benefit of (i) the Class
A Certificateholders for the period up to and including the
earlier of the (a) Class A Expected Final Payment Date or (b) the
date on which the Class A Invested Amount is paid in full, (ii)
the Class B Certificateholders for the period beginning
immediately after the date specified in subsection (i) and ending
on the earlier of (a) the Class B Expected Final Payment Date and
(b) the date the Class B Invested Amount is paid in full and
(iii) the Class C Certificateholders for the period beginning
immediately after the date specified in subsection (ii) and
ending on the earlier of (a) the Class C Expected Final Payment
Date and (b) the date on which the Class C Invested Amount is
paid in full. Amounts "on deposit in" the Series Principal
Funding Account shall be deemed to include amounts invested in
Permitted Investments pursuant to Section 7(c) unless the context
clearly requires otherwise.
"Series Required Principal Amount" shall mean, with
respect to each Distribution Date, with respect to each Series
that is a member of the same Group as the Series established
hereby (including the Series established hereby) that is in its
controlled amortization period or controlled accumulation period,
as applicable, the product of (x) 1.20 and (y) the Class
Controlled Amortization Amount or the Class Controlled
Accumulation Amount, as applicable, for such series for each such
Distribution Date.
"Series Term Sheet" shall mean the Series Term Sheet
setting forth the terms of the Series of Investor Certificates
issued hereby, to which this Annex is attached.
"Series Termination Date" shall mean the date designated
as such in the Series Term Sheet.
"Series Yield Collections" shall mean, with respect to
any day or any Distribution Date, as applicable, an amount equal
to the product of the Series Yield Factor and the amount of
Series Principal Collections for such day or the related Due
Period, as applicable.
"Series Yield Factor" shall mean the number identified
as such in the Series Term Sheet, as such number may be changed
from time to time pursuant to Section 20.
"Special Payment Date" shall mean each Distribution Date
with respect to the Rapid Amortization Period, including the
Distribution Dates with respect to each Class Expected Final
Payment Date, and all Distribution Dates after any Class Expected
Final Payment Date (in either the Controlled Accumulation Period
or the Rapid Amortization Period) if the Class Invested Amount
has not been reduced to zero on or before such Class Expected
Final Payment Date.
"Stated Controlled Accumulation Period Commencement
Date" shall mean, for any Variable Accumulation Series, the date
so specified in the Series Term Sheet.
"Subclass" with respect to any Class shall mean, if
applicable, each portion of such Class that has a different
Certificate Rate or method of calculating its Certificate Rate.
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"Subordinate Class or Classes" shall mean, with respect
to any Class or Classes, the Class or Classes, if any, identified
by the letter or letters of the alphabet succeeding the letter
designating such Class or Classes (e.g., the Subordinate Classes
with respect to Class A are Class B and Class C).
"Subordinate Series" shall mean any Series that is
subordinated in right of payment, in whole or in part, pursuant
to the Series Supplement with respect to such Series, to the
Series established hereby.
"Substitute Index," if applicable, shall have the
meaning specified in Section 13.
"Substitute Index Determination Date," if applicable,
shall have the meaning set forth in the Series Term Sheet.
"Supplemental Cash" for any Distribution Date shall mean
an amount equal to the sum of the Series Pre-Funding Amount and
the Series Aggregate Excess Funding Amount for such Distribution
Date. For purposes of this Series Supplement, allocations of
Supplemental Cash for any Class shall be made according to the
following calculation: the product of (a) the Supplemental Cash
and (b) a fraction the numerator of which is the Class Investor
Interest for such Class and the denominator of which is the
Series Investor Interest.
"Swap Counterparty Payment," if applicable, for any
Distribution Date, shall have the meaning specified in the Series
Term Sheet.
"Swap Date," if applicable, shall mean, with respect to
any Interest Rate Swap, the date on which such Interest Rate Swap
becomes effective.
"Swap Notional Amount," if applicable, with respect to
any Interest Rate Swap, shall mean the notional amount specified
in such Interest Rate Swaps, provided, however, that the sum of
the Swap Notional Amounts for all Interest Rate Swaps on any
Distribution Date shall not exceed the sum of the Class A
Invested Amount and the Class B Invested Amount on such
Distribution Date.
"Swap Rate," if applicable, with respect to any Interest
Rate Swap, shall have the meaning specified in the Series Term
Sheet.
"Swap Trust Payment," if applicable, for any
Distribution Date, shall have the meaning specified in the Series
Term Sheet.
"Swap Trust Payment Shortfall," if applicable, for any
Distribution Date, shall mean the positive difference, if any
between (i) the sum of the Swap Trust Payments and (ii) the sum
of (A) the Series Finance Charge Collections allocable to each
Counterparty with respect to each Interest Rate Swap and (B)
Series Additional Allocable Amounts allocable to each
Counterparty with respect to each Interest Rate Swap for such
Distribution Date.
"Telerate Page 3750," if applicable, shall mean the
display page so designated on the Dow Jones Telerate Service (or
such other page as may replace that page on that service for the
purpose of displaying comparable rates or prices).
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"Third Party Credit Enhancement," if applicable, shall
mean any credit enhancement obtained by the Servicer in
accordance with Section 10.
"Third Party Credit Enhancement Account," if applicable,
shall have the meaning specified in Section 7(e).
"Third Party Credit Enhancement Agreement," if
applicable, shall mean the Agreement among the Seller, the
Servicer, the Trustee and the Third Party Credit Enhancement
Provider with respect to the Third Party Credit Enhancement.
"Third Party Credit Enhancement Amount," if applicable,
shall mean the amount on deposit in the Third Party Credit
Enhancement Account as set forth in the Series Term Sheet.
"Third Party Credit Enhancement Drawing," if applicable,
shall mean any drawing made under the Third Party Credit
Enhancement.
"Third Party Credit Enhancement Fee," if applicable,
shall mean, on any Distribution Date, the sum of all fees, costs
and interest payable to the Third Party Credit Enhancement
Provider or the Trustee as administrator of the Third Party
Credit Enhancement for the related Due Period pursuant to the
Third Party Credit Enhancement Agreement.
"Third Party Credit Enhancement Provider," if
applicable, shall have the meaning set forth in the Series Term
Sheet.
"Total Available Third Party Credit Enhancement Amount,"
if applicable, shall mean the amount set forth as such in the
Third Party Credit Enhancement Agreement.
"Variable Accumulation Series" shall mean each
outstanding Series that is not a Fixed Accumulation Series.
SECTION 2. Subordination.
(a) Subordination of Certain Classes.
(i) The Holders of each Class B Investor
Certificate, by their acceptance of such Investor
Certificate, hereby subordinate, for the benefit of the
Holders of Class A Investor Certificates, to the extent
and in the manner set forth in Section 8, all of such
Investor Certificateholders' right, title and interest
in and to future distributions due on such Holders'
Investor Certificates.
(ii) The Holders of each Class C Investor
Certificate, by their acceptance of such Investor
Certificate, hereby subordinate, for the benefit of the
Holders of Class A Investor Certificates and the Class B
Investor Certificates, to the extent and in the manner
set forth in Section 8, all of such Investor
Certificateholders' right, title and interest in and to
future distributions due on such Holders' Investor
Certificates.
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(b) No Subordination of Series. The Investor
Certificates of the Series established hereby shall not be
subordinated in right of payment to any other Series, whether
currently outstanding or to be issued in the future. One or more
other Series, however, may be subordinated in right of payment to
the Series established hereby, although the Seller shall have no
obligation to issue such a Subordinate Series. If any Subordinate
Series is issued, such Subordinate Series shall be subordinate in
right of payment to the Series established hereby only to the
extent set forth in the Series Supplement with respect to such
Subordinate Series.
SECTION 3. Representations and Warranties of the Seller.
The representations and warranties of the Seller contained in
Section 2.04 of the Pooling and Servicing Agreement and the
corresponding sections of any Assignment are true on and as of
the date hereof and/or the date set forth in the Pooling and
Servicing Agreement, as applicable. The Seller also represents
and warrants to the Trust as of the date hereof that the
execution, delivery and performance of this Series Supplement by
the Seller have been duly authorized by all necessary corporate
action, do not require any approval or consent of any
governmental agency or authority, do not and will not conflict
with any material provision of the Certificate of Incorporation
or By-Laws of the Seller, do not and will not conflict with, or
result in a breach that would constitute a material default
under, any agreement for borrowed money binding upon or
applicable to it or such of its property that is material to it,
or, to the best of the Seller's knowledge, any law or
governmental regulation or court decree applicable to it or such
material property, and this Series Supplement is the valid,
binding and enforceable obligation of the Seller, except as the
same may be limited by receivership, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to
creditors' rights generally or general principles of equity
(whether considered in a proceeding at law or in equity) and the
discretion of the court before which any proceeding therefor may
be brought.
SECTION 4. Representations and Warranties of the
Servicer. The representations and warranties of the Servicer
contained in Section 3.03 of the Pooling and Servicing Agreement
are true on and as of the date hereof. The Servicer also
represents and warrants to the Trust as of the date hereof that
the execution, delivery and performance of this Series Supplement
by the Servicer have been duly authorized by all necessary
corporate action, do not require any approval or consent of any
governmental agency or authority, do not and will not conflict
with any material provision of the Certificate of Incorporation
or By-Laws of the Servicer, do not and will not conflict with, or
result in a breach that would constitute a material default
under, any agreement for borrowed money binding upon or
applicable to it or such of its property that is material to it,
or, to the best of the Servicer's knowledge, any law or
governmental regulation or court decree applicable to it or such
material property, and this Series Supplement is the valid,
binding and enforceable obligation of the Servicer, except as the
same may be limited by receivership, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to
creditors' rights generally or general principles of equity
(whether considered in a proceeding at law or in equity) and the
discretion of the court before which any proceeding therefor may
be brought.
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SECTION 5. Representations and Warranties of the
Trustee. The representations and warranties of the Trustee
contained in Section 11.15 of the Pooling and Servicing Agreement
are true on and as of the date hereof. The Trustee also
represents and warrants as of the date hereof that the Trustee
has full power, authority and right to execute, deliver and
perform this Series Supplement, and has taken all necessary
action to authorize the execution, delivery and performance by it
of this Series Supplement, and this Series Supplement has been
duly executed and delivered by the Trustee.
SECTION 6. Authentication of Certificates. Pursuant to
the request of the Seller, the Trustee shall cause Investor
Certificates in authorized denominations evidencing the Series
established hereby to be duly authenticated and delivered as of
the Series Closing Date to or upon the order of the Seller
pursuant to Section 6.05 of the Pooling and Servicing Agreement.
SECTION 7. Establishment and Administration of Investor
Accounts and the Third Party Credit Enhancement Account.
(a) The Series Distribution Account, the Series
Collections Account and the Series Principal Collections Account.
The Trustee, for the benefit of the Certificateholders of this
Series, shall establish or maintain or cause to be established
and maintained in the name of the Trust, either (i) three non-
interest bearing segregated trust accounts with the corporate
trust department of an office or branch of a Qualified Trust
Institution or (ii) three non-interest bearing segregated demand
deposit accounts at an Eligible Institution (the "Series
Distribution Account," the "Series Collections Account" and the
"Series Principal Collections Account"), each bearing a
designation clearly indicating that the funds deposited therein
are held for the benefit of the Certificateholders of this
Series. The Trust shall possess all right, title and interest in
all funds on deposit in the Series Distribution Account, the
Series Collections Account and the Series Principal Collections
Account. Pursuant to authority granted to it under Section
3.01(b) of the Pooling and Servicing Agreement, the Servicer
shall have the revocable power to instruct the Trustee to
withdraw funds from the Series Distribution Account, the Series
Collections Account and the Series Principal Collections Account
for the purpose of carrying out the duties of the Servicer
hereunder. The Servicer at all times shall maintain accurate
records reflecting each transaction in the Series Distribution
Account, the Series Collections Account and the Series Principal
Collections Account. The Paying Agent also shall have the
revocable authority to make withdrawals from the Series
Distribution Account.
(b) Reallocation Accounts. The Trustee, for the benefit
of the Certificateholders, shall establish and maintain or cause
to be established and maintained in the name of the Trust, either
(i) three non-interest bearing segregated trust accounts with the
corporate trust department of an office or branch of a Qualified
Trust Institution or (ii) three non-interest bearing segregated
demand deposit accounts at an Eligible Institution, for the Group
to which the Series established hereby belongs (the "Group
Finance Charge Collections Reallocation Account," the "Group
Principal Collections Reallocation Account" and the "Group Pre-
Funding Reallocation Account," if applicable, collectively, the
"Reallocation Accounts"), each bearing a designation clearly
indicating that the funds deposited therein are held for the
benefit of the Certificateholders. The Trust shall possess all
right, title and interest in all funds on deposit from time to
time in the Reallocation Accounts and in all proceeds thereof.
Pursuant to authority granted to it under Section 3.01(b) of the
Pooling and Servicing Agreement, the Servicer shall have the
revocable power to instruct the Trustee to withdraw funds from
the Reallocation Accounts for the
purpose of carrying out the
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duties of the Servicer hereunder. The Servicer at all times shall
maintain accurate records reflecting each transaction in each of
the Reallocation Accounts.
(c) The Series Principal Funding Account.
(1) The Trustee, for the benefit of the
Certificateholders of this Series, shall establish and maintain
or cause to be established and maintained in the name of the
Trust, 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 demand deposit account at an Eligible Institution (the
"Series Principal Funding Account"), bearing a designation
clearly indicating that the funds deposited therein are held for
the benefit of the Certificateholders of this Series. The Trust
shall possess all right, title and interest in all funds on
deposit from time to time in the Series Principal Funding Account
and in all proceeds thereof. The Series Principal Funding Account
shall be under the sole dominion and control of the Trustee for
the benefit of the Certificateholders of this Series. Pursuant to
authority granted to it under Section 3.01(b) of the Pooling and
Servicing Agreement, the Servicer shall have the revocable power
to instruct the Trustee to withdraw funds from the Series
Principal Funding Account for the purpose of carrying out the
duties of the Servicer hereunder. Any funds on deposit in the
Series Principal Funding Account for more than one Business Day
shall be invested in Permitted Investments under Section 4.02(c)
of the Pooling and Servicing Agreement. The Servicer at all times
shall maintain accurate records reflecting each transaction in
the Series Principal Funding Account. The Paying Agent also shall
have the revocable authority to make withdrawals from the Series
Principal Funding Account.
(2) On or before each Distribution Date with
respect to the Controlled Accumulation Period and the Rapid
Amortization Period, if any, a withdrawal will be made from the
Series Principal Funding Account in an amount equal to the income
from the investment of funds on deposit in the Series Principal
Funding Account. Such amount withdrawn shall be deposited into
the Series Collections Account and shall be treated as a "Series
Additional Allocable Amount."
(d) The Series Interest Funding Account. The Trustee,
for the benefit of the Certificateholders of this Series, shall
establish and maintain or cause to be established and maintained
in the name of the Trust, either (i) a non-interest bearing
segregated trust account in the corporate trust department of an
office or branch of a Qualified Trust Institution or (ii) a non-
interest bearing segregated demand deposit account at an Eligible
Institution (the "Series Interest Funding Account"), bearing a
designation clearly indicating that the funds deposited therein
are held for the benefit of the Certificateholders of this
Series. The Trust shall possess all right, title and interest in
all funds on deposit from time to time in the Series Interest
Funding Account and in all proceeds thereof. Pursuant to
authority granted to it under Section 3.01(b) of the Pooling and
Servicing Agreement, the Servicer shall have the revocable power
to instruct the Trustee to withdraw funds from the Series
Interest Funding Account for the purpose of carrying out the
duties of the Servicer hereunder. The Servicer at all times shall
maintain accurate
records reflecting each transaction in the Series Interest
Funding Account. The Paying Agent shall also have the revocable
authority to make withdrawals from the Series Interest Funding
Account.
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(e) The Third Party Credit Enhancement Account.
(1) If the Third Party Credit Enhancement is
Funded Third Party Credit Enhancement, the Servicer, for
the benefit of the Certificateholders of this Series and
the Third Party Credit Enhancement Provider, shall
establish and maintain or cause to be established and
maintained in the name of the Trust, 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 demand deposit account at an Eligible
Institution (the "Third Party Credit Enhancement
Account"), bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of
the Certificateholders of this Series and the Third
Party Credit Enhancement Provider. The Trust shall
possess all right, title and interest in all funds on
deposit from time to time in the Third Party Credit
Enhancement Account and in all proceeds thereof. The
Third Party Credit Enhancement Account shall be under
the sole dominion and control of the Trustee as the
administrator of the Third Party Credit Enhancement for
the benefit of the Certificateholders of this Series and
the Third Party Credit Enhancement Provider. The
interest of the Third Party Credit Enhancement Provider
in the Third Party Credit Enhancement Account shall be
subordinated to the interests of the Certificateholders
of this Series to the extent provided herein and in the
Third Party Credit Enhancement Agreement. The Third
Party Credit Enhancement Provider shall not be entitled
to reimbursement from the assets of the Trust for any
withdrawals from the Third Party Credit Enhancement
Account except as specifically provided in this Series
Supplement. Pursuant to authority granted to it under
Section 3.01(b) of the Pooling and Servicing Agreement,
the Servicer shall have the revocable power to instruct
the Trustee to withdraw funds from the Third Party
Credit Enhancement Account for the purpose of carrying
out the duties of the Servicer hereunder. Any funds on
deposit in the Third Party Credit Enhancement Account
for more than one Business Day shall be invested in
Permitted Investments under Section 4.02(c) of the
Pooling and Servicing Agreement. The Servicer at all
times shall maintain accurate records reflecting each
transaction in the Third Party Credit Enhancement
Account. The Paying Agent also shall have the revocable
authority to make withdrawals from the Third Party
Credit Enhancement Account.
(2) On each Distribution Date, all interest and
investment earnings (net of losses and investment
expenses) accrued since the preceding Distribution Date
on funds on deposit in the Third Party Credit
Enhancement Account shall be paid to the Trustee as
administrator of the Third Party Credit Enhancement for
application in accordance with the provisions of the
Third Party Credit Enhancement Agreement. For purposes
of determining the availability of funds or the balances
in the Third Party Credit Enhancement Account, all such
investment earnings on such funds shall be deemed not to
be available or on deposit. If, on any Distribution
Date, after giving effect to all other deposits to and
withdrawals from the Third Party Credit Enhancement
Account as of such Distribution Date, the amount on
deposit
in the Third Party Credit Enhancement Account is greater
than the maximum credit enhancement amount provided by
the related Third Party Credit Enhancement Agreement,
then the excess representing such amount shall be
withdrawn from the Third Party Credit Enhancement
Account and paid to the Trustee as administrator of the
Third Party Credit Enhancement for application in
accordance with the provisions of the Third Party Credit
Enhancement Agreement.
(3) Upon the earliest to occur of (i) the
termination of the Trust, (ii) the Series Termination
Date or (iii) the day on which the Class Invested Amount
for each Class of the Series
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<PAGE>
established hereby is paid in full, and after payment of
all amounts to be paid on such day from the Third Party
Credit Enhancement Account to or for the benefit of
Investor Certificateholders of the Series established
hereby, all amounts remaining on deposit in the Third
Party Credit Enhancement Account shall be withdrawn from
such account and paid to the Trustee as administrator of
the Third Party Credit Enhancement for application in
accordance with the provisions of the Third Party Credit
Enhancement Agreement.
(f) The Series Pre-Funding Account. If the Series Term
Sheet for the Series established hereby so provides, the Trustee,
for the benefit of the Certificateholders of this Series, shall
establish and maintain or cause to be established and maintained
in the name of the Trust, either (i) a non-interest bearing
segregated trust account in the corporate trust department of an
office or branch of a Qualified Trust Institution or (ii) a non-
interest bearing segregated demand deposit account at an Eligible
Institution (the "Series Pre-Funding Account"), bearing a
designation clearly indicating that the funds deposited therein
are held for the benefit of the Certificateholders of this
Series. The Trust shall possess all right, title and interest in
all funds on deposit from time to time in the Series Pre-Funding
Account and in all proceeds thereof. The Series Pre-Funding
Account shall be under the sole dominion and control of the
Trustee for the benefit of the Certificateholders of this Series.
Pursuant to authority granted to it under Section 3.01(b) of the
Pooling and Servicing Agreement, the Servicer shall have the
revocable power to instruct the Trustee to withdraw funds from
the Series Pre-Funding Account for the purpose of carrying out
the duties of the Servicer hereunder. Any funds on deposit in the
Series Pre-Funding Account for more than one Business Day shall
be invested in Permitted Investments under Section 4.02(c) of the
Pooling and Servicing Agreement. The Servicer at all times shall
maintain accurate records reflecting each transaction in the
Series Pre-Funding Account. The Paying Agent shall also have the
revocable authority to make withdrawals from the Series Pre-
Funding Account. On the Series Closing Date, the Seller shall
cause to be deposited into the Series Pre-Funding Account an
amount equal to the Series Initial Pre-Funding Amount. In
connection with such Series Initial Pre-Funding Amount, and on or
before the Series Closing Date, the Servicer shall deliver to the
Trustee, the Seller and the Rating Agencies, a certificate of an
officer of the Servicer stating the size of such Series Pre-
Funding Amount, and certifying that the Servicer reasonably
believes that the establishment and funding of the Series Pre-
Funding Amount will not result in any delay in the payment of
principal to the Investor Certificateholders of any Series then
outstanding.
(g) The PFA Special Reserve Account.
(1) If the Series Term Sheet for the Series
established hereby so provides, the Trustee, for the
benefit of the Certificateholders of this Series, shall
establish and maintain or cause to be established and
maintained in the name of the Trust, either (i) a non-
interest bearing segregated trust account in the
corporate trust department of an office or branch of a
Qualified Trust Institution or (ii) a non-interest
bearing segregated demand deposit account at an Eligible
Institution (the "PFA Special Reserve Account"), bearing
a designation clearly indicating that the funds
deposited therein are held for the benefit of the
Certificateholders of this Series. The Trust shall
possess all right, title and interest in all funds on
deposit from time to time in the PFA Special Reserve
Account and in all proceeds thereof. The PFA Special
Reserve Account shall be under the sole dominion and
control of the Trustee for the benefit of the
Certificateholders of this Series. Pursuant to authority
granted to it under Section 3.01(b) of the Pooling and
Servicing Agreement, the Servicer shall have the
revocable power to instruct the Trustee to withdraw
funds from the PFA Special Reserve Account for the
purpose of carrying out the duties of the Servicer
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<PAGE>
hereunder. Any funds on deposit in the PFA Special
Reserve Account for more than one Business Day shall be
invested in Permitted Investments under Section 4.02(c)
of the Pooling and Servicing Agreement. The Servicer at
all times shall maintain accurate records reflecting
each transaction in the PFA Special Reserve Account. The
Paying Agent shall also have the revocable authority to
make withdrawals from the PFA Special Reserve Account.
(2) Upon the earlier to occur of (i) the Series
Termination Date or (ii) the day on which the Series
Invested Amount is paid in full, the Trustee, acting in
accordance with the instructions of the Servicer, after
the prior payment of all amounts owing to the Investor
Certificateholders that are payable from the PFA Special
Reserve Account as provided herein, shall withdraw from
the PFA Special Reserve Account and pay to or at the
direction of the Seller, all amounts, if any, on deposit
in the PFA Special Reserve Account and the PFA Special
Reserve Account shall have terminated for purposes of
this Series Supplement.
(3) On or before each Distribution Date with
respect to the Controlled Accumulation Period, a
withdrawal will be made from the PFA Special Reserve
Account in an amount equal to the lesser of (a) the
amount on deposit in the PFA Special Reserve Account
with respect to such Distribution Date and (b) the
excess, if any, of the PFA Covered Amount with respect
to such Distribution Date over the amount of investment
earnings on the amount on deposit in the Series
Principal Funding Account with respect to such
Distribution Date. Such amount withdrawn shall be
deposited into the Series Collections Account and
treated as a "Series Additional Allocable Amount."
(h) The Pre-Funding Special Reserve Account.
(1) If the Series Term Sheet for the Series
established hereby so provides, the Trustee, for the
benefit of the Certificateholders of this Series, shall
establish and maintain or cause to be established and
maintained in the name of the Trust, either (i) a non-
interest bearing segregated trust account in the
corporate trust department of an office or branch of a
Qualified Trust Institution or (ii) a non-interest
bearing segregated demand deposit account at an Eligible
Institution (the "Pre-Funding Special Reserve Account"),
bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the
Certificateholders of this Series. The Trust shall
possess all right, title and interest in all funds on
deposit from time to time in the Pre-Funding Special
Reserve Account and in all proceeds thereof. The Pre-
Funding Special Reserve Account shall be under the sole
dominion and control of the Trustee for the benefit of
the Certificateholders of this Series. Pursuant to
authority granted to it under Section 3.01(b) of the
Pooling and Servicing Agreement, the Servicer shall have
the revocable power to instruct the Trustee to withdraw
funds from the Pre-Funding Special Reserve Account for
the purpose of carrying out the duties of the Servicer
hereunder. Any funds on deposit in the Pre-Funding
Special Reserve Account for more than one Business Day
shall be invested in Permitted Investments under Section
4.02(c) of the Pooling and Servicing Agreement. The
Servicer at all times shall maintain accurate records
reflecting each transaction in the Pre-Funding Special
Reserve Account. The Paying Agent shall also have the
revocable authority to make withdrawals from the Pre-
Funding Special Reserve Account.
(2) Upon the earlier to occur of (i) the Series
Termination Date or (ii) the day on which the amount on
deposit in the Series Pre-Funding Account is reduced to
zero, the Trustee, acting in
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<PAGE>
accordance with the instructions of the Servicer, after
the prior payment of all amounts owing to the Investor
Certificateholders that are payable from the Pre-Funding
Special Reserve Account as provided herein, shall
withdraw from the Pre-Funding Special Reserve Account
and pay to or at the direction of the Seller, all
amounts, if any, on deposit in the Pre-Funding Special
Reserve Account and the Pre-Funding Special Reserve
Account shall have terminated for purposes of this
Series Supplement.
(3) On or before each Distribution Date with
respect to the period between the Series Closing Date
and date that occurs upon the earlier of (i) the Series
Pre-Funding Deadline and (ii) the date upon which there
are no longer funds on deposit in the Series Pre-Funding
Account (the "Pre-Funding Period"), a withdrawal will be
made from the Pre-Funding Special Reserve Account in an
amount equal to the lesser of (a) the amount on deposit
in the Pre-Funding Special Reserve Account with respect
to such Distribution Date and (b) the excess, if any, of
the Pre-Funding Covered Amount with respect to such
Distribution Date over the amount of investment earnings
on the amount on deposit in the Series Pre-Funding
Account with respect to such Distribution Date. Such
amount shall be treated as a "Series Additional
Allocable Amount."
(i) Transfer of Investor Accounts. If, at any
time any of the Investor Accounts established in Sections 7(a) - 7(h)
shall be located at an institution that fails to meet the qualification
requirements for an Eligible Institution or a Qualified Trust Institution
as applicable, the Trustee shall move or cause to be moved such Investor
Account to an institution meeting the requisite qualifications requirements
within ten Business Days of the date the Trustee becomes aware of
such lack of qualification; provided, however, that if (i) such Account
is a Third Party Credit Enhancement Account and (ii) such Account is not
Funded Third Party Credit Enhancement, then the Trustee shall move or caused
to be moved such Account to an institution meeting the requisite
qualifications requirements within thirty Business Days of the date the
Trustee becomes aware of such lack of qualification.
SECTION 8. Allocations of Collections.
(a) Deposits into the Series Collections Account. On or
before each Distribution Date, the Servicer shall direct the
Trustee to withdraw from the Group Collections Account and
deposit into the Series Collections Account an amount equal to
(i) the sum of the Series Finance Charge Collections and the
Series Principal Collections and (ii) the Series Excess Funding
Amount (SRC), each for the related Due Period. On or before each
Distribution Date, the Servicer also shall direct the Trustee to
deposit the Series Additional Allocable Amounts, if any, which
have not previously been deposited into the Series Collections
Account.
(b) During the Revolving Period. On or before each
Distribution Date during the Revolving Period, the Servicer shall
direct the Trustee that funds be paid or deposited, and the
Trustee shall apply such funds in the following amounts, to the
extent such funds are available and in the order of priority
specified, to the account or Person indicated, in each case as
set forth below.
(1) Pre-Funding Account. If applicable, on or before the first
Distribution Date following a Series Pre-Funding Deadline, all
amounts on deposit in the Series Pre-Funding Account shall be
deposited into the Series Distribution Account.
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<PAGE>
(2) Pre-Funding Special Reserve Account. If applicable,
on or before the first Distribution Date following a Series Pre-
Funding Deadline, an amount equal to the Pre-Funding Special
Reserve Amount shall be withdrawn from the Pre-Funding Special
Reserve Account and shall be deposited into the Series
Collections Account as a "Series Additional Allocable Amount."
(3) Class A Monthly Interest. An amount equal to the lesser of
(A) the Class A Modified Required Amount and
(B) the sum of Series Finance Charge
Collections and Series Additional Allocable
Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(4) Class B Monthly Interest. An amount equal to the lesser of
(A) the Class B Modified Required Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(5) Class C Monthly Interest. An amount equal to the lesser of
(A) the Class C Modified Required Amount, if
any, and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(6) Series Monthly Servicing Fee Additional Funds
Portion. An amount equal to the lesser of
(A) the Series Monthly Servicing Fee Additional
Funds Portion and
(B) Series Additional Funds
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The positive
difference, if any, between the amount in (A) and the amount in
(B) shall be the "Series Monthly Servicing Fee Additional Funds
Portion Shortfall."
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<PAGE>
(7) Series Monthly Servicing Fee. An amount equal to the
lesser of
(A) the sum of the Series Monthly Servicing Fee
and all accrued but unpaid Series Monthly
Servicing Fees as of the prior Distribution
Date less the Series Monthly Servicing Fee
Additional Funds Portion, if any, and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(8) Reimbursement of Class A Cumulative Investor Charged-
Off Amounts. An amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Group Principal Collections Reallocation
Account. The Class A Cumulative Investor Charged-Off Amount shall
be reduced by the amount of such deposit.
(9) Reimbursement of Class B Cumulative Investor Charged-
Off Amounts. An amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Group Principal Collections Reallocation
Account. The Class B Cumulative Investor Charged-Off Amount shall
be reduced by the amount of such deposit.
(10) Series Monthly Servicing Fee Additional Funds
Portion Shortfall. An amount equal to the lesser of
(A) the Series Monthly Servicing Fee Additional
Funds Portion Shortfall and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(11) Swap Trust Payments. An amount equal to the lesser of
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<PAGE>
(A) the sum of the Swap Trust Payments and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited in the Series Distribution Account.
(12) Reimbursement of Class C Cumulative Investor
Charged-Off Amounts. An amount equal to the lesser of
(A) the Class C Cumulative Investor Charged-Off
Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Group Principal Collections Reallocation
Account. The Class C Cumulative Investor Charged-Off Amount shall
be reduced by the amount of such deposit.
(13) Shortfalls in the Pre-Funding Special Reserve Amount. If
applicable, an amount equal to the lesser of
(A) the Pre-Funding Special Reserve Amount
Shortfall and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Pre-Funding Special Reserve Account. The Pre-
Funding Special Reserve Amount Shortfall shall be reduced by the
amount of such deposit.
(14) Shortfalls in the PFA Special Reserve Required Amount. If
applicable, an amount equal to the lesser of
(A) the PFA Special Reserve Required Amount
Shortfall and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the PFA Special Reserve Account. The PFA Special
Reserve Required Amount Shortfall shall be reduced by the amount
of such deposit.
(15) Reimbursement of prior Third Party Credit
Enhancement Drawings. If applicable, an amount equal to the
lesser of
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<PAGE>
(A) the sum of all unreimbursed Third Party
Credit Enhancement Drawings and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Third Party Credit Enhancement Account. The
amount of unreimbursed Third Party Credit Enhancement Drawings
shall be reduced by the amount of such deposit.
(16) Third Party Credit Enhancement Fee. If applicable,
an amount equal to the lesser of
(A) the Third Party Credit Enhancement Fee and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(17) The Class A Early Termination Premium or the Class A Early
Termination Premium Shortfall, as applicable. If applicable, on
or after the Series Pre-Funding Deadline, an amount equal to the
lesser of
(A) the Class A Early Termination Premium or
the Class A Early Termination Premium
Shortfall, as applicable, and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(18) The Class B Early Termination Premium or the Class B Early
Termination Premium Shortfall, as applicable. If applicable, on
or after the Series Pre-Funding Deadline, an amount equal to the
lesser of
(A) the Class B Early Termination Premium or
the Class B Early Termination Premium
Shortfall, as applicable, and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(19) Series Excess Servicing. An amount equal to any
remaining Series Finance Charge Collections and any remaining
Series Additional Allocable Amounts (together, "Series Excess
Servicing")
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<PAGE>
shall be withdrawn from the Series Collections Account and
deposited into the Group Finance Charge Collections Reallocation
Account.
(20) Third Party Credit Enhancement Drawing. If
applicable, an amount equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) the amount on deposit in the Third Party
Credit Enhancement Account
shall be withdrawn from the Third Party Credit Enhancement
Account and deposited into the Series Distribution Account. The
Class C Modified Required Amount Shortfall and the Third Party
Credit Enhancement both shall be reduced by the amount of such
deposit.
(21) Payment of the Class A Modified Required Amount
Shortfall from a Subordinate Series. If applicable, an amount
equal to the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) funds, if any, available to pay such Class
A Modified Required Amount Shortfall from funds
initially allocated to any Subordinate Series
shall be deposited into the Series Distribution Account. The
Class A Modified Required Amount Shortfall shall be reduced by
the amount of such deposit.
(22) Payment of the Class B Modified Required Amount
Shortfall from a Subordinate Series. If applicable, an amount
equal to the lesser of
(A) the Class B Modified Required Amount
Shortfall and
(B) funds, if any, available to pay such Class
B Modified Required Amount Shortfall from funds
initially allocated to any Subordinate Series
shall be deposited into the Series Distribution Account. The
Class B Modified Required Amount Shortfall shall be reduced by
the amount of such deposit.
(23) Payment of the Class C Modified Required Amount
Shortfall from a Subordinate Series. If applicable, an amount
equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) funds, if any, available to pay such Class
C Modified Required Amount Shortfall from funds
initially allocated to any Subordinate Series
shall be deposited into the Series Distribution Account. The
Class C Modified Required Amount Shortfall shall be reduced by the
amount of such deposit.
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<PAGE>
(24) Reimbursement of the Class A Cumulative Investor Charged-Off
Amount from a Subordinate Series. If applicable, an amount equal
to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) funds, if any, available to pay such Class
A Cumulative Investor Charged-Off Amount from
funds initially allocated to any Subordinate
Series
shall be deposited into the Group Principal Collections
Reallocation Account. The Class A Cumulative Investor Charged-Off
Amount shall be reduced by the amount of such deposit.
(25) Reimbursement of the Class B Cumulative Investor Charged-Off
Amount from a Subordinate Series. If applicable, an amount equal
to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) funds, if any, available to pay such Class
B Cumulative Investor Charged-Off Amount from
funds initially allocated to any Subordinate
Series
shall be deposited into the Group Principal Collections
Reallocation Account. The Class B Cumulative Investor Charged-Off
Amount shall be reduced by the amount of such deposit.
(26) Reimbursement of the Class C Cumulative Investor Charged-Off
Amount from a Subordinate Series. If applicable, an amount equal
to the lesser of
(A) the Class C Cumulative Investor Charged-Off
Amount and
(B) funds, if any, available to pay such Class
C Cumulative Investor Charged-Off Amount from
funds initially allocated to any Subordinate
Series
shall be deposited into the Group Principal Collections
Reallocation Account. The Class C Cumulative Investor Charged-Off
Amount shall be reduced by the amount of such deposit.
(27) Reallocations for the Class A Modified Required
Amount Shortfall from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) the product of
(x) 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 the Group to which the
Series established hereby belongs
(after giving
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<PAGE>
effect to provisions in the applicable
Series Supplements substantially
similar to the clauses preceding this
clause (27)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account. The Class A Modified Required Amount Shortfall shall be
reduced by the amount of such deposit.
(28) Reallocations for the Class B Modified Required
Amount Shortfall from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class B Modified Required Amount
Shortfall and
(B) the product of
(x) 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 the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (28)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account. The Class B Modified Required Amount Shortfall shall be
reduced by the amount of such deposit.
(29) Reallocations for the Class C Modified Required
Amount Shortfall from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) the product of
(x) 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 not initially rated by
the Rating Agencies for all series in
the Group to which the Series
established hereby belongs (after
giving
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<PAGE>
effect to provisions in the applicable
Series Supplements substantially
similar to the clauses preceding this
clause (29)); provided, however, that
if any other series (or multiple other
series) shall have more than one
unrated class, the class modified
required amount shortfall to be used
in the denominator for each such other
series shall be the class modified
required amount shortfall for the most
senior unrated class for such series
for which the class modified required
amount shortfall is greater than zero
and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account. The Class C Modified Required Amount Shortfall shall be
reduced by the amount of such deposit.
(30) Reallocations for the Class A Cumulative Investor
Charged-Off Amount from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the product of
(x) 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 the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (30)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Group Principal
Collections Reallocation Account. The Class A Cumulative Investor
Charged-Off Amount shall be reduced by the amount of such
deposit.
(31) Reallocations for the Class B Cumulative Investor
Charged-Off Amount from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) the product of
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<PAGE>
(x) 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 charged-off
amounts for all classes with the same
alphabetical designation for all
series in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (31)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Group Principal
Collections Reallocation Account. The Class B Cumulative Investor
Charged-Off Amount shall be reduced by the amount of such
deposit.
(32) Allocations from the Group Finance Charge
Collections Reallocation Account for the payment of accrued
Series Monthly Servicing Fees. An amount equal to the lesser of
(A) all accrued but unpaid Series Monthly
Servicing Fees and
(B) the product of
(x) 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 the Group to
which the Series established hereby
belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (32)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account.
(33) Reallocations for the Class C Cumulative Investor
Charged-Off Amount from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class C Cumulative Investor Charged-Off
Amount and
(B) the product of
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<PAGE>
(x) 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 unrated by the
Rating Agencies for all series in the
Group to which the Series established
hereby belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(33)); provided, however, that if any
other series (or multiple other
series) shall have more than one
unrated class, the class cumulative
investor charged-off amount to be used
in the denominator for each such other
series shall be the class cumulative
investor charged-off amount for the
most senior unrated class for such
series for which the class cumulative
investor charged-off amount is greater
than zero and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Group Principal
Collections Reallocation Account. The Class C Cumulative Investor
Charged-Off Amount shall be reduced by the amount of such
deposit.
(34) Swap Trust Payment Shortfalls. An amount equal to
the lesser of
(A) the Swap Trust Payment Shortfall and
(B) the product of
(x) a fraction, the numerator of which
is the Swap Trust Payment Shortfall
and the denominator of which is the
sum of the swap trust payment
shortfalls for all series in the Group
to which the Series established hereby
belongs and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
other series pursuant to a clause in
the applicable Series Supplement for
the purpose of covering swap trust
payment shortfalls and after any
withdrawals therefrom with respect to
other series pursuant to a clause in
the applicable Series Supplement for
the purpose of covering any payment
shortfall for such series intended to
be of a higher priority than swap
trust payment shortfalls
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited in the Series Distribution
Account.
(35) Payment of the Class A Modified Required Amount
Shortfall from Class C Principal Collections. An amount equal to
the lesser of
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<PAGE>
(A) the Class A Modified Required Amount
Shortfall and
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class A
Modified Required Amount Shortfall shall be reduced by the amount
of such deposit, and the Class C Cumulative Investor Charged-Off
Amount shall be increased by the amount of such deposit.
(36) Payment of the Class A Modified Required Amount
Shortfall from Class B Principal Collections. An amount equal to
the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) the Class B Principal Collections less
Series Yield Collections allocable to the Class
B Investor Interest
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class A
Modified Required Amount Shortfall shall be reduced by the amount
of such deposit, and the Class B Cumulative Investor Charged-Off
Amount shall be increased by the amount of such deposit.
(37) Payment of the Class B Modified Required Amount
Shortfall from Class C Principal Collections. An amount equal to
the lesser of
(A) the Class B Modified Required Amount
Shortfall and
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class B
Modified Required Amount Shortfall shall be reduced by the amount
of such deposit, and the Class C Cumulative Investor Charged-Off
Amount shall be increased by the amount of such deposit.
(38) Reimbursement of the Class A Cumulative Investor Charged-Off
Amount from Class C Principal Collections. An amount equal to the
lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) 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
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<PAGE>
shall be withdrawn from the Series Collections Account and
deposited into the Group Principal Collections Reallocation
Account. The Class A Cumulative Investor Charged-Off Amount shall
be reduced by the amount of such deposit, and the Class C
Cumulative Investor Charged-Off Amount shall be increased by the
amount of such deposit.
(39) Reallocation of the Class C Investor Interest to
reimburse the Class A Cumulative Investor Charged-Off Amount. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by an amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the Class C Investor Interest
and the Class C Cumulative Investor Charged-Off Amount shall be
increased by such amount; provided, however, that the Class C
Cumulative Investor Charged-Off Amount would not, as a result,
exceed the Class C Initial Investor Interest.
(40) Reimbursement of the Class A Cumulative Investor Charged-Off
Amount from Class B Principal Collections. An amount equal to the
lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) any remaining Class B Principal Collections
less Series Yield Collections allocable to the
Class B Investor Interest
shall be withdrawn from the Series Collections Account and
deposited into the Group Principal Collections Reallocation
Account. The Class A Cumulative Investor Charged-Off Amount shall
be reduced by the amount of such deposit, and the Class B
Cumulative Investor Charged-Off Amount shall be increased by the
amount of such deposit.
(41) Reallocation of the Class B Investor Interest to
reimburse the Class A Cumulative Investor Charged-Off Amount. The
Class A Cumulative Investor Charged-Off Amount shall be reduced by
an amount equal to thelesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the Class B Investor Interest
and the Class B Cumulative Investor Charged-Off Amount shall be
increased by such amount; provided, however, that the Class B
Cumulative Investor Charged-Off Amount would not, as a result,
exceed the Class B Initial Investor Interest.
(42) Reimbursement of the Class B Cumulative Investor Charged-Off
Amount from Class C Principal Collections. An amount equal to the
lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
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<PAGE>
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Group Principal Collections Reallocation
Account. The Class B Cumulative Investor Charged-Off Amount shall
be reduced by the amount of such deposit, and the Class C
Cumulative Investor Charged-Off Amount shall be increased by the
amount of such deposit.
(43) Reallocation of the Class C Investor Interest to
reimburse the Class B Cumulative Investor Charged-Off Amount. The
Class B Cumulative Investor Charged-Off Amount shall be reduced
by an amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) the Class C Investor Interest
and the Class C Cumulative Investor Charged-Off Amount shall be
increased by such amount; provided, however, that the Class C
Cumulative Investor Charged-Off Amount would not, as a result,
exceed the Class C Initial Investor Interest.
(44) Reallocations for the Class A Early Termination
Premium Shortfall from the Group Finance Charge Collections
Reallocation Account. If applicable, an amount equal to the
lesser of
(A) the Class A Early Termination Premium
Shortfall and
(B) the product of
(x) a fraction the numerator of which
is the Class A Early Termination
Premium Shortfall and the denominator
of which is the sum of all class early
termination premium shortfalls with
the same alphabetical designation for
all series in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (44)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account.
(45) Reallocations for the Class B Early Termination
Premium Shortfall from the Group Finance Charge Collections
Reallocation Account. If applicable, an amount equal to the
lesser of
(A) the Class B Early Termination Premium
Shortfall and
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<PAGE>
(B) the product of
(x) a fraction the numerator of which
is the Class B Early Termination
Premium Shortfall and the denominator
of which is the sum of all class early
termination premium shortfalls with
the same alphabetical designation for
all series in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (45)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account.
(46) Allocations of remaining amounts from the Group
Finance Charge Collections Reallocation Account to the Seller. An
amount equal to all remaining amounts on deposit in the Group
Finance Charge Collections Reallocation Account, after all other
allocations from such Account pursuant to the Series Supplements
for any series in the Group to which the Series established
hereby belongs, shall be withdrawn from the Group Finance Charge
Collections Reallocation Account and paid to the Seller.
(47) Allocations from the Excess Funding Account
(General) to the Group Principal Collections Reallocation
Account. 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 any other series that are in their Rapid
Amortization Periods, an amount equal to the product of
(A) a fraction the numerator of which is the
sum of the series
investor interests less the sum of class
investor interests with respect to seller
retained classes for all series in the Group to
which the Series established hereby belongs 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
(after giving effect to provisions in the
applicable Series Supplements substantially
similar to the clauses preceding this clause
(47)) and
(B) the amount on deposit in the Excess Funding
Account (General) before any withdrawals
therefrom with respect to any other series
pursuant to a comparable clause in the
applicable Series Supplements
shall be withdrawn from the Excess Funding Account (General) and
deposited into the Group Principal Collections Reallocation
Account.
(48) Class C Permitted Controlled Amortization Amount.
An amount equal to the lesser of
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<PAGE>
(A) the Class C Permitted Controlled
Amortization Amount and
(B) remaining amounts
on deposit in the Series Collections Account
shall 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 such deposit shall be the "Class C Permitted Controlled
Amortization Amount Shortfall."
(49) Allocations of Series Principal Collections. An
amount equal to the remaining Series Principal Collections minus
the (i) Series Yield Collections, if any, and (ii) remaining
Seller Retained Class Principal Collections shall be withdrawn
from the Series Collections Account and deposited into the Group
Principal Collections Reallocation Account.
(50) Payment to the Seller. An amount equal to the lesser of
(A) the positive difference, if any, between
the amount of the Seller Interest (determined
as described below) and the Minimum Seller
Interest (after giving effect to all similar
provisions in other Series Supplements,
beginning with the series (including the Series
established hereby) having the earliest series
closing date and continuing seriatim) and
(B) any remaining amounts on deposit in the
Series Collections Account
shall be withdrawn from the Series Collections Account and paid
to the Seller. If after such payment, amounts remain on deposit
in the Series Collections Account, such amounts shall be
deposited into the Excess Funding Account (SRC). For purposes of
this provision, the Seller Interest shall be deemed to include
(i) all amounts remaining on deposit in the Series Collections
Account after clause (49); (ii) all amounts on deposit in all Group Principal
Collections Reallocation Accounts after giving effect to clause
(49) and all provisions similar to clause (49) in other Series
Supplements; and (iii) all amounts deposited into the Excess
Funding Account (SRC) and the Excess Funding Account (General) on
such Distribution Date pursuant to the provisions of any other
Series Supplement.
(51) Additional payment to the Seller. An amount equal
to the lesser of
(A) the positive difference, if any, between
the amount of the Seller Interest (determined
as described below) and the Minimum Seller
Interest and
(B) the product of (i) any remaining amounts on
deposit in the Group Principal Collections
Reallocation Account and (ii) a fraction the
numerator of which is the remaining amounts on
deposit in the Group 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
Principal Collections Reallocation Account for
the Group to which the Series established
hereby belongs)
shall be withdrawn from the Group Principal Collections
Reallocation Account and paid to the Seller. If after such
payment, amounts remain on deposit in the Group Principal
Collections Reallocation Account, such amounts shall be deposited
into the Excess Funding Account (General). For purposes of this
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<PAGE>
provision, the Seller Interest shall be deemed to include (i) all
amounts on deposit in all Group Principal Collections
Reallocation Accounts after giving effect to clause (49) and all
provisions similar to clause (49) in other Series Supplements,
and (ii) all amounts deposited into the Excess Funding Account
(SRC) and the Excess Funding Account (General) on such
Distribution Date pursuant to the provisions of any other Series
Supplements. This provision shall be applied before similar
provisions for any previously issued Series.
(52) Allocations from the Series Pre-Funding Account to the Group
Pre-Funding Reallocation Account. If applicable, an amount equal
to the amount on deposit in the Series Pre-Funding Account shall
be withdrawn from the Series Pre-Funding Account and deposited
into the Group Pre-Funding Reallocation Account; provided,
however, that such amount shall be used only to fund principal
shortfalls for other series in their controlled accumulation or
controlled amortization periods, as applicable, in the Group to
which the Series established hereby belongs.
(53) Further payment to the Seller. An amount equal to
the lesser of
(A) the positive difference, if any, between
the amount of the Seller Interest and the
Minimum Seller Interest and
(B) the product of (i) any remaining amounts on
deposit in the Group Pre-Funding Reallocation
Account and (ii) a fraction the numerator of
which is the amount on deposit the Group Pre-
Funding Reallocation Account and the
denominator of which is the sum of all amounts
on deposit in all group pre-funding
reallocation accounts (after giving effect to
provisions in the applicable Series Supplements
substantially similar to Sections 8(c)(55),
8(c)(56) and 8(c)(57), and including the Group
Pre-Funding Reallocation Account to which the
Series established hereby is a member).
shall be withdrawn from the Group Pre-Funding Reallocation
Account and paid to the Seller. Any remaining amounts on deposit
in the Group Pre-Funding Reallocation Account shall be allocated
to each Series in the Group based on a fraction, the numerator of
which is the amount deposited pursuant to Section 8(b)(52) and
the denominator of which is the sum of all such deposits pursuant
to similar provisions in the series supplements for the Group to
which the Series established hereby belongs. Such amounts
reallocated to the Series established hereby pursuant to the
prior sentence shall be deposited into the Series Pre-Funding
Account.
(c) Deposits During the Controlled Accumulation Period
or Controlled Amortization Period, if applicable. On or before
each Distribution Date during the Controlled Accumulation Period
or Controlled Amortization Period, as applicable, the Servicer
shall direct the Trustee that funds be paid or deposited, and the
Trustee shall apply such funds in the following amounts, to the
extent such funds are available and in the order of priority
specified, to the account or Person indicated, in each case as
set forth below.
(1) Class A Monthly Interest. An amount equal to the
lesser of
(A) the Class A Modified Required Amount and
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<PAGE>
(B) the sum of Series Finance Charge
Collections and Series Additional Allocable
Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(2) Class B Monthly Interest. An amount equal to the lesser of
(A) the Class B Modified Required Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(3) Class C Monthly Interest. An amount equal to the lesser of
(A) the Class C Modified Required Amount, if
any, and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(4) Series Monthly Servicing Fee Additional Funds
Portion. An amount equal to the lesser of
(A) the Series Monthly Servicing Fee Additional
Funds Portion and
(B) Series Additional Funds
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The positive
difference, if any, between the amount in (A) and the amount in
(B) shall be the "Series Monthly Servicing Fee Additional Funds
Portion Shortfall."
(5) Series Monthly Servicing Fee. An amount equal to
the lesser of
(A) the sum of the Series Monthly Servicing Fee
and all accrued but unpaid Series Monthly
Servicing Fees as of the prior Distribution
Date less the Series Monthly Servicing Fee
Additional Funds Portion, if any, and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
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<PAGE>
(6) Reimbursement of Class A Cumulative Investor Charged-
Off Amounts. An amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit.
(7) Reimbursement of Class B Cumulative Investor Charged-
Off Amounts. An amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class B Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit.
(8) Series Monthly Servicing Fee Additional Funds
Portion Shortfall. An amount equal to the lesser of
(A) the Series Monthly Servicing Fee Additional
Funds Portion Shortfall and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the
Series Distribution Account.
(9) Swap Trust Payments. An amount equal to the lesser
of
(A) the sum of the Swap Trust Payments and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited in the Series Distribution Account.
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<PAGE>
(10) Reimbursement of Class C Cumulative Investor
Charged-Off Amounts. An amount equal to the lesser of
(A) the Class C Cumulative Investor Charged-Off
Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts.
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class C Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit.
(11) Shortfalls in the PFA Special Reserve Required Amount. If
applicable, an amount equal to the lesser of
(A) the PFA Special Reserve Required Amount
Shortfall and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the PFA Special Reserve Account. The PFA Special
Reserve Required Amount Shortfall shall be reduced by the amount
of such deposit.
(12) Reimbursement of prior Third Party Credit
Enhancement Drawings. If applicable, an amount equal to the
lesser of
(A) the sum of all unreimbursed Third Party
Credit Enhancement Drawings and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Third Party Credit Enhancement Account. The
amount of unreimbursed Third Party Credit Enhancement Drawings
shall be reduced by the amount of such deposit.
(13) Third Party Credit Enhancement Fee. If applicable,
an amount equal to the lesser of
(A) the Third Party Credit Enhancement Fee and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and deposited into the
Series Distribution Account.
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<PAGE>
(14) The Class A Early Termination Premium Shortfall. If
applicable, an amount equal to the lesser of
(A) the Class A Early Termination Premium
Shortfall and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(15) The Class B Early Termination Premium Shortfall. If
applicable, an amount equal to the lesser of
(A) the Class B Early Termination Premium
Shortfall and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(16) Series Excess Servicing. An amount equal to any
remaining Series Finance Charge Collections and any remaining
Series Additional Allocable Amounts (together, "Series Excess
Servicing") shall be withdrawn from the Series Collections
Account and deposited into the Group Finance Charge Collections
Reallocation Account.
(17) Third Party Credit Enhancement Drawing. If
applicable, an amount equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) the amount on deposit in the Third Party
Credit Enhancement Account
shall be withdrawn from the Third Party Credit Enhancement
Account and deposited into the Series Distribution Account. The
Class C Modified Required Amount Shortfall and the Third Party
Credit Enhancement Amount both shall be reduced by the amount of
such deposit.
(18) Payment of the Class A Modified Required Amount
Shortfall from a Subordinate Series. If applicable, an amount
equal to the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) funds, if any, available to pay such Class
A Modified Required Amount Shortfall from funds
initially allocated to any Subordinate Series
shall be deposited into the Series Distribution Account. The
Class A Modified Required Amount Shortfall shall be reduced by
the amount of such deposit.
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<PAGE>
(19) Payment of the Class B Modified Required Amount
Shortfall from a Subordinate Series. If applicable, an amount
equal to the lesser of
(A) the Class B Modified Required Amount
Shortfall and
(B) funds, if any, available to pay such Class
B Modified Required Amount Shortfall from funds
initially allocated to any Subordinate Series
shall be deposited into the Series Distribution Account. The
Class B Modified Required Amount Shortfall shall be reduced by
the amount of such deposit.
(20) Payment of the Class C Modified Required Amount
Shortfall from a Subordinate Series. If applicable, an amount
equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) funds, if any, available to pay such Class
C Modified Required Amount Shortfall from funds
initially allocated to any Subordinate Series
shall be deposited into the Series Distribution Account. The
Class C Modified Required Amount Shortfall shall be reduced by
the amount of such deposit.
(21) Reimbursement of the Class A Cumulative Investor
Charged-Off Amount from a Subordinate Series. If applicable, an
amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) funds, if any, available to pay such Class
A Cumulative Investor Charged-Off Amount from
funds initially allocated to any Subordinate
Series
shall be deposited into the Series Principal Collections Account.
The Class A Cumulative Investor Charged-Off Amount shall be
reduced by the amount of such deposit.
(22) Reimbursement of the Class B Cumulative Investor
Charged-Off Amount from a Subordinate Series. If applicable, an
amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) funds, if any, available to pay such Class
B Cumulative Investor Charged-Off Amount from
funds initially allocated to any Subordinate
Series
shall be deposited into the Series Principal Collections Account.
The Class B Cumulative Investor Charged-Off Amount shall be
reduced by the amount of such deposit.
(23) Reimbursement of the Class C Cumulative Investor
Charged-Off Amount from a Subordinate Series. If applicable, an
amount equal to the lesser of
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<PAGE>
(A) the Class C Cumulative Investor Charged-Off
Amount and
(B) funds, if any, available to pay
such Class C Cumulative Investor Charged-Off
Amount from funds initially allocated to any
Subordinate Series
shall be deposited into the Series Principal Collections Account.
The Class C Cumulative Investor Charged-Off Amount shall be
reduced by the amount of such deposit.
(24) Reallocations for the Class A Modified Required
Amount Shortfall from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) the product of
(x) 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 the Group to
which the Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements substantially
similar to the clauses preceding this clause
(24)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account. The Class A Modified Required Amount Shortfall shall be
reduced by the amount of such deposit.
(25) Reallocations for the Class B Modified Required
Amount Shortfall from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class B Modified Required Amount
Shortfall and
(B) the product of
(x) 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 the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (25)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series
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<PAGE>
pursuant to a comparable clause for
any class with the same alphabetical
designation and after any withdrawals
therefrom for the benefit of all
classes designated by higher letters
of the alphabet of such other series
in the applicable Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account. The Class B Modified Required Amount Shortfall shall be
reduced by the amount of such deposit.
(26) Reallocations for the Class C Modified Required
Amount Shortfall from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) the product of
(x) 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 not initially rated by
the Rating Agencies for all series in
the Group to which the Series
established hereby belongs (after
giving effect to provisions in the
applicable Series Supplements
substantially similar to the clauses
preceding this clause (26)); provided,
however, that if any other series (or
multiple other series) shall have more
than one unrated class, the class
modified required amount shortfall to
be used in the denominator for each
such other series shall be the class
modified required amount shortfall for
the most senior unrated class for such
series for which the class modified
required amount shortfall is greater
than zero and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account. The Class C Modified Required Amount Shortfall shall be
reduced by the amount of such deposit.
(27) Reallocations for the Class A Cumulative Investor
Charged-Off Amount from the Group Finance Charge Collections Reallocation
Account. An amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the product of
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<PAGE>
(x) 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 the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (27)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Principal
Collections Account. The Class A Cumulative Investor Charged-Off
Amount shall be reduced by the amount of such deposit.
(28) Reallocations for the Class B Cumulative Investor
Charged-Off Amount from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) the product of
(x) 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 charged-off
amounts for all classes with the same
alphabetical designation for all
series in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (28)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections Reallocation
Account and deposited into the Series Principal Collections Account.
The Class B Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit.
(29) Allocations from the Group Finance Charge Collections
Reallocation Account for the payment of accrued Series Monthly Servicing
Fees. An amount equal to the lesser of
(A) all accrued but unpaid Series Monthly
Servicing Fees and
(B) the product of
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<PAGE>
(x) 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 the Group to
which the Series established hereby
belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(29)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account.
(30) Reallocations for the Class C Cumulative Investor
Charged-Off Amount from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class C Cumulative Investor Charged-Off
Amount and
(B) the product of
(x) 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 unrated by the
Rating Agencies for all series in the
Group to which the Series established
hereby belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(30)); provided, however, that if any
other series (or multiple other
series) shall have more than one
unrated class, the class cumulative
investor charged-off amount to be used
in the denominator for each such other
series shall be the class cumulative
investor charged-off amount for the
most senior unrated class for such
series for which the class cumulative
investor charged-off amount is greater
than zero and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Principal
Collections Account. The Class C Cumulative Investor Charged-Off
Amount shall be reduced by the amount of such deposit.
(31) Swap Trust Payment Shortfalls. An amount equal to
the lesser of
(A) the Swap Trust Payment Shortfall and
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<PAGE>
(B) the product of
(x) a fraction, the numerator of which
is the Swap Trust Payment Shortfall
and the denominator of which is the
sum of the swap trust payment
shortfalls for all series in the Group
to which the Series established hereby
belongs and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
other series pursuant to a clause in
the applicable Series Supplement for
the purpose of covering swap trust
payment shortfalls and after any
withdrawals therefrom with respect to
other series pursuant to a clause in
the applicable Series Supplement for
the purpose of covering any payment
shortfall for such series intended to
be of a higher priority than swap
trust payment shortfalls
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited in the Series Distribution
Account.
(32) Payment of the Class A Modified Required Amount
Shortfall from Class C Principal Collections. An amount equal to
the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class A
Modified Required Amount Shortfall shall be reduced by the amount
of such deposit, and the Class C Cumulative Investor Charged-Off
Amount shall be increased by the amount of such deposit.
(33) Payment of the Class A Modified Required Amount
Shortfall from Class B Principal Collections. An amount equal to
the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) the Class B Principal Collections less
Series Yield Collections allocable to the Class
B Investor Interest
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class A
Modified Required Amount Shortfall shall be reduced by the amount
of such deposit, and the Class B Cumulative Investor Charged-Off
Amount shall be increased by the amount of such deposit.
(34) Payment of the Class B Modified Required Amount
Shortfall from Class C Principal Collections. An amount equal to
the lesser of
(A) the Class B Modified Required Amount
Shortfall and
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<PAGE>
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class B
Modified Required Amount Shortfall shall be reduced by the amount
of such deposit, and the Class C Cumulative Investor Charged-Off
Amount shall be increased by the amount of such deposit.
(35) Reimbursement of the Class A Cumulative Investor Charged-Off
Amount from Class C Principal Collections. An amount equal to the
lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit, and the Class C Cumulative
Investor Charged-Off Amount shall be increased by the amount of
such deposit.
(36) Reallocation of the Class C Investor Interest to
reimburse the Class A Cumulative Investor Charged-Off Amount. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by an amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the Class C Investor Interest
and the Class C Cumulative Investor Charged-Off Amount shall be
increased by such amount; provided, however, that the Class C
Cumulative Investor Charged-Off Amount would not, as a result,
exceed the Class C Initial Investor Interest less principal
payments made in respect of such Class prior to such Distribution Date.
(37) Reimbursement of the Class A Cumulative Investor Charged-Off
Amount from Class B Principal Collections. An amount equal to the
lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) any remaining Class B Principal Collections
less Series Yield Collections allocable to the
Class B Investor Interest
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such
57
<PAGE>
deposit, and the Class B Cumulative Investor Charged-Off Amount
shall be increased by the amount of such deposit.
(38) Reallocation of the Class B Investor Interest to
reimburse the Class A Cumulative Investor Charged-Off Amount. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by an amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the Class B Investor Interest
and the Class B Cumulative Investor Charged-Off Amount shall be
increased by such amount; provided, however, that the Class B
Cumulative Investor Charged-Off Amount would not, as a result,
exceed the Class B Initial Investor Interest.
(39) Reimbursement of the Class B Cumulative Investor Charged-Off
Amount from Class C Principal Collections. An amount equal to the
lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class B Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit, and the Class C Cumulative
Investor Charged-Off Amount shall be increased by the amount of
such deposit.
(40) Reallocation of the Class C Investor Interest to
reimburse the Class B Cumulative Investor Charged-Off Amount. The
Class B Cumulative Investor Charged-Off Amount shall be reduced
by an amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) the Class C Investor Interest
and the Class C Cumulative Investor Charged-Off Amount shall be
increased by such amount; provided, however, that the Class C
Cumulative Investor Charged-Off Amount would not, as a result,
exceed the Class C Initial Investor Interest less principal
payments made in respect of such Class prior to such Distribution
Date.
(41) Reinstatement of Class C Investor Interest from the
Third Party Credit Enhancement Account. On the Distribution Date
in which the Class A Invested Amount and Class B Invested Amounts
have been reduced to zero, if applicable, an amount equal to the
lesser of
(A) the Class C Cumulative Investor Charged-Off
Amount and
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<PAGE>
(B) the amount on deposit in the Third Party
Credit Enhancement Account
shall be withdrawn from the Third Party Credit Enhancement
Account and deposited into the Series Principal Collections
Account by the Third Party Credit Enhancement Provider. The Class
C Cumulative Investor Charged-Off Amount and the Third Party
Credit Enhancement Amount shall both be reduced by the amount of
such deposit.
(42) Special Third Party Credit Enhancement Drawing. On
the Distribution Date in which the Class A Invested Amount and
Class B Invested Amounts have been reduced to zero, if
applicable, an amount equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) the amount on deposit in the Third Party
Credit Enhancement Account
shall be withdrawn from the Third Party Credit Enhancement
Account and deposited into the Series Distribution Account. The
Class C Modified Required Amount Shortfall and the Third Party
Credit Enhancement Amount shall be reduced by the amount of such
deposit.
(43) Reallocations for the Class A Early Termination
Premium Shortfall from the Group Finance Charge Collections
Reallocation Account. If applicable, an amount equal to the
lesser of
(A) the Class A Early Termination Premium
Shortfall and
(B) the product of
(x) a fraction the numerator of which
is the Class A Early Termination
Premium Shortfall and the denominator
of which is the sum of all class early
termination premium shortfalls with
the same alphabetical designation for
all series in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (43)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account.
(44) Reallocations for the Class B Early Termination
Premium Shortfall from the Group Finance Charge Collections
Reallocation Account. If applicable, an amount equal to the
lesser of
(A) the Class B Early Termination Premium
Shortfall and
(B) the product of
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<PAGE>
(x) a fraction the numerator of which
is the Class B Early Termination
Premium Shortfall and the denominator
of which is the sum of all class early
termination premium shortfalls with
the same alphabetical designation for
all series in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (44)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account.
(45) Allocations of remaining amounts from the Group
Finance Charge Collections Reallocation Account to the Seller. An
amount equal to all remaining amounts on deposit in the Group
Finance Charge Collections Reallocation Account, after all other
allocations from such Account pursuant to the Series Supplements
for any series in the Group to which the Series established
hereby belongs, shall be withdrawn from the Group Finance Charge
Collections Reallocation Account and paid to the Seller.
(46) Allocations from the Excess Funding Account
(General) to the Group Principal Collections Reallocation
Account. 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 any other series that are in their Rapid
Amortization Period, an amount equal to the product of
(A) a fraction the numerator of which is the
sum of the series investor interests less the
sum of class investor interests with respect to seller
retained classes for all series in the Group to
which the Series established hereby belongs 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
(after giving effect to provisions in the
applicable Series Supplements substantially
similar to the clauses preceding this clause
(46)) and
(B) the amount on deposit in the Excess Funding
Account (General) before any withdrawals
therefrom with respect to any other series
pursuant to a comparable clause in the
applicable Series Supplements
shall be withdrawn from the Excess Funding Account (General) and
deposited into the Group Principal Collections Reallocation
Account.
(47) Allocations of Series Principal Collections. An
amount equal to the remaining Series Principal Collections minus
the (i) Series Yield Collections, if any and (ii) remaining
Seller Retained Class
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Principal Collections shall be withdrawn from the Series
Collections Account and deposited into the Series Principal
Collections Account.
(48) Class A Controlled Accumulation Amount or the Class
A Controlled Amortization Amount, as applicable. An amount equal
to the lesser of
(A) the Class A Controlled Accumulation Amount
or the Class A Controlled Amortization Amount,
as applicable, and
(B) Amounts on deposit in the Series Principal
Collections Account
shall be withdrawn from the Series Principal Collections Account
and deposited into the Series Principal Funding Account or Series
Distribution Account, as applicable. The amount by which the
Class A Controlled Accumulation Amount or Class A Controlled
Amortization Amount exceeds such deposit shall be the "Class A
Controlled Accumulation Amount Shortfall" or the "Class A
Controlled Amortization Shortfall," respectively.
(49) Class C Permitted Controlled Amortization Amount.
An amount equal to the lesser of
(A) the Class C Permitted Controlled
Amortization Amount and
(B) remaining amounts on deposit in the Series
Collections Account
shall 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 such deposit shall be the "Class C Permitted Controlled
Amortization Amount Shortfall."
(50) Class B Controlled Accumulation Amount or the Class
B Controlled Amortization Amount, as applicable. 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 such Distribution Date is after the Class A
Expected Final Payment Date, an amount equal to the lesser of
(A) the Class B Controlled Accumulation Amount
or the Class B Controlled Amortization Amount,
as applicable, and
(B) remaining amounts on deposit in the Series
Principal Collections Account (or, if Class B
is a Seller Retained Class, in the Series
Collections Account)
shall be withdrawn from the Series Principal Collections Account
(or, if Class B is a Seller Retained Class, from the Series
Collections Account) and deposited into the Series Principal
Funding Account or Series Distribution Account, as applicable.
The amount by which the Class B Controlled Accumulation Amount or
Class B Controlled Amortization Amount exceeds such deposit shall
be the "Class B Controlled Accumulation Amount Shortfall" or the
"Class B Controlled Amortization Amount Shortfall," respectively.
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<PAGE>
(51) Class C Controlled Accumulation Amount or the Class
C Controlled Amortization Amount, as applicable. On each
Distribution Date after the Distribution Date on which the Class
A and Class B Invested Amounts are paid in full, an amount equal
to the lesser of
(A) the Class C Controlled Accumulation Amount
or the Class C Controlled Amortization Amount,
as applicable, and
(B) remaining amounts on deposit in the Series
Collections Account
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Funding Account or Series
Distribution Account, as applicable. The amount by which the
Class C Controlled Accumulation Amount or Class Controlled
Amortization Amount exceeds such deposit shall be the "Class C
Controlled Accumulation Amount Shortfall" or the "Class C
Controlled Amortization Amount Shortfall."
(52) Allocations from the Group Principal Collections
Reallocation Account for the payment of the Class A Controlled
Accumulation Amount Shortfall or the Class A Controlled
Amortization Amount Shortfall, as applicable. An amount equal to
the lesser of
(A) the Class A Controlled Accumulation Amount
Shortfall or the Class A Controlled
Amortization Amount Shortfall, as applicable
and
(B) the product of
(x) a fraction the numerator of which
is the Class A Controlled Accumulation
Amount Shortfall or the Class A
Controlled Amortization Amount
Shortfall, as applicable, and the
denominator of which is the sum of the
class controlled accumulation amount
shortfalls or class controlled
amortization amount shortfalls, as
applicable, for all classes with the
same alphabetical designation for all
series in the
Group to which the Series established
hereby belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(52)) and
(y) the amount on deposit in the Group
Principal Collections Reallocation
Account before any withdrawals
therefrom with respect to any other
series pursuant to a comparable clause
in the applicable Series Supplements
shall be withdrawn from the Group Principal Collections
Reallocation Account and deposited in the Series Principal
Funding Account or Series Distribution Account, as applicable.
The Class A Controlled Accumulation Amount Shortfall or the Class
A Controlled Amortization Amount Shortfall, as applicable, shall
be reduced by the amount of such deposit.
(53) Allocations from the Group Principal Collections
Reallocation Account for the payment of the Class B Controlled
Accumulation Amount Shortfall or the Class B Controlled
Amortization Amount Shortfall, as applicable. An amount equal to
the lesser of
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(A) the Class B Controlled Accumulation Amount
Shortfall or the Class B Controlled
Amortization Amount Shortfall, as applicable
and
(B) the product of
(x) a fraction the numerator of which
is the Class B Controlled Accumulation
Amount Shortfall or the Class B
Controlled Amortization Amount
Shortfall, as applicable, and the
denominator of which is the sum of the
class controlled accumulation amount
shortfalls or class controlled
amortization amount shortfalls, as
applicable, for all classes with the
same alphabetical designation for all
series in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (53)) and
(y) the amount on deposit in the Group
Principal Collections Reallocation
Account before any withdrawals
therefrom with respect to any other
series pursuant to a comparable clause
for any class with the same
alphabetical designation and after any
withdrawals therefrom for the benefit
of all classes designated by higher
letters of the alphabet of such other
series in the applicable Series
Supplements
shall be withdrawn from the Group Principal Collections
Reallocation Account and deposited in the Series Principal
Funding Account or Series Distribution Account, as applicable.
The Class B Controlled Accumulation Amount Shortfall or the Class
B Controlled Amortization Amount Shortfall, as applicable, shall
be reduced by the amount of such deposit.
(54) Allocations from the Group Principal Collections
Reallocation Account for the payment of the Class C Controlled Accumulation
Amount Shortfall or the Class C Controlled Amortization Amount
Shortfall, as applicable. An amount equal to the lesser of
(A) the Class C Controlled Accumulation Amount
Shortfall or the Class C Controlled
Amortization Amount Shortfall, as applicable
and
(B) the product of
(x) a fraction the numerator of which
is the Class C Controlled Accumulation
Amount Shortfall or the Class C
Controlled Amortization Amount
Shortfall, as applicable, and the
denominator of which is the sum of the
class controlled accumulation amount
shortfalls or class controlled
amortization amount shortfalls, as
applicable, for all classes with the
same alphabetical designation for all
series in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (54)); provided,
however, that if any other series (or
multiple other series) shall have more
than one unrated class, the class
controlled accumulation amount
shortfall or class controlled
amortization amount shortfall, as
applicable, to be used in the
denominator for each such other series
shall be the class controlled
accumulation amount shortfall or class
controlled amortization
63
<PAGE>
amount shortfall, as applicable, for
the most senior unrated class for such
series for which the class controlled
accumulation amount shortfall or class
controlled amortization amount
shortfall, as applicable, is greater
than zero and
(y) the amount on deposit in the Group
Principal Collections Reallocation
Account before any withdrawals
therefrom with respect to any other
series pursuant to a comparable clause
for any class with the same
alphabetical designation and after any
withdrawals therefrom for the benefit
of all classes designated by higher
letters of the alphabet of such other
series in the applicable Series
Supplements
shall be withdrawn from the Group Principal Collections
Reallocation Account and deposited in the Series Principal
Funding Account or Series Distribution Account, as applicable.
The Class C Controlled Accumulation Amount Shortfall or the Class
C Controlled Amortization Amount Shortfall, as applicable, shall
be reduced by the amount of such deposit.
(55) Allocations from the Group Pre-Funding Reallocation
Account for the payment of the Class A Controlled Accumulation
Amount Shortfall or Class A Controlled Amortization Amount
Shortfall, as applicable. An amount equal to the
lesser of
(A) the Class A Controlled Accumulation Amount
Shortfall or Class A Controlled Amortization
Amount Shortfall, as applicable, and
(B) the product of
(x) a fraction the numerator of which
is the Class A Controlled Accumulation
Amount Shortfall or Class A Controlled
Amortization Amount Shortfall, as
applicable, and the denominator of
which is the sum of the class
controlled accumulation amount
shortfalls or class controlled
amortization amount shortfalls, as
applicable, for all classes with the
same alphabetical designation for all
series not in their Rapid Amortization
Periods in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (55)) and
(y) the amount on deposit in the Group
Pre-Funding Reallocation Account
before any withdrawals therefrom with
respect to any other series pursuant
to a comparable clause in the
applicable Series Supplements
shall be withdrawn from the Group Pre-Funding Reallocation
Account and deposited in the Series Principal Funding Account or
Series Distribution Account, as applicable. The Class A
Controlled Accumulation Amount Shortfall or the Class A
Controlled Amortization Amount Shortfall, as applicable, will be
reduced by the amount of such deposit.
(56) Allocations from the Group Pre-Funding Reallocation
Account for the payment of the Class B Controlled Accumulation
Amount Shortfall or Class B Controlled Amortization Amount
Shortfall, as applicable. An amount equal to the lesser of
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<PAGE>
(A) the Class B Controlled Accumulation Amount
Shortfall or Class B Controlled Amortization
Amount Shortfall, as applicable, and
(B) the product of
(x) a fraction the numerator of which
is the Class B Controlled Accumulation
Amount Shortfall or Class B Controlled
Amortization Amount Shortfall, as
applicable, and the denominator of
which is the sum of the class
controlled accumulation amount
shortfalls or class controlled
amortization amount shortfalls, as
applicable, for all classes with the
same alphabetical designation for all
series not in their Rapid Amortization
Periods in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (56)) and
(y) the amount on deposit in the Group
Pre-Funding Reallocation Account
before any withdrawals therefrom with
respect to any other series pursuant
to a comparable clause for any class
with the same alphabetical designation
and after any withdrawals therefrom
for the benefit of all classes
designated by higher letters of the
alphabet of such other series in the
applicable Series Supplements
shall be withdrawn from the Group Pre-Funding Reallocation
Account and deposited in the Series Principal Funding Account or
Series Distribution Account, as applicable. The Class B
Controlled Accumulation Amount Shortfall or the Class B
Controlled Amortization Amount Shortfall, as applicable, will be
reduced by the amount of such deposit.
(57) Allocations from the Group Pre-Funding Reallocation
Account for the payment of the Class C Controlled Accumulation
Amount Shortfall or Class C Controlled Amortization Amount
Shortfall, as applicable. An amount equal to the lesser of
(A) the Class C Controlled Accumulation Amount
Shortfall or Class C Controlled Amortization
Amount Shortfall, as applicable, and
(B) the product of
(x) a fraction the numerator of which
is the Class C Controlled Accumulation
Amount Shortfall or Class C Controlled
Amortization Amount Shortfall, as
applicable, and the denominator of
which is the sum of the class
controlled accumulation amount
shortfalls or class controlled
amortization amount shortfalls, as
applicable, for all classes with the
same alphabetical designation for all
series not in their Rapid Amortization
Periods in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (57)) and
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(y) the amount on deposit in the Group
Pre-Funding Reallocation Account
before any withdrawals therefrom with
respect to any other series pursuant
to a comparable clause for any class
with the same alphabetical designation
and after any withdrawals therefrom
for the benefit of all classes
designated by higher letters of the
alphabet of such other series in the
applicable Series Supplements
shall be withdrawn from the Group Pre-Funding Reallocation
Account and deposited in the Series Principal Funding Account or
Series Distribution Account, as applicable. The Class C
Controlled Accumulation Amount Shortfall or the Class C
Controlled Amortization Amount Shortfall, as applicable, will be
reduced by the amount of such deposit.
(58) Allocations of remaining Series Principal
Collections. An amount equal to all remaining amounts on deposit
in the Series Principal Collections Account shall be withdrawn
from the Series Principal Collections Account and deposited into
the Group Principal Collections Reallocation Account.
(59) Payment to the Seller. An amount equal to the lesser of
(A) the positive difference, if any, between
the amount of the Seller Interest (determined
as described below) and the Minimum Seller
Interest (after giving effect to all similar
provisions in other Series Supplements,
beginning with the series (including the Series
established hereby) having the earliest series
closing date and continuing seriatim) and
(B) any remaining amounts on deposit in the
Series Collections Account
shall be withdrawn from the Series Collections Account and paid
to the Seller. If after such payment, amounts remain on deposit
in the Series Collections Account, such amounts shall be
deposited into the Excess Funding Account (SRC). For purposes of
this provision, the Seller Interest shall be deemed to include
(i) all amounts remaining on deposit in the Series Collections
Account after giving effect to clause (58); (ii) all amounts on
deposit in all Group Principal Collections Reallocation Accounts
after giving effect to clause (58) and all provisions similar to
clause (58) in other Series Supplements; and (iii) all amounts
deposited into the Excess Funding Account (SRC) and the Excess
Funding Account (General) on such Distribution Date pursuant to
the provisions of any other Series Supplement.
(60) Additional payment to the Seller. An amount equal
to the lesser of
(A) the positive difference, if any, between
the amount of the Seller Interest (determined
as described below) and the Minimum Seller
Interest and
(B) the product of (i) any remaining amounts on
deposit in the Group Principal Collections
Reallocation Account and (ii) a fraction the
numerator of which is the remaining amounts on
deposit in the Group 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
Principal Collections Reallocation Account for
the Group to which the Series established
hereby belongs)
shall be withdrawn from the Group Principal Collections
Reallocation Account and paid to the Seller. If after such
payment, amounts remain on deposit in the Group Principal
Collections Reallocation Account,
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such amounts shall be deposited into the Excess Funding Account
(General). For purposes of this provision, the Seller Interest
shall be deemed to include (i) all amounts on deposit in all
Group Principal Collections Reallocation Accounts after giving
effect to clause (58) and all provisions similar to clause (58)
in other Series Supplements, and (ii) all amounts deposited into
the Excess Funding Account (SRC) and the Excess Funding Account
(General) on such Distribution Date pursuant to the provisions of
any other Series Supplements. This provision shall be applied before similar
provisions for any previously issued Series.
(d) Deposits During the Rapid Amortization Period. On or
before each Distribution Date during the Rapid Amortization
Period, the Servicer shall direct the Trustee that funds be paid
or deposited, and the Trustee shall apply such funds in the
following amounts, to the extent such funds are available and in
the order of priority specified, to the account or Person
indicated, in each case as set forth below.
(1) Deposits from the Series Principal Funding Account
into the Series Principal Collections Account. All amounts on
deposit in the Series Principal Funding Account shall be
deposited into the Series Principal Collections Account.
(2) Deposits from the Series Pre-Funding Account into the Series
Principal Collections Account. If applicable, all amounts on
deposit in the Series Pre-Funding Account shall be deposited into
the Series Principal Collections Account.
(3) Deposits from the PFA Special Reserve Account into the Series
Collections Account. If applicable, all amounts on deposit in the
PFA Special Reserve Account shall be deemed to be Series Finance
Charge Collections and shall be deposited into the Series
Collections Account.
(4) Deposits from the Series Pre-Funding Special Reserve
Account into the Series Collections Account. If applicable, all
amounts on deposit in the Series Pre-Funding Special Reserve
Account shall be deemed to be Series Finance Charge Collections
and shall be deposited into the Series Collections Account.
(5) Class A Monthly Interest. An amount equal to the lesser of
(A) the Class A Modified Required Amount and
(B) the sum of Series Finance Charge
Collections and Series Additional Allocable
Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(6) Class B Monthly Interest. An amount equal to the lesser of
(A) the Class B Modified Required Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
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shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(7) Class C Monthly Interest. An amount equal to the lesser of
(A) the Class C Modified Required Amount, if
any, and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(8) Series Monthly Servicing Fee Additional Funds
Portion. An amount equal to the lesser of
(A) the Series Monthly Servicing Fee Additional
Funds Portion and
(B) Series Additional Funds
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The positive
difference, if any, between the amount in (A) and the amount in
(B) shall be the "Series Monthly Servicing Fee Additional Funds
Portion Shortfall."
(9) Series Monthly Servicing Fee. An amount equal to the
lesser of
(A) the sum of the Series Monthly Servicing Fee
and all accrued but unpaid Series Monthly
Servicing Fees as of the prior Distribution
Date less the Series Monthly Servicing Fee
Additional Funds Portion, if any, and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(10) Reimbursement of Class A Cumulative Investor
Charged-Off Amounts. An amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit.
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(11) Reimbursement of Class B Cumulative Investor
Charged-Off Amounts. An amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class B Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit.
(12) Series Monthly Servicing Fee Additional Funds
Portion Shortfall. An amount equal to the lesser of
(A) the Series Monthly Servicing Fee Additional
Funds Portion Shortfall and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account.
(13) Swap Trust Payments. An amount equal to the lesser of
(A) the sum of the Swap Trust Payments and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited in the Series Distribution Account.
(14) Reimbursement of Class C Cumulative Investor
Charged-Off Amounts. An amount equal to the lesser of
(A) the Class C Cumulative Investor Charged-Off
Amount and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts.
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class C Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit.
(15) Reimbursement of prior Third Party Credit
Enhancement Drawings. On and after each Distribution Date after
the Class A Invested Amount and Class B Invested Amount have been
reduced to zero, if applicable, an amount equal to the lesser of
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(A) the sum of all unreimbursed Third Party
Credit Enhancement Drawings and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the Third Party Credit Enhancement Account. The
amount of unreimbursed Third Party Credit Enhancement Drawings
shall be reduced by the amount of such deposit.
(16) Third Party Credit Enhancement Fee. If applicable,
an amount equal to the lesser of
(A) the Third Party Credit Enhancement Fee and
(B) the sum of any remaining Series Finance
Charge Collections and any remaining Series
Additional Allocable Amounts
shall be withdrawn from the Series Collections Account and
deposited into the
Series Distribution Account.
(17) Series Excess Servicing. An amount equal to any
remaining Series Finance Charge Collections and any remaining
Series Additional Allocable Amounts (together, "Series Excess
Servicing") shall be withdrawn from the Series Collections
Account and deposited into the Group Finance Charge Collections
Reallocation Account.
(18) Third Party Credit Enhancement Drawing. If
applicable, an amount equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) the amount on deposit in the Third Party
Credit Enhancement Account
shall be withdrawn from the Third Party Credit Enhancement
Account and deposited into the Series Distribution Account. The
Class C Modified Required Amount Shortfall and the Third Party
Credit Enhancement shall be reduced by the amount of such
deposit.
(19) Payment of the Class A Modified Required Amount
Shortfall from a Subordinate Series. If applicable, an amount
equal to the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) funds, if any, available to pay such Class
A Modified Required Amount Shortfall from funds
initially allocated to any Subordinate Series
shall be deposited into the Series Distribution Account. The
Class A Modified Required Amount Shortfall shall be reduced by
the amount of such deposit.
(20) Payment of the Class B Modified Required Amount
Shortfall from a Subordinate Series. If applicable, an amount
equal to the lesser of
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(A) the Class B Modified Required Amount
Shortfall and
(B) funds, if any, available to pay such Class
B Modified Required Amount Shortfall from funds
initially allocated to any Subordinate Series
shall be deposited into the Series Distribution Account. The
Class B Modified Required Amount Shortfall shall be reduced by
the amount of such deposit.
(21) Payment of the Class C Modified Required Amount
Shortfall from a Subordinate Series. If applicable, an amount
equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) funds, if any, available to pay such Class
C Modified Required Amount Shortfall from funds
initially allocated to any Subordinate Series
shall be deposited into the Series Distribution Account. The
Class C Modified Required Amount Shortfall shall be reduced by
the amount of such deposit.
(22) Reimbursement of the Class A Cumulative Investor Charged-Off
Amount from a Subordinate Series. If applicable, an amount equal
to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) funds, if any, available to pay such Class
A Cumulative Investor Charged-Off Amount from
funds initially allocated to any Subordinate
Series
shall be deposited into the Series Principal Collections Account.
The Class A Cumulative Investor Charged-Off Amount shall be
reduced by the amount of such deposit.
(23) Reimbursement of the Class B Cumulative Investor Charged-Off
Amount from a Subordinate Series. If applicable, an amount equal
to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) funds, if any, available to pay such Class
B Cumulative Investor Charged-Off Amount from
funds initially allocated to any Subordinate
Series
shall be deposited into the Series Principal Collections Account.
The Class B Cumulative Investor Charged-Off Amount shall be
reduced by the amount of such deposit.
(24) Reimbursement of the Class C Cumulative Investor Charged-Off
Amount from a Subordinate Series. If applicable, an amount equal
to the lesser of
(A) the Class C Cumulative Investor Charged-Off
Amount and
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<PAGE>
(B) funds, if any, available to pay such Class
C Cumulative Investor Charged-Off Amount from
funds initially allocated to any Subordinate
Series
shall be deposited into the Series Principal Collections Account.
The Class C Cumulative Investor Charged-Off Amount shall be
reduced by the amount of such deposit.
(25) Reallocations for the Class A Modified Required
Amount Shortfall from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) the product of
(x) 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 the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (25)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account. The Class A Modified Required Amount Shortfall shall be
reduced by the amount of such deposit.
(26) Reallocations for the Class B Modified Required
Amount Shortfall from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class B Modified Required Amount
Shortfall and
(B) the product of
(x) 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 the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (26)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes
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designated by higher letters of the
alphabet of such other series in the
applicable Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account. The Class B Modified Required Amount Shortfall shall be
reduced by the amount of such deposit.
(27) Reallocations for the Class C Modified Required
Amount Shortfall from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) the product of
(x) 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 not initially rated by the
Rating Agencies for all series in the
Group to which the Series established
hereby belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(27)); provided, however, that if any
other series (or multiple other
series) shall have more than one
unrated class, the class modified
required amount shortfall to be used
in the denominator for each such other
series shall be the class modified
required amount shortfall for the most
senior unrated class for such series
for which the class modified required
amount shortfall is greater than zero
and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account. The Class C Modified Required Amount Shortfall shall be
reduced by the amount of such deposit.
(28) Reallocations for the Class A Cumulative Investor
Charged-Off Amount from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the product of
(x) 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
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designation for all series in the
Group to which the Series established
hereby belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(28)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Principal
Collections Account. The Class A
Cumulative Investor Charged-Off Amount shall be reduced by the
amount of such deposit.
(29) Reallocations for the Class B Cumulative Investor
Charged-Off Amount from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) the product of
(x) 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 charged-off
amounts for all classes with the same
alphabetical designation for all
series in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (29)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Principal
Collections Account. The Class B Cumulative Investor Charged-Off
Amount shall be reduced by the amount of such deposit.
(30) Allocations from the Group Finance Charge
Collections Reallocation Account for the payment of accrued
Series Monthly Servicing Fees. An amount equal to the lesser of
(A) all accrued but unpaid Series Monthly
Servicing Fees and
(B) the product of
(x) 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 the Group to
which the Series established
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<PAGE>
hereby belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(30)) and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Distribution
Account.
(31) Reallocations for the Class C Cumulative Investor
Charged-Off Amount from the Group Finance Charge Collections
Reallocation Account. An amount equal to the lesser of
(A) the Class C Cumulative Investor Charged-Off
Amount and
(B) the product of
(x) 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 unrated by the
Rating Agencies for all series in the
Group to which the Series established
hereby belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(31)); provided, however, that if any
other series (or multiple other
series) shall have more than one
unrated class, the class cumulative
investor charged-off amount to be used
in the denominator for each such other
series shall be the class cumulative
investor charged-off amount for the
most senior unrated class for such
series for which the class cumulative
investor charged-off amount is greater
than zero and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
any other series pursuant to a
comparable clause for any class with
the same alphabetical designation and
after any withdrawals therefrom for
the benefit of all classes designated
by higher letters of the alphabet of
such other series in the applicable
Series Supplements
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited into the Series Principal
Collections Account. The Class C Cumulative Investor Charged-Off
Amount shall be reduced by the amount of such deposit.
(32) Swap Trust Payment Shortfalls. An amount equal to
the lesser of
(A) the Swap Trust Payment Shortfall and
(B) the product of
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(x) a fraction, the numerator of which
is the Swap Trust Payment Shortfall and the
denominator of which is the sum of the
swap trust payment shortfalls for all
series in the Group to which the
Series established hereby belongs and
(y) the amount on deposit in the Group
Finance Charge Collections
Reallocation Account before any
withdrawals therefrom with respect to
other series pursuant to a clause in
the applicable Series Supplement for
the purpose of covering swap trust
payment shortfalls and after any
withdrawals therefrom with respect to
other series pursuant to a clause in
the applicable Series Supplement for
the purpose of covering any payment
shortfall for such series intended to
be of a higher priority than swap
trust payment shortfalls
shall be withdrawn from the Group Finance Charge Collections
Reallocation Account and deposited in the Series Distribution
Account.
(33) Payment of the Class A Modified Required Amount
Shortfall from Class C Principal Collections. An amount equal to
the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class A
Modified Required Amount Shortfall shall be reduced by the amount
of such deposit, and the Class C Cumulative Investor Charged-Off
Amount shall be increased by the amount of such deposit.
(34) Payment of the Class A Modified Required Amount
Shortfall from Class B Principal Collections. An amount equal to
the lesser of
(A) the Class A Modified Required Amount
Shortfall and
(B) the Class B Principal Collections less
Series Yield Collections allocable to the Class
B Investor Interest
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class A
Modified Required Amount Shortfall shall be reduced by the amount
of such deposit, and the Class B Cumulative Investor Charged-Off
Amount shall be increased by the amount of such deposit.
(35) Payment of the Class B Modified Required Amount
Shortfall from Class C Principal Collections. An amount equal to
the lesser of
(A) the Class B Modified Required Amount
Shortfall and
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(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Distribution Account. The Class B
Modified Required Amount Shortfall shall be reduced by the amount
of such deposit, and the Class C Cumulative Investor Charged-Off
Amount shall be increased by the amount of such deposit.
(36) Reimbursement of the Class A Cumulative Investor Charged-Off
Amount from Class C Principal Collections. An amount equal to the
lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit, and the Class C Cumulative
Investor Charged-Off Amount shall be increased by the amount of
such deposit.
(37) Reallocation of the Class C Investor Interest to
reimburse the Class A Cumulative Investor Charged-Off Amount. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by an amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the Class C Investor Interest
and the Class C Cumulative Investor Charged-Off Amount shall be
increased by such amount; provided, however, that the Class C
Cumulative Investor Charged Off Amount would not, as a result
exceed the Class C Initial Investor Interest less principal
payments made in respect of such Class prior to such Distribution
Date.
(38) Reimbursement of the Class A Cumulative Investor Charged-Off
Amount from Class B Principal Collections. An amount equal to the
lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) any remaining Class B Principal Collections
less Series Yield Collections allocable to the
Class B Investor Interest
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such
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deposit, and the Class B Cumulative Investor Charged-Off Amount
shall be increased by the amount of such deposit.
(39) Reallocation of the Class B Investor Interest to
reimburse the Class A Cumulative Investor Charged-Off Amount. The
Class A Cumulative Investor Charged-Off Amount shall be reduced
by an amount equal to the lesser of
(A) the Class A Cumulative Investor Charged-Off
Amount and
(B) the Class B Investor Interest
and the Class B Cumulative Investor Charged-Off Amount shall be
increased by such amount; provided, however, that the Class B
Cumulative Investor Charged-Off Amount would not, as a result,
exceed the Class B Initial Investor Interest less principal
payments made in respect of such Class prior to such Distribution
Date.
(40) Reimbursement of the Class B Cumulative Investor Charged-Off
Amount from Class C Principal Collections. An amount equal to the
lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) 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
shall be withdrawn from the Series Collections Account and
deposited into the Series Principal Collections Account. The
Class B Cumulative Investor Charged-Off Amount shall be reduced
by the amount of such deposit, and the Class C Cumulative
Investor Charged-Off Amount shall be increased by the amount of
such deposit.
(41) Reallocation of the Class C Investor Interest to
reimburse the Class B Cumulative Investor Charged-Off Amount. The
Class B Cumulative Investor Charged-Off Amount shall be reduced
by an amount equal to the lesser of
(A) the Class B Cumulative Investor Charged-Off
Amount and
(B) the Class C Investor Interest
and the Class C Cumulative Investor Charged-Off Amount shall be
increased by such amount; provided, however, that the Class C
Cumulative Investor Charged Off Amount would not, as a result
exceed the Class C Initial Investor Interest less principal
payments made in respect of such Class prior to such Distribution
Date.
(42) Reinstatement of Class C Investor Interest from the
Third Party Credit Enhancement Account. On the Distribution Date
in which the Class A Invested Amount and Class B Invested Amounts
have been reduced to zero, if applicable, an amount equal to the
lesser of
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(A) the Class C Cumulative Investor Charged-Off
Amount and
(B) the Third Party Credit Enhancement Amount
shall be withdrawn from the Third Party Credit Enhancement
Account and deposited into the Series Principal Collections
Account by the Third Party Credit Enhancement Provider. The Class
C Cumulative Investor Charged-Off Amount and the Third Party
Credit Enhancement Amount shall both be reduced by the amount of
such deposit.
(43) Special Third Party Credit Enhancement Drawing. On
the Distribution Date in which the Class A Invested Amount and
Class B Invested Amounts have been reduced to zero, if
applicable, an amount equal to the lesser of
(A) the Class C Modified Required Amount
Shortfall and
(B) the amount on deposit in the Third Party
Credit Enhancement Account
shall be withdrawn from the Third Party Credit Enhancement
Account and deposited into the Series Distribution Account. The
Class C Modified Required Amount Shortfall and the Third Party
Credit Enhancement Amount shall be reduced by the amount of such
deposit.
(44) Allocations of remaining amounts from the Group
Finance Charge Collections Reallocation Account to the Seller. An
amount equal to all remaining amounts on deposit in the Group
Finance Charge Collections Reallocation Account, after all other
allocations from such Account pursuant to the Series Supplements
for any series in the Group to which the Series established
hereby belongs, shall be withdrawn from the Group Finance Charge
Collections Reallocation Account and paid to the Seller.
(45) Allocations from the Excess Funding Account (General) to the
Series Principal Collections Account. An amount equal to the
product of
(A) a fraction the numerator of which is the
Series Investor Interest less the Class
Investor Interest with respect to a Seller
Retained Class and the denominator of which is
the sum of the series investor interests less
class investor interests with respect to seller
retained classes for all outstanding series in
rapid amortization (after giving effect to
provisions in the applicable Series Supplements
substantially similar to the clauses preceding
this clause (45)) and
(B) the amount on deposit in the Excess Funding
Account (General) before any withdrawals
therefrom with respect to any other series
pursuant to a comparable clause in the
applicable Series Supplements
shall be withdrawn from the Excess Funding Account (General) and
deposited into the Series Principal Collections Account.
(46) Allocations of Series Principal Collections. An
amount equal to the remaining Series Principal Collections minus
the (i) Series Yield Collections, if any and (ii) remaining
Seller Retained Class
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Principal Collections shall be withdrawn from the Series
Collections Account and deposited into the Series Principal
Collections Account.
(47) Class A Rapid Amortization Amount. An amount equal
to the lesser of
(A) the Class A Rapid Amortization Amount and
(B) amounts on deposit in the Series Principal
Collections Account
shall 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 such deposit
shall be the "Class A Rapid Amortization Amount Shortfall."
(48) Class B Rapid Amortization Amount. On each
Distribution Date after the Distribution Date on which the Class
A Invested Amount is paid in full, an amount equal to the lesser
of
(A) the Class B Rapid Amortization Amount and
(B) amounts on deposit in the Series Principal
Collections Account (or, if Class B is a Seller
Retained Class, in the Series Collections
Account)
shall be withdrawn from the Series Principal Collections Account
(or, if Class B is a Seller Retained Class, in the Series
Collections Account)and deposited into the Series Distribution
Account. The amount by which the Class B Rapid Amortization
Amount exceeds such deposit shall be the "Class B Rapid
Amortization Amount Shortfall."
(49) Class C Rapid Amortization Amount. On each
Distribution Date after the Distribution Date on which the Class
A and Class B Invested Amounts are paid in full, an amount equal
to the lesser of
(A) the Class C Rapid Amortization Amount and
(B) amounts on deposit in the Series Collections Account
shall 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 such deposit
shall be the "Class C Rapid Amortization Amount Shortfall."
(50) Allocations from the Group Principal Collections
Reallocation Account for the payment of the Class A Rapid
Amortization Amount Shortfall. An amount equal to the lesser of
(A) the Class A Rapid Amortization Amount
Shortfall and
(B) the product of
(x) 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
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series in rapid amortization in the
Group to which the Series established
hereby belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(50)) and
(y) the amount on deposit in the Group
Principal Collections Reallocation Account
before any withdrawals therefrom with
respect to any other series pursuant
to a comparable clause in the
applicable Series Supplements
shall be withdrawn from the Group 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 such deposit.
(51) Allocations from the Group Principal Collections
Reallocation Account for the payment of the Class B Rapid
Amortization Amount Shortfall. An amount equal to the lesser of
(A) the Class B Rapid Amortization Amount
Shortfall and
(B) the product of
(x) 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 rapid
amortization in the Group to which the
Series established hereby belongs
(after giving effect to provisions in
the applicable Series Supplements
substantially similar to the clauses
preceding this clause (51)) and
(y) the amount on deposit in the Group
Principal Collections Reallocation
Account before any withdrawals
therefrom with respect to any other
series pursuant to a comparable clause
for any class with the same
alphabetical designation and after any
withdrawals therefrom for the benefit
of all classes designated by higher
letters of the alphabet of such other
series in the applicable Series
Supplements
shall be withdrawn from the Group 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 such deposit.
(52) Allocations from the Group Principal Collections
Reallocation Account for the payment of the Class C Rapid
Amortization Amount Shortfall. An amount equal to the lesser of
(A) the Class C Rapid Amortization Amount
Shortfall and
(B) the product of
(x) 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
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series in rapid amortization in the
Group to which the Series established
hereby belongs (after giving effect to
provisions in the applicable Series
Supplements substantially similar to
the clauses preceding this clause
(52)); provided, however, that if any
other series (or multiple other
series) shall have more than one
unrated class, the class rapid
amortization amount shortfall to be
used in the denominator for each such
other series shall be the class rapid
amortization amount shortfall for the
most senior unrated class for such
series for which the class rapid
amortization shortfall is greater than
zero and
(y) the amount on deposit in the Group
Principal Collections Reallocation
Account before any withdrawals
therefrom with respect to any other
series pursuant to a comparable clause
for any class with the same
alphabetical designation and after any
withdrawals therefrom for the benefit
of all classes designated by higher
letters of the alphabet of such other
series in the applicable Series
Supplements
shall be withdrawn from the Group 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 such deposit.
(53) Allocations of remaining Series Principal
Collections. An amount equal to all remaining amounts on deposit
in the Series Principal Collections Account shall be withdrawn
from the Series Principal Collections Account and deposited into
the Group Principal Collections Reallocation Account.
(54) Payment to the Seller. An amount equal to the lesser of
(A) the positive difference, if any, between
the amount of the Seller Interest (determined
as described below) and the Minimum Seller
Interest (after giving effect to all similar
provisions in other Series Supplements,
beginning with the series (including the Series
established hereby) having the earliest series
closing date and continuing seriatim) and
(B) any remaining amounts on deposit in the
Series Collections Account
shall be withdrawn from the Series Collections Account and paid
to the Seller. If after such payment, amounts remain on deposit
in the Series Collections Account, such amounts shall be
deposited into the Excess Funding Account (SRC). For purposes of
this provision, the Seller Interest shall be deemed to include
(i) all amounts remaining on deposit in the Series Collections
Account after clause (53); (ii) all amounts on deposit in all
Group Principal Collections Reallocation Accounts after giving
effect to clause (53) and all provisions similar to clause (53)
in other Series Supplements; and (iii) all amounts deposited into
the Excess Funding Account (SRC) and the Excess Funding Account
(General) on such Distribution Date pursuant to the provisions of
any other Series Supplement.
(55) Additional payment to the Seller. An amount equal
to the lesser of
(A) the positive difference, if any, between
the amount of the Seller Interest (determined
as described below) and the Minimum Seller
Interest and
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(B) the product of (i) any remaining amounts on
deposit in the Group Principal Collections
Reallocation Account and (ii) a fraction the
numerator of which is the remaining amounts on
deposit in the Group 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
Principal Collections Reallocation Account for
the Group to which the Series established
hereby belongs)
shall be withdrawn from the Group Principal Collections
Reallocation Account and paid to the Seller. If after such
payment, amounts remain on deposit in the Group Principal
Collections Reallocation Account, such amounts shall be deposited
into the Excess Funding Account (General). For purposes of this
provision, the Seller Interest shall be deemed to include (i) all
amounts on deposit in all Group Principal Collections
Reallocation Accounts after giving effect to clause (53) and all
provisions similar to clause (53) in other Series Supplements,
and (ii) all amounts deposited into the Excess Funding Account
(SRC) and the Excess Funding Account (General) on such
Distribution Date pursuant to the provisions of any other Series
Supplements. This provision shall be applied before similar
provisions for any previously issued Series.
SECTION 9. Payments.
(a) Payments to the Investor Certificateholders. On each
Distribution Date, after giving effect to deposits and
allocations made pursuant to Section 8, the Servicer shall direct
the Trustee to make the following additional deposits and
withdrawals and to cause the Paying Agent to pay funds from the
applicable Investor Account to or for the benefit of each Class
of Investor Certificateholders as set forth below
(1) Deposits of the Class A Modified Required Amount
into the Series Interest Funding Account. An amount equal to the
lesser of
(A) the Class A Modified Required Amount and
(B) the amount deposited in respect of the
Class A Modified Required Amount into the
Series Distribution Account on such
Distribution Date pursuant to Section 8
shall be withdrawn from the Series Distribution Account and
deposited into the Series Interest Funding Account. The positive
difference, if any, between the Class A Modified Required Amount
and the amount of such deposit shall be the "Class A Monthly
Deficiency Amount."
(2) Deposits of the Class B Modified Required Amount
into the Series Interest Funding Account. An amount equal to the
lesser of
(A) the Class B Modified Required Amount and
(B) the amount deposited in respect of the
Class B Modified Required Amount into the
Series Distribution Account on such
Distribution Date pursuant to Section 8
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shall be withdrawn from the Series Distribution Account and
deposited into the Series Interest Funding Account. The positive
difference, if any, between the Class B Modified Required Amount
and the amount of such deposit shall be the "Class B Monthly
Deficiency Amount."
(3) Deposits of the Swap Trust Payments. An amount equal
to the lesser of
(A) the sum of the Swap Trust Payments and
(B) the amount deposited in respect of the
Interest Rate Swaps into the Series
Distribution Account on such Distribution Date
pursuant to Section 8
shall be withdrawn from the Series Distribution Account and
deposited into the Series Interest Funding Account.
(4) Deposits of the Class C Modified Required Amount
into the Series Interest Funding Account. An amount equal to the
lesser of
(A) the Class C Modified Required Amount and
(B) the amount deposited in respect of the
Class C Modified Required Amount into the
Series Distribution Account on such
Distribution Date pursuant to Section 8
shall be withdrawn from the Series Distribution Account and
deposited into the Series Interest Funding Account. The positive
difference, if any, between the Class C Modified Required Amount
and the amount of such deposit shall be the "Class C Monthly
Deficiency Amount."
(5) Payment of Series Interest. On each Interest Payment Date and
Special Payment Date, the Servicer shall direct the Trustee to
withdraw and cause the Paying Agent to pay the amount deposited
into the Series Interest Funding Account with respect to each
Class or Subclass since the preceding Interest Payment Date to
the Investor Certificateholders of such Class or Subclass in
accordance with Section 5.01 of the Pooling and Servicing
Agreement.
(6) Swap Trust Payments. On each Interest Payment Date
and each Special Payment Date, the Servicer shall direct the
Trustee to withdraw all amounts on deposit in the Series Interest
Funding Account with respect to the Interest Rate Swaps and to
pay such amounts to each Counterparty in accordance with the
amount of the Swap Trust Payment payable to each Counterparty;
provided, however, that if the amount on deposit in the Series
Interest Funding Account with respect to the Interest Rate Swaps
is less than the sum of the Swap Trust Payments on such
Distribution Date, the Servicer shall direct the Trustee to pay
each Counterparty an amount equal to the product of such amount
on deposit in the Series Interest Funding Account with respect to
the Interest Rate Swaps and a fraction the numerator of which is
the Swap Trust Payment due to such Counterparty and the
denominator of which is the sum of the Swap Trust Payments due on
such Distribution Date.
(7) Payment of the Class A Early Termination Premium or
Class A Early Termination Premium Shortfall, as applicable. If
applicable, an amount equal to the lesser of
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(A) the Class A Early Termination Premium or
the Class A Early Termination Premium
Shortfall, as applicable, and
(B) the amount on deposit in respect of the
Class A Early Termination Premium or the Class A Early
Termination Premium Shortfall, as applicable,
on such Distribution Date pursuant to Section 8
shall be withdrawn from the Series Distribution Account and paid
to the Class A Investor Certificateholders.
(8) Payment of the Class B Early Termination Premium or
Class B Early Termination Premium Shortfall, as applicable. If
applicable, an amount equal to the lesser of
(A) the Class B Early Termination Premium or
the Class B Early Termination Premium
Shortfall, as applicable, and
(B) the amount on deposit in respect of the
Class B Early Termination Premium or the Class
B Early Termination Premium Shortfall, as
applicable, on such Distribution Date pursuant
to Section 8
shall be withdrawn from the Series Distribution Account and paid
to the Class B Investor Certificateholders.
(9) Payment of Series Monthly Servicing Fee. An amount
equal to the lesser of
(A) the sum of the Series Monthly Servicing Fee
and all accrued but unpaid Series Monthly
Servicing Fees as of the prior Distribution
Date and
(B) the amount on deposit in respect of the
Series Monthly Servicing Fee in the Series
Distribution Account on such Distribution Date
pursuant to Section 8
shall be withdrawn from the Series Distribution Account and paid
to the Servicer.
(10) Payment of the Series Monthly Servicing Fee
Additional Funds Portion and the Series Monthly Servicing Fee
Additional Funds Portion Shortfall, if applicable. If applicable,
an amount equal to the lesser of
(A) the sum of the Series Monthly Servicing Fee
Additional Funds Portion and the Series Monthly
Servicing Fee Additional Funds Portion
Shortfall, if applicable, and
(B) the amount on deposit in respect of the
Series Monthly Servicing Fee Additional Funds
Portion and the Series Monthly Servicing Fee
Additional Funds Portion Shortfall, if
applicable, in the Series Distribution Account
on such Distribution Date pursuant to Section 8
shall be withdrawn from the Series Distribution Account and paid
to the Servicer.
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(11) Payment of the Third Party Credit Enhancement Fee.
An amount equal to the lesser of
(A) the Third Party Credit Enhancement Fee and
(B) the amount on deposit in respect of the
Third Party Enhancement Fee in the Series
Distribution Account on such Distribution Date
pursuant to Section 8
shall be withdrawn from the Series Distribution Account and paid
to the Trustee as administrator of the Third Party Credit
Enhancement for application in accordance with the provisions of
the Third Party Credit Enhancement Agreement.
(12) Payment of the Series Pre-Funding Amount, if
applicable. An amount equal to the amount on deposit in respect
of the Series Pre-Funding Amount in the Series Distribution
Account pursuant to Section 8 shall be withdrawn from the Series
Distribution Account and paid to each Class, seriatim, in
accordance with the following calculation: an amount equal to the
product of (i) a fraction the numerator of which is the Class
Investor Interest and the denominator of which is the Series
Investor Interest and (ii) such amount on deposit.
(13) Payment of Series Principal.
(A) On each Principal Payment Date, an amount
equal to the lesser of
(x) the Class Controlled Amortization
Amount and the Class C Permitted
Controlled Amortization Amount, if
any, and
(y) the remaining amount on deposit in
the Series Distribution Account on
such Distribution Date pursuant to
Section 8
shall be withdrawn from the Series Distribution Account and shall
be paid to (i) prior to the Class C Fixing Deadline, the Class A
Certificateholders and Class C Certificateholders, as applicable,
and (ii) after the Class C Fixing Deadline, to each outstanding
Class of Investor Certificateholders, seriatim, beginning with
the most senior Class, pursuant to Section 5.01 of the Pooling
and Servicing Agreement.
(B) On each Special Payment Date, an amount
equal to the remaining amount on deposit in the Series
Distribution Account or the Series Principal Funding Account, as
applicable, as of such Date pursuant to Section 8 shall be
withdrawn from the Series Distribution Account or the Series
Principal Funding Account, as applicable, and shall be paid to
the Investor Certificateholders pursuant to Section 5.01 of the
Pooling and Servicing Agreement.
(C) On each Class Expected Final Payment Date,
an amount equal to the lesser of
(x) the Class Invested Amount and
(y) the amount deposited into the
Series Principal Funding Account on
such Distribution Date pursuant to
Section 8
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shall be withdrawn from the Series Principal Funding Account and
shall be paid to the Investor Certificateholders pursuant to
Section 5.01 of the Pooling and Servicing Agreement.
All amounts set forth in subsections (A)-(C) above shall be paid
to the Class A Investor Certificateholders until the Class A
Invested Amount is reduced to zero; thereafter, such amounts
shall be paid to the Class B Investor Certificateholders until
the Class B Invested Amount is reduced to zero; thereafter, such
amounts shall be paid to the Class C Investor Certificateholders
until the Class C Invested Amount is reduced to zero, unless the
Series Termination Date occurs prior to such date; provided,
however, that nothing contained in this section shall prohibit
the payment of the Class C Permitted Controlled Amortization
Amount. In no event shall any amounts be paid with respect to any
Class of Investor Certificates pursuant to this clause (13) in
excess of the Class Invested Amount for such Class. Any amounts
remaining on deposit in any of the Investor Accounts established
for this Series after the Class Invested Amount for each Class
has been reduced to zero shall be paid to the Seller.
(b) Payments to the Seller and/or the Servicer.
Notwithstanding the other provisions in Section 8 and this
Section 9, any amounts payable to the Seller or to the Servicer
on any Distribution Date pursuant to Section 8 and this Section 9
may be paid prior to such Distribution Date pursuant to Section
4.03(d) of the Pooling and Servicing Agreement.
SECTION 10. Third Party Credit Enhancement.
(a) Initial Third Party Credit Enhancement. If
applicable, the Servicer hereby represents with respect to the
Initial Third Party Credit Enhancement and shall be deemed to
represent with respect to any successor Third Party Credit
Enhancement that (i) the Servicer has provided for the Third
Party Credit Enhancement for the account of the Trustee and for
the benefit of the Certificateholders, (ii) the Servicer has
entered into a Third Party Credit Enhancement Agreement, (iii)
the Third Party Credit Enhancement permits the Trustee or the
Servicer, acting as the Trustee's attorney-in-fact or otherwise,
to make Third Party Credit Enhancement Drawings from time to time
in an amount up to the Total Available Third Party Credit
Enhancement Amount at such time, for the purposes set forth in
this Agreement and (iv) the Third Party Credit Enhancement and
the respective Third Party Credit Enhancement Agreement may be
terminated by the Trustee without penalty if the Servicer elects
to obtain a successor Third Party Credit Enhancement and such
election does not cause a Ratings Event.
(b) Successor Third Party Credit Enhancement.
(i) If the provider of the Third Party Credit
Enhancement ceases to be a Qualified Third Party Credit
Enhancement Provider, the Servicer shall exercise its
best efforts to obtain a successor Third Party Credit
Enhancement (a) which will be issued by a Qualified
Third Party Credit Enhancement Provider and (b) with
respect to which the representations set forth in
Section 10(a) will be satisfied; provided, however, that
the Servicer shall not be required to continue efforts
to obtain a successor Third Party Credit Enhancement if
the then existing Third Party Credit Enhancement
Provider again becomes a Qualified Third Party Credit
Enhancement Provider and remains such; and provided,
further, that unless otherwise agreed to by the Rating
Agencies, the Third Party Credit Enhancement and Third
Party Credit Enhancement Agreement will not be
terminated and no successor Third Party Credit
Enhancement Provider shall be selected if the successor
Third Party Credit Enhancement, the successor Third
Party Credit
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Enhancement Agreement, or the selection of such
successor Third Party Credit Enhancement Provider would
cause a Ratings Event. The Servicer, the Trustee and the
Seller shall promptly enter into any such successor
Third Party Credit Enhancement Agreement, and the
Servicer shall use its best efforts to secure the
signature of any other required party to such agreement.
(ii) The Servicer may elect, at any time, to
obtain a successor Third Party Credit Enhancement,
provided that such successor Third Party Credit
Enhancement does not cause a Ratings Event.
(iii) In any case, subject to the foregoing,
any successor Third Party Credit Enhancement obtained by
the Servicer need not consist of the same type of Third
Party Credit Enhancement as the Initial Third Party
Credit Enhancement, but may consist of a different type
of facility, including, but not limited to, a reserve
account, a cash collateral account, an irrevocable
standby letter of credit, a surety bond or a combination
of any of the above. Upon issuance of, or other
provision for, any such successor Third Party Credit
Enhancement, the Trustee may terminate the prior Third
Party Credit Enhancement and the Third Party Credit
Enhancement Agreement.
SECTION 11. Calculation of Investor Losses.
(a) For each Distribution Date, the Servicer shall
calculate the Class Investor Charged-Off Amount with respect to
each Class, as of the end of the related Due Period.
(b) On each Distribution Date, after giving effect to
all allocations and deposits pursuant to Section 8, the Investor
Loss shall equal the Class Cumulative Investor Charged-Off Amount
with respect to any Class as of such Distribution Date.
SECTION 12. Servicing Compensation. As compensation for
its servicing activities hereunder and under the Pooling and
Servicing Agreement and reimbursement of its expenses as set
forth in Section 3.02 of the Pooling and Servicing Agreement, the
Servicer shall be entitled to receive a monthly servicing fee
with respect to the Series established hereby in respect of any
Due Period (or portion thereof) prior to the earlier of (i) the
date on which the Series Investor Interest is reduced to zero or
(ii) the Series Termination Date. The Series Monthly Servicing
Fee and the Series Monthly Servicing Fee Additional Funds
Portion, if any, shall be paid to the Servicer on or before each
Distribution Date pursuant to Section 8.
SECTION 13. Class Coupon Cap Agreement.
(a) The Servicer may obtain Class Coupon Cap Agreements
in favor of the Trustee for the benefit of each Class or Subclass
that does not have a fixed Certificate Rate or Embedded Coupon
Cap. If applicable, each such Class Coupon Cap Agreement shall
provide that (i) the Trust shall not be required to make any
payments thereunder and (ii) the Trust shall be entitled to
receive payments (determined in accordance with such Class Coupon
Cap Agreement) from the Coupon Cap Provider on an Interest
Payment Date if LIBOR or the Commercial Paper Rate (or such other
index as determined by the
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Servicer, a "Substitute Index"), as applicable, for the related
Calculation Period exceeds the Class Coupon Cap for the
applicable Class or Subclass. Any Class Coupon Payment shall be
made in accordance with Sections 8 and 9.
(b) In the event that the commercial paper or
certificate of deposit rating of the Coupon Cap Provider is
withdrawn or reduced below the ratings specified in the Class
Coupon Cap Agreement (or, in either case, such lower rating as
will not cause a Ratings Event), then within 30 days after
receiving notice of such decline in the creditworthiness of the
Coupon Cap Provider as determined by either Rating Agency, either
(x) the Coupon Cap Provider, with the prior confirmation of the
Rating Agencies that such arrangement will not result in a
Ratings Event, will enter into an arrangement the purpose of
which shall be to assure performance by the Coupon Cap Provider
of its obligations under the Class Coupon Cap Agreement; or (y)
the Servicer shall at its option either (i) with the prior
confirmation of the Rating Agencies that such action will not
result in a Ratings Event, (A) cause the Coupon Cap Provider to
pledge securities in the manner provided by applicable law or (B)
itself pledge or cause to be pledged securities, which shall be
held by the Trustee or its agent free and clear of the Lien of
any third party, in a manner conferring on the Trustee a
perfected first Lien in such securities securing the Coupon Cap
Provider's performance of its obligations under the Class Coupon
Cap Agreement, or (ii) establish any other arrangement (including
an arrangement or arrangements in addition to or in substitution
for any prior arrangement made in accordance with the provisions
of this Section 13(b)) satisfactory to the Rating Agencies such
that such other arrangement will not cause a Ratings Event (a
"Qualified Substitute Cap Arrangement"); provided, however, that
in the event at any time any alternative arrangement established
pursuant to clause (x) or (y)(i) or (y)(ii) above shall cease to
be satisfactory to the Rating Agencies then the provisions of
this Section 13(b) shall again be applied and in connection
therewith the 30-day period referred to above shall commence on
the date the Servicer receives notice of such cessation.
(c) Unless an alternative arrangement pursuant to clause
(x), (y)(i) or (y)(ii) of Section 13(b) is being established, the
Servicer shall use its best efforts to obtain a Replacement Class
Coupon Cap Agreement or Qualified Substitute Cap Arrangements
meeting the requirements of this Section 13(c) during the 30-day
period referred to in Section 13(b). The Trustee shall not
terminate the Class Coupon Cap Agreement unless, prior to the
expiration of the 30-day period referred to in Section 13(b), the
Servicer delivers to the Trustee (i) a Replacement Class Coupon
Cap Agreement or Qualified Substitute Cap Arrangements, (ii) to
the extent applicable, an Opinion of Counsel as to the due
authorization, execution and delivery and validity and
enforceability of each such Replacement Class Coupon Cap
Agreement or Qualified Substitute Cap Arrangement, as the case
may be, and (iii) confirmation from each Rating Agency that the
termination of the Class Coupon Cap Agreement and their
replacement with such Replacement Class Coupon Cap Agreement or
Qualified Substitute Cap Arrangements will not cause a Ratings
Event.
(d) The Servicer shall notify the Trustee, the Rating
Agencies and the Third Party Credit Enhancement Provider within
five Business Days after obtaining knowledge that the commercial
paper or certificate of deposit rating of the Coupon Cap Provider
has been withdrawn or reduced by either Rating Agency.
(e) Notwithstanding the foregoing, the Servicer may at
any time obtain a Replacement Class Coupon Cap Agreement,
provided that the Servicer delivers to the Trustee (i) an Opinion
of Counsel as to the due authorization, execution and delivery
and validity and enforceability of such Replacement Class Coupon
Cap Agreement and (ii) confirmation from the Rating Agencies that
the termination of the then
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current Class Coupon Cap Agreement and its replacement with such
Replacement Class Coupon Cap Agreement will not cause a Ratings
Event. After a Replacement Class Coupon Cap Agreement or
Qualified Substitute Cap Arrangement has been obtained, the
Seller may direct the Trustee to terminate or otherwise transfer
or assign the replaced Class Coupon Cap Agreement, and direct the
Trustee to pay any proceeds from such termination or transfer to
the Servicer. In addition, notwithstanding the foregoing, the
Seller may at any time direct the Trustee to terminate or
otherwise transfer or assign its rights relating to any portion
of the Class Coupon Cap Agreement. The Seller may direct the
Trustee to pay any proceeds from such partial termination to the
Servicer.
(f) The Trustee hereby appoints the Servicer to perform
the duties of the calculation agent under the Class Coupon Cap
Agreement and the Servicer accepts such appointment.
SECTION 14. Interest Rate Swaps. The Servicer may obtain
Interest Rate Swaps in a form approved by the Servicer to be
entered into by the Trustee not in its personal capacity but
solely for the benefit of the Investor Certificateholders;
provided that the sum of the Swap Notional Amounts for such
Interest Rate Swaps shall not exceed the Class A and Class B
Invested Amount for this Series and the Swap Rate shall not
exceed the maximum Swap Rate set forth in the Series Term Sheet.
Pursuant to the terms of the Interest Rate Swap, the Trustee is
to receive payment from the Swap Counterparty prior to 10:00 a.m.
Chicago time on any Distribution Date of the amount of any Swap
Counterparty Payment to be paid by the Swap Counterparty on such
Distribution Date. If the Trustee does not receive such payment
by 10:00 a.m. Chicago time on such Distribution Date, the Trustee
shall attempt to determine from the Swap Counterparty the reasons
therefore and whether such payment is to be made by the Swap
Counterparty on such Distribution Date. If the Interest Rate Swap
has not been terminated and the Trustee has not received any Swap
Counterparty Payment due on the related Distribution Date prior
to 4:00 p.m. Chicago time on such Distribution Date, (i) the
Trustee shall notify the Servicer of such fact prior to 4:15 p.m.
Chicago time on such Distribution Date, and (ii) the Trustee
shall revise the Investors Monthly Certificateholders Statement
required by Section 15 hereof to reflect that the Swap
Counterparty Payment was not received by the Trustee for such
Distribution Date.
SECTION 15. Investor Certificateholders' Monthly
Statement. On each Distribution Date, the Paying Agent shall
forward to each Certificateholder of the Series established
hereby a statement substantially in the form of Exhibit B
prepared by the Trustee (based on information provided by the
Servicer) setting forth the information listed thereon.
SECTION 16. Monthly Servicer Certificate. On or before
the second Business Day preceding each Distribution Date, the
Servicer shall forward to the Seller, the Trustee and the Paying
Agent a certificate of a Servicing Officer substantially in the
form of Exhibit C setting forth the information listed thereon.
SECTION 17. Additional Rapid Amortization Events. If any
one of the following events shall occur:
(a) failure on the part of the Seller (i) to make any payment or
deposit required by the terms of this Agreement or the Pooling
and Servicing Agreement on or before the date occurring five
Business
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Days after the date such payment or deposit is required to be
made or (ii) duly to observe or perform in any material respect
any other material covenants or agreements of the Seller set
forth in this Agreement or the Pooling and Servicing Agreement,
which continues unremedied for a period of 60 days after the date
on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Seller by the Trustee, or
to the Seller and the Trustee by the Investor Certificateholders
evidencing Fractional Undivided Interests aggregating not less
than 25% of the Class Invested Amount of any Class of any Series
materially adversely affected thereby;
(b) any representation or warranty made by the Seller in
this Agreement or the Pooling and Servicing Agreement or any
information contained in Schedule 1 of the Pooling and Servicing
Agreement shall prove to have been incorrect in any material
respect when made or when delivered, which representation,
warranty or Schedule 1 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 Seller by the Trustee, or to the Seller
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) the Seller shall become unable for any reason to
transfer Receivables to the Trust in accordance with the
provisions of the Pooling and Servicing Agreement and such
inability shall continue for five Business Days;
(d) any Servicer Termination Event shall occur that would have a
material adverse effect on the Investor Certificateholders;
(e) the Trust shall become an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended;
(f) the amount of Principal Receivables in the Trust at
the end of any Due Period shall be less than the Minimum
Principal Receivables Balance and the Seller shall have failed to
assign Principal Receivables in Additional Accounts or
Participation Interests to the Trust on behalf of the Seller in
at least the amount of such deficiency by the Distribution Date
related to the second subsequent Due Period (for purposes of this
clause (f) the amount of Principal Receivables in Additional
Accounts shall be determined as of the last day of the Due Period
preceding the assignment of such Principal Receivables to the
Trust);
(g) if applicable, following the withdrawal or reduction
of the commercial paper or certificate of deposit rating of any
Coupon Cap Provider to below the ratings specified in the Series
Term Sheet (or, in either case, such lower rating as the
applicable Rating Agency has permitted), the Servicer shall fail,
within the applicable time period specified in Section 13, to (x)
obtain Replacement Class Coupon Cap Agreement or Qualified
Substitute Cap Arrangements or (y) cause the Coupon Cap Provider
to pledge securities as collateral securing the obligations of
the Coupon Cap Provider as provided in Section 13, in each case
in a manner satisfactory to the Trustee and the Rating Agencies
(such that neither Rating Agency will reduce or withdraw the
ratings of the Investor Certificates of the Series established
hereby); or
(h) there shall have been three Distribution Dates on
which the Net Yield is less than the Base Rate since the later of
the Series Closing Date or the last Distribution Date on which the
Investor Loss for each Class of the Series equaled zero;
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then
(x) in the case of any event described in
subparagraphs (a), (b) or (d) after any applicable grace period
set forth in such subparagraphs, either the Trustee or the
Holders of Investors Certificates evidencing Fractional Undivided
Interests aggregating not less than 51% of the Series Investor
Interest by notice then given in writing to the Seller and the
Servicer (and to the Trustee if given by the Investor
Certificateholders) may declare that an amortization event (a
"Rapid Amortization Event") has occurred with respect to the
Series established hereby as of the date of such notice;
(y) in the case of any event described in
subparagraph (c), (e) or (f), a Rapid Amortization Event shall
occur with respect to all Series of Investor Certificates,
immediately upon the occurrence of such event; and
(z) in the case of any event described in
subparagraphs (g) and (h), a Rapid Amortization Event shall occur
with respect to the Investor Certificates of the Series
established hereby, immediately upon the occurrence of such
event.
SECTION 18. Purchase of Investor Certificates and Series
Termination. If the Servicer determines that, as of any
Distribution Date during the Rapid Amortization Period, or after
the Class B Expected Final Payment Date (after giving effect to
any allocations or deposits calculated pursuant to Section 8 made
on such Distribution Date) 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 Class A
Investor Interest or Class B Investor Interest of the Series
established hereby, will be less than or equal to 10% of the
Series Initial Investor Interest minus the Class Initial Investor
Interest with respect to any Seller Retained Class, the Seller
may purchase and cancel the Investor Certificates of the Series
established hereby by depositing into the Series Distribution
Account, on such Distribution Date, an amount equal to the Series
Investor Interest (plus all accrued but unpaid Certificate
Interest and all funds on deposit in the Series Principal Funding
Account) as of the last day of the Due Period related to such
immediately succeeding Distribution Date; provided, however, that
the Seller may not purchase and cancel any Investor Certificates
representing a Seller Retained Class (except as otherwise
provided in Section 8) until all Classes of Investor Certificates
senior to such Seller Retained Class have been purchased and
cancelled. The amount deposited pursuant to this Section 18 that
is allocable to the Investor Certificateholders shall be paid to
the Investor Certificateholders pursuant to Section 12.02 of the
Pooling and Servicing Agreement on the Distribution Date related
to such deposit. All Investor Certificates of the Series
established hereby that are purchased by the Seller pursuant to
this Section 18 shall be delivered upon such purchase by the
Seller to, and shall be cancelled by, the Transfer Agent and
shall be disposed of in a manner satisfactory to the Trustee and
the Seller.
SECTION 19. Variable Accumulation Period. The Controlled
Accumulation Period is scheduled to commence on the Stated
Controlled Accumulation Period Commencement Date; provided,
however, that if the Controlled Accumulation Period Length
(determined as described below) on any Determination Date is
different from the Initial Scheduled Controlled Accumulation
Period Length, the Servicer, at its option on any Determination
Date prior to the commencement of the Controlled Accumulation
Period, may elect to modify the date on which the Controlled
Accumulation Period actually
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commences to the last Business Day of any Due Period that
precedes the Due Period that is the number of Due Periods prior
to the Expected Final Payment Date equal to the Controlled
Accumulation Period Length. Such election will be set forth in
the Monthly Servicer Certificate. If the Servicer elects to
modify the date on which the Controlled Accumulation Period
commences pursuant to this Section 19, then on each Determination
Date thereafter until the date on which the Controlled
Accumulation Period commences the Servicer will recalculate the
Controlled Accumulation Period Length; provided, however, that
(i) the length of the Controlled Accumulation Period will not be
less than the Minimum Controlled Accumulation Period Length and
(ii) notwithstanding any other provision of this Series
Supplement to the contrary, no election to postpone the
commencement of the Controlled Accumulation Period shall be made
after a Rapid Amortization Event (as described herein or in the
applicable Series Supplement) shall have occurred for so long as
it is continuing with respect to any Series in the Group to which
the Series established hereby belongs. On each Determination
Date, the Servicer will determine the "Controlled Accumulation
Period Length" that will equal the number of Due Periods such
that the Class Controlled Accumulation Amount for the Due Period
related to the Class Expected Final Payment Date, when aggregated
with the Class Controlled Accumulation Amounts for each preceding
Due Period, will equal or exceed the Series Initial Investor
Interest. Any notice by the Servicer electing to modify the
commencement of the Controlled Accumulation Period pursuant to
this Section 19 shall specify the following as determined on such
Determination Date: (i) the Controlled Accumulation Period
Length; (ii) the commencement date of the Controlled Accumulation
Period; and (iii) the Class Controlled Accumulation Amount with
respect to each class of such Series with respect to each Due
Period. If the Controlled Accumulation Period Length as
recalculated on any such Determination Date exceeds the number of
full Due Periods following such Determination Date and preceding
the Class A Expected Final Payment Date, the commencement date of
the Controlled Accumulation Period will be such Determination
Date.
SECTION 20. Series Yield Factor. The Series Yield Factor
for the Series established hereby initially shall be the Series
Yield Factor set forth in the Series Term Sheet. The Servicer may
change the Series Yield Factor upon 20 days prior written notice
to the Trustee, the Seller, the Third Party Credit Enhancement
Provider and the Rating Agencies, provided that the following
conditions are satisfied: (i) the Series Yield Factor may not be
reduced below the initial Series Yield Factor; (ii) the Servicer
shall have delivered to the Trustee a certificate to the effect
that the Servicer reasonably believes that the change in the
Series Yield Factor would not (x) result in any delay in the
payment of principal to the Investor Certificateholders of any
Series then outstanding, or (y) cause a Rapid Amortization Event
to occur with respect to any Series then outstanding; and (iii)
the Rating Agencies shall have advised the Servicer and the
Seller that such change in the Series Yield Factor would not
cause a Ratings Event. Any such change shall be effective as of
the first day of the Due Period specified in the notice of the
Servicer. Series Yield Collections, if any, shall be treated as a
"Series Additional Allocable Amount."
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SECTION 21. Issuance of Additional Investor
Certificates.
(a) During the Revolving Period, the Seller may, in its
discretion and subject to the terms of subsection (b) below,
request the Trustee to issue additional investor certificates of
each Class (each such additional certificates, the "Additional
Certificates") for the Series established hereby in an amount and
on the date (the "Additional Certificate Date") determined by the
Seller. Upon issuance, the Additional Certificates will be
identical in all respects (except that the principal amount of
such Additional Certificates may be different) to the Investor
Certificates currently outstanding and will be equally and
ratably entitled to the benefits of this Series Supplement and
the Pooling and Servicing Agreement. The outstanding principal
amounts of all Classes of the outstanding Series and the size of
the Series Third Party Credit Enhancement, if any, shall be
increased pro rata. The percentage of the Series Third Party
Credit Enhancement for each outstanding Class of such Series
shall not change upon the issuance of the Additional
Certificates. The Class Controlled Accumulation Amount or Class
Controlled Amortization Amount, as applicable, for each Class of
such Series shall be increased proportionally to reflect the
additional amount of Class A, Class B and Class C Certificates
for such Series represented by the Additional Certificates.
(b) Additional Certificates shall only be issued upon
satisfaction of all of the following conditions:
(i) On or before the fifth Business Day
immediately preceding the date on which the Additional
Certificates are to be issued, the Seller shall give
notice to the Trustee, the Servicer and the Rating
Agencies of such issuance and the date upon which it is
to occur;
(ii) After giving effect to the addition of the
Additional Certificates to the Series, the total amount
of Principal Receivables in the Trust shall be greater
than or equal to the Minimum Principal Receivables
Balance;
(iii) The Seller shall have delivered evidence
of the proportional increase in the Series Third Party
Credit Enhancement to the Trustee and the Rating
Agencies;
(iv) On or before the Additional Certificate
Date, the Trustee shall have been advised in writing by
the Rating Agencies that the issuance of the Additional
Certificates will not cause a Ratings Event;
(v) The Seller shall have delivered to the
Trustee an Officer's Certificate dated as of the
Additional Certificate Date, stating that the Seller
reasonably believes that the issuance of such Additional
Certificates will not have a material adverse effect on
any outstanding Class of the Series affected by such
issuance;
(vi) As of the Additional Certificate Date, the
amount of Investor Loss for all Classes of such Series
shall be zero; and
(vii) The Seller shall have delivered to the
Trustee a Tax Opinion with respect to such issuance.
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SECTION 22. Sale or Transfer of Seller Retained Classes.
On any date that is at least two months prior to the start of the
Controlled Accumulation or Controlled Amortization Period, as
applicable, the Seller may, in its discretion and subject to the
terms of this Section 22, sell or transfer any Seller Retained
Class of Investor Certificates (the "Purchased Class") of the
Series established hereby (the "Seller Retained Class Purchase
Date"), and increase the Certificate Rate for such Purchased
Class in connection with such sale or transfer, upon satisfaction
of the following conditions:
(i) On or before the fifth Business Day
immediately preceding the Seller Retained Class Purchase
Date, the Seller shall give notice to the Trustee, the
Servicer and the Rating Agencies of such sale or
transfer, the Seller Retained Class Purchase Date, and
the increase in the Certificate Rate for such Purchased
Class, if any;
(ii) On or before the Seller Retained Class
Purchase Date, the Trustee shall have been advised in
writing by the Rating Agencies that the sale or transfer
of the Purchased Class and the increase in the
Certificate Rate for such Purchased Class, if any, will
not cause a Ratings Event;
(iii) On or before the Seller Retained Class
Purchase Date, the Seller shall have delivered to the
Trustee an Officer's Certificate dated as of the Seller
Retained Class Purchase Date, stating that the Seller
reasonably believes that the sale of such Seller
Retained Class will not have a material adverse effect
on any other outstanding Class of the Series;
(iv) As of the Seller Retained Class Transfer
Date, the amount of Class Investor Loss for all Classes
of this Series shall be zero;
(v) The Holders of the Purchased Class shall
have agreed that they shall not be entitled to principal
payments with respect to such Purchased Class until the
Class Investor Interest for all Classes senior to such
Purchased Class have been reduced to zero;
(vi) No Rapid Amortization Event with respect
to this Series shall have occurred; and
(vii) The Seller shall have delivered to the
Trustee a Tax Opinion with respect to the Purchased
Class.
Any such Seller Retained Class sold pursuant to this Section 22
shall no longer be considered a Seller Retained Class.
SECTION 23. Paired Series. If the Series Term Sheet for
the Series established hereby so provides, the Seller may issue a
subsequent series of investor certificates (the "Paired Series")
that is linked with the Series established hereby. Under certain
circumstances, a Paired Series may affect the timing and amount
of principal collections available for the Series established
hereby.
SECTION 24. Fixed Principal Allocation Adjustment. Upon
the issuance of each new series of Investor Certificates in the
Group to which the Series established hereby belongs, provided
that (i) a Rapid Amortization Event has not occurred and (ii) a
Fixed Principal Allocation Event has occurred, the
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Servicer may, at its option on or before any Determination Date,
elect to cause a readjustment of the Class Percentage with
respect to Principal Collections by taking into account principal
collections available to the Series established hereby from the
newly issued series (a "Fixed Principal Allocation Adjustment").
Notice of such election will be set forth in the Monthly Servicer
Certificate.
SECTION 25. Ratification of Pooling and Servicing
Agreement. As supplemented and amended by this Series Supplement,
the Pooling and Servicing Agreement is in all respects ratified
and confirmed and the Pooling and Servicing Agreement as so
supplemented by this Series Supplement shall be read, taken, and
construed as one and the same instrument.
SECTION 26. Counterparts. This Series Supplement may be
executed in any number of counterparts, each of which so executed
shall be deemed to be an original, but all of such counterparts
shall together constitute but one and the same instrument.
SECTION 27. Book-Entry Certificates. The Class C
Investor Certificate shall not be issued as book-entry
certificates pursuant to Section 6.02 of the Pooling and
Servicing Agreement unless (i) the Class C Certificate shall be
sold or transferred pursuant to Section 22 and (ii) the Seller
shall so elect.
[SECTION 28. Issuances of New Series. The Seller will
not, at any time prior to the ___________ Distribution Date,
issue another series in Group One unless (a) the revolving period
with respect to such series is scheduled to continue until at
least the end of the Due Period ending in ____________ or (b) the
Seller shall have delivered to the Trustee an Officer's
Certificate, dated the date of issuance of such series, to the
effect that the Seller reasonably believes that the issuance of
such series will not cause the final principal payment with
respect to the Series ____________ Class A Certificates to be
made later than the ____________ Distribution Date.] [INCLUDE IF
SERIES HAS A 12-MONTH CONTROLLED AMORTIZATION PERIOD.]
SECTION 29. GOVERNING LAW. THIS SERIES SUPPLEMENT SHALL
BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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EXHIBIT A-1
FORM OF CLASS A CERTIFICATE
[FORM OF THE FACE OF THE CLASS A CERTIFICATES]
UNLESS THIS CLASS A CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CLASS A CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND
ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NO. $__________________
CUSIP NO. ___________
___% CLASS A MASTER TRUST CERTIFICATE, SERIES______
SEARS CREDIT ACCOUNT MASTER TRUST II
SRFG, INC.
SELLER
SEARS, ROEBUCK AND CO. SERVICER
(NOT AN INTEREST IN OR OBLIGATION OF SRFG, INC., SEARS NATIONAL
BANK OR SEARS, ROEBUCK AND CO.)
This certifies that CEDE & CO. (the "Class A
Certificateholder") is the registered owner of a Fractional
Undivided Interest in Sears Credit Account Master Trust II (the
"Trust"), the corpus of which consists of a portfolio of
receivables (the "Receivables") existing as of the Cut-Off Date
(or, with respect to Receivables in Additional Accounts, as of
the applicable Additional Account Cut-Off Date) or thereafter
created under certain open-end retail charge plans for specified
Persons (the "Accounts") originated by Sears, Roebuck and Co., a
New York corporation ("Sears") or its affiliates, and transferred
to SRFG, Inc., a Delaware corporation ("SRFG"), all monies due or
to become due with respect thereto, all Participation Interests,
if any, all benefits under any Credit Enhancement with respect to
any series of investor certificates issued from time to time, to
the extent applicable, all proceeds (as defined in Article 9 of
the Uniform Commercial Code as in effect in the State of New
York) of such Receivables, and Insurance Proceeds, if any,
relating thereto, pursuant to a Pooling and Servicing Agreement,
dated as of July 31, 1994, as amended (the "Pooling and Servicing
Agreement"), by and among Sears as Servicer, SRFG as Seller and
Bank One, National Association (formerly The First National Bank
of Chicago), as trustee (the "Trustee"), a summary of certain of
the pertinent provisions of which is set forth below.
A-1-1
<PAGE>
Reference is hereby made to the further provisions of this Class
A Certificate set forth on the reverse hereof, and such further
provisions shall for all purposes have the same effect as if set
forth at this place.
This Class A Certificate shall not be entitled to any
benefit under the Pooling and Servicing Agreement or any
amendment thereto, or the Series Supplement, dated as of
____________ (the "Series Supplement"), by and among the Trustee,
Sears and SRFG or any amendment thereto, or become vested or
obligatory for any purpose until the certificate of
authentication hereon shall have been signed by or on behalf of
the Trustee under the Pooling and Servicing Agreement.
IN WITNESS WHEREOF, SRFG has caused this Class A
Certificate to be duly executed and authenticated.
SRFG, INC.
By:
----------------
Name:
Title:
A-1-2
<PAGE>
[FORM OF THE REVERSE OF THE CLASS A CERTIFICATES]
[For an Amortizing Structure]
It is the intent of SRFG and the Investor
Certificateholders that, for federal, state and local income and
franchise tax purposes only, the Investor Certificates will be
evidence of indebtedness. SRFG and the Class A Certificateholder,
by the acceptance of this Class A Certificate, agree to treat
this Class A Certificate for federal, state and local income and
franchise tax purposes as indebtedness secured by the Receivables
and other assets held in the Trust.
To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Pooling and
Servicing Agreement or the Series Supplement. This Class A
Certificate is issued under and is subject to the terms,
provisions and conditions of the Pooling and Servicing Agreement
and the Series Supplement, to which Pooling and Servicing
Agreement and Series Supplement, as each may be amended from time
to time, the Class A Certificateholder by virtue of the
acceptance hereof assents and by which the Class A
Certificateholder is bound.
This Class A Certificate is one of a series of
Certificates entitled "____% Class A Master Trust Certificates,
Series ____________ " (the "Class A Certificates"), each of which
represents a Fractional Undivided Interest in the Trust,
including the right to receive the Collections and other amounts
at the times and in the amounts specified in the Pooling and
Servicing Agreement and the Series Supplement to be deposited in
the Investor Accounts with respect to Sears Credit Account Master
Trust II, Series ____________ or paid to the Class A
Certificateholders. Also issued under the Pooling and Servicing
Agreement and the Series Supplement are Investor Certificates
designated as "____ % Class B Master Trust Certificates, Series
____________" (the "Class B Certificates") and "Class C Master
Trust Certificates, Series ____________" (the "Class C
Certificates"). The Class A Certificates, the Class B
Certificates and the Class C Certificates are collectively
referred to herein as the Investor Certificates.
The aggregate interest represented by the Class A
Certificates at any time in the assets of the Trust shall not
exceed an amount equal to the Class A Investor Interest at such
time, plus accrued but unpaid Certificate Interest for the Class
A Certificates and any interest thereon. The Class Initial
Investor Interest of the Class A Certificates is $______. The
Class A Invested Amount on any Distribution Date will be an
amount equal to the Class A Initial Investor Interest minus the
sum of (a) the aggregate amount of payments of Certificate
Principal paid to the Class A Certificateholders prior to such
Distribution Date and (b) the Investor Loss for such Class, if
any, at the beginning of such Distribution Date. In addition to
the Investor Certificates, a Seller Certificate has been issued
pursuant to the Pooling and Servicing Agreement which represents,
at any time, the undivided interest in the Trust not represented
by the Investor Certificates or the investor certificates of any
other series of investor certificates then outstanding. Subject
to the terms and conditions of the Pooling and Servicing
Agreement, the Seller may from time to time direct the Trustee,
on behalf of the Trust, to issue one or more new series of investor
certificates, which will represent Fractional Undivided Interests
in the Trust.
During the Revolving Period, which begins on the day
following the Series Cut-Off Date, Certificate Interest will be
distributed on the 15th day of each calendar month with respect
to interest accrued during the preceding Interest Accrual Period,
commencing in _______, or if such 15th day is not a Business Day,
on the next succeeding Business Day (each, a "Distribution
Date"), to the Class A Certificateholders of record as of the
last day of the month preceding the related Distribution Date.
During the Controlled Amortization Period, which will begin on
the first day of the Due Period related to the Distribution Date
in __________unless a Rapid Amortization Event occurs prior to
such date, and during the Rapid Amortization Period, if any,
Certificate Interest and Certificate Principal collected by the
A-1-3
<PAGE>
Servicer will be distributed to the Class A Certificateholders on
the Distribution Date of each calendar month, commencing in the
month following the commencement of the earlier of the Controlled
Amortization Period or the Rapid Amortization Period. In any
event, the final payment of principal will be made no later than
the day following the Distribution Date in __________ (the
"Series Termination Date").
The amount to be distributed on each Distribution Date
to the holder of this Class A Certificate will be equal to the
product of (a) the percentage equivalent of a fraction, the
numerator of which is the portion of the Class A Initial Investor
Interest evidenced by this Class A Certificate and the
denominator of which is the Class A Initial Investor Interest and
(b) the aggregate of all payments to be made to the Class A
Certificateholders on such Distribution Date. Distributions with
respect to this Class A Certificate will be made by the Paying
Agent by check mailed to the address of the Class A
Certificateholder of record appearing in the Certificate Register
(except for the final distribution in respect of this Class A
Certificate) without the presentation or surrender of this Class
A Certificate or the making of any notation thereon, except that
with respect to Class A Certificates registered in the name of
CEDE & CO., the nominee registrant for The Depository Trust
Company, distributions will be made in the form of immediately
available funds.
This Class A Certificate does not represent an
obligation of, or an interest in, SRFG or the Servicer. This
Class A Certificate is limited in right of payment to certain
Collections respecting the Receivables, all as more specifically
set forth hereinabove and in the Pooling and Servicing Agreement
and the Series Supplement.
The Pooling and Servicing Agreement permits, with
certain exceptions, the amendment and modification of the rights
and obligations of the Servicer, and the rights of Investor
Certificateholders under the Pooling and Servicing Agreement and
Series Supplement, at any time by the Servicer, the Seller and
the Trustee in certain cases (some of which require written
confirmation from the Rating Agencies that such amendment will
not cause a Ratings Event) without the consent of the Investor
Certificateholders, and in all other cases with the consent of
the Investor Certificateholders owning Fractional Undivided
Interests aggregating not less than 66-2/3% of the Class Invested
Amount of each such affected Class (and with written confirmation
from the Rating Agencies that such amendment will not cause a
Ratings Event); provided, however, that no such amendment shall
(a) increase or reduce in any manner the amount of, or delay the
timing of, distributions which are required to be made on any
Investor Certificate without the consent of the affected Investor
Certificateholders or (b) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of
each Investor Certificateholder of each affected Class then of
record. Any such amendment and any such consent by the Class A
Certificateholder shall be conclusive and binding on such Class A
Certificateholder and upon all future Holders of this Class A
Certificate and of any Class A Certificate issued in exchange
hereof or in lieu hereof whether or not notation thereof is made
upon this Class A Certificate.
The transfer of this Class A Certificate shall be
registered in the Certificate Register upon surrender of this
Investor Certificate for registration of transfer at any office
or agency maintained by the Transfer Agent and Registrar
accompanied by a written instrument of transfer in a form
satisfactory to the Trustee and the Transfer Agent and Registrar
duly executed by the Class A Certificateholder or such Class A
Certificateholder's attorney duly authorized in writing, and
thereupon one or more new Class A Certificates of authorized
denominations and for the same aggregate Fractional Undivided
Interest will be issued to the designated transferee or
transferees.
A-1-4
<PAGE>
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class A Certificates are
exchangeable for new Class A Certificates evidencing like
aggregate Fractional Undivided Interests, as requested by the
Class A Certificateholder surrendering such Class A Certificates.
No service charge may be imposed for any such exchange but the
Servicer or Transfer Agent and Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith.
The Servicer, the Trustee, the Paying Agent and the
Transfer Agent, and any agent of any of them, may treat the
person in whose name this Class A Certificate is registered as
the owner hereof for all purposes, and neither the Servicer, the
Trust nor the Trustee, the Paying Agent, the Transfer Agent, nor
any agent of any of them or any such agent shall be affected by
notice to the contrary except in certain circumstances described
in the Pooling and Servicing Agreement.
Subject to certain conditions in the Pooling and
Servicing Agreement and the Series Supplement, if the principal
of the Investor Certificates has not been paid in full prior to
the Series Termination Date, the obligations created by the
Pooling and Servicing Agreement and the Series Supplement with
respect to the Investor Certificates shall terminate on the
Series Termination Date.
A-1-5
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Class A Certificates referred to in
the within mentioned Pooling and Servicing Agreement and Series
Supplement.
BANK ONE, NATIONAL ASSOCIATION
as Trustee
By:
---------------------------
Authorized Officer
A-1-6
<PAGE>
EXHIBIT A-2
FORM OF CLASS B CERTIFICATE
[FORM OF THE FACE OF THE CLASS B CERTIFICATES]
THIS CLASS B CERTIFICATE MAY NOT BE TRANSFERRED TO AN
EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR DESCRIBED
IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED.
THIS CLASS B CERTIFICATE IS SUBORDINATED IN RIGHT OF
PAYMENT TO THE CLASS A CERTIFICATES AND TO THE RIGHTS OF THE
SERVICER AS DESCRIBED IN THE POOLING AND SERVICING AGREEMENT AND
SERIES SUPPLEMENT REFERRED TO HEREIN.
THIS CLASS B CERTIFICATE MAY NOT BE TRANSFERRED,
ASSIGNED, EXCHANGED OR OTHERWISE CONVEYED WITHOUT SATISFACTION OF
CERTAIN CONDITIONS SET FORTH IN THE SERIES SUPPLEMENT REFERRED TO
HEREIN.
[THE SECURITIES REPRESENTED BY THIS CLASS B CERTIFICATE
HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933
AND MAY NOT BE TRANSFERRED OR SOLD UNLESS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED AND THE SATISFACTION OF CERTAIN
OTHER REQUIREMENTS SPECIFIED IN THE POOLING AND SERVICING
AGREEMENT AND SERIES SUPPLEMENT REFERRED TO HEREIN.]
NO. $__________________
CUSIP NO.__________
_____% CLASS B MASTER TRUST CERTIFICATE, SERIES
____
SEARS CREDIT ACCOUNT MASTER TRUST II
SRFG, INC.
SELLER
SEARS, ROEBUCK AND CO. SERVICER
(NOT AN INTEREST IN OR OBLIGATION OF SRFG, INC., SEARS NATIONAL
BANK OR SEARS, ROEBUCK AND CO.)
This certifies that SRFG, Inc., a Delaware corporation. ("SRFG")
is the registered owner of a Fractional Undivided Interest in Sears
Credit Account Master Trust II (the "Trust"), the corpus of which
consists of a portfolio of receivables (the "Receivables")
existing as of the Cut-Off Date (or, with respect to Receivables
in Additional Accounts, as of the applicable Additional Account
Cut-Off Date)
A-2-1
<PAGE>
or thereafter created under certain open-end retail charge plans
for specified Persons (the "Accounts") originated by Sears,
Roebuck and Co., a New York corporation ("Sears") or its
affiliates, and transferred to SRFG, all monies due or to become
due with respect thereto, all Participation Interests, if any,
all benefits under any Credit Enhancement with respect to any
series of investor certificates issued from time to time, to the
extent applicable, all proceeds (as defined in Article 9 of the
Uniform Commercial Code as in effect in the State of New York) of
such Receivables, and Insurance Proceeds, if any, relating
thereto, pursuant to a Pooling and Servicing Agreement, dated as
of July 31, 1994, as amended (the "Pooling and Servicing
Agreement"), by and among Sears as Servicer, SRFG as Seller and
Bank One, National Association (formerly The First National Bank
of Chicago), as trustee (the "Trustee"), a summary of certain of
the pertinent provisions of which is set forth below. Reference
is hereby made to the further provisions of this Class B
Certificate set forth on the reverse hereof, and such further
provisions shall for all purposes have the same effect as if set
forth at this place.
This Class B Certificate shall not be entitled to any
benefit under the Pooling and Servicing Agreement or any
amendment thereto, or the Series Supplement, dated as of ________
(the "Series Supplement"), by and among the Trustee, Sears and
SRFG or any amendment thereto, or become vested or obligatory for
any purpose until the certificate of authentication hereon shall
have been signed by or on behalf of the Trustee under the Pooling
and Servicing Agreement.
IN WITNESS WHEREOF, SRFG has caused this Class B
Certificate to be duly executed and authenticated.
SRFG, INC.
By:
----------------
Name:
Title:
A-2-2
<PAGE>
[FORM OF THE REVERSE OF THE CLASS B CERTIFICATES]
[For an Amortizing Structure]
It is the intent of SRFG and the Investor
Certificateholders that, for federal, state and local income and
franchise tax purposes only, the Investor Certificates will be
evidence of indebtedness. SRFG, by the acceptance of this Class B
Certificate, agrees to treat this Class B Certificate for
federal, state and local income and franchise tax purposes as
indebtedness secured by the Receivables and other assets held in
the Trust.
To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Pooling and
Servicing Agreement or the Series Supplement. This Class B
Certificate is issued under and is subject to the terms,
provisions and conditions of the Pooling and Servicing Agreement
and the Series Supplement, to which Pooling and Servicing
Agreement and Series Supplement, as each may be amended from time
to time, SRFG by virtue of the acceptance hereof assents and by
which the SRFG is bound.
This Class B Certificate is one of a series of
Certificates entitled "____% Class B Master Trust Certificates,
Series _____" (the "Class B Certificates"), each of which
represents a Fractional Undivided Interest in the Trust,
including the right to receive the Collections and other amounts
at the times and in the amounts specified in the Pooling and
Servicing Agreement and the Series Supplement to be deposited in
the Investor Accounts with respect to Sears Credit Account Master
Trust II, Series _____ or paid to the Class B Certificateholders.
Also issued under the Pooling and Servicing Agreement and the
Series Supplement are Investor Certificates designated as "____%
Class A Master Trust Certificates, Series _______" (the "Class A
Certificates") and "Class C Master Trust Certificates, Series
_____" (the "Class C Certificates"). The Class A Certificates,
the Class B Certificates and the Class C Certificates are
collectively referred to herein as the Investor Certificates.
The aggregate interest represented by the Class B
Certificates at any time in the assets of the Trust shall not
exceed an amount equal to the Class B Investor Interest at such
time, plus accrued but unpaid Certificate Interest for the Class
B Certificates and any interest thereon. The Class Initial
Investor Interest of the Class B Certificates is $ _________. The
Class B Invested Amount on any Distribution Date will be an
amount equal to the Class B Initial Investor Interest minus the
sum of (a) the aggregate amount of payments of Certificate
Principal paid to SRFG prior to such Distribution Date and (b)
the Investor Loss for such Class, if any, at the beginning of
such Distribution Date. In addition to the Investor Certificates,
a Seller Certificate has been issued pursuant to the Pooling and
Servicing Agreement which represents, at any time, the undivided
interest in the Trust not represented by the Investor
Certificates or the investor certificates of any other series of
investor certificates then outstanding. Subject to the terms and
conditions of the Pooling and Servicing Agreement, the Seller may
from time to time direct the Trustee, on behalf of the Trust, to
issue one or more new series of investor certificates, which will
represent Fractional Undivided Interests in the Trust.
During the Revolving Period, which begins on the day
following the Series Cut-Off Date, Certificate Interest will be
distributed on the 15th day of each calendar month with respect
to interest accrued during the preceding Interest Accrual Period,
commencing in __________, or if such 15th day is not a Business
Day, on the next succeeding Business Day (each, a "Distribution
Date"), to SRFG. During the Controlled Amortization Period, which
will begin on the first day of the Due Period related to the
Distribution Date in __________unless a Rapid Amortization Event
occurs prior to such date, and during the Rapid Amortization
Period, if any, Certificate Interest and Certificate Principal
collected by the Servicer will be distributed to SRFG on the
Distribution Date of each calendar month,
A-2-3
<PAGE>
commencing in the month following the commencement of the earlier
of the Controlled Amortization Period or the Rapid Amortization
Period; provided, however, that, except as otherwise set forth in
the Series Supplement, no Certificate Principal will be
distributed to SRFG until the Class A Investor Interest has been
reduced to zero. The rights of SRFG to receive distributions to
which it would otherwise be entitled on the Receivables will be
subordinated to the rights of the Class A Certificateholders and
the Servicer to the extent described in the Pooling and Servicing
Agreement and Series Supplement. In any event, the final payment
of principal will be made no later than the day following the
Distribution Date in _________ (the "Series Termination Date").
The amount to be distributed on each Distribution Date
to the holder of this Class B Certificate will be equal to the
product of (a) the percentage equivalent of a fraction, the
numerator of which is the portion of the Class B Initial Investor
Interest evidenced by this Class B Certificate and the
denominator of which is the Class B Initial Investor Interest and
(b) the aggregate of all payments to be made to SRFG on such
Distribution Date. Distributions with respect to this Class B
Certificate will be made by the Paying Agent by check mailed to
the address of SRFG (except for the final distribution in respect
of this Class B Certificate) without the presentation or
surrender of this Class B Certificate or the making of any
notation thereon.
This Class B Certificate does not represent an
obligation of, or an interest in, SRFG or the Servicer. This
Class B Certificate is limited in right of payment to certain
Collections respecting the Receivables, all as more specifically
set forth hereinabove and in the Pooling and Servicing Agreement
and the Series Supplement.
The Pooling and Servicing Agreement permits, with
certain exceptions, the amendment and modification of the rights
and obligations of the Servicer, and the rights of Investor
Certificateholders under the Pooling and Servicing Agreement and
Series Supplement, at any time by the Servicer, the Seller and
the Trustee in certain cases (some of which require written
confirmation from the Rating Agencies that such amendment will
not cause a Ratings Event) without the consent of the Investor
Certificateholders, and in all other cases with the consent of
the Investor Certificateholders owning Fractional Undivided
Interests aggregating not less than 66-2/3% of the Class Invested
Amount of each such affected Class (and with written confirmation
from the Rating Agencies that such amendment will not cause a
Ratings Event); provided, however, that no such amendment shall
(a) increase or reduce in any manner the amount of, or delay the
timing of, distributions which are required to be made on any
Investor Certificate without the consent of the affected Investor
Certificateholders or (b) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of
each Investor Certificateholder of each affected Class then of
record. Any such amendment and any such consent by SRFG shall be
conclusive and binding on SRFG and upon all future Holders of
this Class B Certificate and of any Class B Certificate issued in
exchange hereof or in lieu hereof whether or not notation thereof
is made upon this Class B Certificate.
The transfer of this Class B Certificate shall be
registered in the Certificate Register upon surrender of this
Investor Certificate for registration of transfer at any office
or agency maintained by the Transfer Agent and Registrar
accompanied by a written instrument of transfer in a form
satisfactory to the Trustee and the Transfer Agent and Registrar
duly executed by SRFG or such Class B Certificateholder's
attorney duly authorized in writing, and thereupon one or more
new Class B Certificates of authorized denominations and for the
same aggregate Fractional Undivided Interest will be issued to
the designated transferee or transferees.
A-2-4
<PAGE>
The transfer of this Class B Certificate is subject to
certain restrictions set forth in the Pooling and Servicing
Agreement. In no event shall this Class B Certificate, or any
interest herein, be transferred to an employee benefit plan,
trust or account subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or described in
Section 4975(e)(1) of the Internal Revenue Code. Any Holder of
this Class B Certificate, by its acceptance hereof, shall be
deemed to represent and warrant that it is not (i) an employee
benefit plan (as defined in Section 3(3) of ERISA), that is
subject to Title I of ERISA, (ii) a plan described in Section
4975(e)(1) of the Internal Revenue Code, and not excepted under
Section 4975(g), or (iii) an entity using assets to purchase such
Certificate which constitute plan assets by reason of a plan's
investment in such Holder.
The transfer of this Class B Certificate is subject to
certain further restrictions and the fulfillment of certain
conditions as set forth in the Series Supplement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class B Certificates are
exchangeable for new Class B Certificates evidencing like
aggregate Fractional Undivided Interests, as requested by SRFG.
No service charge may be imposed for any such exchange but the
Servicer or Transfer Agent and Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith.
The Servicer, the Trustee, the Paying Agent and the
Transfer Agent, and any agent of any of them, may treat the
person in whose name this Class B Certificate is registered as
the owner hereof for all purposes, and neither the Servicer, the
Trust nor the Trustee, the Paying Agent, the Transfer Agent, nor
any agent of any of them or any such agent shall be affected by
notice to the contrary except in certain circumstances described
in the Pooling and Servicing Agreement.
Subject to certain conditions in the Pooling and
Servicing Agreement and the Series Supplement, if the principal
of the Investor Certificates has not been paid in full prior to
the Series Termination Date, the obligations created by the
Pooling and Servicing Agreement and the Series Supplement with
respect to the Investor Certificates shall terminate on the
Series Termination Date.
A-2-5
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Class B Certificates referred to in the within
mentioned Pooling and Servicing Agreement and Series Supplement.
BANK ONE, NATIONAL ASSOCIATION
as Trustee
By:
-------------------------
Authorized Officer
A-2-6
<PAGE>
EXHIBIT A-3
FORM OF CLASS C CERTIFICATE
[FORM OF THE FACE OF THE CLASS C CERTIFICATE]
THIS CLASS C CERTIFICATE MAY NOT BE TRANSFERRED TO AN
EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT SUBJECT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR DESCRIBED
IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED.
THIS CLASS C CERTIFICATE IS SUBORDINATED IN RIGHT OF
PAYMENT TO THE CLASS A CERTIFICATES, THE CLASS B CERTIFICATES AND
TO THE RIGHTS OF THE SERVICER AS DESCRIBED IN THE POOLING AND
SERVICING AGREEMENT AND SERIES SUPPLEMENT REFERRED TO HEREIN.
THIS CLASS C CERTIFICATE MAY NOT BE TRANSFERRED,
ASSIGNED, EXCHANGED OR OTHERWISE CONVEYED WITHOUT SATISFACTION OF
CERTAIN CONDITIONS SET FORTH IN THE SERIES SUPPLEMENT REFERRED TO
HEREIN.
THE SECURITIES REPRESENTED BY THIS CLASS C CERTIFICATE
HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933
AND MAY NOT BE TRANSFERRED OR SOLD UNLESS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED AND THE SATISFACTION OF CERTAIN
OTHER REQUIREMENTS SPECIFIED IN THE POOLING AND SERVICING
AGREEMENT AND SERIES SUPPLEMENT REFERRED TO HEREIN.
NO. $____________________
CLASS C MASTER TRUST CERTIFICATE, SERIES ____
SEARS CREDIT ACCOUNT MASTER TRUST II
SRFG, INC.
SELLER
SEARS, ROEBUCK AND CO. SERVICER
(NOT AN INTEREST IN OR OBLIGATION OF SRFG, INC., SEARS NATIONAL
BANK OR SEARS, ROEBUCK AND CO.)
This certifies that SRFG, Inc., a Delaware corporation
("SRFG"), is the registered owner of a Fractional Undivided
Interest in Sears Credit Account Master Trust II (the "Trust"),
the corpus of which consists of a portfolio of receivables (the
"Receivables") existing as of the Cut-Off Date (or, with respect
to Receivables in Additional Accounts, as of the applicable
Additional Account Cut-Off Date) or thereafter created under
certain open-end retail charge plans for specified Persons (the
"Accounts")
A-3-1
<PAGE>
originated by Sears, Roebuck and Co., a New York corporation
("Sears") or its affiliates, and transferred to SRFG, all monies
due or to become due with respect thereto, all Participation
Interests, if any, all benefits under any Credit Enhancement with
respect to any series of investor certificates issued from time
to time, to the extent applicable, all proceeds (as defined in
Article 9 of the Uniform Commercial Code as in effect in the
State of New York) of such Receivables, and Insurance Proceeds,
if any, relating thereto, pursuant to a Pooling and Servicing
Agreement, dated as of July 31, 1994, as amended (the "Pooling
and Servicing Agreement"), by and among Sears as Servicer, SRFG
as Seller and Bank One, National Association (formerly The First
National Bank of Chicago), as trustee (the "Trustee"), a summary
of certain of the pertinent provisions of which is set forth
below. Reference is hereby made to the further provisions of this
Class C Certificate set forth on the reverse hereof, and such
further provisions shall for all purposes have the same effect as
if set forth at this place.
This Class C Certificate shall not be entitled to any
benefit under the Pooling and Servicing Agreement or any
amendment thereto, or the Series Supplement, dated as of ______
(the "Series Supplement"), by and among the Trustee, Sears and
SRFG or any amendment thereto, or become vested or obligatory for
any purpose until the certificate of authentication hereon shall
have been signed by or on behalf of the Trustee under the Pooling
and Servicing Agreement.
IN WITNESS WHEREOF, SRFG has caused this Class C
Certificate to be duly executed and authenticated.
SRFG, INC.
By:
----------------
Name:
Title:
A-3-2
<PAGE>
[FORM OF THE REVERSE OF THE CLASS C CERTIFICATES]
[For an Amortizing Structure]
It is the intent of SRFG and the Investor
Certificateholders that, for federal, state and local income and
franchise tax purposes only, the Investor Certificates will be
evidence of indebtedness. SRFG, by the acceptance of this Class C
Certificate, agrees to treat this Class C Certificate for
federal, state and local income and franchise tax purposes as
indebtedness secured by the Receivables and other assets held in
the Trust.
To the extent not defined herein, the capitalized terms
used herein have the meanings assigned in the Pooling and
Servicing Agreement or the Series
Supplement. This Class C Certificate is issued under and is
subject to the terms, provisions and conditions of the Pooling
and Servicing Agreement and the Series Supplement, to which
Pooling and Servicing Agreement and Series Supplement, as each
may be amended from time to time, SRFG by virtue of the
acceptance hereof assents and by which SRFG is bound.
This Class C Certificate is one of a series of
Certificates entitled "Class C Master Trust Certificates, Series
_______" (the "Class C Certificates"), each of which represents a
Fractional Undivided Interest in the Trust, including the right
to receive the Collections and other amounts at the times and in
the amounts specified in the Pooling and Servicing Agreement and
the Series Supplement to be deposited in the Investor Accounts
with respect to Sears Credit Account Master Trust II, Series
_______ or paid to SRFG. Also issued under the Pooling and
Servicing Agreement and the Series Supplement are Investor
Certificates designated as "_____% Class A Master Trust
Certificates, Series _______" (the "Class A Certificates") and "
_____% Class B Master Trust Certificates, Series _______" (the
"Class B Certificates"). The Class A Certificates, the Class B
Certificates and the Class C Certificates are collectively
referred to herein as the Investor Certificates.
The aggregate interest represented by the Class C
Certificates at any time in the assets of the Trust shall not
exceed an amount equal to the Class C Investor Interest at such
time, plus accrued but unpaid Certificate Interest for the Class
C Certificates and any interest thereon. The Class Initial
Investor Interest of the Class C Certificates is $________. The
Class C Invested Amount on any Distribution Date will be an
amount equal to the Class C Initial Investor Interest minus the
sum of (a) the aggregate amount of payments of Certificate
Principal paid to SRFG prior to such Distribution Date and (b)
the Investor Loss for such Class, if any, at the beginning of
such Distribution Date. In addition to the Investor Certificates,
a Seller Certificate has been issued pursuant to the Pooling and
Servicing Agreement which represents, at any time, the undivided
interest in the Trust not represented by the Investor
Certificates or the investor certificates of any other series of
investor certificates then outstanding. Subject to the terms and
conditions of the Pooling and Servicing Agreement, the Seller may
from time to time direct the Trustee, on behalf of the Trust, to
issue one or more new series of investor certificates, which will
represent Fractional Undivided Interests in the Trust.
During the Revolving Period, which begins on the day
following the Series Cut-Off Date, Certificate Interest will be
distributed on the 15th day of each calendar month with respect
to interest accrued during the preceding Interest Accrual Period,
commencing in ___________, or if such 15th day is not a Business
Day, on the next succeeding Business Day (each, a "Distribution
Date"), to SRFG. During the Controlled Amortization Period, which
will begin on the first day of the Due Period related to the
Distribution Date in __________unless a Rapid Amortization Event
occurs prior to such date, and during the Rapid Amortization
Period, if any, Certificate Interest and Certificate Principal
collected by the Servicer will be distributed to SRFG on the
Distribution Date of each calendar month, commencing
A-3-3
<PAGE>
in the month following the commencement of the earlier of the
Controlled Amortization Period or the Rapid Amortization Period;
provided, however, that, except as otherwise set forth in the
Series Supplement, no Certificate Principal will be distributed
to SRFG in respect of this Class C Certificate (except
Certificate Principal distributed to SRFG in respect of the Class
C Permitted Controlled Amortization Amount, if any) until the Class A
Investor Interest and the Class B Investor Interest have been
reduced to zero. The rights of SRFG to receive distributions to
which it would otherwise be entitled on the Receivables will be
subordinated to the rights of the Class A Certificateholders, the
Class B Certificateholders and the Servicer to the extent
described in the Pooling and Servicing Agreement and Series
Supplement. In any event, the final payment of principal will be
made no later than the day following the Distribution Date in
_______________ (the "Series Termination Date").
The amount to be distributed on each Distribution Date
to the holder of this Class C Certificate will be equal to the
product of (a) the percentage equivalent of a fraction, the
numerator of which is the portion of the Class C Initial Investor
Interest evidenced by this Class C Certificate and the
denominator of which is the Class C Initial Investor Interest and
(b) the aggregate of all payments to be made to SRFG on such
Distribution Date. Distributions with respect to this Class C
Certificate will be made by the Paying Agent by check mailed to
the address of SRFG (except for the final distribution in respect
of this Class C Certificate) without the presentation or
surrender of this Class C Certificate or the making of any
notation thereon.
This Class C Certificate does not represent an
obligation of, or an interest in, SRFG or the Servicer. This
Class C Certificate is limited in right of payment to certain
Collections respecting the Receivables, all as more specifically
set forth hereinabove and in the Pooling and Servicing Agreement
and the Series Supplement.
The Pooling and Servicing Agreement permits, with
certain exceptions, the amendment and modification of the rights
and obligations of the Servicer, and the rights of Investor
Certificateholders under the Pooling and Servicing Agreement and
Series Supplement, at any time by the Servicer, the Seller and
the Trustee in certain cases (some of which require written
confirmation from the Rating Agencies that such amendment will
not cause a Ratings Event) without the consent of the Investor
Certificateholders, and in all other cases with the consent of
the Investor Certificateholders owning Fractional Undivided
Interests aggregating not less than 66-2/3% of the Class Invested
Amount of each such affected Class (and with written confirmation
from the Rating Agencies that such amendment will not cause a
Ratings Event); provided, however, that no such amendment shall
(a) increase or reduce in any manner the amount of, or delay the
timing of, distributions which are required to be made on any
Investor Certificate without the consent of the affected Investor
Certificateholders or (b) reduce the aforesaid percentage
required to consent to any such amendment, without the consent of
each Investor Certificateholder of each affected Class then of
record. Any such amendment and any such consent by SRFG shall be
conclusive and binding on such Class C Certificateholder and upon
all future Holders of this Class C Certificate and of any Class C
Certificate issued in exchange hereof or in lieu hereof whether
or not notation thereof is made upon this Class C Certificate.
The transfer of this Class C Certificate shall be
registered in the Certificate Register upon surrender of this
Investor Certificate for registration of transfer at any office
or agency maintained by the Transfer Agent and Registrar
accompanied by a written instrument of transfer in a form
satisfactory to the Trustee and the Transfer Agent and Registrar
duly executed by SRFG or such Class C Certificateholder's
attorney duly authorized in writing, and thereupon one or more
new Class C Certificates of authorized denominations and for the
same aggregate Fractional Undivided Interest will be issued to
the designated transferee or transferees.
A-3-4
<PAGE>
The transfer of this Class C Certificate is subject to
certain restrictions set forth in the Pooling and Servicing
Agreement. In no event shall this Class C Certificate, or any
interest therein, be transferred to an employee benefit plan,
trust or account subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or described in
Section 4975(e)(1) of the Internal Revenue Code. Any Holder of
this Class C Certificate, by its acceptance hereof, shall be
deemed to represent and warrant that it is not (i) an employee
benefit plan (as defined in Section 3(3) of ERISA), that is
subject to Title I of ERISA, (ii) a plan described in Section
4975(e)(1) of the Internal Revenue Code, and not excepted under
Section 4975(g), or (iii) an entity using assets to purchase such
Certificate which constitute plan assets by reason of a plan's
investment in such Holder.
The transfer of this Class C Certificate is subject to
certain further restrictions and the fulfillment of certain
conditions as set forth in the Series Supplement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class C Certificates are
exchangeable for new Class C Certificates evidencing like
aggregate Fractional Undivided Interests, as requested by SRFG.
No service charge may be imposed for any such exchange but the
Servicer or Transfer Agent and Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith.
The Servicer, the Trustee, the Paying Agent and the
Transfer Agent, and any agent of any of them, may treat the
person in whose name this Class C Certificate is registered as
the owner hereof for all purposes, and neither the Servicer, the
Trust nor the Trustee, the Paying Agent, the Transfer Agent, nor
any agent of any of them or any such agent shall be affected by
notice to the contrary except in certain circumstances described
in the Pooling and Servicing Agreement.
Subject to certain conditions in the Pooling and
Servicing Agreement and the Series Supplement, if the principal
of the Investor Certificates has not been paid in full prior to
the Series Termination Date, the obligations created by the
Pooling and Servicing Agreement and the Series Supplement with
respect to the Investor Certificates shall terminate on the
Series Termination Date.
A-3-5
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Class C Certificates referred to in the within
mentioned Pooling and Servicing Agreement and Series Supplement.
BANK ONE, NATIONAL ASSOCIATION
as Trustee
By:
--------------
Authorized Officer
A-3-6
<PAGE>
EXHIBIT B
Form of Investor Certificateholders' Monthly
Statement Sears Credit Account Master Trust II
Series ___ Monthly Statement
Distribution Date: _____ __,____ Due Period Ending:________ __, ____
Under the Series Supplements relating to the Pooling and Servicing
Agreement dated as of July 31, 1994, as amended, by and among
Sears, Roebuck and Co., SRFG, Inc. (formerly Sears Receivables
Financing Group, Inc.) and Bank One, National Association (formerly
The First National Bank of Chicago) as Trustee, the Trustee is required
to prepare certain information each month regarding current distributions to
Certificateholders and the performance of the Trust. The information for the
Due Period and the Distribution Date listed above is set forth below.
<TABLE>
<CAPTION>
1. PAYMENTS OR ALLOCATIONS TO SERIES INVESTORS THIS DUE PERIOD
Total Interest Principal
----- -------- ---------
<S> <C> <C>
<C>
Series
----
Class A $ $ $
------------ ------------ -----------
Class B $ $ $
------------ ------------ -----------
Class C $ $ $
------------ ------------ ------------
2. PRINCIPAL RECEIVABLES AT THE END OF THE DUE PERIOD
(a) TOTAL PRINCIPAL RECEIVABLES IN TRUST $
------------
Aggregate Investor Interest $
------------
Seller Interest $
-----------
(b) INVESTOR INTEREST BY GROUPS
Group One Investor Interest $
------------
(c) INVESTOR INTEREST BY SERIES
Series 1994-1 Investor Interest $
-----------
Series 1995-1 Investor Interest $
-----------
Series 1995-2 Investor Interest $
-----------
Series 1995-3 Investor Interest $
-----------
Series 1995-5 Investor Interest $
-----------
Series 1996-1 Investor Interest $
-----------
Series 1996-2 Investor Interest $
-----------
Series 1996-3 Investor Interest $
-----------
Series 1996-4 Investor Interest $
-----------
Series 1996-5 Investor Interest $
-----------
Series 1997-1 Investor Interest $
-----------
Series 1998-1 Investor Interest $
-----------
Series 1998-2 Investor Interest $
-----------
Series 1999-1 Investor Interest $
-----------
Series 1999-2 Investor Interest $
-----------
Series ____ Investor Interest $
------------
(d) INVESTOR INTEREST BY CLASS (SERIES ____ )
Class A Investor Interest $
-----------
Class B Investor Interest $
-----------
Class C Investor Interest $
-----------
TOTAL CLASS INVESTOR INTEREST $
-----------
</TABLE>
B-1
<PAGE>
3. ALLOCATION OF COLLECTIONS DURING THE DUE PERIOD
<TABLE>
<S> <C>
(a) TOTAL COLLECTIONS $
-----------
Principal Receivables Collected $
------------
Finance Charge Receivables Collected $
------------
Recovered Amounts added as Additional Funds $
------------
</TABLE>
<TABLE>
<CAPTION>
Additional
Finance Charge Principal Allocable
Collections Collections Amounts
-------------- ----------- ----------
<S> <C> <C> <C>
(b) ALLOCATION OF COLLECTIONS WITH
RESPECT TO THE INVESTOR INTEREST
AND THE SELLER INTEREST
Aggregate Investor Allocation
(Aggregate Investor Percentage
multiplied by total Collections
received during the Due Period) $ $ $
------------ --------- ----------
Seller Allocation (Seller
Percentage multiplied by total
Collections received during the
Due Period) $ $ $
------------ --------- ----------
(c) Group One Allocation $ $ $
------------ ----------- ----------
(d) Series ______ Allocation $ $ $
------------ ----------- ----------
(e) Reallocations of Collections
to Series ____ from other series
in Group One and application
of charge-off reimbursements
to principal payments $ $ $
------------ ----------- ----------
</TABLE>
4. INFORMATION CONCERNING CONTROLLED AMORTIZATION AMOUNT
<TABLE>
<CAPTION>
Amount Distributed Total Distributions
this Due Period through this Due Period
------------------ -----------------------
SERIES _________ BY CLASS
<S> <C> <C>
(a) Class A $ $
------------ -----------
(b) Class B $ $
------------ -----------
(c) Class C $ $
------------ -----------
</TABLE>
5. INVESTOR CHARGED-OFF AMOUNTS
<TABLE>
<CAPTION>
This Due Period
--------------
<S> <C>
(a) Group One (the sum of Series Investor Charged-Off
Amounts for all Series in Group One) $
----------
(b) Series _____ (the sum of the Class Investor
Charged-Off Amounts for all Classes in
Series _____) $
----------
(c) Series _____ by Class:
Class A (Class A Percentage multiplied by the
Charged-Off Amount) $
----------
Class B (Class B Percentage multiplied by the
Charged-Off Amount) $
----------
Class C (Class C Percentage multiplied by the
Charged-Off Amount) $
----------
</TABLE>
B-2
<PAGE>
6. INVESTOR LOSSES
<TABLE>
<CAPTION>
Total
-----
<S> <C>
(a) Group One $
----------
(b) Series _____ $
----------
(c) Series _____ by Class
Class A $
----------
Class B $
----------
Class C $
----------
7. MONTHLY SERVICING FEE PAYABLE THIS DUE PERIOD
SELLER SERVICING FEE $
----------
INVESTOR SERVICING FEE
(a) Group One $
----------
(b) Series ____ $
----------
8. PERFORMANCE ANALYSIS
(a) Portfolio Yield (Finance Charge
Collections during the Due
Period divided by Principal
Receivables in the Trust as of
the first day of the Due Period) %
----------
(b) Charge-Offs (Charged-Off Amounts
during the Due Period divided by
Principal Receivables in the Trust
as of the first day of
the Due Period) %
----------
(c) Recoveries (Recovered Amounts added
as Additional Funds on the Distribution
Date divided by Aggregate Investor
Interest in the Trust as of the first
day of the Due Period) %
----------
(d) Investor Servicing Fee Percentage
(weighted average of Investor
Servicing Fees for Series ____) %
----------
(e) Weighted Average Certificate Rate
(weighted average certificate rates
for all classes of Series ____) %
----------
(f) Series Excess Servicing Percentage
(the sum of Portfolio Yield and
Recoveries minus the sum of Charge-Offs,
the Investor Servicing Fee Percentage
and the Weighted Average Certificate
Rate) %
----------
(f) Total Payment Rate (Aggregate Collections
during the Due Period divided by the
aggregate amount of Receivables in the
Trust as of the first day of the Due
Period) %
----------
9. SUMMARY DELINQUENCY AGING INFORMATION
[Sears has completed its conversion to the Total Systems Services,
Inc. ("TSYS") account processing system. For a further discussion
of Sears change to a new aging methodology in connection with the
conversion of its receivables processing system to the TSYS account
processing system, see the Trust's Current Report on Form 8-K dated
May 14, 1998.]
</TABLE>
B-3
<PAGE>
The Accounts in the Trust have the following delinquency
distribution:
[month/year]
Delinquencies as a % of balances
60-89 days past due.................... %
----------
90-119 days past due................... %
----------
120 days or more past due............ %
----------
Total Delinquencies %
==========
The delinquency rate is calculated by dividing the delinquent
balances as of the end of the Due Period by the balance of
receivables in the Trust at the beginning of the Due Period.
Sears and the Bank determine delinquency levels for accounts
using an aging methodology that is based on the number of
completed billing cycles during which the customer failed to make
a required payment. The delinquency data reflect the percentage
of Account balances 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.
BANK ONE, NATIONAL ASSOCIATION
as Trustee
By:
-----------------
B-4
<PAGE>
EXHIBIT C
Sears Credit Account Master Trust II
Monthly Servicer Certificate
CREDIT ACCOUNT
MASTER TRUST CERTIFICATES
The undersigned, a duly authorized representative of
Sears, Roebuck and Co. ("Sears"), as Servicer pursuant to the
Pooling and Servicing Agreement dated as of July 31, 1994, as
amended (the "Pooling and Servicing Agreement") by and among
Sears, SRFG, Inc. (formerly Sears Receivables Financing Group,
Inc.) and Bank One, National Association (formerly The First
National Bank of Chicago), as Trustee, does hereby certify as
follows with respect to the Series outstanding for the
Distribution Date occurring on _______________:
<TABLE>
<S> <C>
1. Sears is Servicer under the Pooling and Servicing Agreement.
2. The undersigned is a Servicing Officer of Sears as Servicer.
SECTION 1: TOTAL TRUST INFORMATION
3. The aggregate amount of Principal Collections
processed during the related Due period is equal to.. $
--------
4. The aggregate amount of Finance Charge Collections
processed during the related Due Period is equal to... $
--------
5. The aggregate amount of Total Collections processed
during the related Due Period is equal to............. $
--------
6. The aggregate amount of Principal Receivables in the
Trust as of the last day of the related Due Period is
equal to.............................................. $
--------
7. The aggregate amount of Finance Charge Receivables in
the Trust as of the last day of the related Due Period
is equal to.......................................... $
--------
8. The aggregate amount of Total Receivables in the
Trust as of the last day of the related Due Period
is equal to.......................................... $
--------
9. The aggregate amount of Additional Funds to be added
to the Trust on or before the Distribution Date is
equal to............................................. $
--------
SECTION 2: SERIES 1994-1
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to.... $
--------
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution
Date is equal to....................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 3: SERIES 1995-1
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 4: SERIES 1995-2
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 5: SERIES 1995-3
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C>
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 6: SERIES 1995-5
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 7: SERIES 1996-1
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C>
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 8: SERIES 1996-2
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
</TABLE>
C-5
<PAGE>
<TABLE>
<S> <C>
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 9: SERIES 1996-3
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 10: SERIES 1996-4
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
</TABLE>
C-6
<PAGE>
<TABLE>
<S> <C>
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 11: SERIES 1996-5
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 12: SERIES 1997-1
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to..... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
</TABLE>
C-7
<PAGE>
<TABLE>
<S> <C>
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 13: SERIES 1998-1
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
</TABLE>
C-8
<PAGE>
<TABLE>
<S> <C>
SECTION 14: SERIES 1998-2
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 15: SERIES 1999-1
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
</TABLE>
C-9
<PAGE>
<TABLE>
<S> <C>
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 16: SERIES 1999-2
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
SECTION 17: SERIES
1. The aggregate amount of Series Additional Allocable
Amounts during the related Due Period is equal to...... $
--------
2. The amount of interest payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
3. The amount of principal payable to the Class A
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
</TABLE>
C-10
<PAGE>
<TABLE>
<S> <C>
4. The amount of interest payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
5. The amount of principal payable to the Class B
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
6. The amount of interest payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
7. The amount of principal payable to the Class C
Certificateholders on the current Distribution Date is
equal to............................................... $
--------
8. The aggregate amount of Reallocated Class B Principal
Collections during the related Due Period is equal to.. $
--------
9. The aggregate amount of Reallocated Class C Principal
Collections during the related Due Period is equal to.. $
--------
10. Attached hereto is a true copy of the statement required
to be delivered by the Servicer on the date of this
Certificate to the Trustee pursuant to the Series
Supplements.
</TABLE>
IN WITNESS WHEREOF, the undersigned has duly executed
and delivered this certificate this ____day of ____________,
19__.
SEARS, ROEBUCK AND CO.,
as Servicer
By:
--------------------
Name:
Title:
C-11
BOOK-ENTRY-ONLY COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs)
(WITHOUT OWNER OPTION TO REDEEM)/
OTHER ASSET-BACKED SECURITIES/AND PASS-THROUGH CERTIFICATES
Letter of Representations
[To be Completed by Issuer and Agent]
SRFG, Inc. on behalf of Sears Credit Account Master Trust II
[Name of Issuer]
Bank One, National Association
[Name of Agent]
______________
[Date]
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street, 49th Floor
New York, NY 10041-0099
Re: % Class A Master Trust Certificates, Series
% Class B Master Trust Certificates, Series
[Insert Description]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain
matters relating to the above-referenced issue (the
"Securities"). Agent will act as trustee, paying agent, fiscal
agent or other such agent of Issuer with respect to the
Securities pursuant to a trust indenture, trust agreement, or
other such document dated as of July 31, 1994 (the "Document").
______________________________________________________________
______________________________________________________________
______________________________________________________________
["Underwriter"]
is distributing the Securities through The Depository Trust
Company ("DTC").
To induce DTC to accept the Securities as eligible for
deposit at DTC, and to act in accordance with its Rules with
respect to the Securities, Issuer and Agent make the following
representations to DTC:
1. Prior to closing on the Securities on _____________,
there shall be deposited with DTC one Security certificate
registered in the name of DTC's nominee, Cede & Co., for each
stated maturity of the Securities in the face amounts set forth
on Schedule A hereto, the total of which represents 100% of the
principal amount of such Securities. If, however, the aggregate
principal amount of any maturity exceeds $200 million, one
certificate will be issued with respect to each $200 million of
principal amount and an additional certificate will be issued
with respect to any remaining principal amount. Each Security
certificate shall bear the following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to Issuer or its agent for registration
of transfer, exchange, or payment, and any certificate issued
is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or to such other entity as
is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
2. Issuer: (a) understands that DTC has no obligation to,
and will not, communicate to its Participants or to any person having
an interest in the Securities any information contained in the
Security certificate(s); and (b) acknowledges that neither DTC's
Participants nor any person having an interest in the Securities
shall be deemed to have notice of the provisions of the Security
certificates by virtue of submission of such certificate(s) to
DTC.
3. In the event of any solicitation of consents from or voting
by holders of the Securities, Issuer or Agent shall establish a
record date for such purposes (with no provision for revocation
of consents or votes by subsequent holders) and shall, to the
extent possible, send notice of such record date to DTC not less
than 15 calendar days in advance of such record date. Notices to
DTC pursuant to this Paragraph by telecopy shall be sent to DTC's
Reorganization Department at (212) 709-6896 or (212) 709-6897,
and receipt of such notices shall be confirmed by telephoning
(212) 709-6870. Notices to DTC pursuant to this Paragraph by
mail or by any other means shall be sent to DTC's Reorganization
Department as indicated in Paragraph 5.
4. In the event of a full or partial redemption, Issuer or
Agent shall send a notice to DTC specifying: (a) the amount of
the redemption or refunding; (b) in the case of a refunding, the
maturity date(s) established under the refunding; and (c) the
date such notice is to be mailed to Security holders or published
(the "Publication Date"). Such notice shall be sent to DTC by a
secure means (e.g., legible telecopy, registered or certified
mail, overnight delivery) in a timely manner designed to assure
that such notice is in DTC's possession no later than the close
of business on the business day before or, if possible, two
business days before the Publication Date. Issuer or Agent shall
forward such notice either in a separate secure transmission for
each CUSIP number or in a secure transmission for multiple CUSIP
numbers (if applicable) which includes a manifest or list of each
CUSIP number submitted in that transmission. (The party sending
such notice shall have a method to verify subsequently the use of
such means and the timeliness of such notice.) The Publication
Date shall be not less than 30 days nor more than 60 days prior
to the redemption date or, in the case of an advance refunding,
the date that the proceeds are deposited in escrow. Notices to
DTC pursuant to this Paragraph by telecopy shall be sent to DTC's
Call Notification Department at (516) 227-4039 or (516) 227-4190.
If the party sending the notice does not receive a telecopy
receipt from DTC confirming that the notice has been received,
such party shall telephone (516) 227-4070. Notices to DTC
pursuant to this Paragraph by mail or by any other means shall be
sent to:
Manager; Call Notification Department
The Depository Trust Company
711 Steward Avenue
Garden City, NY 11530-4719
5. In the event of an invitation to tender the Securities
(including mandatory tenders, exchanges, and capital changes),
notice by Issuer or Agent to Security holders specifying the
terms of the tender and the Publication Date of such notice shall
be sent to DTC by a secure means in the manner set forth in the
preceding Paragraph. Notices to DTC pursuant to this Paragraph
and notices of other corporate actions by telecopy shall be sent
to DTC's Reorganization Department at (212) 709-1093 or
(212) 709-1094, and receipt of such notices shall be confirmed by
telephoning (212) 709-6884. Notices to DTC pursuant to the above
by mail or by any other means shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, NY 10004-2695
6. All notices and payment advices sent to DTC shall contain
the CUSIP number of the Securities.
7. Issuer or Agent shall send DTC written notice with respect
to the dollar amount per $1,000 original face value (or other
minimum authorized denomination if less than $1,000 face value)
payable on each payment date allocated as to the interest and
principal portions thereof preferably 5, but not less than 2,
business days prior to such payments date. Such notices, which
shall also contain the current pool factor, any special
adjustments to principal/interest rates (e.g., adjustments due to
deferred interest or shortfall), and Agent contact's name and
telephone number, shall be sent by telecopy to DTC's Dividend
Department at (212) 709-1723, or if by mail or by any other means
to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2695
8. The interest accrual period is payment date to payment date.
9. Issuer or Agent shall provide a written notice of interest
payment information to a standard interest announcement service
subscribed to by DTC as soon as the information is available. In
the unlikely event that no such service exists, Issuer or Agent
shall provide such notice directly to DTC electronically, as
previously arranged by Issuer or Agent and DTC, as soon as the
information is available. If electronic transmission is not
available, absent any other arrangements between Issuer or Agent
and DTC, such information should be sent by telecopy to DTC's
Dividend Department at (212) 709-1723 or (212) 709-1686, and
receipt of such notices shall be confirmed by telephone (212) 709-
1270. Notices to DTC pursuant to the above by mail or by any
other means shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2695
*Such notice shall be sent to DTC no later than 8:00 a.m. on the
Publication date.
10. Issuer or Agent shall provide CUSIP numbers for each issue
for which payment is being sent, as well as the dollar amount of
the payment for each issue, no later than noon (Eastern Time) on
the payment date.
11. Interest payments and principal payments that are part of
periodic principal-and-interest payments shall be received by
Cede & Co., as nominee of DTC, or its registered assigns, in same-
day funds, no later than 2:30 p.m. (Eastern Time) on each payment
date. Absent any other arrangements between Issuer or Agent and
DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #066-026776
12. Maturity and redemption payments allocated with respect to
each CUSIP number shall be received by Cede & Co., as nominee of
DTC, or its registered assigns, in same-day funds no later than
2:30 p.m. (Eastern Time). Absent any other arrangements between
Issuer or Agent and DTC, such payments shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Account #066-027608
13. Principal payments (plus accrued interest, if any) as the
result of optional tenders for purchase effected by means of
DTC's Repayment Option Procedures shall be received by Cede &
Co., as nominee of DTC, or its registered assigns, in same-day
funds no later than 2:30 p.m. Absent any other arrangements
between Issuer or Agent and DTC, such payments shall be wired as
follows:
The Chase Manhattan Bank
ABA #021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Reorganization Account #066-027608
14. DTC may direct Issuer or Agent to use any other number or
address to which notices or payments of interest or principal may
be sent.
15. There will be no partial redemption of the Securities.
16. In the event that Issuer determines that beneficial owners
of Securities shall be able to obtain certificated Securities,
Issuer or Agent shall notify DTC of the availability of
certificates. In such event, Issuer or Agent shall issue,
transfer, and exchange certificates in appropriate amounts, as
required by DTC and others.
17. DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving
reasonable notice to Issuer or Agent (at which time DTC will
confirm with Issuer or Agent the aggregate principal amount of
Securities outstanding). Under such circumstances, at DTC's
request Issuer and Agent shall cooperate fully with DTC by taking
appropriate action to make available one or more separate
certificates evidencing Securities to any DTC Participant having
Securities credited to its DTC accounts.
18. Nothing herein shall be deemed to require Agent to advance
funds on behalf of Issuer.
19. This Letter of Representations may be executed in any number
of counterparts, each of which when so executed shall be deemed
to be an original, but all such counterparts together shall
constitute but one and the same instrument.
20. This Letter of Representations is governed by, and shall be
construed in accordance with, the laws of the State of New York.
21. The following riders, attached hereto, are hereby
incorporated into this Letter of Representations.
(1) Addendum; (2) Schedule A; (3) Schedule B; and (4)
Rider Amending DTC Letter of Representations.
Notes: Very truly yours,
A. If there is an Agent (as
defined in this Letter of
Representations), Agent as well SRFG, INC.
as Issuer must sign this (Issuer)
Letter. If there is no Agent,
in signing this Letter, Issuer
itself undertakes to perform By:
all of the obligations set (Authorized Officer's Signature)
forth herein.
B. Schedule B contains
statements that DTC believes BANK ONE, NATIONAL ASSOCIATION
accurately describe DTC, the (Agent)
method of effecting book-entry
transfers of securities By:
distributed through DTC, and (Authorized Officer's Signature)
certain related matters
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:________________________________
cc: Underwriter
Underwriter's Counsel
ADDENDUM
to
Letter of Representations dated _____________
Sears Credit Account Master Trust II
General: For purposes of this Letter of Representations:
"Document" shall mean the Pooling and Servicing
Agreement dated as of July 31, 1994, as amended
and as supplemented by the Series Supplement dated
as of ____________, each by and among Sears,
Roebuck and Co. as Servicer, SRFG, Inc. (formerly
Sears Receivables Financing Group, Inc.) as Seller
and Bank One, National Association (formerly The
First National Bank of Chicago) as the Trustee.
Paragraph 1: The following is hereby added after the third
sentence of Paragraph 1:
"Each certificate shall remain in the Agent's
custody subject to the provisions of the Fast
Balance Certificate Agreement currently in effect
between the Agent and DTC."
Paragraph 5: The following is hereby added after the first
sentence of Paragraph 6:
"Issuer or Trustee will forward such notice either
in a separate secure transmission for each CUSIP
number or in a secure transmission for multiple
CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP submitted in that
transmission."
Paragraph 14: The following is hereby inserted after the word
"Agent" in line 1 of paragraph 14.
", and if requested, shall confirm such direction
in writing."
SCHEDULE A
Sears Credit Account Master Trust II
Master Trust Certificates, Series _______
CLASS A CERTIFICATES CUSIP No. ____________
Certificate Principal Maturity Date(1) Interest Rate
Number Amount
CLASS B CERTIFICATES CUSIP No. ____________
Certificate Principal Maturity Date(1) Interest Rate
Number Amount
(1) Last possible Distribution Date.
SCHEDULE B
Sample Official Statement Language
Describing Book-Entry-Only Issuance
(Prepared by DTC-bracketed material may be applicable only to
certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act
as securities depository for the securities (the "Securities").
The Securities will be issued as fully-registered securities
registered in the name of Cede & Co. (DTC's partnership nominee).
One fully-registered Security certificate will be issued for
[each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If,
however, the aggregate principal amount of [any] issue exceeds
$200 million, one certificate will be issued with respect to each
$200 million of principal amount and an additional certificate
will be issued with respect to any remaining principal amount of
such issue.]
2. DTC is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning
of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts,
thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and
certain other organizations. DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers,
banks, and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly
or indirectly ("Indirect Participants"). The Rules applicable to
DTC and its Participants are on file with the Securities and
Exchange Commission.
3. Purchases of Securities under the DTC system must be made by
or through Direct Participants, which will receive a credit for
the Securities on DTC's records. The ownership interest of each
actual purchaser of each Security ("Beneficial Owner") is in turn
to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC
of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the Direct or
Indirect Participant through which the Beneficial Owner entered
into the transaction. Transfers of ownership interests in the
Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership
interests in Securities, except in the event that use of the book-
entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited
by Participants with DTC are registered in the name of DTC's
partnership nominee, Cede & Co. The deposit of Securities with
DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the Securities; DTC's records reflect
only the identity of the Direct Participants to whose accounts
such Securities are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to
Direct Participants, by Direct Participants to Indirect
Participants, and by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
6. [Redemption notices shall be sent to DTC. If less than all
of the Securities within an issue are being redeemed, DTC's
practice is to determine by lot the amount of the interest of
each Direct Participant in such issue to be redeemed.]
7. Neither DTC nor Cede & Co. will consent or vote with respect
to Securities. Under its usual procedures, DTC mails an Omnibus
Proxy to Issuer as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the Securities are
credited on the record date (identified in a listing attached to
the Omnibus Proxy).
8. Principal and interest payments on the Securities will be
made to Cede & Co., as nominee of DTC. DTC's practice is to
credit Direct Participants' accounts, upon DTC's receipt of funds
and corresponding detail information from Issuer or Agent, on
payable date in accordance with their respective holdings shown
on DTC's records. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts
of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC,
Agent, or Issuer, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of
principal and interest to Cede & Co. is the responsibility of
Issuer or Agent, disbursement of such payments to Direct
Participants shall be the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
9. [A Beneficial Owner shall give notice to elect to have its
Securities purchased or tendered, through its Participant, to
Agent [or Tender/Remarketing Agent], and shall effect delivery of
such Securities by causing the Direct Participants to transfer
the Participant's interest in the Securities, on DTC's records,
to Agent [or Tender/Remarketing Agent]. The requirement for
physical delivery of Securities in connection with an optional
tender or a mandatory purchase will be deemed satisfied when the
ownership rights in the Securities are transferred by Direct
Participants on DTC's records and followed by a book-entry credit
of tendered Securities to Agent [or Tender/Remarketing Agent's]
DTC account.]
10. DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving
reasonable notice to Issuer or Agent. Under such circumstances,
in the event that a successor securities depository is not
obtained, Security certificates are required to be printed and
delivered.
11. Issuer may decide to discontinue use of the system of book-
entry transfers through DTC (or a successor securities
depository). In that event, Security certificates will be
printed and delivered.
12. The information in this section concerning DTC and DTC's
book-entry system has been obtained from sources that Issuer
believes to be reliable, but Issuer takes no responsibility for
the accuracy thereof.
REPRESENTATIONS FOR ERISA-RESTRICTED SECURITIES
to be included in DTC Letter of Representations
Issuer and Agent recognize that DTC does not in any way
undertake to, and shall not have nay responsibility to, monitor
or ascertain whether a transfer of Securities could give rise to
a transaction prohibited or not otherwise permissible under the
Employee Retirement Income Security Act of 1974 or under Section
4975 of the Internal Revenue Code of 1986. Issuer and Agent
acknowledge that: a) for so long as Cede & Co. is the sole
record owner of the Securities, it shall be entitled to all
voting rights in respect thereof and to receive the full amount
of all principal, premium, if any, and interest payable with
respect thereto; and b) DTC shall treat any DTC Participant
having Securities credited to its DTC account as entitled to the
full benefits of ownership of such Securities even if the
crediting of such Securities to the DTC accounts of such
Participant results from transfers or failures to transfer in
violation of such laws. (The treatment by DTC of the effects of
crediting by it of Securities to the accounts of DTC Participants
shall not affect the rights of Issuer or purchasers, sellers or
holders of Securities against any DTC Participant).
Rider Amending DTC Letter of Representations - BEO Collateralized
Obligations (CMO) Without Owner Option to Redeem/Other Asset-
Backed Securities/and Pass-Through Certificates
DTC's Reorganization Department relocated and prior to that,
DTC's Dividend Department relocated to the 55 Water Street
location. Following are the new addresses and related telephone
and facsimile numbers referenced in the Letter of
Representations.
Paragraph 3 of the Letter of Representations:
Old Telecopier Numbers Current Telecopier Numbers
(212) 709-6896 and (212) 709-6897 (212) 855-5181 and (212) 855-5182
The confirmation number (formerly (212) 709-6870) is now (212)
855-5202.
Paragraph 5 of the Letter of Representations:
Old Telecopier Numbers Current Telecopier Number
(212) 709-1093 and (212) 709-1094 (212) 855-5278
The confirmation number (formerly (212) 709-6884) is now (212)
855-5280.
The new address is Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
55 Water Street 50th Floor
New York, NY 10041-0099
Paragraph 7 of the Letter of Representations:
Old Telecopier Number Current Telecopier Number
(212) 709-1723 (212) 855-4555
The new address is Manager; Announcements
Dividend Department
The Depository Trust Company
55 Water Street 25th Floor
New York, NY 10041-0099
Paragraph 9 of the Letter of Representations:
Old Telecopier Numbers Current Telecopier Numbers
(212) 709-1723 and (212) 709-1686 (212) 855-4555 and (212) 855-4556
The confirmation number (formerly (212) 709-1270) is now (212)
855-4550.
The current address for Paragraph 9 is the same as that listed
above, for Paragraph 7.
The following additional text relates to Paragraph 10 of the
Letter of Representations:
Such information shall be conveyed by automated notification. If
the circumstance prevent the funds paid to Cede & Co., as nominee
of DTC, by 2:30 p.m. ET from equaling the dollar amount
associated with detail payments by 12:00 noon ET Issuer or Agent
must provide CUSIP-level reconciliation to DTC no later than 2:30
p.m. ET. Reconciliation can be provided by automated means or
written format.
The following additional text relates to Paragraph 11 of the
Letter or Representations:
To facilitate the payment standards, Issuer is required to remit
free funds to Agent by 1:00 p.m. ET on each payment date, or at
such earlier time as required by Agent to guarantee timely credit
to the Dividend Deposit Account of Cede & Co.
The following additional text relates to Paragraph 12 of the
Letter of Representations:
To facilitate the payment standards, Issuer is required to remit
free funds to Agent by 1:00 p.m. ET on each payment date, or at
such earlier time as required by Agent to guarantee timely credit
to the Redemption Deposit Account of Cede & Co. Issuer or Agent
shall deliver Cusip-level detail regarding such payments to DTC
no later than 2:30 p.m. ET on each payment date.
The following additional text relates to Paragraph 13 of the
Letter of Representations:
To facilitate the payment standards, Issuer is required to remit
free funds to Agent by 1:00 p.m. ET on each payment date, or at
such earlier time as required by Agent to guarantee timely credit
to the Reorganization Deposit Account of Cede & Co. Issuer or
Agent shall deliver Cusip-level detail regarding such payments to
DTC no later than 2:30 p.m. ET on each payment date.
Steven M. Cook
Deputy General Counsel
Law Department
Sears, Roebuck and Co.
3333 Beverly Road, B6-234B
Hoffman Estates, Illinois 60179
Phone: (847) 286-2500
Fax: (847) 286-XXXX
December 1, 1999
SRFG, Inc., as Originator
of Sears Credit Account Master Trust II
3711 Kennett Pike
Greenville, Delaware 19807
Re: Sears Credit Account Master Trust II
Registration Statement on Form S-3
Ladies and Gentlemen:
I, Steven M. Cook, Deputy General Counsel of Sears, Roebuck
and Co., have acted as counsel for SRFG, Inc. (the "Company") in
connection with the filing by SRFG, on behalf of the Sears Credit
Account Master Trust II (the "Trust") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended,
of a Registration Statement on Form S-3 (the "Registration
Statement") registering credit account pass-through certificates
representing undivided interests in the Trust (the
"Certificates"). The Certificates will be issued pursuant to the
Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement") dated as of July 31, 1994, as amended by the
Amendment to the Pooling and Servicing Agreement, dated as of
March 31, 1995, as further amended by Amendment No. 2 to the
Pooling and Servicing Agreement, dated as of December 21, 1995,
among the Company, as Seller, Sears, Roebuck and Co. ("Sears"),
as Servicer, and Bank One, National Association (formerly The
First National Bank of Chicago) as Trustee (the "Trustee"), filed
as Exhibit 4.1 to the Registration Statement, and as supplemented
by a Series Supplement ("Series Supplement"), among the Company,
Sears and the Trustee, substantially in the form filed as Exhibit
4.4 to the Registration Statement.
I have examined the Registration Statement, the Pooling and
Servicing Agreement and the form of Series Supplement. I have
examined such other documents and such questions of law and fact
as I have deemed necessary in order to express the opinions
hereinafter stated.
I am opining herein as to the effect on the subject
securities of only United States federal law and the laws of the
State of New York in reliance on an opinion of Latham & Watkins
of even date herewith, and I express no opinion with respect to
the applicability thereto or the effect thereon of the laws of
any other jurisdiction or as to any matters of municipal law or
the laws of any local agencies within any state.
Based on the foregoing, I am of the opinion that upon
issuance and sale thereof in the manner described in the
prospectus filed as part of the Registration Statement and the
prospectus supplement to be filed with the Commission at the time
of offering a particular series of Certificates, such
Certificates will be validly issued, fully paid and
nonassessable, and enforceable in accordance with their terms and
entitled to the benefits of the Pooling and Servicing Agreement
and the related Series Supplement, except as the same may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors, and (ii) general
principles of equity (whether enforcement is considered in a
proceeding at law or in equity) and by the discretion of the
court before which any proceeding therefor may be brought.
In rendering my opinion, I have assumed that, upon or prior
to the issuance and sale of the Certificates, (i) the Series
Supplement will be duly authorized, executed and delivered by the
Trustee, and (ii) all documents required to be executed and
delivered in connection with the issuance and sale of the
Certificates will be so executed and delivered by properly
authorized persons.
I hereby consent to the filing of this opinion as an Exhibit
to the Registration Statement.
Very truly yours,
/s/ Steven M. Cook
[Closing Date]
SRFG, Inc.
3711 Kennett Pike
Greenville, Delaware 19807
Re: Sears Credit Account Master Trust II, Series [ ]
Ladies and Gentlemen:
We have acted as counsel to SRFG, Inc. (f/k/a Sears
Receivables Financing Group, Inc.), a Delaware corporation (the
"Company"), in connection with
i. the Company's purchase of certain credit account receivables
from Sears, Roebuck and Co. (the "Parent"), in the initial
principal amount of $779,898,063 under the First Amended and
Restated Purchase Agreement, dated as of July 31, 1994, as
amended (the "Purchase Agreement"), between the Parent and the
Company and the Company's receipt of certain credit account
receivables from the Parent in the initial principal amount of
$980,495,704.40 under the First Amended and Restated Contribution
Agreement, dated as of July 31, 1994, as amended (the
"Contribution Agreement"), between the Parent and the Company;
ii. the Receivables Warehouse Agreement, dated as of December
21, 1995, as amended, between the Parent and the Company (the
"Warehouse Agreement," and together with the Purchase Agreement
and the Contribution Agreement, the "Transfer Documents"),
including without limitation, the confirmation by the Parent of
the prior contribution or sale of certain credit account
receivables to the Company, pursuant to the terms of the Purchase
and Contribution Agreements (as defined in the Warehouse
Agreement); and
iii. the sale of certain such receivables to the Sears Credit
Account Master Trust II (the "Trust") under the Pooling and
Servicing Agreement, dated as of July 31, 1994, as amended by the
Series Supplement, dated as of the date hereof (the "Series
Supplement"), as amended by Assignment of Additional Accounts No.
1, dated as of October 26, 1994, as amended by an Amendment dated
as of March 31, 1995, as amended by Assignment of Additional
Accounts No. 2, dated as of July 19, 1995, as amended by
Assignment of Additional Accounts No. 3, dated as of November 10,
1995, as amended by Amendment No. 2, dated as of December 21,
1995, as amended by Assignment of Additional Accounts No. 4,
dated as of December 21, 1995, as amended by Assignment of
Additional Accounts No. 5, dated as of April 24, 1996, as amended
by Assignment of Additional Accounts No. 6, dated as of November
15, 1996, as amended by Reassignment No. 1 of Receivables, dated
as of June 30, 1997 (the "Reassignment"), as amended by
Assignment of Additional Accounts No. 7, dated as of August 15,
1997, and as amended by Assignment of Additional Accounts No. 8,
dated as of June 29, 1998, (collectively, the "Pooling and
Servicing Agreement"), each among the Parent, the Company and The
First National Bank of Chicago (now known as Bank One, National
Association), as Trustee (the "Trustee").
All capitalized terms used herein and not otherwise defined shall
have the meaning specified in the Pooling and Servicing Agreement
unless the context clearly indicates otherwise.
The Trustee will issue the Class A Master Trust
Certificates, Series [____] (the "Offered Certificates"), the
Class B Master Trust Certificates, Series [____] (the "Class B
Certificates") and the Class C Master Trust Certificates, Series
[____] (the "Class C Certificates" and, together with the Offered
Certificates and the Class B Certificates, the "Investor
Certificates"), evidencing the Investor Interest, pursuant to the
Pooling and Servicing Agreement (including the Series
Supplement). The Offered Certificates will be sold to the
public, through [ names of underwriters ] under a
prospectus supplement dated [ date ] and a prospectus
dated [ date ] (collectively, the "Prospectus").
The relevant transactions are more fully described
under the "Summary of the Transactions" set forth below.
We have reviewed the following documents and any
exhibits thereto for purposes of this opinion (the "Relevant
Documents"):
1. the Pooling and Servicing Agreement;
2. the Contribution Agreement;
3. the Purchase Agreement;
4. the Warehouse Agreement;
5. the Purchase and Contribution Agreements (as defined in the
Warehouse Agreement);
6. the Series Supplement;
7. the Company's Certificate of Incorporation;
8. the Company's By-Laws; and
9. Financing Statements on form UCC-1 filed in Illinois,
Arizona and Delaware, and the amendments thereto.
I.
OPINIONS REQUESTED
You have requested our opinion as to whether, in the
event the Parent were to become a debtor in a case under the
Bankruptcy Code, 11 U.S.C. 101 et seq. (the "Bankruptcy
Code"), (A) a federal bankruptcy court would order the
substantive consolidation of the assets and liabilities of the
Company with those of the Parent and (B)(1) a transfer of the
Receivables in the form and manner contemplated by the Transfer
Documents would constitute an absolute sale or other transfer of
such Receivables rather than a borrowing by the Parent secured by
such Receivables, so that such Receivables would not be property
of the estate of the Parent under Section 541(a) of the
Bankruptcy Code, and thus (2) the Company's rights thereto would
not be impaired by the operation of Section 362(a) of the
Bankruptcy Code.
We call to your attention the fact that we are opining
herein as to the effect on the subject transaction only of the
internal laws of the State of Illinois and the federal bankruptcy
laws of the United States of America, and we express no opinion
with respect to the applicability thereto, or the effect thereon,
of the laws of any other jurisdiction or as to any matters of
municipal law or the laws of any other local agencies within any
state. To the extent that any of the opinions expressed herein
are dependent upon the application of laws of any state, we have
assumed that the laws of the State of Illinois will be applied.
II.
ASSUMPTIONS OF FACT
In rendering our opinion, we have made no independent
investigation of the facts referred to herein and have relied for
the purpose of rendering this opinion exclusively on the Relevant
Documents and on facts provided to us by the Parent and the
Company through certificates of officers and executives, which we
assume have been and will continue to be true.
In our examination, we have assumed the legal capacity
of all natural persons, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us
as facsimile, certified or photostatic copies and the
authenticity of the originals of such latter documents. In
making our examination of such documents, for purposes of this
opinion we have assumed that all parties thereto had the
requisite power, corporate or other, to enter into and perform
all obligations thereunder and have also assumed the due
authorization by all requisite action, corporate or other, the
due execution and delivery by such parties of such documents, the
validity and binding effect thereof and that such documents are
enforceable against such parties.
We understand and have assumed that the Company was
created for the sole purpose of effecting the transactions
contemplated by the Relevant Documents (collectively, the
"Transactions") and other similar securitization transactions.
We also understand and have assumed that the Company had no
creditors and had not conducted any business activities prior to
the consummation of the Transactions and other similar
securitization transactions. We have also been advised that
following the consummation of the Transactions, the Company will
not have or incur any liabilities or indebtedness not permitted
under the Relevant Documents.
For purposes of this opinion, we have also assumed that
all of the parties to the Relevant Documents have complied and
will continue to comply with all of the terms, covenants and
conditions thereof and that each of the representations and
warranties set forth in the Relevant Documents is true and
correct on each day that such representation and warranty is
made. In addition, we have assumed that, in the event of the
bankruptcy of the Parent, (i) the holders of the Investor
Certificates as a group would be harmed by the substantive
consolidation of the assets and liabilities of the Company with
the assets and liabilities of the Parent and therefore would not
have purchased the Investor Certificates if such holders of the
Investor Certificates as a group believed that the assets and
liabilities of the Company would be substantively consolidated
with the assets and liabilities of the Parent; and (ii) none of
the holders of the Investor Certificates, as a direct or indirect
creditor of the Company, would seek, and in fact would vigorously
oppose, any effort to substantively consolidate the assets and
liabilities of the Company with the assets and liabilities of the
Parent.
For purposes of this opinion, we have also assumed all
of the following matters set forth below in this Section II.A
through II.C:
A. Corporate Procedures.
The Company, a wholly-owned subsidiary of the Parent,
is a limited purpose corporation organized under the laws of the
State of Delaware. The Company strictly observes all corporate
and legal procedures and formalities required by its Certificate
of Incorporation, its By-Laws, and the laws of the State of
Delaware. The Company maintains its corporate existence and its
good standing under the laws of the State of Delaware.
The Company was formed for the exclusive purpose of
owning receivables and issuing credit account pass-through
certificates directly or through one or more trusts, including
the Investor Certificates. The Company does not (and will not)
have any material assets other than receivables, seller
certificates, proceeds from receivables, notes payable by the
Parent and the equity contributed to it.
The Company will be managed by a board of directors
(the "Board") which will include at all times at least one
Independent Director. An Independent Director shall be an
individual who is not at such time, and shall not have been at
any time during the preceding five years (i) a director, officer,
employee or affiliate of the Parent or any of its subsidiaries or
affiliates, or (ii) the beneficial owner, at the time of such
individual's appointment as an Independent Director or at any
time thereafter while serving as an Independent Director, of five
percent (5%) or more of the outstanding common shares of the
Parent having general voting rights, except that a director who
otherwise meets the description of Independent Director above
shall not be disqualified from serving as an Independent Director
of the Company if he is also a director of another special
purpose corporation that is an affiliate of the Parent with a
certificate of incorporation substantially similar to the
certificate of incorporation of the Company. The prior unanimous
approval of the Board, including the Independent Director, is
required to institute bankruptcy or insolvency proceedings. In
addition, so long as any Investor Certificates are outstanding,
the Company may not, without the confirmation by Standard &
Poor's Ratings Services and Moody's Investors Service, Inc. that
such action will not result in a reduction in, or withdrawal of,
the rating of the outstanding Certificates by the Rating Agency:
(a) dissolve the Company, (b) incur indebtedness (other than
certain subordinated indebtedness to the Parent in connection
with the acquisition of the Receivables) or assume or guaranty
any indebtedness of any entity, or (c) amend certain provisions
of the Certificate of Incorporation including those designed to
ensure the bankruptcy remoteness of the Company. The Company
will have its own executive officers, some of whom may also be
officers of the Parent.
The Company will at all times ensure that: (a) the
Company's funds and other assets are not commingled with those of
the Parent or any other entity and that funds of the Company will
be clearly traceable at each step in the transaction, (b) the
Company's Board of Directors duly authorizes all of its corporate
actions, (c) the Company maintains separate corporate records and
books of account from those of the Parent, and (d) the Company
conducts its business at an office segregated from the offices of
the Parent, and the Company's Certificate of Incorporation will
at all times set forth the matters in (a), (c) and (d) above with
respect to the Company.
Each of the Company and the Parent conducts its
business solely in its own name so as not to mislead others as to
the identity of the company with which those others are
concerned. Without limiting the generality of the foregoing, all
oral and written communications, including, without limitation,
letters, invoices, purchase orders, contracts, statements and
applications, are made (i) solely in the name of the Company if
they relate to the Company and (ii) solely in the name of the
Parent if they relate to the Parent.
The Company and the Parent have separate telephone
numbers, mailing addresses, stationery and other business forms.
The Company's capitalization is adequate in light of
its business and purpose. The Company provides for its operating
expenses and liabilities from its own funds. Certain of the
organizational expenses of the Company, however, have been paid
by the Parent.
As required by its By-Laws, the Company keeps (a)
correct and complete books and records of account, and (b)
minutes of the meetings and other proceedings of its stockholder
and Board of Directors.
Where necessary, the Company obtains proper
authorization from its directors or stockholder, as appropriate,
for corporate action. The Company acts solely in its corporate
name and through its duly authorized officers or agents in the
conduct of its business.
The Parent does not and will not hold itself out or
permit itself to be held out as having agreed to pay or being
liable for the debts of the Company; the Company does not and
will not hold itself out or permit itself to be held out as
having agreed to pay or as being liable for the debts of the
Parent; the Company does maintain and will maintain an arm's
length relationship with the Parent; and the Company does not and
will not have decisions with respect to its daily business
controlled by the Parent.
B. Summary of the Transactions.
In connection with the issuance and sale of the
Investor Certificates, the Parent initially sold $779,898,063 in
face amount of the Receivables to the Company pursuant to the
Purchase Agreement and contributed an additional amount of
Receivables to the capital of the Company pursuant to the
Contribution Agreement. The Company concurrently transferred all
the Receivables to the Trustee in exchange for the Seller
Certificate and the proceeds from the sale of each Series of the
Investor Certificates. The Parent subsequently sold or
contributed as capital Receivables in Additional Accounts to the
Company pursuant to the Additional Assignment No. 1, dated as of
October 26, 1994, the Additional Assignment No. 2, dated as of
July 19, 1995, the Additional Assignment No. 3, dated as of
November 10, 1995, the Additional Assignment No. 4, dated as of
December 21, 1995, the Additional Assignment No. 5, dated as of
April 24, 1996, the Additional Assignment No. 6, dated as of
November 15, 1996, the Additional Assignment No. 7, dated as of
August 15, 1997, the Additional Assignment No. 8, dated as of
June 29, 1998, and the Warehouse Agreement, which were or will be
transferred to the Trust. The Company subsequently removed
certain receivables from the Trust pursuant to the Reassignment.
The Parent's or an affiliate's computer records have been or will
be electronically marked to indicate clearly the sale or
contribution of Receivables to the Company and the subsequent
transfers between the Company and the Trust. In addition,
Schedule 1 to the Pooling and Servicing Agreement has been or
will be amended to reflect the Additional Accounts and the
Removed Accounts.
The sale or other transfer and purchase of the
Receivables under the Transfer Documents is without recourse to
the Parent, unless such sale or other transfer is not properly
authorized or perfected, or any Receivables transferred thereby
do not comply with the eligibility requirements contained
therein. The Relevant Documents obligate the Parent to
repurchase such ineligible or improperly authorized or perfected
Receivables. We note that each of the Transfer Documents states
that the Parent intends that the transfer of the Receivables is,
and the Transfer Documents purport to effect, an absolute,
unconditional and irrevocable transfer that is treated as a sale
or other absolute assignment or transfer.
Receivables arising in the future under the Credit
Agreements will be sold by the Parent to the Company at fair
market value, to be paid by the Company in cash or in the form of
cancellation of indebtedness, or contributed by the Parent to the
Company as capital. The Company will also have the right to
purchase from the Parent, at fair market value, additional
Receivables arising under credit agreements other than the
initial Credit Agreements.
The Company will pay, dividend or lend (subsequent to
the transfer of the Receivables other than Add-ons into the
Trust) the proceeds from the sale of each Series of the Investor
Certificates to the Parent and will retain the Seller Certificate
for its own benefit. Collections on the Receivables will be
allocated to the Investor Certificateholders and the Company in
proportion to their respective Fractional Undivided Interests in
the Trust and distributed to the Trustee, the Servicer and the
Company to the extent, and as provided in the Pooling and
Servicing Agreement (including the Series Supplement).
The Parent will act as the Servicer for each Credit
Agreement pursuant to the Pooling and Servicing Agreement. The
Parent will collect on behalf of the Trust all amounts due under
the Receivables and enforce the Receivables. During each Due
Period, all amounts collected under the Credit Agreements will be
recorded as receipts by the Trust, but will be loaned to the
Parent pursuant to, and to the extent permitted by, the Pooling
and Servicing Agreement until the next Distribution Date. On the
next Distribution Date, the Parent, as the Servicer, will deposit
any Collections in respect of the related Due Period not
previously deposited in the Collections Account. The Parent, as
Servicer, shall apply all Collections received during each Due
Period as described in the Pooling and Servicing Agreement and
the applicable Series Supplement. On each Distribution Date, the
Servicer shall direct the Trustee in writing to withdraw all
Collections with respect to the related Due Period from the
Collection Account and to allocate such Collections to each Group
Collections Account according to the pro rata share represented
by the sum of the Investor Interests for all Series in the Group
related to each such Group Collections Account over the Aggregate
Investor Interest to the extent, and as provided in the Pooling
and Servicing Agreement.
In addition, we have assumed the following:
1. For accounting purposes, the transfer of the Receivables by
the Parent to the Company is recorded as a sale or other absolute
assignment.
2. Immediately prior to the irrevocable assignment, transfer
and conveyance of the Receivables to the Company, the Parent had
good title and was the sole and exclusive owner and holder of
such Receivables and had the full right and authority to transfer
and assign the same, free and clear of any adverse claims or
restrictions.
3. The Company is entering into the Transactions and
consummating the Transactions in reliance on the identity of the
Parent as a separate legal entity. The Parent is entering into
the Transactions and consummating the Transactions in reliance on
the identity of the Company as a separate legal entity.
4. Each of the Company and the Parent has consummated the
Transactions in good faith. The Relevant Documents and the other
agreements between the Company and the Parent reflect bona fide
transactions that are undertaken in good faith.
5. The Company and the Parent have not concealed and will not
conceal the Transactions from any creditor or other interested
party. The Company and the Parent have not removed or concealed,
and will not remove or conceal, from any creditor or other
interested party any assets of any other entity and have not
participated and will not participate in removing or concealing
the assets of any other entity. The Company did not and will not
consummate the Transactions with any intent to hinder, delay or
defraud any creditor of the Parent or the Company or any other
interested party. The Parent did not and will not consummate the
Transactions with any intent to hinder, delay or defraud any
creditor of the Company or the Parent or any other interested
party.
6. The Parent has engaged in business transactions with the
Company only on terms and conditions that it believes are at
arm's length and commercially reasonable. The Company has
engaged in business transactions with the Parent only on terms
and conditions that it believes are at arm's length and
commercially reasonable.
7. When the Parent effected any conveyance, transfer or
obligation to or for the benefit of the Company in respect of the
Transactions, the Parent received fair consideration and
reasonably equivalent value in exchange for such conveyance,
transfer or obligation. The Company received fair consideration
and reasonably equivalent value in exchange for any conveyance,
transfer or obligation to or for the benefit of the Parent in
respect of the Transactions.
8. The Parent was not insolvent at the time any conveyance or
transfer of the Receivables was made by it to the Company, and
the Parent was not rendered insolvent as a result thereof. The
Parent has not engaged in any business or transaction with the
Company after which the property remaining with the Parent was or
will be unreasonably small in relation to its business. At the
time of any transfer to or for the benefit of the Company, the
Parent did not intend to incur, and did not incur, debts that
were beyond the ability of the Parent to pay as they mature.
9. The Company was not insolvent at the time any conveyance or
transfer was made by it to or for the benefit of the Parent, and
the Company was not rendered insolvent as a result thereof. The
Company has not engaged in any business or transaction with the
Parent after which the property remaining with the Company was or
will be unreasonably small in relation to its business. At the
time of any transfer to or for the benefit of the Parent, the
Company did not intend to incur, and did not incur, debts that
were beyond the ability of the Company to pay as they mature.
10. Neither the Company nor the Parent is a debtor in a
proceeding under the Bankruptcy Code.
11. It is intended that the Company will take the economic risk
of the Receivables, including the credit risk of each Obligor and
such other risks otherwise associated with ownership of the
Receivables. The Company will have no recourse against the
Parent or any of the Parent's assets in respect of the
collectibility of the Receivables due to Obligor credit risk.
12. After the transfer thereof pursuant to the Relevant
Documents, the Relevant Documents will not provide for the
retention by the Parent of, and the Parent will claim no legal or
equitable interest in, the Receivables and, accordingly, the
Parent will have no right to collect any Collections for its own
account, and may do so solely in its capacity as Servicer. In
addition, the Parent will make no statement or reference in
respect of the Receivables that is inconsistent with the
ownership interest of the Company.
13. The Parent, as Servicer, will have control over, and will
take actions in respect of, the Receivables only to the extent
necessary to fulfill its obligations under the Pooling and
Servicing Agreement and those obligations are such as would
reasonably be required of a third-party independent contractor
charged with servicing, administering and collecting the
Receivables. As consideration for the performance of such
servicing obligations, the Parent will receive servicing fees
pursuant to the terms of the Pooling and Servicing Agreement.
The amount of the fees and expenses reflects an arm's length
servicing fee and is common for arrangements made for servicing,
administering and collecting securitized assets.
14. There is no agreement between the Company and the Parent
that supplements or otherwise modifies the agreements of the
Company and the Parent as expressed in the Relevant Documents.
C. Disclosure of the Transactions.
The Parent, prior to the issuance and sale of the
Investor Certificates, will disclose all material transactions
associated with the financing in appropriate public
announcements. The annual financial statements of the Parent and
the Company on a stand alone basis (to the extent distributed)
will disclose the effects of these transactions in accordance
with generally accepted accounting principles and such statements
will not reflect the assets of the Company as belonging to the
Parent. The resolutions, agreements and other instruments
underlying the subject transactions will be continuously
maintained and observed by the Parent and the Company as official
records.
The Prospectus indicates to purchasers of the Investor
Certificates that the Parent is not obligated to make any payment
with respect to the Investor Certificates and that the Investor
Certificates are intended to be paid solely from the assets of
the Trust. Recent issues by the Parent of long-term debt
securities received ratings of A- by Standard & Poor's Ratings
Services and A2 by Moody's Investors Service, Inc. On this
basis, we have no reason to believe that the Parent is insolvent
or will become insolvent in the near future.
III.
CONSOLIDATION OF ASSETS AND
LIABILITIES OF THE PARENT AND THE COMPANY
A. Opinion.
Based on the foregoing facts and the discussion set
forth below, and on a reasoned analysis of analogous case law
(although there is no precedent directly on point), it is our
opinion that a federal bankruptcy court, exercising reasonable
judgment after full consideration of all relevant circumstances,
in a properly presented and argued case in which the Parent were
a debtor under the Bankruptcy Code and in which a party-in-
interest made a timely objection to substantive consolidation,
would not disregard the separate existence of the Company so as
to order substantive consolidation of the assets and liabilities
of the Company with those of the Parent. Our opinion is subject
to the assumptions, limitations and qualifications set forth in
this opinion letter and made in reliance on the accuracy of, and
compliance with, the representations, warranties and covenants
set forth in the factual certificates and the Relevant Documents.
We note that a court's decision with respect to substantive
consolidation would be based upon its own analysis and
interpretation of the facts before it and that if a court reached
a conclusion different from ours such a determination would not
necessarily constitute reversible error.
B. Analysis.
By disregarding legal entities, creditors may seek the
merging of assets and liabilities of two or more entities, and
the disregard of all inter-entity claims. Although such relief
is not specifically set forth in the Bankruptcy Code, courts may
order consolidation of assets and liabilities by virtue of their
general equitable powers. Auto-Train Corp. v. Midland-Ross Corp.
(In re Auto-Train Corp.), 810 F.2d 270, 276 (D.C. Cir. 1987);
Stone v. Eacho (In re Tip Top Tailors, Inc.), 127 F.2d 284, 289
(4th Cir.), cert. denied, 317 U.S. 635 (1942). The purpose of
such consolidation is fairness to creditors and other parties in
interest. Stone v. Eacho, 127 F.2d at 289. But unequal
treatment alone does not warrant disregard of corporate entities;
on the contrary, as noted by Judge Friendly of the Second Circuit
Court of Appeals, "[e]quality among creditors who have lawfully
bargained for different treatment is not equity but its
opposite." Chemical Bank N.Y. Trust Co. v. Kheel (In re Seatrade
Corp.), 369 F.2d 845, 848 (2d Cir. 1966) (Friendly, J.,
concurring).
Such relief under the Bankruptcy Code and its
predecessor, the Bankruptcy Act of 1898, is often referred to as
"substantive consolidation." Substantive consolidation may be
ordered with respect to assets and liabilities of two related
entities each of which is the subject of a proceeding under the
Bankruptcy Code; it may also be ordered between related entities
where one entity is the subject of a proceeding under the
Bankruptcy Code and the other is not. Similar relief is granted
under applicable non-bankruptcy law using a variety of terms,
most notably "piercing the corporate veil," the "instrumentality"
rule, and the "alter ego" rule. See, e.g., In re 1438 Meridian
Place, N.W., Inc., 15 B.R. 89, 96-97 (Bankr. D.D.C. 1981) (where
the court found that piercing the corporate veil of various
entities and consolidating their estates was proper because it
was impossible for the court or the creditors to separate the
financial affairs of the various entities involved and to
continue to respect the corporate entity would work a clear and
manifest injustice to creditors).
There is some confusion as to the differences, if any,
between the requirements for "substantive consolidation" under
the Bankruptcy Code and the other theories, and there may be a
tendency to reduce the analysis of each case to a counting of
particular "factors" or "elements," e.g., commingling of funds
and overlapping management. However, the decisions express
attempts to apply broad principles of "fairness" or "justice"
inherent in equity that are common to all jurisdictions, based
upon the facts unique to the case, rather than technical
applications of prescribed formulae. See, e.g., Commerce Trust
Co. v. Woodbury, 77 F.2d 478, 487 (8th Cir. 1935) ("[N]either
ownership of all of the stock of one corporation by another, nor
the identity of officers in one with officers in another, creates
a merger of the two corporations into a single entity, or makes
one either the principal or agent of the other . . . . [T]he
courts will ignore the fiction of corporate entity only with
caution, and when circumstances justify it, and when it is used
as a subterfuge to defeat public convenience, justify wrong, or
perpetuate a fraud."), cert. denied, 296 U.S. 614 (1935); accord,
DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d
681, 684 (4th Cir. 1976) (quoting Swanson v. Levy, 509 F.2d 859,
861-62 (9th Cir. 1975) ("The circumstances which have been
considered significant by the courts in actions to disregard the
corporate fiction have been rarely articulated with any clarity.
`Perhaps this is true because the circumstances necessarily vary
according to the circumstances of each case,' and every case
where the issue is raised is to be regarded as `sui generis [to]
. . . be decided in accordance with its own underlying
facts.'")); Federal Deposit Ins. Corp. v. Hogan (In re Gulfco
Inv. Corp.), 593 F.2d 921, 927 (10th Cir. 1979) ("[T]he awareness
by the creditor of the existence of related corporations [is not]
sufficient to destroy the creditor's security absent
circumstances like fraud.").
With respect to substantive consolidation of the assets
and liabilities of two related entities in the bankruptcy
context, although there are no definitive rules as to when
substantive consolidation will be ordered, we believe that the
fundamental questions which arise from a synthesis of the case
law discussed below are as follows:
1. Did creditors of the first entity reasonably rely
on the availability of assets of the second entity to pay
their obligations?
2. Should creditors of the second entity have
reasonably believed that the second entity's assets would be
available to pay obligations of the first?
3. Are the assets and liabilities of both entities so
hopelessly entangled that separation is impracticable in any
event?
The first question addresses the harm or unfairness
that a court of equity is empowered to correct. The second
question assures that a "balancing of the equities" will occur,
i.e., that injury to one set of innocent parties will not be
corrected by transferring the injury in full to other innocent
parties. The third question raises an administrative issue
discussed below.
The relevance and importance of particular facts should
be measured by their relation to these questions. If none of
these questions can be answered in the affirmative, a court
should not disregard the separate legal forms. If the answer to
all of the questions is affirmative, a court should disregard the
separate legal forms. If the answer to one or two of these
questions is affirmative, the result is uncertain. Both case law
and policy considerations indicate that a court should primarily
base its determination on whether or not consolidation would be
equitable to the respective creditors of the entities for which
consolidation is sought.
The seminal substantive consolidation case is Stone v.
Eacho (In re Tip Top Tailors, Inc.), 127 F.2d 284 (4th Cir.),
cert. denied, 317 U.S. 635 (1942), which involved a Delaware
parent corporation and its Virginia subsidiary, both in the
retail clothing business. Although the respective assets and
liabilities of both entities were administratively severable, the
question arose as to how to treat an obligation from the
subsidiary to the parent. This obligation was in an amount over
three times the value of the subsidiary's total remaining
obligations.
The court saw two possibilities for distributions to
creditors under then existing remedies: (i) if all debts,
including the inter-entity obligation, were held valid, the
Delaware creditors would receive more pro rata than the Virginia
creditors, and (ii) if the inter-entity obligation alone was
subordinated, the Virginia creditors would receive more pro rata
than the Delaware creditors.
The court believed that both these alternatives were
unfair, where no creditor had relied upon the separateness of the
Virginia corporation, and where the subsidiary "in reality [had]
no separate existence." Stone v. Eacho, 127 F.2d at 288. The
court noted that the Virginia corporation had no separate
officers or corporate activities, inadequate capitalization, and
a business relation to the parent identical to that of the other
affiliated stores, "as to which there was no pretense of separate
incorporation." Id. at 286.
The court then chose a third remedy: merger of all
assets and liabilities of both corporations, and disregard of the
inter-entity obligation. All creditors of both corporations
could thereby share equally. In effect, the court answered the
first two questions addressed above affirmatively, and ordered
substantive consolidation.
In more recent cases, courts have articulated the
substantive consolidation test in various but similar ways. The
District of Columbia Circuit, in In re Auto-Train Corp.,
following the earlier analysis contained in In re Snider Bros.,
18 B.R. 230 (Bankr. D. Mass. 1982), described the inquiry as
follows:
Before ordering consolidation, a court must
conduct a searching inquiry to ensure that
consolidation yields benefits offsetting the
harm it inflicts on objecting parties. The
proponent must show not only a substantial
identity between the entities to be
consolidated, but also that consolidation is
necessary to avoid some harm or realize some
benefit. At this point, a creditor may
object on the grounds that it relied on the
separate credit of one of the entities and
that it will be prejudiced by the
consolidation. If a creditor makes such a
showing, the court may order consolidation
only if it determines that the demonstrated
benefits of consolidation "heavily" outweigh
the harm.
810 F.2d at 276 (citations omitted); Reider v. Federal Deposit
Ins. Corp. (In re Reider), 31 F.3d 1102, 1108 (11th Cir. 1994);
Eastgroup Properties v. Southern Motel Assoc., Ltd., 935 F.2d
245, 249 (11th Cir. 1991).
The Second Circuit set forth a related formulation in
In re Augie/Restivo Baking Co., 860 F.2d 515 (2d Cir. 1988). The
court stated that the substantive consolidation issue turns upon:
two critical factors: (i) whether creditors
dealt with the entities as a single economic
unit and "did not rely on their separate
identity in extending credit;" . . . or
(ii) whether the affairs of the debtors are
so entangled that consolidation will benefit
all creditors.
Id. at 518 (citations omitted).
A vast majority of recent decisions concerning
substantive consolidation have adopted, implicitly or explicitly,
a version of the balancing test set forth in In re Snider Bros.,
In re Auto-Train and In re Augie/Restivo. See, e.g., In re
Reider, 31 F.3d 1102; In re Standard Brands Paint Co., 154 B.R.
563 (Bankr. C.D. Cal. 1993); Saccurato v. Shawmut Bank, N.A. (In
re Mars Stores, Inc.), 150 B.R. 869 (Bankr. D. Mass. 1993); In re
Drexel Burnham Lambert Group, Inc., 138 B.R. 723 (Bankr. S.D.N.Y.
1992); In re Orfa Corp. of Philadelphia, 129 B.R. 404 (Bankr.
E.D. Pa. 1991); Holywell Corp. v. Bank of New York, 59 B.R. 340,
347 (S.D. Fla. 1986), appeal dismissed, 820 F.2d 376 (11th Cir.
1987), cert. denied, 488 U.S. 823 (1988); In re Steury, 94 B.R.
553, 554 (Bankr. N.D. Ind. 1988); In re Baker & Getty Fin.
Servs., Inc., 78 B.R. 139, 143 (Bankr. N.D. Ohio 1987); In re DRW
Property Co. 82, 54 B.R. 489, 495 (Bankr. N.D. Tex. 1985); In re
Silver Falls Petroleum Corp., 55 B.R. 495, 498 (Bankr. S.D. Ohio
1985); In re Helms, 48 B.R. 714, 717 (Bankr. D. Conn. 1985); In
re Donut Queen, Ltd., 41 B.R. 706, 709 (Bankr. E.D.N.Y. 1984); In
re N.S. Garrott & Sons, 48 B.R. 13, 18 (Bankr. E.D. Ark. 1984);
In re Luth, 28 B.R. 564, 567 (Bankr. D. Idaho 1983); In re F.A.
Potts & Co., 23 B.R. 569, 572 (Bankr. E.D. Pa. 1982); In re
Lewellyn, 26 B.R. 246, 251 (Bankr. S.D. Iowa 1982). For example,
in In re Giller, 962 F.2d 796 (8th Cir. 1992), the court
suggested a three factor test composed of (1) necessity of
consolidation due to interrelationships among the debtors,
(2) whether the benefits of consolidation outweigh the harm to
creditors and (3) prejudice resulting from not consolidating the
debtors.
While there are minor differences among courts in the
wording of the pertinent test, application of the foregoing
principles typically involves a focus upon the reliance or non-
reliance of the creditors seeking consolidation upon the credit
and assets of the consolidated entities, and upon the reliance or
non-reliance of creditors resisting consolidation upon the credit
and assets of one of the subject entities.
Applying the principles set forth above, the Second
Circuit reversed a bankruptcy court's order to consolidate a
parent corporation with its wholly owned subsidiary in In re
Augie/Restivo, 860 F.2d at 519. In reversing the order, the
Second Circuit emphasized that the subsidiary's creditors had
relied on the separateness of the subsidiary. In that case,
Augie's and Restivo had been two unrelated corporations before
all of Augie's stock was acquired by Restivo. Prior to the
acquisition, Union Savings Bank ("Union") had loaned money to
Augie's and such loan was secured by real and personal property
owned by Augie's. After the acquisition, the parent changed its
name to Augie/Restivo and the two companies ceased to function as
separate enterprises: all their activities were integrated into
a single operation. The two companies maintained a single set of
books and their financial statements were issued under the name
of the parent.
Manufacturers Hanover Trust Company ("MHTC") was a
secured creditor of the parent corporation, Restivo, prior to the
acquisition. After the acquisition, MHTC made a loan to the
parent secured by the accounts receivable, inventory, fixtures
and equipment of the parent. MHTC also obtained a guarantee of
the debt from Augie's secured by a mortgage on the real property
owned in the name of Augie's and subordinated to the mortgage
previously granted to Union.
Augie/Restivo and Augie's were subsequently forced into
bankruptcy, and Augie's and Augie/Restivo sought substantive
consolidation. MHTC supported consolidation, contending that the
two debtors had been operated as a single enterprise since the
date of the acquisition. Creditors that had loaned money to
Augie's before the acquisition, including Union, opposed the
consolidation on the grounds that Augie's was a solvent
corporation when they made loans to it and that they had never
relied on the credit of Augie/Restivo.
On appeal, the Second Circuit reversed the bankruptcy
court's consolidation order. Focusing on "the dangers in forcing
creditors of one debtor to share on a parity with creditors of a
less solvent debtor," the Second Circuit addressed the "two
critical factors" described above. Id. at 518. With respect to
the first factor, the court stated that:
creditors who make loans on the basis of the
financial status of a separate entity expect
to be able to look to the assets of their
particular borrower for satisfaction of that
loan. Such lenders . . . do not anticipate
. . . having the creditors of a less sound
debtor compete for the borrower's assets.
Such expectations create significant
equities. Moreover, lenders' expectations
are central to the calculation of interest
rates and other terms of loans, and
fulfilling those expectations is therefore
important to the efficiency of credit
markets. Such efficiency will be undermined
by imposing substantive consolidation in
circumstances in which creditors believed
they were dealing with separate entities.
Id. at 518-19.
The Second Circuit reasoned that Union had necessarily
relied on Augie's separateness when loaning money to Augie's
because Union's loan was made prior to the acquisition. The
court also noted that MHTC must have been operating on the
assumption that it was dealing with separate entities because
MHTC sought and received a subordinated guarantee from Augie's to
secure MHTC's loan to Augie/Restivo. The Second Circuit also
concluded that "the fact that the trade creditors may have
believed that they were dealing with a single entity does not
justify consolidation." Id. at 519.
With respect to the second factor, the Second Circuit
noted that commingling can justify substantive consolidation only
where "the time and expense necessary even to attempt to
unscramble them [is] so substantial as to threaten the
realization of any net assets for all the creditors." Id.
(quoting Chemical Bank New York Trust Co. v. Kheel (In re
Seatrade Corp.), 369 F.2d 845, 847 (2d Cir. 1966)). Despite some
evidence of commingling, the In re Augie/Restivo court held that:
evidence of commingling of assets and
business functions in the instant case in no
way approaches the level of "hopeless[]
obscur[ity]" of "interrelationships of the
group" found necessary to warrant
consolidation in Kheel, 369 F.2d at 847.
Business functions may have been commingled,
but that hardly weighs in favor of
consolidation in the instant case because the
principal beneficiary of consolidation, MHTC,
was not deceived and fully realized it was
dealing with separate corporate entities. So
far as the commingling of assets is
concerned, Augie's real property and
equipment appear to be traceable. The record
also indicates that each company's inventory,
liabilities and receivables as of January 1,
1985 are identifiable. It also appears that
records exist of all transactions subsequent
to that date.
Id.
Under these circumstances, the court concluded that
corporations should not be consolidated when creditors knowingly
made loans to separate entities and no irremediable commingling
of assets has occurred. Cf. Eastgroup Properties, 935 F.2d at
245 (Eleventh Circuit affirming an order of substantive
consolidation where there was substantial identity between the
entities consolidated which caused confusion among creditors and
resulted in creditors relying on the combined credit of both
entities).
Similarly, in Flora Mir Candy Corp. v. R.S. Dickson &
Co. (In re Flora Mir Candy Corp.), 432 F.2d 1060 (2d Cir. 1970),
the debtor moved for substantive consolidation based on "the
multitude of intercompany transactions, many without apparent
business purpose, and the difficulty of disentangling them." Id.
at 1061. Judge Friendly spoke for a unanimous court affirming
the lower court's reversal of an order by a referee in bankruptcy
granting the motion to consolidate, reasoning as follows. First,
the subsidiary's creditors had plainly relied solely on the
subsidiary's credit. (As in In re Augie/Restivo, the subsidiary
had been acquired by the parent only after the extensions of
credit.) Second, substantive consolidation would eliminate any
claim of the subsidiary against the parent for misappropriation
of assets (which claim would benefit the subsidiary's creditors
at the expense of those of the parent). Third, the parent's
creditors "had not the slightest legitimate interest" in certain
assets of the subsidiary, namely, claims against a third party.
Id. at 1063. Finally, "[w]hatever problems there might be with
respect to intercompany accounts among other debtors, those with
respect to [the subsidiary] were few. . . ." Id.
The importance of these central questions of reliance
or non-reliance on separate credit and assets is illustrated by
Brunswick Corp. v. Waxman, 599 F.2d 34, 35 (2d Cir. 1979), in
which the vendor of bowling equipment under conditional sales
contracts sought to hold the shareholders of the buyer liable on
the contracts. The buyer was a "no-asset New York corporation
[formed] to act as signatory and obligor" under the agreements.
The buyer paid no rent to the shareholders for the use of its
premises, "held no shareholders' or directors' meetings, adopted
no bylaws, and issued no stock." Nevertheless, ruling under New
York law, the court held the shareholders not liable, reasoning
that the creditor, having been on notice that it was dealing with
a shell corporation, had obtained precisely what it had bargained
for, and therefore, it would have been inequitable to hold the
shareholders liable under such circumstances.
The absence of harm from substantive consolidation to
creditors of the debtor or of any of the debtor's affiliates was
also addressed in In re Vecco Constr. Indus., Inc., 4 B.R. 407
(Bankr. E.D. Va. 1980). The debtor and its four corporate
subsidiaries were engaged in the concrete construction business.
After the debtor filed for relief under the Bankruptcy Code, the
subsidiaries filed individual petitions urging the court to
approve their application for consolidation on the ground that
consolidation was necessary in order "to ensure the development
and implementation of a meaningful Plan of Arrangement." Id. at
409. The court found that consolidation was justified. "[T]he
five companies were operated substantively as a single business
entity without regard to the formal legal requirements of the
subsidiaries as separate and independent corporations." Id. at
412. More importantly, the court found no harm to creditors from
consolidation. The debtor claimed to be unaware of any creditor
who would be prejudiced by consolidation. In addition, no
creditor voiced an objection to the consolidation at a hearing on
the matter. See also In re Standard Brands Paint Co., 154 B.R.
563, 572-73 (Bankr. C.D. Cal. 1993) (court ordered substantive
consolidation of a parent corporation and its five subsidiaries
and found no harm to any creditor from consolidation because such
entities held themselves out as a single consolidated unit with
consolidated financial reporting); Saccurato v. Shawmut Bank,
N.A. (In re Mars Stores, Inc.), 150 B.R. 869, 885 (Bankr. D.
Mass. 1993) (court ordered substantive consolidation of a parent
and its subsidiaries that collectively reported their assets and
liabilities in public documents and filings on a consolidated
basis, without differentiation as to the actual ownership
thereof).
In In re Buckhead America Corp., No. 91-978 (Bankr. D.
Del. Aug. 15, 1992), the bankruptcy court, subject to certain
qualifications, entered an order (the "Days Inn Order") granting
the application of eight debtors for substantive consolidation of
their estates upon the effectiveness of the debtors' joint plan
of reorganization. One of the applicants was a special purpose
vehicle ("SPV") of the principal debtor. Prior to bankruptcy,
the SPV had purchased the franchise fee receivables and certain
other assets of the principal debtor in connection with a
securitization transaction. For the following reasons, among
others, In re Buckhead America Corp. does not, in our view,
affect the opinion we express herein:
First, in the Days Inn Order, the bankruptcy court made
several factual findings consistent with substantive
consolidation under the standards described above, but contrary
to the transactions and corporate procedures described herein
(which we have assumed for purposes of this opinion). For
example, the court cited to the commingling of bank accounts, the
payment of all of the debtors' expenses from one joint account,
and the reliance by creditors on the joint credit of the
consolidated debtors. In addition, the court found that the
separation of the entangled interrelationships among the debtors
would cause undue cost, delay and expense.
Second, none of the holders of the asset-backed
securities issued by the SPV opposed the substantive
consolidation. Rather, such holders received payment in full of
the agreed value of their claims (approximately 95% of the
maximum amount owing under such securities) at the time of the
asset sale of certain debtors. Such sale and payment occurred
before the filing of the substantive consolidation application.
Third, the two objecting creditors settled their claims
against the debtors and withdrew their respective objections to
the application for substantive consolidation, resulting in an
uncontested application. Moreover, the Days Inn Order
specifically provided that, if such settlements were not
consummated, nothing contained in the order, "including any
findings of fact or conclusions of the law to the contrary, shall
be deemed to prejudice the rights of [the objecting parties] to
proceed against the assets of the Debtors' estates as if such
consolidation had not taken place or the Debtors' rights to
defend in any such litigation." Days Inn Order at 4-5.
Finally, although the In re Buckhead America Corp.
decision does not cite any case law, consistent with the In re
Auto-Train and Eastgroup Properties decisions, the court
indicated that the benefit of consolidation outweighed
"dramatically" the "minimal prejudice" of consolidation.
Moreover, a proponent of substantive consolidation in In re
Buckhead America Corp. argued that the court should follow the In
re Auto-Train and Eastgroup Properties decisions.
Accordingly, we believe that, even under the In re Auto-
Train standard, the facts in the instant case may be
distinguished from those in In re Buckhead America Corp.
The difficulty of untangling the respective assets and
liabilities of related entities has proved a decisive factor to
some courts. In re Drexel Burnham Lambert Group, Inc., 138 B.R.
723 (Bankr. S.D.N.Y. 1992), for example, concerned a proposed
substantive consolidation of multiple related entities comprising
the Drexel Burnham Lambert investment firm. The court, applying
the Second Circuit's In re Augie/Restivo test, stated:
In considering the benefit to creditors that
would result from substantive consolidation,
Courts have focused on potential savings in
costs and time by eliminating the need to
disentangle the records and accounts of the
debtors. The elimination of duplicate claims
and the need to adjudicate the question of
which debtor is liable have also been
considered.
Id. at 765 (citing Chemical Bank New York Trust Co. v. Kheel (In
re Seatrade Corp.), 369 F.2d 845, 847 (2d Cir. 1966)).
With respect to the facts of the particular case, the
Drexel court ordered substantive consolidation, holding:
The Debtors were operated as a single
enterprise. The myriad of issues that exist
between and among the several Debtors . . .
are resolved by the substantive
consolidations. . . . For example,
substantial Claims . . . were filed against
the Debtors jointly and severally.
Establishing to whom actual liability, if
any, should be allocated would be a herculean
task consuming years of costly professional
services. . . . The reorganization effort
will be obstructed perhaps irreparably . . .
by an effort to tease apart pieces of an
integrated whole.
Id. at 766. In reaching its conclusions, the court relied upon
the following relationships:
With only few and identifiable exceptions the
[Drexel companies] shared overhead,
management, accounting and related
expenses. . . . There were numerous and well
known intercompany guarantees. . . . [One
Drexel company] employed and paid virtually
all employees who performed services for the
Debtors. Many of the Debtors did not publish
unconsolidated financial statements. [One
Drexel company] owned all of the capital
stock of all of the other Debtors. Many of
the [Drexel companies] had officers and/or
directors in common. [One Drexel company]
financed the activities of virtually all of
the Debtors on an intercompany basis. [One
Drexel company] determined the persons who
served as directors of virtually all of the
[Debtors]. [Many of the Debtors] had
substantially no business other than business
with or related to [Drexel]. . . . The
[Drexel companies] represented, among other
things, various lines of business for "Drexel
Burnham Lambert" and were held out to the
public as such. The directors of those
companies took direction from and acted in
the interests of the "Drexel Burnham Lambert"
enterprise and all of the companies conducted
their affairs from the same business
locations.
Id.
As noted earlier, the court in Chemical Bank New York
Trust Co. v. Kheel (In re Seatrade Corp.), 369 F.2d 845, 846-47
(2d Cir. 1966), ordered substantive consolidation on the basis
that "little or no attention [was] paid to the formalities
usually observed in independent corporations," officers "acted as
figureheads" for the controlling person, and finances were so
intermingled that no accurate accounting could ever be completed.
The court held:
[I]n the rare case such as this, where the
interrelationships of the group are
hopelessly obscured and the time and expense
necessary even to attempt to unscramble them
is so substantial as to threaten the
realization of any net assets for all the
creditors, equity is not helpless to reach a
rough approximation of justice to some rather
than deny any to all.
Id. at 847.
The concurring opinion of Judge Friendly in Kheel has
particular significance to the second question raised above: harm
to creditors of the entity sought to be consolidated. He
reminded the majority that in Stone v. Eacho, no creditor relied
upon the asserted distinctness of the entities, and further,
citing Commerce Trust Co. v. Woodbury, "a court of equity will
protect the rights of a creditor who relied on the credit of a
subsidiary although the subsidiary was `[merely] an agency or
department of the [parent].'" 369 F.2d at 848 (Friendly, J.,
concurring) (emphasis added). Judge Friendly then joined the
majority "on the ground of insufficient proof by [the interested
parties] that [they] relied on the separate credit of [one
entity]." Id.; see also In re Reider, 31 F.3d at 1110 (denying
substantive consolidation in part because the creditor seeking
the consolidation could not point to an asset "which [could] be
readily identified with the proper estate").
Courts may also favor substantive consolidation where
at least one of the corporations is a mere shell. Thus, in
Hamilton Ridge Lumber Sales Corp. v. Wilson, 25 F.2d 592 (4th
Cir. 1928), a financially troubled lumber corporation attempted
to refinance its debts through a plan that included organization
of a finance subsidiary. The parent purported to sell a large
quantity of lumber to the subsidiary, which paid with its notes.
The parent then transferred the notes to its principal creditor,
a bank, in satisfaction of the parent's debts to the bank. The
subsidiary never engaged in business, apart from this
transaction, and the parent continued to exercise control over
purportedly transferred lumber as if such transfer had not
occurred. Upon the parent's bankruptcy, its trustee successfully
moved for consolidation of assets of the subsidiary, even though
the subsidiary was apparently not itself a debtor. In ordering
consolidation, the court noted,
[T]he [subsidiary] had no real business
existence, had in fact no organization by
which it could transact business, and in
matters of this kind the courts will look
through the apparent structure to the real
thing behind it.
Id. at 594.
A better reasoned view appears in Anaconda Bldg.
Materials Co. v. Newland, 336 F.2d 625 (9th Cir. 1964), in which
the court affirmed an order of the district court that certain
trade creditors of a parent building company would not be
permitted to satisfy their claims by resort to the assets of four
finance subsidiaries which had been organized by the parent to
sell debentures secured by mortgages transferred to those
subsidiaries by the parent. The court upheld the district
court's findings of fact:
that the subsidiaries were operated as
separate entities, that on balance the parent
corporation was the beneficiary of the
corporate inter-relationship, that the
objecting creditors did not rely upon the
credit of the subsidiaries and were benefited
rather than prejudiced by the way in which
the subsidiaries were operated, that there
was no fraud or overreaching attributable to
the [subsidiaries] or debenture holders
detrimental to the objecting creditors, and
that there was no unjust enrichment of
debenture holders.
Id. at 628 (emphasis added). Noting that the only matters in the
findings and the record favorable to the consolidation argument
advanced by the creditors of the parent were the existence of
common officers and directors of the parent and the subsidiaries,
and assertions that the subsidiaries commenced business with
minimal capitalization and were dominated and mismanaged by the
controlling officer, who obtained credit for the parent on the
basis of fraudulent representations not attributable or of
benefit to the subsidiaries, the court concluded:
Circumstances of this kind, considered
separately or together, are insufficient to
warrant dilution of the assets of an
insolvent subsidiary corporation for the
benefit of the creditors of the parent
corporation and to the detriment of the
blameless creditors of the subsidiary.
Id. at 629.
In evaluating substantive consolidation issues
(particularly where the reliance issues are not as clear as in In
re Augie/Restivo or In re Flora Mir), courts often make reference
to lists of specific "factors" or "elements" relating to the pre-
petition conduct of business by the debtor and its related
entities. In older cases, such "checklist" review of enumerated
substantive consolidation "elements" or "factors" at times
appeared virtually dispositive. For example, the widely-cited
case of Fish v. East, 114 F.2d 177 (10th Cir. 1940) listed the
following "elements" of substantive consolidation:
1. Parent corporation owns all or a majority of the
capital stock of the subsidiary;
2. Parent and subsidiary have common officers and
directors;
3. Parent finances subsidiary;
4. Parent is responsible for incorporation of subsidiary;
5. Subsidiary has grossly inadequate capital;
6. Parent pays salaries, expenses or losses of subsidiary;
7. Subsidiary has substantially no business except with
parent;
8. Subsidiary has essentially no assets except for those
conveyed by parent;
9. Parent refers to subsidiary as department or division
of parent;
10. Directors or officers of subsidiary do not act in
interests of subsidiary, but take directions from parent; and
11. Formal legal requirements of the subsidiary as a
separate and independent corporation are not maintained.
Accord In re Tureaud, 45 B.R. 658, 662 (Bankr. N.D. Okla. 1985),
aff'd, 59 B.R. 973 (Bankr. N.D. Okla. 1986); In re Gulfco Inv.
Corp., 593 F.2d 921 (10th Cir. 1979); see also In re Vecco
Constr. Indus., Inc., 4 B.R. 407 (Bankr. E.D. Va. 1980) (listing
seven such "elements").
However, more recent cases have emphasized that these
so-called elements or factors are merely facts to be considered
in performing the balancing test described above. As stated in
In re Snider Bros.:
While several courts have recently attempted
to delineate what might be called "the
elements of consolidation" [citing In re
Vecco], I find that the only real criterion
is that which I have referred to, namely the
economic prejudice of continued debtor
separateness versus the economic prejudice of
consolidation. There is no one set of
elements, which, if established, will mandate
consolidation in every instance. Moreover,
the fact that corporate formalities may have
been ignored, or that different debtors are
associated in business in some way, does not
by itself lead inevitably to the conclusion
that it would be equitable to merge otherwise
separate estates.
In re Snider Bros., 18 B.R. at 234 (emphasis added) (citations
omitted).
The de-emphasis of the "checklist" form of substantive
consolidation analysis is also evident in Eastgroup Properties.
In this 1991 case, the Eleventh Circuit cited twelve specific
"factors" which bear significantly upon the substantive
consolidation issue:
1. The presence or absence of consolidated financial
statements.
2. The unity of interests and ownership between the various
corporate entities.
3. The existence of parent and inter-corporate guarantees on
loans.
4. The degree of difficulty in segregating and ascertaining
individual assets and liabilities.
5. The existence of transfers of assets without formal
observance of corporate formalities.
6. The commingling of assets and business functions.
7. The profitability of consolidation at a single physical
location.
8. Parent owning majority of subsidiary's stock.
9. Entities having common officers or directors.
10. Subsidiary being grossly undercapitalized.
11. Subsidiary transacting business solely with the parent.
12. Both entities disregarding the legal requirements of the
subsidiary as a separate organization.
Id. at 249-50 (citing In re Vecco, 4 B.R. at 410, and Pension
Benefit Guar. Corp. v. Ouimet Corp., 711 F.2d 1085, 1093 (1st
Cir.), cert. denied, 464 U.S. 961 (1983)). However, the
Eastgroup Properties court went on to say:
We stress . . . that we mention the specific
factors set out in Vecco, Ouimet and
elsewhere only as examples of information
that may be useful to courts charged with
deciding whether there is a substantial
identity between the entities to be
consolidated and whether consolidation is
necessary to avoid some harm or to realize
some benefit. No single factor is likely to
be determinative in the court's inquiry.
Id. at 250.
Thus, while the substantive consolidation "factors" or
"elements" enumerated in cases such as Fish and In re Vecco
remain relevant to the merits of substantive consolidation, they
have not been viewed in more recent decisions as the endpoint of
the analysis. The reluctance to rely exclusively upon the
enumerated "factors" may stem in part from the fact that many of
such factors are present in most bankruptcy cases involving
parents and subsidiaries. For example, stock ownership,
inter-affiliate transfers, incorporation caused by the parent,
common directors, officers or partners, the existence of
inter-entity claims, and consolidated financial statements or tax
returns are all typical of most affiliated entities.
Accordingly, such factors should be afforded less weight than the
remaining ones in a court's determination of whether substantive
consolidation is appropriate. The recent cases indicate that in
the final analysis courts considering an order of substantive
consolidation with respect to related entities should focus upon
the three fundamental questions described above: namely, the
reliance or non-reliance of creditors upon the assets of the
combined entity, the reliance or non-reliance of creditors upon
the separate credit of one of the entities, and the degree of
administrative difficulty in separating the assets, liabilities
and accounts of the entities.
Analyzing these three fundamental questions and based
on the foregoing facts and reasoned analysis of analogous case
law, while there is no case directly on point and courts have
accorded different degrees of importance to the factual
circumstances before them in determining whether to exercise
their equitable power to order substantive consolidation, and
while it is therefore not possible to predict with certainty what
a court would hold in any particular case, we opine that, for the
reasons set forth below, a federal bankruptcy court, exercising
reasonable judgment after full consideration of all relevant
circumstances, in a properly presented case in which the Parent
were a debtor under the Bankruptcy Code and in which a party-in-
interest made a timely objection to substantive consolidation,
would not disregard the separate legal existence of the Company
so as to order substantive consolidation of the assets and
liabilities of the Company with those of the Parent. Our opinion
is subject to the assumptions, limitations and qualifications set
forth in this opinion letter and made in reliance on the accuracy
of, and compliance with, the representations, warranties and
covenants set forth in the factual certificates and the Relevant
Documents.
First, we assume that the Company is and will be held
out to be a separate legal entity, and its assets are and will be
held out to be unavailable to the creditors of the Parent and
other entities. We are advised and assume that all corporate
formalities will be maintained. The Company's bylaws require
that all corporate formalities will be maintained. Further,
information respecting the organization of the Company as a
separate entity will be provided to all purchasers of the
Investor Certificates through the Prospectus and will be
available to creditors of the Parent. Therefore, we assume that
creditors will not be misled as to the nature or purpose of the
Company and will have no reasonable cause to believe that the
Company is other than a separately organized and separately
functioning corporate entity or that its assets are available to
satisfy any liabilities of the Parent, or that the assets of the
Parent are available to satisfy the liabilities of the Company.
Second, the creditors of the Company should not
reasonably believe that the Company's assets should be available
to pay the debts of the Parent, based on the assumptions and for
the reasons given above. In particular, both Flora Mir, and
Commerce Trust Co., are authority that domination by a parent
will not cause merger of the subsidiary's assets for the benefit
of the parent's creditors, when such creditors did not rely on
the assets of the subsidiary, and when the creditors of the
subsidiary did rely on the subsidiary's corporate distinctness.
Third, we assume and are advised that the Company's
assets will remain identifiably separate from those of all other
entities. Accordingly, we assume that there will be no
administrative difficulty in separating the assets, liabilities
and accounts of the Company and the Parent. Kheel is authority
that commingling can justify substantive consolidation only where
"the time and expense necessary even to attempt to unscramble
them is so substantial as to threaten the realization of any net
assets for all the creditors." 369 F.2d at 847. Accordingly, a
"rough approximation of justice" need not replace a difference in
treatment for which the Company and the Holders of the Investor
Certificates will have lawfully bargained.
In addition, the absence of the more egregious
"elements" discussed above (other than those present in most
instances involving affiliated entities as indicated in the
discussion) which would support a finding that the Company is an
alter ego or instrumentality of the Parent favors denial of
substantive consolidation. Specifically, we are advised and
assume that: (1) the Company has adequate capital for its
intended purposes, (2) the Company will provide for its expenses
on an ongoing basis, and such expenses will not be routinely paid
by the Parent, nor will any losses of the Company be paid by the
Parent, (3) by virtue of the transactions contemplated by the
Relevant Documents, the Company will be engaged in meaningful
business activities with third parties other than the Parent, (4)
the Company will have at least one independent director; (5) the
directors of the Company are expected to act in the interests of
the Company, and are not expected to act contrary to those
interests at the direction of the Parent, (6) as indicated above,
all formal legal requirements relating to the Company will be
strictly observed, (7) as indicated above, there should be no
difficulty in segregating and ascertaining the respective assets
and liabilities of the Company and the Parent, (8) while the
Company will be included in the Parent's consolidated financial
statements, such statements will not affirmatively suggest that
the assets of the Company belong to the Parent, (9) there will be
no guarantees made by the Parent with respect to obligations of
the Company, and (10) there will be no transfers of assets
without formal observance of corporate formalities.
Finally, in the case of a court applying some variation
of the balancing test, not only should creditors of the Parent be
unable to demonstrate any harm to be remedied by substantive
consolidation with respect to creditor reliance and expectations
that the assets of the Company would be available to satisfy
their claims or otherwise served as a basis for extending credit,
but from a policy perspective there would appear to be no
incentive to collapse the Company. We are advised that the
Company was neither established for the purpose of perpetrating a
fraud or circumventing public policy, nor would the continued
recognition of the Company as an entity distinct from the Parent
lead to such a result. Moreover, we understand that the Investor
Certificateholders will have relied on the separate legal
existence of the Company, and would be materially harmed by a
failure to respect the separate existence of the Company.
IV.
TRUE SALE
A. Opinion.
Based upon the reasoning and analysis, and subject to
the assumptions, qualifications and limitations set forth herein,
it is our opinion that under present law a federal bankruptcy
court, in a properly presented and argued case in which the
Parent were a debtor under the Bankruptcy Code, would determine
that: (i) a transfer of the Receivables in the form and manner
set forth in the Transfer Documents would constitute an absolute
sale or transfer of such Receivables rather than a borrowing by
the Parent secured by such Receivables, so that such Receivables
would not be property of the estate of the Parent under Section
541(a) of the Bankruptcy Code, and thus (ii) the Company's rights
thereto would not be impaired by the operation of Section 362(a)
of the Bankruptcy Code.
B. Analysis.
Section 541 of the Bankruptcy Code provides that
property of the estate includes "all legal or equitable interests
of the debtor in property as of the commencement of the case." A
bankruptcy trustee of the Parent, or the Parent, as debtor in
possession, might assert that the Parent retained an interest in
the Receivables because they were never truly sold or transferred
to the Company, but were merely pledged as security for the loan
of the proceeds of the Investor Certificates or for the
obligations of the Parent under the Transfer Documents. Under
this theory, the bankruptcy trustee or the Parent might seek a
court order requiring turnover of the Receivables to the Parent
as provided by Section 542 of the Bankruptcy Code, or an order
enforcing Section 362(a) of the Bankruptcy Code, the automatic
stay provision, to prevent payment of the Receivables to the
Trustee.
A "pledge" has been defined as "a transfer of the
possessor's personal property by bailment as security for some
debt or engagement, redeemable on certain terms, and with an
implied power of sale on default." See Collier on Bankruptcy
541.06[7] (1996). Section 9-506 of the Uniform Commercial Code
(the "UCC") provides that, unless otherwise agreed in writing, a
debtor may "redeem the collateral" after default "by tendering
fulfillment of all obligations secured by the collateral." The
right of redemption is, thus, an important, if not essential,
characteristic of a pledge or security interest. The Parent does
not have a contractual right to redeem the Receivables. The
transfers of the Receivables pursuant to the Transfer Documents
(the "Transfers") are expressly provided to be sales or
assignments, absolute and irrevocable, without reservation or
retention of any interest whatsoever by the Parent. In fact,
there is no provision or mechanism for the termination of a
properly authorized and perfected assignment or reconveyance of
the Receivables by the Company to the Parent in any of the
Relevant Documents.
1. Evergreen Factors.
Courts have focused upon a number of other factors in
determining whether an assignment operates to create a security
interest or constitutes a true sale. The court in In re
Evergreen Valley Resort, Inc., 23 B.R. 659 (Bankr. D. Me. 1982),
enumerated the following factors: (1) whether the assignee has a
right of recourse on the debt if the assignment does not provide
sufficient funds; (2) whether the assignee's rights in the
assigned property would be extinguished if the debt were to be
paid with funds from some other source (a factor closely related
to the existence of a right of redemption); (3) whether the
assignee must account to the assignor for any surplus received
from the assignment over the amount of the debt; (4) whether the
language used in the assignment instrument indicates an intention
to make an assignment for security; and (5) whether the
assignment operates to discharge an underlying debt. See also In
re Carolina Utilities Supply Co., Inc., 118 B.R. 412, 415-16
(Bankr. D.S.C. 1990) (citing factors listed in Evergreen).
In applying these factors to the Transfers, we find the
following:
(a) Right of Recourse Against Assignor.
The authority cited for the first factor by the
Evergreen Valley court was Major's Furniture Mart, Inc. v. Castle
Credit Corp., 602 F.2d 538 (3d Cir. 1979). See also In re Golden
Plan, 829 F.2d 705 (9th Cir. 1986). In Major's Furniture Mart,
the court emphasized the full recourse nature of the debt. This
transaction involves no recourse to the Parent for charged off
receivables or other collection problems stemming from the lack
of creditworthiness of the Obligors. The Company's sole right to
require the Parent to repurchase Receivables arises only in the
unlikely event that the Parent has failed to properly authorize
or perfect the sale of Receivables to the Company or in some
circumstances if specific Receivables are legally defective under
applicable state law. The UCC leaves to the courts the
determination whether a transfer of accounts or of chattel paper
is for security or constitutes a sale. Section 9-502, however,
acknowledges that a sale can involve partial recourse. It
states:
But, if the underlying transaction was a sale
of accounts, or chattel paper, the debtor is
entitled to any surplus or is liable for any
deficiency only if the security agreement so
provides.
Courts have examined the substance of the transactions
at issue and the nature of the relationships between the parties
and have not viewed the presence or absence of recourse as
dispositive. See Major's Furniture Mart, 602 F.2d at 544 ("The
question for the court then is whether the nature of the
recourse, and the true nature of the transaction, [footnote
omitted] are such that the legal rights and economic consequences
of the agreement bear a greater similarity to a financing
transaction or to a sale.") (emphasis in the original). In a
1967 decision involving the issue of whether an assignment of
conditional sale contracts for used cars was a contract to loan
money or a sale at discount, the court affirmed a jury verdict
finding a sale despite the presence of full recourse. A.B. Lewis
Co. v. National Investment Corp., 421 S.W.2d 723 (Tex. Ct. Civ.
App. 1967). The court stated:
The fact that A. B. Lewis Company remained
liable to appellee for the full amount of
each contract assigned to it is consistent
with a transaction which is a loan of money
secured by a pledge of the contract. The
fact is, however, that the language of the
document used to effect the assignment "with
full recourse" was to impose a contingent
obligation on appellant to pay the amount of
the sales contract if the buyer of the
automobile did not do so. Such an obligation
is not inconsistent with a sale of the
contract rather than a pledge to secure a
loan.
Id. at 728.
With respect to the Transactions, the Company has no
recourse to the Parent in respect of the collectibility of the
Receivables due to Obligor credit risk. Except with respect to
the limited recourse described herein, the Company has no
obligation (a) to account for, or return to the Parent, the
Collections of any Receivable purchased or otherwise acquired
pursuant to the Transfer Documents, without regard to whether
such Collections are in excess of the purchase price for such
Receivable or (b) to account for, replace, substitute or return
any such Receivable to the Parent. The Company's limited
recourse to the Parent can be characterized as generally relating
to whether the Parent has actually sold the Receivables that it
purportedly has agreed to sell or otherwise transfer under the
Transfer Documents. In our view, such limited recourse is of a
type commonly found in transactions comparable to the Transfers.
On the other hand, the Company has no recourse against the Parent
if, through no fault of the Parent or the Servicer, the Obligor
with respect to any Receivable fails to make payments or if the
value of, or the market for, the Receivables declines. We do not
believe that the limited recourse described herein would be
viewed by a bankruptcy court as recourse to the Parent for
purposes of analyzing whether or not the transfers of the
Receivables from the Parent to the Company under the Transfer
Documents constitute true sales or other assignments. Bankruptcy
courts generally focus on the extent to which a transferor
retains collection risk or other risk of non-payment for the
assets purported to be sold and not on the extent to which a
transferor has breached certain representations and warranties
unrelated to credit or collection risk.
(b) Extinguishing of Debt Upon Payment by Other
Source.
The Evergreen court cited In re Joseph Kanner Hat Co.,
482 F.2d 937 (2d Cir. 1973), as authority for the second factor.
In Kanner, a bank's $25,000 interest in a receivable was reduced
as a result of amounts collected from a source other than the
receivable itself. We can foresee no circumstances in which the
Company's interest in the Receivables would be similarly reduced
or extinguished by amounts collected from a source other than the
Receivables.
(c) Accounting for Surplus; Language; Discharge of
Underlying Debt.
The last three factors do not suggest that the proposed
transaction is other than a true sale or other transfer: (a) the
Company will have no obligation to account to the Parent for the
Receivables, (b) the language used in the Transfer Documents
clearly indicates an intention to make an absolute transfer; and
(c) the assignment will not operate to discharge any debt of the
Parent to the Company.
We also note that at least one court has accepted the
intent of commercially sophisticated parties to a transaction as
expressed by the terms employed in the transaction documents, as
well as relevant extrinsic evidence of intent, including trade
custom and usage, market realities and the parties' course of
conduct and performance, while rejecting an analysis based on the
transaction's economic similarity to a loan or a sale
transaction. In Cohen v. Army Moral Support Fund (In re Bevill,
Bresler & Schulman Asset Management Corp.), 67 B.R. 557 (D.N.J.
1986), the bankruptcy trustee contended that certain "repo" and
"reverse repo" transactions should be treated as collateralized
loans and not sales. The court, however, held that "the intent
of the parties viewed in the context of the entire market in
which these transactions take place is the controlling
consideration" in classifying the transaction as a sale or loan.
Id. at 597. The Cohen court considered the "unequivocal"
language of the agreements to be prima facie evidence that the
transactions were sales. The court stated that, as a general
rule, it would hold the parties to what they intended in the
absence of fraud, mistake or conclusive evidence that the parties
shared a contrary intent. While the Cohen court based its
decision on New Jersey and New York law, Cohen may be persuasive
authority to a court considering the Transfers under Illinois
law. The court's approach in Cohen supports the conclusion of
this opinion, and is, in our view, the correct approach to apply
in considering transactions similar to the Transfers.1
2. Major's Analysis.
In determining whether a transaction should be
recharacterized as a secured loan, several courts have asked
whether the risks and benefits of ownership of the subject assets
were transferred. See Major's Furniture Mart, 602 F.2d at 546.
The transfer of the Receivables to the Company will involve risks
typical of a true sale.2 Along with the Receivables, the Company
has acquired the risk of all collection uncertainties associated
therewith. The Company has also obtained all opportunity for
gain associated with the Receivables. Furthermore, the Parent
has no right to repurchase the Receivables except in connection
with certain limited recourse described above. Accordingly, any
change in the market value of the Receivables will not be for the
direct benefit or detriment of the Parent.
3. Servicing by the Parent.
Some courts have indicated that if the transferor is
the servicer of the transferred rights to payment, or if the
transfer is not recorded, then the transfer is more likely to be
characterized as a secured borrowing. See, e.g., In re Mid
Atlantic Fund, 60 B.R. 604, 608 (Bankr. S.D.N.Y. 1986); In re
Alda Commercial Corp., 327 F. Supp. 1315 (S.D.N.Y. 1971).
Conversely, direct collection by a transferee, with notice to the
account debtor, usually indicates a sale. Milana v. Credit
Discount Co., 27 Cal. 2d 335, 342, 163 P.2d 869, 872 (1945)
(although alleged buyer collected accounts and customers were
notified of assignment, these facts did not render the
transaction a sale where payment of accounts was guaranteed).
Other courts have rejected this view. See, e.g., Fireman's Fund
Ins. Cos. v. Grover (In re Woodson Co.), 813 F.2d 266, 272 (9th
Cir. 1987) (fact that transferor services mortgage loans is
consistent with absolute sale). In addition, it has been
observed that, depending on the circumstances, indirect
collection from, and nonnotification of, account debtors, as
here, do not prevent sale treatment. See A.B. Lewis Co., 421
S.W.2d at 728 (the fact that customers were not notified of
assignment and did not make payments directly to purchaser but to
seller of contracts did not prevent sale treatment in light of
other circumstances present in the transfer); Milana, 27 Cal. 2d
at 342, 163 P.2d at 872. See also In re Federated Dept. Stores,
Inc., 1990 Bankr. LEXIS 2453, at *6-*9 (approving debtor's motion
for authority to enter into a receivables purchase agreement,
which provided for the debtor's servicing of accounts, and
holding that neither the debtor nor its estate retained any
interest in the receivables sold under section 541 of the
Bankruptcy Code where valid business reasons existed for not
notifying account obligors of the sale of the debtor's account).
Valid business reasons exist for not notifying the
Obligors with respect to the Transfers. For example, the number
of Obligors renders notification burdensome. Moreover, even
though the Parent may service the Receivables, the Company has
much control over the Collections. During each Due Period, all
Collections will be recorded as receipts by the Trust (as
assignee of the Company), but will be loaned to the Parent
pursuant to, and to the extent permitted by, the Relevant
Documents until the next Distribution Date. On the next
Distribution Date, the Parent, as the Servicer, will deposit any
Collections in respect of the related Due Period not previously
deposited in the Collections Account. The Servicer may access
the Collections Account or the funds on deposit therein only in
its role as the Servicer. All Collections received in respect of
the Receivables will be allocated and applied as described in the
Relevant Documents.
Courts have been reluctant at times to give effect to
provisions in agreements which attempt to create an agency
relationship where one party holds collections in trust for the
purported owner thereof but the purported owner permits the agent
to commingle and use the collections. See In re Shulman Transp.
Enters., Inc., 744 F.2d 293, 295 (2d Cir. 1984) (absent critical
element of control by one party over collection and handling of
funds by other party, there was no agency relationship between
them); Alda Commercial, 327 F.Supp. 1315 (seller of loan
participation was determined to be similar to a borrower). In
those cases, however, the purported owner of the collections
exercised little control over the funds or the activities of its
agent with only occasional settlements between the purported
owner and its agent. In Alda Commercial, for example, the Court
found a lender-borrower relationship between a bankrupt financing
trust and a loan participant who argued that he had invested in
the trust in return for an interest in certain accounts
receivable held by the trust. The Court's characterization of
the transaction as a loan, rather than as a joint venture
entitling the participant to shield the trust's accounts
receivable from the bankruptcy trustee, turned in part, on the
fact that the finance trust's creditors had no notice of the
participation arrangement, the participant failed to file UCC
financing statements required of security holders for perfection
and the participant failed to require that the accounts be
segregated. 327 F. Supp at 1317.
We understand it is the parties' intent that no such
"secret liens" encumber this transaction; the Parent is required
by the Transfer Documents to take actions necessary to preserve
and protect the validity, perfection and priority of the
Company's ownership interest in the Receivables, including the
filing of financing statements. We have been advised that and
assume that any such financing statement filed in respect of the
Receivables purchased or otherwise transferred will reflect that
a sale or other assignment has occurred and identify the Company
as the buyer or transferee. We have been advised that and assume
that the Parent has treated and will treat the conveyance of the
Receivables to the Company as a sale for purposes of generally
accepted accounting principles. Moreover, while the Parent has
been appointed to act as the Servicer of the Receivables pursuant
to the Pooling and Servicing Agreement and may collect and
administer the Receivables, the Pooling and Servicing Agreement
provides that in certain circumstances, the Parent may be removed
as Servicer.
V.
QUALIFICATIONS
We wish to note that the existing reported decisional
authority is not conclusive as to the relative weight to be
accorded to the factors present in the Transaction, including the
Transfers, and does not provide consistently applied general
principles or guidelines with which to analyze all of the factors
present in the Transaction, including the Transfers. Instead,
judicial decisions in this case are usually made on the basis of
an analysis of the facts and circumstances of the particular
case. Furthermore, there are facts and circumstances present in
the Transaction, including the Transfers, which we believe to be
relevant to our conclusion but which, because of the particular
facts at issue in the reported cases, are not generally discussed
in the reported cases as being material factors. Moreover, the
authorities we have examined contain certain cases and
authorities that are arguably inconsistent with our conclusions
expressed herein. These cases and authorities are, however, in
our opinion distinguishable in the context of the Transaction,
including the Transfers.
In the event that the Parent were to become a debtor
under the Bankruptcy Code and if it were asserted that the
beneficial interest in and legal title to the Receivables are
part of a bankruptcy estate, we express no opinion as to how long
the Company or any assignee could be precluded from exercising
remedies with respect to the Parent or with respect to the
Receivables before the validity of such an assertion could be
finally decided. We also express no opinion as to whether in the
event it were asserted that the beneficial interest in and legal
title to the Receivables and Collections are part of the Parent's
bankruptcy estate, a court would permit such entity to use
Collections without the consent of the Company or any assignee,
either before deciding the issue or pending appeal after a
decision adverse to the Company or any assignee.
We note that the rights of the Parent to service the
Receivables as Servicer and its respective rights to be paid the
servicing compensation may be property of the bankruptcy estate
of the Parent; in addition, the Parent as Servicer may have
possession of certain Collections. The Company may be stayed
from taking any acts that the court determines would have the
effect of someone other than the Parent obtaining possession of
or exercising control over any such property.
A determination as to the likelihood that a court would
order the substantive consolidation of the assets and liabilities
of the Company with those of the Parent in the event of a
bankruptcy or reorganization proceeding involving the Parent
cannot be made in the abstract, but must take account of all the
facts and circumstances related to the operations of the Company
and the Parent, including without limitation, the organizational
structure of the Company and the Parent, the procedures that we
understand the Company and the Parent have agreed to follow in
conducting their respective businesses, the relationships that
are established and maintained among the Company and the Parent
and their respective creditors and the purpose of the Company's
operations. Accordingly, the opinions expressed herein with
respect to the Company and the Parent are particularly dependent
upon the factual assumptions set forth above. In this
connection, we have relied exclusively on the factual assumptions
set forth above.
Notwithstanding any provisions of the documents
executed in connection with the transactions described herein, to
the effect that such documents state that they reflect the entire
understanding of the parties with respect to the matters
described therein, the courts may consider extrinsic evidence of
the circumstances surrounding the entering into of such documents
to ascertain the intent of the parties in using the language
employed in the documents, regardless of whether the meaning of
the language used in the documents is plain and unambiguous on
its face, and may determine that additional and supplemental
terms can be incorporated into the Relevant Documents or the
other documents executed in connection with the Transactions,
including the Transfers. See, e.g., Pacific Gas & Elec. Co. v.
G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33 (1968); Trident
Ctr. v. Connecticut Gen. Life Ins. Co., 847 F.2d 564 (9th Cir.
1988).
We express no opinion as to any Receivables or
Collections thereon that are in the possession of the Servicer
and have been commingled with property of the Servicer. We also
express no opinion as to the potential avoidability of repayments
by the Parent of Collections commingled with funds of the Parent
pursuant to the Pooling and Servicing Agreement. Additionally,
we note that the court may, on an interim basis, impose a
temporary or preliminary stay with respect to the Receivables or
the Collections thereon in order to afford itself time to
ascertain the facts and apprise itself of the law. See, e.g., In
re Leisure Dynamics, 33 B.R. 171 (Bankr. D. Minn. 1983) (letter
of credit).
We express no opinion herein as to (i) the
enforceability, perfection, validity, binding nature, or legality
of any transfer, document, or agreement or (ii) any bankruptcy
case affecting any entity other than the Parent.
We also note that, unless an Obligor with respect to a
Receivable has received notice of the transfer and assignment
thereof, bona fide payments made by such Obligor to a second
assignee of such Receivable should discharge such Obligor's
obligations to the extent of the payment, and the payment should
be recoverable, if at all, only from such second assignee.
We express no opinion as to whether the sale or other
transfer of Receivables will be effective to transfer any
Receivables arising or created after (a) the commencement of a
voluntary case by the Parent under the Bankruptcy Code or (b) an
order for relief in an involuntary case against the Parent under
the Bankruptcy Code (in either event, other than any Receivables
which are comprised solely of finance charges that relate to
Receivables sold prior to the commencement of such case).
Section 303(f) of the Bankruptcy Code provides that:
"[n]otwithstanding Section 363 of this title, except to the
extent that the court orders otherwise, and until an order for
relief in the case, any business of the debtor may continue to
operate, and the debtor may continue to use, acquire, or dispose
of property as if an involuntary case concerning the debtor had
not been commenced." We are therefore of the opinion that,
subject to the avoidance powers of the trustee under Section 549
of the Bankruptcy Code, and except to the extent that the court
orders otherwise, the opinions expressed in Section IV above
cover transfers of Receivables arising or created after the
commencement of an involuntary case but before an order for
relief in the case.
All of the foregoing analyses and its conclusions are
premised upon, and limited to, the law and the documents
evidencing and governing the transactions described herein in
effect as of the date of this letter. Furthermore, we note that
a court's decision regarding matters upon which we opine herein
is based on the court's own analysis and interpretation of the
factual evidence before the court and of applicable legal
principles.
Our opinions are subject to the effect of general
principles of equity, including, without limitation, limitations
on the availability of equitable remedies and concepts of
materiality, reasonableness, good faith and fair dealing, and
other similar doctrines affecting the enforceability of
agreements generally (regardless of whether considered in a
proceeding in equity or at law).
Our opinions are limited to the specific issues
addressed and are limited in all respects to laws and facts
existing on the date of this letter. The opinions set forth
above are given as of the date hereof and we disavow any
undertaking or obligation to advise you of any changes in law or
any facts or circumstances that may hereafter occur or come to
our attention that could affect such opinions. Furthermore, it
is our and your understanding that the foregoing opinions are not
intended to be a guaranty as to what a particular court would
actually hold, but an opinion as to the decision a court should
reach if the issue were properly presented and argued to it and
the court followed what we believe to be the applicable legal
principles. In that regard, you should be aware that all of the
foregoing opinions are subject to inherent limitations because of
the pervasive equity powers of bankruptcy courts, the overriding
goal of reorganization to which other legal rights and policies
may be subordinated, the potential relevance to the exercise of
judicial discretion of future-arising facts and circumstances and
the nature of the bankruptcy process. The recipient of this
opinion should take these limitations into account in analyzing
the bankruptcy risks associated with the subject transaction.
All of the foregoing opinions should be interpreted in
accordance with the Special Report by The TriBar Opinion
Committee, Opinions in the Bankruptcy Context, 46 Bus. Law. 718
(Feb. 1991). In addition, we note, based on information
contained in recent filings by the Parent and the Company with
the Securities and Exchange Commission, that certain of the
Receivables may have arisen in Accounts that were reaffirmed by
debtors pursuant to bankruptcy reaffirmation agreements that were
not filed with federal bankruptcy courts as required under
applicable provisions of Chapter 7 of the United States
Bankruptcy Code. To the extent that this is the case, the right
of the Trustee to enforce its interest in Receivables that have
arisen or may arise in such Accounts may be subject to defenses
available to the affected Account holders.
This opinion is furnished by us to you, and is solely
for your benefit in connection with the above transactions, and
is not to be otherwise used, circulated or relied upon without
our express prior written consent, except that Sears, Roebuck and
Co., [ names of underwriters ], Standard & Poor's Ratings
Services, Moody's Investors Service, Inc., Fitch IBCA, Inc., Duff
& Phelps Credit Rating Company and Bank One, National Association
may rely upon each of the foregoing opinions as if such opinions
were addressed to them.
Very truly yours,
_______________________________
1 We note that the holding of one case poses some risk
that the Parent would be deemed to retain an interest in the
Receivables transferred by it under the Transfer Documents
that would constitute property of the Parent's bankruptcy
estate under Section 541 of the Bankruptcy Code in the event
of the Parent's bankruptcy, even though the transfer of the
Receivables to the Company has the indicia of a true sale.
In Octagon Gas Sys., Inc. v. Rimmer, 995 F.2d 948, 957 (10th
Cir. 1993), the Tenth Circuit found that regardless of the
parties' intent or any manifestation of objective criteria,
the UCC Article 9 characterization of the subject of a sale
was dispositive: "[W]e hold that because, under Article 9
[of the UCC], a sale of accounts is treated as if it creates
a security interest in the accounts, accounts sold by a
debtor prior to filing for bankruptcy remain property of the
debtor's bankruptcy estate."
Octagon poses some risk that even absent a
recharacterization of the Transfer as a financing and even
though the Transfer has the indicia of a true sale, the
bankrupt Parent could be deemed to retain an interest in the
Receivables, and it is therefore possible that the Company
may not be able to defeat treatment of the Transfer as a
financing with respect to the Parent. However, we believe
the Octagon decision is wrong to the extent it implies that
the provisions of Article 9 should be used to determine the
ownership of accounts, including for purposes of determining
property of the estate under Section 541 of the Bankruptcy
Code. The UCC specifically recognizes that a sale of
accounts can be treated as a true sale for purposes of
determining ownership of accounts and related collections.
Specifically, the Octagon court did not observe the
distinctions between true sales and transfers for purposes
of security contemplated by Sections 9-502(2) and 9-504(2)
of the UCC and Official Comments 2 and 4 to Section 9-502.
The Octagon court also ignored the parties' intent and
conduct that a true sale and its benefits be effected. From
a policy perspective, the generalization of Octagon would
adversely affect many businesses by removing commercial
certainty from securitization transactions in general.
Further, in response to Octagon, the Permanent Editorial
Board for the UCC amended Official Comment 2 to Section 9-
102 to read: "The determination of whether a particular
transfer of accounts or chattel paper constitutes a sale or
a transfer for security purposes (such as in connection with
a loan) is not governed by Article 9." Octagon has also
received wide criticism from commentators. See e.g., Lynn
M. LoPucki, The Death of Liability, 106 Yale L. J. 1, 92
n.127 (Oct. 1996); Reade H. Ryan, Jr., Trade Receivables
Purchases, at 507, 569-73 (SA80 ALI-ABA Banking and Comm.
Lending Law March 1996).
2 We note, however, that in an entirely different
context, that of "captive insurance companies," for tax
purposes the Ninth Circuit, in determining whether an
insurance contract existed, found that the risk of loss had
not been shifted by a parent company to its captive
insurance subsidiary. Clougherty Packing Co. v.
Commissioner, 811 F.2d 1297 (9th Cir. 1987). In Clougherty,
the parent corporation indirectly obtained insurance from
the parent's subsidiary (the "captive"). The Court of
Appeals disallowed the parent's deduction of insurance
premiums paid to the captive because it found that no risk
of loss had shifted from the parent to the captive. The
court found no shift of risk for tax purposes because any
losses paid by the captive reduced the value of the
captive's stock which, in turn, reduced the value of the
parent's assets in an amount equal to each amount paid by
the captive to cover a loss. The court expressly limited
its holding to the tax issue before it, noting specifically
that it did not consider relevant any analogy to non-
insurance transactions, such as sales or loans from a parent
company to its subsidiary, where the risk of loss can be
shifted from the parent to its subsidiary, and stated that
". . . cases involving risk of loss in non-insurance
transactions between related entities are simply not
relevant in determining whether insurance exists." Id. at
1306, n.12.
[LETTERHEAD OF LATHAM & WATKINS]
[Closing Date]
Sears National Bank
4605 E. Elwood Street
Phoenix, AZ 85040
Re: Sears National Bank Receivables Transfers
Ladies and Gentlemen:
We have acted as counsel to Sears National Bank, a
national banking association (the "Bank"), in connection with:
(i) the transfer of certain credit account receivables by the
Bank to Sears, Roebuck and Co., a New York corporation ("Sears"),
pursuant to the Assignment of Accounts and Sale of Receivables
Agreement, dated as of September 15, 1994, as amended and
supplemented by the Amendments, Bank Originated Accounts
Assignments and Additional Accounts Assignments described on
Exhibit A hereto (collectively, the "Assignment Agreement"),
between the Bank and Sears; (ii) the sale and contribution of
such credit account receivables by Sears to SRFG (f/k/a Sears
Receivables Financing Group, Inc.), a Delaware corporation (the
"Company"), pursuant to the terms of the First Amended and
Restated Purchase Agreement, dated as of July 31, 1994, as
amended (the "Purchase Agreement"), and pursuant to the terms of
the First Amended and Restated Contribution Agreement, dated as
of July 31, 1994, as amended (the "Contribution Agreement"), both
between Sears and the Company (collectively, the "Sale
Agreement"); (iii) the Receivables Warehouse Agreement, dated as
of December 21, 1995, as amended, between Sears and Company,
including without limitation, the confirmation by Sears of the
prior contribution or sale of certain credit account receivables
to the Company, pursuant to the terms of the Purchase and
Contribution Agreements (as defined in the Warehouse Agreement);
and (iv) the transfer of certain such receivables to the Sears
Credit Account Master Trust II (the "Trust") under the Pooling
and Servicing Agreement, dated as of July 31, 1994 (the "Pooling
and Servicing Agreement"), as amended by the Series Supplement,
dated as of the date hereof (the "Series Supplement"), as amended
by Assignment of Additional Accounts No. 1, dated as of October
26, 1994, as amended by an Amendment dated as of March 31, 1995,
as amended by Assignment of Additional Accounts No. 2, dated as
of July 19, 1995, as amended by Assignment of Additional Accounts
No. 3, dated as of November 10, 1995, as amended by Assignment of
Additional Accounts No. 4, dated as of December 21, 1995, as
amended by Amendment No. 2, dated as of December 21, 1995, as
amended by Assignment of Additional Accounts No. 5, dated as of
April 24, 1996, as amended by Assignment of Additional Accounts
No. 6, dated as of November 15, 1996, as amended by Reassignment
No. 1 of Receivables, dated as of June 30, 1997, as amended by
Assignment of Additional Accounts No. 7, dated as of August 15,
1997, and as amended by Assignment of Additional Accounts No. 8,
dated as of June 29, 1998, each among Sears, the Company and The
First National Bank of Chicago (now known as Bank One, National
Association), as Trustee (the "Trustee").
All capitalized terms used herein and not otherwise
defined shall have the meaning specified in the Assignment
Agreement unless the context clearly indicates otherwise. As
used herein "Lien," in addition to the meaning ascribed to such
term in the Pooling and Servicing Agreement, means statutory and
non-consensual liens. As used herein, "Receivables" includes
only those Receivables which are sold as part of a securitization
transaction and does not include any Receivables relating to
Additional Accounts, other than Receivables arising from Accounts
transferred pursuant to the Additional Account Assignments (the
"Additional Accounts") or the proceeds thereof. The term "UCC"
means the Uniform Commercial Code as in effect in the State of
Illinois. The phrase "security interest" is used herein as
defined in Section 1-201(37) of the UCC and includes any interest
of a buyer of accounts or chattel paper which is subject to
Article 9 of the UCC.
We have reviewed the following documents and any
exhibits thereto for purposes of this opinion (the "Relevant
Documents"):
1. the Assignment Agreement;
2. the Pooling and Servicing Agreement;
3. the Sale Agreement;
4. the Warehouse Agreement;
5. the Purchase and Contribution Agreements (as defined in the
Warehouse Agreement); and
6. an opinion of Greenberg Traurig, P.A. (the "Arizona Counsel
Opinion") with respect to certain matters of Arizona law.
The Bank is a national banking association. The United
States Bankruptcy Code (the "Bankruptcy Code") does not apply to
national banking associations. See 11 U.S.C. 109(b)(2), (d).
Therefore, the provisions of the Bankruptcy Code that impact the
right of a secured creditor to liquidate collateral do not apply
in the event of the insolvency of the Bank.
The provisions in the National Bank Act concerning
receiverships and the provisions in the Bank Conservation Act
concerning the appointment of conservators apply to national
banking associations. In addition, the Federal Deposit Insurance
Act, as amended, 12 U.S.C. 1811 et seq. (the "FDIA" or the
"Act"), sets forth certain powers granted to the Federal Deposit
Insurance Corporation (the "FDIC") as conservator or receiver for
a national banking association.
With the exception of the FDIC Statement of Policy
Regarding Treatment of Security Interests After Appointment of
the FDIC as Conservator or Receiver, 58 Fed. Reg. 16833 (1993),
which is discussed below (the "Policy Statement"), no applicable
regulations of the FDIC have been promulgated pursuant to Section
1821(d)(1) of the Act regarding the conduct of conservatorships
or receiverships under the Act; nor are we aware of any cases
that have been decided under those sections of the FDIA and which
are applicable by analogy to the transactions herein contemplated
other than certain cases decided under Section 1821(d) and
Section 1823(e) of the Act which do not affect our opinions
expressed in respect of the Act. Accordingly, until such time as
a body of jurisprudence develops interpreting the relevant
sections of the FDIA, our analysis and the opinions expressed
herein with respect to the Act are not and cannot be rendered nor
relied upon to the same extent as opinions rendered in areas of
law where there exists a well-developed jurisprudence. To the
extent the opinions herein rely on letters issued by the FDIC or
its staff, we note that it is the policy of the FDIC not to issue
binding advisory opinions as to positions it would adopt in
hypothetical situations that arise in future receiverships or
conservatorships of insured depository institutions and that the
FDIC's actions as receiver or conservator are determined on a
case by case basis, in accordance with applicable laws and in
light of the specific factual situations. Subject to the
foregoing limitations, such analysis and opinions are based upon
our interpretation of the statutory language of the Act and the
legal principles that we believe a court would employ in a
conservatorship or receivership case arising under the Act.
We have investigated such questions of law for the
purpose of rendering this opinion as we have deemed necessary.
We are opining herein as to the effect on the subject
transactions of only United States federal law and the laws of
the State of Illinois, and we express no opinion with respect to
the applicability thereto or the effect thereon of the laws of
any other jurisdiction or as to any matters of municipal law or
the laws of any other local agencies within any state. You
understand that the transactions that are the subject of the
opinions set forth in this opinion letter involve significant
matters governed by Arizona law and, insofar as such matters are
governed by Arizona law, we refer you to the Arizona Counsel
Opinion. The opinions expressed herein are subject to the
applicable assumptions, qualifications and limitations set forth
in the Arizona Counsel Opinion.
We have assumed the genuineness of all signatures and
the authenticity of all documents submitted to us as originals
and the conformity with authentic originals of all documents
submitted to us as copies.
I. ASSUMPTIONS OF FACT
In rendering our opinion, we have made no independent
investigation of the facts referred to herein and have relied for
the purpose of rendering this opinion exclusively on the Relevant
Documents and on facts provided to us by the Bank and Sears
through certificates of officers or executives, which we assume
have been and will continue to be true. We understand such facts
to be as follows:
1. Transactions
Pursuant to the Assignment Agreement, the Bank will
sell to Sears additional receivables arising in the future in the
accounts owned by the Bank at a price equal to the face amount of
such receivables to be paid in cash. To the extent such a
transfer is deemed not to constitute an absolute transfer, the
Bank will grant a security interest to Sears in such receivables.
Sears will sell or contribute such receivables arising in the
accounts to the Company pursuant to the Purchase Agreement and
the Contribution Agreement, or Sears will confirm the sale or
contribution of such receivables arising in the accounts to the
Company pursuant to the Warehouse Agreement. The Company will in
turn transfer such receivables to the Trustee pursuant to the
Pooling and Servicing Agreement. The Bank's records will clearly
reflect the sale and transfer of the Receivables to Sears, and
the computer records of Sears have been or will be electronically
marked to indicate clearly the transfer to the Company and the
Trust.
The Bank received or will receive face amount from
Sears in return for the transfer of its interest in the
Receivables and the proceeds thereof. The Assignment Agreement
is consistent with the terms that would result from arm's-length
negotiations between the Bank and Sears and was entered into in
the ordinary course of the Bank's business. Appropriate UCC-1
financing statements (and amendments thereto) have been filed to
perfect the transfer of the Receivables from the Bank to Sears
(and to maintain the perfection thereof) in Arizona.
2. Bank Procedures
The Assignment Agreement and the receipt of the
consideration for the Bank's obligations thereunder were approved
by the board of directors of the Bank, and such approval is
reflected in the minutes of the meetings of the board of
directors. Each agreement relating to the transactions described
herein has been and will be, continuously from the time of
execution thereof, an official record of the Bank. Each such
agreement and the transactions described herein are not subject
to a cease and desist order made under Section 1818(b)(6)(D) of
the Act, and are not inconsistent with any formal or informal
enforcement action by a bank regulatory agency.
Neither the Bank nor Sears has, in contemplation of the
insolvency of the Bank or with the intent to hinder, delay or
defraud the Bank or its creditors (i) executed the Assignment
Agreement; (ii) granted to Sears or received from the Bank, as
applicable, a security interest in the Receivables or the
proceeds thereof; (iii) caused, permitted or suffered the
perfection or attachment of such security interest; or (iv)
otherwise transferred the Receivables to Sears or received the
Receivables from the Bank, as applicable, pursuant to the
Assignment Agreement.
At the present time neither the Receivables nor the
proceeds thereof are subject to any statutory or non-consensual
Lien (including without limitation any attachment or execution
lien) or Lien of any kind that does not require the filing of a
financing statement.
Before the Initial Account Transfer Date and the
Account Transfer Dates, and periodically after each Origination
Date, Sears had in its possession a list of Accounts with respect
to the Receivables.
We have assumed that all statements contained in the
certificates delivered to us by the Bank or Sears are accurate
and correct including, without limitation, the certificate of the
Bank to the effect that its chief executive office, chief place
of business and the only office where it keeps records concerning
the Receivables are located in the State of Arizona. We have
further assumed that where a certification is made to the best
knowledge of a person signing a certificate described in this
paragraph, such person has knowledge of all of the relevant
facts.
II. OPINION
On the basis of the foregoing, and in reliance thereon,
we are of the opinion that, as of the date hereof:
1. The Receivables constitute either "general intangibles,"
"accounts," or "chattel paper," as defined in Sections 9-105 and
9-106 of the UCC. Under Sections 9-103(3) and 9-103(4) of the
UCC, the perfection and priority of a security interest in the
Receivables constituting "general intangibles" or "accounts," and
the perfection and priority of a non-possessory security interest
in Receivables constituting "chattel paper," are governed by
Arizona law, as to which we understand you are relying solely on
the Arizona Counsel Opinion. We call to your attention the fact
that the perfection of a security interest in "proceeds" (as
defined in the UCC) of Receivables is governed and restricted by
Section 9-306 of the UCC. Assuming that (a) the "proceeds" of
Receivables is money, (b) the last event to occur on which is
based the assertion that the security interest is perfected or
unperfected is possession, and (c) Sears takes possession of the
money in the State of Illinois, then the perfection and priority
of a security interest in money are governed by Illinois law.
2. If the transfer of the Receivables and the proceeds thereof
to Sears pursuant to the Assignment Agreement constitutes an
absolute transfer of the Receivables and the proceeds thereof to
Sears, then such absolute transfer transfers to Sears all of the
right, title and interest of the Bank in and to the Receivables
and the proceeds thereof.
A. Qualification with Respect to Receivables that
Constitute "Accounts" or "Chattel Paper."
To the extent that any Receivables constitute
"accounts" or "chattel paper," the ownership interest of
Sears in such Receivables is subject to the same limitations
applicable to the perfection and priority of the security
interest created by the Assignment Agreement in Receivables
in favor of Sears. See UCC 9-102(1). To the extent our
opinion in this paragraph 2 relates to such perfection and
priority, we refer you to the Arizona Counsel Opinion.
We call to your attention that Section 9-318(3) of
the UCC provides in effect that the Obligor in respect of a
Receivable is authorized to make payments to the Bank until
such Obligor receives notification that such Receivable has
been assigned to Sears and that payment thereof is to be
made to Sears. Accordingly, unless and until such Obligor
is so notified and directed, all payments made to the Bank
(or to a subsequent assignee if the Bank should make a
subsequent assignment of such Receivable and notify such
Obligor of such assignment and direct such Obligor to make
payments to such subsequent assignee) in respect of such
Receivable will discharge a corresponding amount of such
Receivable, and the amount of such payment may not be
recovered from the applicable Obligor. We note that, under
the Assignment Agreement, the Bank is not authorized to act
as the primary servicer with respect to Receivables assigned
to third parties.
B. Qualifications with Respect to Receivables that
Constitute "General Intangibles."
To the extent that any Receivables constitute
"general intangibles," the ownership interest of Sears in
such Receivables is not subject to the provisions of the
UCC. With respect to such Receivables as exist on the date
hereof, it is our opinion that no further action is required
under the laws of the State of Illinois to protect the
ownership interest of Sears in such Receivables against
creditors of, or subsequent purchasers from, the Bank except
as set forth in the second following paragraph.
With respect to Receivables that constitute
"general intangibles" and that come into existence after the
date hereof, it is arguable that Sears ownership interest in
such Receivables will be subject to such Liens as antedate
the date on which any such Receivables come into existence.
However, in our judgment a court, properly presented with
the facts and arguments, should hold that Sears ownership
interest in such Receivables is not subject to such Liens
and that no further action is required to protect such
ownership interest of Sears against creditors of, or
subsequent purchasers from, the Bank except as set forth in
the following paragraph.
A result similar to that under Section 9-318(3) of
the UCC noted supra, with respect to Receivables that
constitute "accounts," will occur if the Obligors of
Receivables constituting "general intangibles" are not
directed to make payments to Sears.
3. If the transfer is deemed not to be a sale, it would be
treated as a loan secured by the property purported to be sold,
in which event the Assignment Agreement creates a valid security
interest in favor of Sears, in the Bank's right, title and
interest in and to the Receivables and the proceeds thereof.
We note that Section 9-205 of the UCC provides that a
"security interest is not invalid or fraudulent against creditors
by reason of liberty in the debtor . . . to collect or compromise
accounts or chattel paper . . . ." The omission of the phrase
"general intangibles" from such portion of Section 9-205 may
permit the argument that the security interest in Receivables
constituting "general intangibles" is invalid because of the
provision of the Assignment Agreement which provides that the
Bank, with respect to the Bank's Accounts, will service and
administer, and collect payments due under, the Receivables.
However, in our opinion, for the reasons set forth below, the
omission of the phrase "general intangibles" was not intended to
limit the scope of the quoted provision of Section 9-205 to
exclusively accounts and chattel paper, and the security interest
granted by the Assignment Agreement is not invalidated by the
aforementioned provision of the Assignment Agreement.
The purpose of Section 9-205 was to specifically
validate security interests in accounts and chattel paper without
requiring the creditor to exercise dominion and control over such
types of collateral and was specifically included in the Uniform
Commercial Code because accounts receivable and inventory
financings on the basis of collateral consisting of accounts and
chattel paper were significant commercial transactions at the
time of the promulgation of the Uniform Commercial Code by the
National Conference of Commissioners on Uniform State Laws. See
Official Uniform Comment 1 to 9-205.
In our view, general intangibles were not mentioned in
the quoted portion of Section 9-205 not because of an intent to
exclude this type of collateral from the benefits extended to
accounts and chattel paper but because financings on the basis of
general intangibles were not a commercially significant method of
finance at the time and, therefore, no consideration was given to
including general intangibles in such portion of Section 9-205.
Furthermore, invalidating a security interest in general
intangibles because the debtor may collect the general
intangibles is inconsistent with other provisions of the UCC.
Section 9-502(1), for example, provides that on default
a secured party may notify an account debtor to make payments to
the secured party whether or not the assignor was theretofore
making collections on the collateral. Section 9-105 defines
"account debtor" as a "person who is obligated on an account,
chattel paper or general intangible." Thus, Section 9-502(1)
presupposes that a debtor may be collecting from an account party
that is an obligor on a general intangible, and such
presupposition would be inconsistent with interpreting the
omission of "general intangible" from Section 9-205 as
invalidating security interests in general intangibles in
circumstances where debtors collect from account parties on the
general intangibles. See also Section 9-318(3) (account party
authorized to pay assignor until notified to pay assignee).
4. Subject to the discussion and qualifications in this letter,
it is our opinion that the security interest granted in the
Assignment Agreement in favor of Sears is enforceable in
accordance with its terms, notwithstanding the insolvency of the
Bank or the appointment of the FDIC as conservator or receiver of
the Bank, except as may be limited otherwise by general
principles of equity; however, in our opinion, the insolvency of
the Bank in and of itself would not be a proper basis for a
court, if properly presented, to permanently enjoin the Trustee's
rights to enforce its security interest. Furthermore, in the
event of the insolvency of, or appointment of a receiver or
conservator with respect to, the Bank, the enforceability of such
security interest may be subject to the restrictions and
limitations contained in the Act.
A. Under Section 1821(d)(12) of the Act, a court is required to
grant a stay requested by a conservator or receiver of an insured
depository institution, such as the Bank, of any judicial action
or proceeding to which such insured depository institution is or
becomes a party. Such conservator or receiver may request such a
stay for a period not in excess of (i) 45 days in the case of a
conservator and (ii) 90 days in the case of a receiver. In
addition, under Section 1821(d)(3) of the Act, the FDIC as
receiver has the power to determine claims of creditors of a
closed depository institution in accordance with regulations of
the FDIC promulgated pursuant to Section 1821(d)(4) of the Act,
and the requirements of Section 1821(d) of the Act, including
Section 1821(d)(11) which establishes the priority of claims.
Nevertheless, no regulations have been promulgated under Section
1821(d)(4) of the Act as of the date hereof and the priority
provisions of 12 C.F.R. 360.3 have been expressly amended to
not apply to any conservatorships or receiverships occurring
after August 10, 1993. In addition, Section 1821(d)(11), while
prioritizing the claims against the closed depository
institution, does not determine the enforceability of a security
interest in the assets thereof.
B. In general, under Section 1821(d)(5) of the Act,
before the end of the 180-day period beginning on the date any claim
against a depository institution is filed with the FDIC as receiver,
the FDIC shall determine whether to allow or disallow the claim and
shall notify the claimant of any determination with respect to
such claim unless such 180-day period is extended by written
agreement between such claimant and the FDIC. However, Section
1821(d)(8) of the Act directs the FDIC to establish a procedure
outside the general claims procedure for expedited relief for
claimants who --
(i) allege the existence of legally valid
and enforceable or perfected security interests in
assets of any depository institution for which the
FDIC has been appointed receiver; and
(ii) allege that irreparable injury will
occur if the routine claims procedure is followed.
To date, no such procedures have been established by
the FDIC. With respect to self-help liquidation of collateral by
secured claimants in FDIC receiverships of insured depository
institutions generally, we call to your attention the letter
dated December 15, 1989 from John L. Douglas, General Counsel of
the FDIC, to Ms. Frances R. Bermanzohn, Senior Vice President and
General Counsel of the Public Securities Association, a copy of
which is attached hereto (the "Letter").
C. Section 1821(d)(9) of the Act states that, subject to an
exception not material for the purposes hereof, any agreement
that does not meet the requirements set forth in Section 1823(e)
of the Act shall not form the basis of, or substantially
comprise, a claim against the receiver or the FDIC. Among the
requirements contained in Section 1823(e) is:
(2) [the agreement] was executed by
the depository institution and any
person claiming an adverse interest
thereunder, including the obligor,
contemporaneously with the acquisition
of the asset by the depository
institution. . . .
Arguably, the "contemporaneous" requirement of Section
1823(e) could defeat the security interest of Sears in any
Receivables not created contemporaneously with the execution of
the Assignment Agreement. However, although there are no
judicial decisions based on directly similar facts nor any
analogous judicial decisions, based on the considerations set
forth below, it is our view that a court, if properly presented
with the facts and arguments, should hold that the
"contemporaneous" requirement of Section 1823(e) does not defeat
the enforceability of the security interest of Sears with respect
to Receivables not created contemporaneously with the execution
of the Assignment Agreement. With respect to Receivables created
after the date hereof, we refer you to our discussion of such
future Receivables infra.
Section 1823(e) of the Act is a re-enactment of the
last paragraph of Section 1823(e) of the FDIA (the "Prior Section
1823(e)") with certain additions not relevant for the following
discussion. We are not aware of any reported decisions
interpreting Prior Section 1823(e) or Section 1823(e) of the Act
in a fact situation similar to that presented by the Assignment
Agreement. Furthermore, the decisions of which we are aware
interpreting Section 1823(e) of the Act did not interpret the
"contemporaneous" requirement; nor do they, in our view, diminish
the applicability of decisions interpreting or applying Prior
Section 1823(e).
The reported decisions of which we are aware
interpreting Prior Section 1823(e) or Section 1823(e) involve
circumstances which would condition or excuse performance of
otherwise valid, although possibly voidable, obligations in favor
of banks, such as a loan by such bank to a borrower. In those
instances, the requirements of Prior Section 1823(e) or Section
1823(e) serve to ensure appropriate consideration of unusual loan
transactions by senior bank officials and prevent fraudulent
insertion of new terms, with the collusion of bank employees,
when a bank appears headed for failure. See Langley v. FDIC, 484
U.S. 86, 92 (1987); see also Thigpen v. Sparks, 983 F.2d 644 (5th
Cir. 1993). But see North Arkansas Med. Ctr. v. Barrett, 962
F.2d 780 (8th Cir. 1992) (affirming the dismissal of a claim by a
depositor of an insolvent savings and loan association ("S&L")
that the depositor had a perfected security interest in certain
assets held by the S&L to secure the S&L's obligations under
certain certificates of deposit because of the depositor's
failure to comply with Section 1823(e)). In addition, the
requirements serve to protect the FDIC from private or secret
agreements that were not reflected in a failed institution's
records. E.g., Aurora Shores Homeowners Ass'n v. Federal Deposit
Ins. Corp., 2 F.Supp. 2d 975, 978 (N.D. Ohio 1998); Advantage
Group Inv., Inc. v. Pacific Southwest Bank, 972 S.W.2d 866 (Tex.
App. 1998).
Because of the concerns prompted in the financial
industry by the decision in North Arkansas Medical Center, the
FDIC promulgated the Policy Statement, which applies to all
security agreements to which an insured depository institution is
a party regardless of the date of such agreements, if the FDIC is
or was appointed conservator or receiver of such institution on
or after August 9, 1989. The Policy Statement states the FDIC's
interpretation of the "contemporaneous" requirement of Sections
1821(e) and 1823(e). In 1994, after the adoption of the Policy
Statement by the FDIC, Congress amended 1823(e) of the FDIA to
codify the Policy Statement as it relates to deposits by
government agencies.
The FDIC made the following assumptions in the Policy
Statement:
(a) the agreement was undertaken in the
ordinary course of business, not in
contemplation of insolvency, and with no
intent to hinder, delay or defraud the
institution or its creditors; (b) the secured
obligation represents a bona fide and arm's
length transaction; (c) the secured party or
parties are not insiders or affiliates of the
Institution; (d) the grant or creation of the
security interest was for adequate
consideration; and (e) the security agreement
evidencing the security interest is in
writing, was approved by the Institution's
board of directors or loan committee (which
approval is reflected in the minutes of a
meeting of the board of directors or
committee), and has been, continuously from
the time of its execution, an official record
of the Institution.
58 Fed. Reg. 16834 (1993). See also Letter from Cristeena G.
Naser, Attorney at the FDIC, FDIC 94-10 (Mar. 2, 1994) (restating
the assumptions). Based on the Policy Statement, provided that
these assumptions and all of the other statutory requirements of
Section 1823(e) are met, the FDIC, acting as conservator or
receiver for a depository institution,
will not seek to avoid an otherwise legally
enforceable and perfected security interest
solely because the security agreement
granting or creating such security interest
does not meet the "contemporaneous"
requirement of Sections [1821](d)(9),
[1821](n)(4)(I), and [1823](e) of the Act.
Specifically, the FDIC will not seek to avoid
such a security interest solely because the
secured obligation or collateral subject to
the security interest (a) was not acquired by
the Institution contemporaneously with the
approval and execution of the security
agreement granting the security interest
and/or (b) may change, increase, or be
subject to substitution from time to time
during the period that the security interest
is enforceable and perfected.
Id.
With regard to the security interest of Sears created
by the Assignment Agreement, the Policy Statement precludes, in
our view, challenges by the FDIC to the enforceability of such
security interest in both: (i) existing Receivables not created
contemporaneously with the execution of the Assignment Agreement
(including investment proceeds arising in the future from
existing Receivables); and (ii) Receivables that come into
existence after the execution of the Assignment Agreement.
Moreover, in contrast to the situations in the
decisions we reviewed involving Prior Section 1823(e) or Section
1823(e), which involved the conditioning or excusing of an
obligor's obligation, the obligations of Obligors in respect of
Receivables are unaffected by the Assignment Agreement. The
purpose of the Assignment Agreement is not to provide for the
release or modification of Obligors' obligations but to provide
for the transfer of Receivables to Sears in return for
consideration and, to the extent such transfer is deemed not to
constitute an absolute transfer, the grant of a security interest
in such Receivables to Sears. In that regard, we are informed
that the Bank's grant or creation of a security interest in the
Receivables represents a bona fide and arm's length transaction
for adequate consideration. We are also informed that the
Assignment Agreement was undertaken in the ordinary course of
business, not in contemplation of insolvency, and with no intent
to hinder, delay or defraud the Bank or its creditors.
Furthermore, the Assignment Agreement is in writing and the Bank
has informed us that such agreement was approved by the board of
directors as reflected in the resolutions of the board of
directors, and has been, continuously from the time of its
execution, an official record of the Bank.
The policies underlying Section 1823(e) and the Policy
Statement suggest that the FDIC, acting as conservator or
receiver for the Bank, would not seek to avoid the security
interest in the Receivables. Both Section 1823(e) and the Policy
Statement serve to prevent secret and collusive agreements
between failing banks and third parties, including their secured
creditors, which are not for adequate consideration. See
Langley, 484 U.S. at 86; Thigpen, 983 F.2d at 644. Sears is
affiliated with the Bank and therefore would not fall under the
express assumptions of the Policy Statement. Nonetheless, the
above concerns are inapplicable in the instant circumstance. The
Assignment Agreement and the other agreements described above
disclose in full the entire terms of the transactions
contemplated thereby and represent a bona fide and arm's length
transaction for adequate consideration. Moreover, as indicated
above, we are informed that such agreements have been approved by
the board of directors. We are also informed that the Bank
received consideration which it believes to be reasonably
equivalent and fair consideration for Receivables transferred on
the date hereof and to be hereafter transferred by it to Sears.
Furthermore, with regard to the FDIC's non-affiliation
assumption, we are informed that the holders of the non-Seller
retained Investor Certificates (as such terms are defined in the
Pooling and Servicing Agreement), the senior beneficiaries of the
security interest in the Receivables initially transferred from
the Bank, are not affiliates or insiders of the Bank.
D. Section 1821(e)(1) of the Act permits any conservator or
receiver of an insured depository institution to disaffirm or
repudiate any contract or lease of such insured depository
institution that such conservator or receiver determines, in its
discretion, to be burdensome and the disaffirmance or repudiation
of which will promote the orderly administration of the
institution's affairs. Nonetheless, Section 1821(e)(11) of the
Act provides that:
No provision of [Section 1821(e)] shall be
construed as permitting the avoidance of any
legally enforceable or perfected security
interest in any of the assets of any
depository institution except where such an
interest is taken in contemplation of the
institution's insolvency or with the intent
to hinder, delay or defraud the institution
or the creditors of such institution.
As stated above, we are aware of no facts that indicate
any transfer of Receivables by the Bank to Sears has been or will
be made in contemplation of the Bank's insolvency; nor are we
aware of any facts that indicate any transfer of Receivables to
Sears has been or will be made with the intent to hinder, delay
or defraud the Bank or the creditors of the Bank.
Notwithstanding the above, the Policy Statement
expressly reserves the FDIC's right, "as conservator or receiver,
to redeem or prepay any secured obligation of [a depositary
institution] by repudiation or otherwise." 58 Fed. Reg. 16834
(1993). We note that the Policy Statement further provides that
the FDIC will make such a decision within a reasonable period of
time which generally should not exceed 180 days from the date of
appointment of the FDIC as conservator or receiver for the
depository institution.
In case of a repudiation pursuant to Section 1821(e),
the secured party is entitled to damages. The Policy Statement
emphasizes, however, that Section 1821(e) limits the liability of
the FDIC as conservator or receiver for exercising its
repudiation rights to "actual direct compensatory damages" and
that the secured party's damages are to be determined as of the
date of appointment of the conservator or receiver, and not, as
in certain "qualified financial contracts," as of the date of
repudiation. 58 Fed. Reg. 16834 (1993). We note that the
Resolution Trust Corporation, which has ceased to exist as of
December 31, 1995 (the FDIC has taken over its responsibilities),
took the position that it had the authority to repudiate a
depository institution's obligation to pay post-insolvency
interest, but adopted a policy of not doing so. We note that in
a 1993 case involving the repudiation by the Resolution Trust
Corporation 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. See Employees' Retirement
Sys. v. Resolution Trust Corp., 840 F.Supp. 972 (S.D.N.Y. 1993).
E. If the FDIC were appointed as receiver or
conservator of the Bank pursuant to Section 1821(c)(2) of the Act,
it would have in addition to the powers conferred on it by Section
1821 of the Act, the powers conferred on it under any provision of
law other than the FDIA, applicable to a conservator or receiver of a
federal depository institution. 12 U.S.C. 1821(c)(2). In this
regard, we note that 12 U.S.C. 91 provides for the voiding of
payments made by a national banking association after the
commission of an act of insolvency or in contemplation thereof,
made with a view to prevent the application of its assets or with
a view to the preference of one creditor to another. We are
informed that the Bank has not taken, and does not intend in the
future to take, any such act of insolvency, or any other act in
contemplation thereof.
We have found no cases directly on point and it is,
therefore, our and your understanding that the opinions expressed
in the preceding paragraphs are not a prediction or assurance as
to what a particular court would actually hold, but opinions as
to the decision a court would reach if the issues were properly
presented to it and the court followed existing precedent as to
legal principles applicable in national bank insolvencies. No
opinion is expressed as to whether a court may temporarily
restrain the exercise by Sears of its rights to and ownership of
or security interest in the Receivables, regardless of who has
possession of the property in question. Further, we point out
that delays in the exercise of the rights and interests of Sears
may occur with respect to the Receivables in the possession of a
receiver or conservator or an appointee of either of them,
regardless of whether the transaction constitutes an absolute
transfer or a secured transaction, by actions unilaterally taken
by the receiver or conservator or such appointee prior to Sears
instituting any action to enforce its rights with respect to the
Receivables.
We do not express any opinion herein:
(i) as to the creation, validity or enforceability of any
interest of the Bank in the Receivables or the proceeds
thereof;
(ii) as to the Bank's rights in or title to any of the Receivables
or the proceeds thereof;
(iii) as to whether the transfer of Receivables to Sears
constitutes an absolute transfer;
(iv) as to whether the purported absolute transfer of all
Receivables now existing or hereafter created is effective
to convey to Sears, as of the date of purported absolute
transfer, Receivables that do not exist as of the date of
such purported absolute transfer, or as to whether Receivables
hereafter created in an Account are deemed to exist as of
the date hereof;
(v) with respect to Receivables relating to Additional Accounts
or the proceeds thereof;
(vi) as to whether the administrative expenses of the FDIC or any
other receiver or conservator of the Bank would have
priority over Sears interest in Receivables or proceeds
thereof;
(vii) as to whether a court in an equitable proceeding might
issue a temporary restraining order or preliminary
injunction pending resolution of Sears rights in the
Receivables, the proceeds thereof or rights to payment; and
(viii) as to the consequences of a discontinuation or
revocation by the FDIC or a court of the Policy Statement
or the Letter or the refusal by the FDIC or a court to apply
the Policy Statement or the Letter.
This opinion is furnished by us to you, and is solely
for your benefit in connection with the above transactions, and
is not to be otherwise used, circulated or relied upon without
our express written consent, except that Sears, Roebuck and Co.,
[ names of underwriters ], Standard & Poor's Ratings
Services, Moody's Investors Service, Inc., Fitch IBCA, Inc., Duff
& Phelps Credit Rating Company and Bank One, National Association
may rely upon each of the foregoing opinions as if such opinions
were addressed to them.
All of the foregoing opinions are expressly subject to
there being no material change in the law.
Very truly yours,
Exhibit A
1. AMENDMENTS
a. First Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of September 16, 1994.
b. Second Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of September 17, 1994.
c. Third Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of August 1, 1995.
d. Fourth Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of July 18, 1996.
e. Fifth Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of October 1, 1996.
f. Sixth Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of April 24, 1997.
g. [Additional Amendments]
2. BANK ORIGINATED ACCOUNTS ASSIGNMENTS
a. Assignment of Receivables of Bank Originated Accounts No. 1,
dated as of March 2, 1995.
b. Assignment No. 2 of Receivables of Bank Originated Accounts,
dated as of July 1, 1995.
c. Assignment No. 3 of Receivables of Bank Originated Accounts,
dated as of October 1, 1995.
d. Assignment No. 4 of Receivables of Bank Originated Accounts,
dated as of December 1, 1995.
e. Assignment No. 5 of Receivables of Bank Originated Accounts,
dated as of February 1, 1996.
f. Assignment No. 6 of Receivables of Bank Originated Accounts,
dated as of April 1, 1996.
g. Assignment No. 7 of Receivables of Bank Originated Accounts,
dated as of June 1, 1996.
h. Assignment No. 8 of Receivables of Bank Originated Accounts,
dated as of August 1, 1996.
i. Assignment No. 9 of Receivables of Bank Originated Accounts,
dated as of October 1, 1996.
j. Assignment No. 10 of Receivables of Bank Originated
Accounts, dated as of December 1, 1996.
k. Assignment No. 11 of Receivables of Bank Originated
Accounts, dated as of February 1, 1997.
l. Assignment No. 12 of Receivables of Bank Originated
Accounts, dated as of April 1, 1997.
m. Assignment No. 13 of Receivables of Bank Originated
Accounts, dated as of June 1, 1997.
n. Assignment No. 14 of Receivables of Bank Originated
Accounts, dated as of August 1, 1997.
o. Assignment No. 15 of Receivables of Bank Originated
Accounts, dated as of October 1, 1997.
p. Assignment No. 16 of Receivables of Bank Originated
Accounts, dated as of December 1, 1997.
q. Assignment No. 17 of Receivables of Bank Originated
Accounts, dated as of February 1, 1998.
r. Assignment No. 18 of Receivables of Bank Originated
Accounts, dated as of April 1, 1998.
s. Assignment No. 19 of Receivables of Bank Originated
Accounts, dated as of June 1, 1998.
t. Assignment No. 20 of Receivables of Bank Originated
Accounts, dated as of August 1, 1998.
u. Assignment No. 21 of Receivables of Bank Originated
Accounts, dated as of October 1, 1998.
v. Assignment No. 22 of Receivables of Bank Originated
Accounts, dated as of December 1, 1998.
w. Assignment No. 23 of Receivables of Bank Originated
Accounts, dated as of February 1, 1999.
x. Assignment No. 24 of Receivables of Bank Originated
Accounts, dated as of April 1, 1999.
y. Assignment No. 25 of Receivables of Bank Originated
Accounts, dated as of June 1, 1999.
z. Assignment No. 26 of Receivables of Bank Originated
Accounts, dated as of August 1, 1999.
aa. [Additional Assignments]
3. ADDITIONAL ACCOUNTS ASSIGNMENTS
a. Assignment No. 1 of Additional Accounts, dated as of March
3, 1995.
b. Assignment No. 2 of Additional Accounts, dated as of August
1, 1995.
c. Assignment No. 3 of Additional Accounts, dated as of
December 1, 1995.
d. Assignment No. 4 of Additional Accounts, dated as of
September 1, 1996.
e. [Additional Assignments]
_____________, ____
SEARS NATIONAL BANK
2626 South Hardy
Tempe, Arizona 85258
Bank One, National Association
as Trustee
1 Bank One Plaza
Suite IL1-0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Services Division
Re: Sears Credit Account Master Trust II, Series ________
Ladies and Gentlemen:
We have acted as special counsel to Sears National
Bank, a national banking association ("Bank"), in connection with
the transactions contemplated by the Pooling and Servicing
Agreement, dated as of July 31, 1994, by and among SRFG, Inc.
(formerly Sears Receivables Financing Group, Inc), a Delaware
Corporation ("SRFG"), as seller, Sears, Roebuck and Co., a New
York corporation ("Company"), as servicer, and Bank One, National
Association, (formerly The First National Bank of Chicago), a
national banking association, as trustee, for the Sears Credit
Account Master Trust II (the "Trust"), supplemented and amended
by the Supplements, Amendments, Assignments of Additional
Accounts and Reassignments of Receivables described in Exhibit A
hereto (collectively, the "Pooling and Servicing Agreement").
Pursuant to the terms of the Pooling and Servicing
Agreement, SRFG will transfer to the Trust, all of its right,
title and interest in and to certain receivables, consisting
generally of any amount owing under an account by obligors
obligated to make payments under an account. Under the terms of
the Pooling and Servicing Agreement, such receivables will be
held by Trustee for the benefit of the Investor
Certificateholders and SRFG.
Some of the receivables to be transferred to the Trust
may have been sold, conveyed, transferred, assigned and delivered
by Bank to Company pursuant to the terms of that Assignment of
Accounts and Sale of Receivables Agreement, dated as of September
15, 1994, by and between Bank and Company, as amended and
supplemented by the Amendments, Bank Originated Accounts
Assignments and Additional Accounts Assignments described on
Exhibit B hereto (collectively, the "Assignment Agreement").
Pursuant to the terms of the Assignment Agreement, Bank will
sell, transfer, assign or otherwise convey to Company (or to
Company's designee), without recourse, all right, title and
interest of Bank in and to (a) Receivables created on or after
the Initial Account Transfer Dates, Account Transfer Dates and
Origination Dates, as applicable, (b) all monies due or to become
due with respect thereto, (c) all proceeds of such Receivables,
and (d) Insurance Proceeds, if any, relating thereto
(collectively, the "Transferred Assets"). Pursuant to the terms
of the Assignment Agreement, in the event the sale, transfer,
assignment or conveyance of the Transferred Assets is deemed to
create a security interest, Bank has granted a security interest
in the Transferred Assets to Company.
To the extent not defined herein, capitalized terms
used herein have the meanings assigned to such terms in the
Assignment Agreement. As used in this opinion, the term
"Accounts" does not include Additional Accounts (as defined in
the Assignment Agreement) other than the Accounts transferred
pursuant to the Additional Accounts Assignments and the term
"Receivables" does not include Receivables arising from
Additional Accounts, other than Receivables arising from Accounts
transferred pursuant to the Additional Accounts Assignments. As
used in this opinion, the term "Bank's Receivables" means that
portion of the Transferred Assets that constitute the Receivables
of Accounts owned by Bank (the "Bank's Accounts"), which
Receivables (i) came into existence from and after the applicable
Initial Transfer Dates, Account Transfer Dates and Origination
Dates, as applicable, and (ii) arise from Bank's Accounts that
are set forth on Schedule I of the Pooling and Servicing
Agreement as of the date of this opinion, except Receivables of
Charged-Off Accounts. As used in this opinion, the term "Arizona
Code" means the Uniform Commercial Code as in effect in the State
of Arizona (Title 47, Arizona Revised Statutes).
For purposes of this opinion, we have examined such
questions of law and fact as we have deemed necessary or
appropriate, and we have examined, and relied as to matters of
fact upon, the following documents:
A. The Pooling and Servicing Agreement, as executed
by SRFG, Company and Trustee;
B. The Assignment Agreement, as executed by Bank and
Company;
C. The financing statement on Form UCC-1, dated
November 21, 1994, naming Bank as debtor/seller and Company as
secured party/purchaser, as executed by Bank, and filed with the
Office of the Secretary of State of the State of Arizona on
November 21, 1994, at File No. 809828 as modified by that
financing statement change on Form UCC-2, dated and effective as
of September 17, 1994, as executed by Bank and Company, and filed
with the Office of the Secretary of State of the State of Arizona
on May 1, 1995, that financing statement change on Form UCC-2,
dated August 1, 1995, as executed by Bank and Company, and filed
with the Office of the Secretary of State of the State of Arizona
on November 2, 1995, that financing statement change on Form UCC-
2, dated April 1, 1997, as executed by Bank and Company, and
filed with the Office of the Secretary of State of the State of
Arizona on May 6, 1997 and that financing statement change on
Form UCC-2, dated as of April 24, 1997, as executed by Bank and
Company, and filed with the Office of the Secretary of State of
the State of Arizona on July 28, 1997; the financing statement on
Form UCC-1, dated and effective as of March 3, 1995, naming Bank
as debtor/seller and Company as secured party/purchaser, as
executed by Bank, and filed with the Office of the Secretary of
State of the State of Arizona on July 14, 1995, at File No.
838864 as modified by that financing statement change on Form UCC-
2, dated April 1, 1997, as executed by Bank and Company, and
filed with the Office of the Secretary of State of the State of
Arizona on May 6, 1997; the financing statement on Form UCC-1,
dated and effective as of August 1, 1995, naming Bank as
debtor/seller and Company as secured party/purchaser, as executed
by Bank, and filed with the Office of the Secretary of State of
the State of Arizona on November 2, 1995, at File No. 852898 as
modified by that financing statement change on Form UCC-2, dated
April 1, 1997, as executed by Bank and Company, and filed with
the Office of the Secretary of State of the State of Arizona on
May 6, 1997; the financing statement on Form UCC-1, dated and
effective as of December 1, 1995, naming Bank as debtor/seller
and Company as secured party/purchaser, as executed by the Bank,
and filed with the Secretary of State of Arizona on April 15,
1996, at File No. 893381 as modified by that financing statement
change on Form UCC-2, dated April 1, 1997, as executed by Bank
and Company, and filed with the Office of the Secretary of State
of the State of Arizona on May 6, 1997; and the financing
statement on Form UCC-1, dated and effective as of September 1,
1996, naming Bank as debtor/seller and Company as secured
party/purchaser, as executed by Bank, and filed with the Office
of the Secretary of State of the State of Arizona on November 12,
1996, at File No. 943348 as modified by that financing statement
change on Form UCC-2, dated April 1, 1997, as executed by Bank
and Company, and filed with the Office of the Secretary of State
of the State of Arizona on May 6, 1997 (collectively, the
"Financing Statements");
D. The Certificate of Bank, dated as of ____________,
_______ executed on behalf of Bank by Roger G. Schwierjohn, its
President (the "Certificate of Bank"); and
E. The Certificate of Financing Statements issued by
the Office of the Secretary of State of the State of Arizona
dated ______________, _______ relating to financing statements
and related filings with respect to Bank filed in the Office of
the Secretary of State of the State of Arizona through
___________, _________ (other than UCC documents received in the
Office of the Secretary of State of Arizona one to five working
days prior to the search date that may not be reflected in the
search data) (the "Search Report").
Based upon the foregoing, and subject to the
qualifications, limitations and assumptions set forth herein, we
are of the opinion that, to the extent that: (i) the Assignment
Agreement creates a valid security interest in Bank's Receivables
in favor of Company; and (ii) perfection and the effect of
perfection or nonperfection of such security interest is governed
by the Arizona Code, then:
1. the Financing Statements having been filed with
the Office of the Secretary of State of the State of Arizona, the
interest of Company in Bank's Receivables constitutes or will
constitute a perfected security interest in: (a) Bank's
Receivables as of, and after, the time those Bank's Receivables
are created; and (b) proceeds (as defined in the Arizona Code) of
such Bank's Receivables (the "Proceeds") (to the extent the laws
of the State of Arizona are applicable thereto), as limited by
Section 9306 of the Arizona Code; and
2. the security interest as described in subparagraph
1. above is enforceable as such against, and is prior to,
creditors of, and purchasers from, Bank, except as priority
thereof may be subject to: (a) with respect to Bank's
Receivables, if any, represented by chattel paper (as defined in
the Arizona Code) ("Chattel Paper") and Proceeds thereof, the
interest of a purchaser of such Chattel Paper under Section 9308
of the Arizona Code; (b) with respect to Bank's Receivables, if
any, evidenced by instruments (as defined in the Arizona Code)
("Instruments") and Proceeds thereof, (i) the rights of third
parties as to Instruments that are not in the possession of
Company, and (ii) security interests of third parties perfected
for twenty-one days under Section 9304 of the Arizona Code; (c)
with respect to Proceeds, the limitations in Section 9306 of the
Arizona Code; (d) liens or claims in favor of any federal, state
or local governmental authority or any agency or instrumentality
thereof (including, without limitation, any federal or state tax
lien or lien arising under Title IV of the Employee Retirement
Income Security Act of 1974, as amended) which are given priority
by operation of applicable law over perfected security interests;
and (e) other liens, encumbrances or charges that may be given
priority over perfected security interests pursuant to applicable
law (except liens, encumbrances or charges against Bank that are
perfected by the filing of a financing statement with the Office
of the Secretary of State of the State of Arizona). With respect
to clause (b) above, we note that Bank covenants in Section 3.6
of the Assignment Agreement to the effect that no Receivable will
be evidenced by an Instrument, except in connection with the
enforcement or collection of an Account by Bank.
The opinions set forth in this letter are subject to
the following qualifications, limitations and exceptions:
a. Enforcement of the interest created under the
Assignment Agreement may be limited by general principles of
equity (regardless of whether considered in a proceeding in law
or equity).
b. We express no opinion as to: (i) the creation,
validity or enforceability of any interest of Bank in Bank's
Receivables; (ii) the legal or equitable title of Bank to any of
Bank's Receivables; (iii) whether the transfer of Bank's
Receivables from Bank to Company creates or constitutes a valid
sale, conveyance, transfer and assignment or the grant of a
security interest; (iv) whether the Receivables constitute
"accounts," "general intangibles" or "chattel paper," as such
terms are defined in the Arizona Code; and (v) whether the laws
of the State of Arizona apply to the Proceeds.
c. We have assumed: (i) the due and valid
authorization, execution and delivery by the respective parties
of the Assignment Agreement and the Financing Statements; (ii)
that all such parties had the legal power to act in the capacity
in which such parties are to act under the Assignment Agreement
and the Financing Statements; (iii) the genuineness of all
signatures not witnessed, the authenticity of documents submitted
as originals and conformity to originals of all copies; (iv) that
the Assignment Agreement and the Financing Statements constitute
valid and legally binding obligations of each party thereto,
enforceable against each party in accordance with their
respective terms; and (v) that the Assignment Agreement and the
Financing Statements since execution have been, and at all times
until their termination will be, official records of Bank. We
note that the Certificate of Bank confirms that the Assignment
Agreement and the Financing Statements have been and are kept as
the official records of Bank.
d. In expressing the opinions set forth herein, we
have assumed that: (i) the execution and delivery of the
Assignment Agreement, the Financing Statements and the
consummation and performance of the transactions contemplated by
the Assignment Agreement and the Financing Statements will not
conflict with or result in a violation of any (A) applicable law
or rule affecting Bank, (B) judgment, order or decree of any
court, regulator or arbiter to which Bank is a party or by which
it is bound, or (C) contract, indenture, instrument or other
agreement to which Bank is a party or by which it is bound; and
(ii) the Assignment Agreement and the Financing Statements
accurately describe and contain the mutual understanding of the
parties, and that there are no oral or written statements or
agreements that modify, amend or vary, or purport to modify,
amend or vary, any of the terms of the Assignment Agreement or
the Financing Statements.
e. We have assumed the accuracy and completeness of,
and relied without independent investigation or verification
upon, the Certificate of Bank and the Search Report.
f. We have assumed that in connection with the
transfer of the Accounts from Company to Bank pursuant to the
Assignment Agreement that all financing statements and other
notices have been filed, and all other actions have been taken,
as required by the Assignment Agreement and applicable law.
g. We have assumed that the computer files of Bank
and Company clearly indicate the assignment of the Receivables
from Bank to Company. We note that the Certificate of Bank
confirms this assumption.
h. In rendering the opinions expressed herein, we
have assumed, without independent investigation or verification,
based solely upon the Search Report and the Certificate of Bank,
that Bank owns Bank's Receivables and has good and marketable
title to Bank's Receivables free and clear of all liens, claims
or other interests of any person or entity, except for: (i) the
interests of Company and Bank, respectively, arising pursuant to
the Assignment Agreement; (ii) any liens, claims or interests of
any person or entity reflected on the Search Report; (iii) any
liens, claims or other interests of SRFG; and (iv) any liens,
claims or other interests of the Trust. We note that the
Certificate of Bank states that Bank has not received notice that
any person claims any lien, claim, security interest or other
interest against Bank's Receivables or the Proceeds thereof.
i. In rendering the opinions expressed herein, we
have assumed, without independent investigation or verification,
that none of the Bank's Accounts and none of the Bank's
Receivables includes any accounts or receivables sold to: (i) Max
Recovery Trust I ("Max Trust") pursuant to that Purchase and Sale
Agreement dated as of March 25, 1997, among the Company, Bank and
SRFG as Sellers and Max Trust as Buyer (the "Max Trust Purchase
and Sale Agreement"); (ii) Credit Card Rehabilitation Master
Trust 1998-I ("Rehabilitation Trust") pursuant to that Purchase
and Sale Agreement dated as of February 20, 1998, among the
Company, Bank and SRFG as Sellers and Rehabilitation Trust as
Buyer and Coldata Financial Management, LLC (the "Rehabilitation
Trust Purchase and Sale Agreement"); (iii) Equifax Risk
Management Services, a division of Equifax Credit Information
Services, Inc. ("Equifax") pursuant to that Purchase and Sale
Agreement dated as of June 30, 1998, among the Company, Bank and
SRFG as Sellers and Equifax as Buyer (the "Equifax Purchase and
Sale Agreement"); (iv) Max Recovery, Inc. ("Max Recovery")
pursuant to that Purchase and Sale Agreement dated as of
September 14, 1999, among the Company, Bank and SFRG as Sellers
and Max Recovery as Buyer (the "Max Recovery Purchase and Sale
Agreement"); and (v) Equifax Credit Information Services, Inc.
("Equifax Credit") pursuant to that Purchase and Sale Agreement
dated as of October 29, 1999, among the Company, Bank and SFRG as
Sellers and Equifax Credit as Buyer. We note that: (v) the form
of Assignment attached as Exhibit D to the Max Trust Purchase and
Sale Agreement and the financing statement on Form UCC-1 naming
Bank as debtor and Max Trust as secured party, filed with the
Office of the Secretary of State of the State of Arizona on April
7, 1997 at File No. 962736, both indicate that the accounts
transferred to Max Trust pursuant to the Max Trust Purchase and
Sale Agreement do not include accounts relating to receivables
transferred by SRFG to the Trust, except "Charged-Off Accounts"
as to which no election was made to keep such Charged-Off
Accounts in the Trust pursuant to the Pooling and Servicing
Agreement; (w) the form of Assignment attached as Exhibit D to
the Rehabilitation Trust Purchase and Sale Agreement and the
financing statement on Form UCC-1 naming Bank as debtor and
Rehabilitation Trust as secured party, filed with the Office of
the Secretary of State of the State of Arizona on February 24,
1998 at File No. 01005624 both indicate that the accounts
transferred to Rehabilitation Trust pursuant to the
Rehabilitation Trust Purchase and Sale Agreement do not include
accounts relating to receivables transferred by SRFG to the
Trust, except "Charged-Off Accounts" as to which no election was
made to keep such Charged-Off Accounts in the Trust pursuant to
the Pooling and Servicing Agreement; (x) the form of Bill of Sale
and Assignment attached as Exhibit D-1 to the Equifax Purchase
and Sale Agreement indicates that the accounts transferred to
Equifax pursuant to the Equifax Purchase and Sale Agreement do
not include accounts relating to receivables transferred by SRFG
to the Trust, except "Charged-Off Accounts" as to which no
election was made to keep such Charged-Off Accounts in the Trust
pursuant to the Pooling and Servicing Agreement; (y) the form of
Bill of Sale and Assignment attached as Exhibit D-1 to the Max
Recovery Purchase and Sale Agreement and the financing statement
on Form UCC-1 naming Bank as debtor and Max Recovery as secured
party, filed with the Office of the Secretary of State of the
State of Arizona on October 18, 1999 at File No. 1088772 both
indicate that the accounts transferred to Max Recovery pursuant
to the Max Recovery Purchase and Sale Agreement do not include
accounts relating to receivables transferred by SFRG to the
Trust, except "Charged-Off Accounts" as to which no election was
made to keep such Charged-Off Accounts in the Trust pursuant to
the Pooling and Servicing Agreement; and (z) the form of Bill of
Sale and Assignment attached as Exhibit D-1 to the Equifax Credit
Purchase and Sale Agreement indicates that the accounts
transferred to Equifax Credit pursuant to the Equifax Credit
Purchase and Sale Agreement do not include accounts relating to
receivables transferred by SRFG to the Trust, except "Charged-Off
Accounts" as to which no election was made to keep such Charged-
Off Accounts in the Trust pursuant to the Pooling and Servicing
Agreement.
j. In expressing the opinions set forth herein, we
have assumed that in the event that a change in name, identity or
corporate structure of Bank makes the Financing Statements
seriously misleading within the meaning of Section 9402 of the
Arizona Code, or Bank changes the location of its chief executive
office, Bank will file such financing statements or amendments as
may be necessary to continue the perfection of the interest of
Company in Bank's Receivables as required by Section 3.4 of the
Assignment Agreement within the time specified in Sections 9402
or 9103 of the Arizona Code, as the case may be. In addition, we
have assumed that any continuation statement will be filed within
the time specified by Section 9403 of the Arizona Code.
k. In rendering the opinions expressed herein, we
have assumed, without independent investigation or verification,
based upon the Certificate of Bank, that except to the extent
disclosed in the Certificate of Bank: (i) Bank has not changed
its name, whether by amendment of its Articles of Association, by
reorganization or otherwise, within the last four months; and
(ii) Bank has not changed the location of its chief executive
office or its principal place of business within the last four
months.
l. No opinion is expressed herein with respect to:
(i) Receivables arising from Additional Accounts (as defined in
the Assignment Agreement) other than Receivables arising from
Accounts transferred pursuant to the Additional Accounts
Assignments; (ii) Receivables arising from Accounts that are
repurchased pursuant to Section 2.2 of the Assignment Agreement;
or (iii) the Proceeds of the foregoing.
m. We express no opinion as to the priority of any
security interest of Company against: (i) any liens, claims or
other interests that arise by operation of law (including,
without limitation, to the extent a lien creditor has attached or
levied against Bank's Receivables prior to the transfer thereof
to Company) and do not require any filing, possession or similar
action in order to take priority over perfected security
interests; (ii) any liens, claims or other interests that have
been improperly filed, noticed or claimed; (iii) any liens,
claims or other interests of SRFG in Bank's Receivables; (iv) any
liens, claims or other interests of the Trust in Bank's
Receivables; (v) a security interest perfected under the laws of
a jurisdiction other than Arizona to the extent that Bank's
Receivables were located in such jurisdiction within the last
four months; (vi) the rights of a holder of a purchase money
security interest; (vii) any portion of Bank's Receivables
constituting proceeds of a security interest of a third party;
(viii) as to Proceeds represented by Instruments or Chattel
Paper, the rights of the holders of such Instruments or the
rights of the purchaser of such Chattel Paper; (ix) the rights or
interests of a receiver or conservator of Bank under federal law;
and (x) the Proceeds of any Bank Receivables due from any
federal, state or local government. We note that the Certificate
of Bank confirms that none of Bank's Receivables are subject to
the rights of a holder of a purchase money security interest and
none of the Obligors on any of the Accounts are the United
States, any state or local government, or any agency or
instrumentality of the United States, any state or local
government.
n. We express no opinion as to the consequences of
the insolvency of Bank, or the conservatorship or receivership of
Bank in which the Federal Deposit Insurance Corporation, or any
other governmental authority or entity, is appointed conservator
or receiver of Bank.
o. We are qualified to practice law in the State of
Arizona, and we do not express any opinion concerning any law
other than the law of the State of Arizona. Without limiting the
generality of the preceding sentence, we express no opinion on
any matters of federal law. We also note that the Assignment
Agreement provides that it shall be governed by the law of the
State of Illinois. We have assumed that under the Uniform
Commercial Code as in effect in the State of Illinois, the
perfection and the effect of perfection or nonperfection of a
security interest in Bank's Receivables is governed by the law of
the jurisdiction in which the debtor is located. We express no
opinion as to whether Arizona or Illinois law applies to the
Proceeds.
p. The opinions expressed in this letter are based
upon the law in effect as of the date hereof, and we assume no
obligation to revise or supplement this opinion should such law
be changed by legislative action, judicial decision or otherwise.
* * *
This opinion is being furnished to you solely for your
benefit in connection with the transactions contemplated by the
Pooling and Servicing Agreement. This opinion is not to be used,
circulated or quoted in any manner or otherwise referred to or
relied on for any other purpose or by any other person or entity
without, in each instance, our express written consent, except
that Company, SRFG, [underwriters] [rating agencies] may rely
upon this opinion as if this Opinion were addressed to them.
Very truly yours,
EXHIBIT A
1. SUPPLEMENTS:
A. Series 1994-1 Supplement, dated as of August 16, 1994.
B. Series 1994-2 Supplement, dated as of October 12, 1994.
C. Series 1995-1 Supplement, dated as of January 4, 1995.
D. Series 1995-2 Supplement, dated as of January 20, 1995.
E. Series 1995-3 Supplement, dated as of May 8, 1995.
F. Series 1995-4 Supplement, dated as of September 6, 1995.
G. Series 1995-5 Supplement, dated as of December 12, 1996.
H. Series 1996-1 Supplement, dated as of March 26, 1996.
I. Series 1996-2 Supplement, dated as of May 17, 1996.
J. Series 1996-3 Supplement, dated as of August 6, 1996.
K. Series 1996-4 Supplement, dated as of October 29, 1996.
L. Series 1996-5 Supplement, dated as of December 16, 1996.
M. Series 1997-1 Supplement, dated as of July 31, 1997.
N. Series 1998-1 Supplement, dated as of June 2, 1998.
O. Series 1998-2 Supplement, dated as of November 9, 1998.
P. Series 1999-1 Supplement, dated as of March 23, 1999.
Q. Series 1999-2 Supplement, dated as of September 27, 1999.
R. Series 1999-3 Supplement, dated as of November 23, 1999.
S. Series _______ Supplement, dated as of _____________, _____.
2. AMENDMENTS:
A. Amendment, dated March 31, 1995.
B. Amendment No. 2, dated December 21, 1995.
3. ASSIGNMENTS OF ADDITIONAL ACCOUNTS:
A. Assignment No. 1 of Additional Accounts, dated as of
October 26, 1994.
B. Assignment No. 2 of Additional Accounts, dated as of
July 19, 1995.
C. Assignment No. 3 of Additional Accounts, dated as of
November 10, 1995.
D. Assignment No. 4 of Additional Accounts, dated as of
December 21, 1995.
E. Assignment No. 5 of Additional Accounts, dated as of
April 24, 1996.
F. Assignment No. 6 of Additional Accounts, dated as of
November 15, 1996.
G. Assignment No. 7 of Additional Accounts, dated as of August
15, 1997.
H. Assignment No. 8 of Additional Accounts, dated as of June
29, 1998.
4. REASSIGNMENTS OF RECEIVABLES
A. Reassignment No. 1 of Receivables, dated as of June 30,
1997.
EXHIBIT B
1. AMENDMENTS:
A. First Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of September 16, 1994.
B. Second Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of September 17, 1994.
C. Third Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of August 1, 1995.
D. Fourth Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of July 18, 1996.
E. Fifth Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of October 1, 1996.
F. Sixth Amendment to Assignment of Accounts and Sale of
Receivables Agreement, dated as of April 24, 1997.
2. BANK ORIGINATED ACCOUNTS ASSIGNMENTS:
A. Assignment of Receivables of Bank Originated Accounts
No. 1. dated as of March 2, 1995.
B. Assignment No. 2 of Receivables of Bank Originated
Accounts, dated as of July 1, 1995.
C. Assignment No. 3 of Receivables of Bank Originated
Accounts, dated as of October 1, 1995.
D. Assignment No. 4 of Receivables of Bank Originated
Accounts, dated as of December 1, 1995.
E. Assignment No. 5 of Receivables of Bank Originated
Accounts, dated as of February 1, 1996.
F. Assignment No. 6 of Receivables of Bank Originated
Accounts, dated as of April 1, 1996.
G. Assignment No. 7 of Receivables of Bank Originated
Accounts, dated as of June 1, 1996.
H. Assignment No. 8 of Receivables of Bank Originated
Accounts, dated as of August 1, 1996.
I. Assignment No. 9 of Receivables of Bank Originated
Accounts, dated as of October 1, 1996.
J. Assignment No. 10 of Receivables of Bank Originated
Accounts, dated as of December 1, 1996.
K. Assignment No. 11 of Receivables of Bank Originated
Accounts, dated as of February 1, 1997.
L. Assignment No. 12 of Receivables of Bank Originated
Accounts, dated as of April 1, 1997.
M. Assignment No. 13 of Receivables of Bank Originated
Accounts, dated as of June 1, 1997.
N. Assignment No. 14 of Receivables of Bank Originated
Accounts, dated as of August 1, 1997.
O. Assignment No. 15 of Receivables of Bank Originated
Accounts, dated as of October 1, 1997.
P. Assignment No. 16 of Receivables of Bank Originated
Accounts, dated as of December 1, 1997.
Q. Assignment No. 17 of Receivables of Bank Originated
Accounts, dated as of February 1, 1998.
R. Assignment No. 18 of Receivables of Bank Originated
Accounts, dated as of April 1, 1998.
S. Assignment No. 19 of Receivables of Bank Originated
Accounts, dated as of June 1, 1998.
T. Assignment No. 20 of Receivables of Bank Originated
Accounts, dated as of August 1, 1998.
U. Assignment No. 21 of Receivables of Bank Originated
Accounts, dated as of October 1, 1998.
V. Assignment No. 22 of Receivables of Bank Originated
Accounts, dated as of December 1, 1998.
W. Assignment No. 23 of Receivables of Bank Originated
Accounts, dated as of February 1, 1999.
X. Assignment No. 24 of Receivables of Bank Originated
Accounts, dated as of April 1, 1999.
Y. Assignment No. 25 of Receivables of Bank Originated
Accounts, dated as of June 1, 1999.
Z. Assignment No. 26 of Receivables of Bank Originated
Accounts, dated as of August 1, 1999.
AA. Assignment No. 27 of Receivables of Bank Originated
Accounts, dated as of October 1, 1999.
BB. Assignment No. 28 of Receivables of Bank Originated
Accounts, dated as of December 1, 1999
CC. Assignment No. ___ of Receivables of Bank Originated
Accounts, dated as of _____________, ________
3. ADDITIONAL ACCOUNTS ASSIGNMENTS
A. Assignment No. 1 of Additional Accounts, dated as of
March 3, 1995.
B. Assignment No. 2 of Additional Accounts, dated as of
August 1, 1995.
C. Assignment No. 3 of Additional Accounts, dated as of
December 1, 1995.
D. Assignment No. 4 of Additional Accounts, dated as of
September 1, 1996.
[LETTERHEAD OF LATHAM & WATKINS]
December 1, 1999
SRFG, Inc. Sears, Roebuck and Co.
3711 Kennett Pike 3333 Beverly Road
Greenville, Delaware 19807 Hoffman Estates, Illinois 60179
Re: Sears Credit Account Master Trust II
Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the filing of the registration
statement on Form S-3 with the Securities and Exchange Commission
on December 2, 1999 (the "Registration Statement") by SRFG, Inc.
(formerly Sears Receivables Financing Group, Inc.) ("SRFG")
relating to the Sears Credit Account Master Trust II (the
"Trust"), you have requested our opinion regarding the
description of the material tax consequences related to the
issuance of investor certificates of a series (the "Offering)" as
described in the prospectus (the "Prospectus") included in the
Registration Statement. Capitalized terms not otherwise defined
herein have the meanings ascribed to them in the Prospectus.
Our opinion is based on our examination of the
Prospectus, the Prospectus Supplement, the Pooling and Servicing
Agreement dated as of July 31, 1994, as amended, among Sears,
Roebuck and Co. ("Sears") as Servicer, SRFG as Seller and Bank
One, National Association (formerly The First National Bank of
Chicago) as Trustee, and such other documents, instruments and
information as we considered necessary. Our opinion also is
based on (i) the assumption that neither the Trustee nor any
affiliate thereof will become either the Servicer or the delegee
of the Servicer; (ii) the assumption that all agreements relating
to the issuance of the investor certificates and the creation of
the Trust will remain in full force and effect; (iii) currently
applicable provisions of the federal income tax laws, including
the Internal Revenue Code of 1986, as amended, applicable
Treasury Regulations promulgated thereunder, judicial authority
and current administrative rulings and practice; (iv) currently
applicable provisions of the income tax laws of Illinois,
including regulations, judicial and other authority that we
consider relevant; and (v) legal opinions rendered by local tax
counsel retained by Sears and SRFG relating to the income and/or
franchise tax laws of Arizona, Delaware, Georgia, Ohio and Texas
(upon which we have relied for purposes of rendering our opinion
with respect to the laws of such states).
We also note that the documents reviewed do not relate
to a specific transaction. Accordingly, the above-referenced
description of material tax consequences of the Offering may,
under certain circumstances, require modification in the context
of a specific transaction.
Based on the foregoing, it is our opinion that, as of
the date hereof, the statements in the Prospectus under the
captions "Federal Income Tax Consequences" and "State Tax
Consequences," to the extent that they constitute matters of law
or legal conclusions with respect thereto, are a fair and
accurate summary of the material tax consequences of the
Offering, under existing law and the assumptions stated therein.
We consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our firm name
under the captions "Federal Income Tax Consequences" and "State
Tax Consequences" in the Prospectus included in the Registration
Statement.
Very truly yours,
/s/ Latham & Watkins
RECEIVABLES WAREHOUSE AGREEMENT
This RECEIVABLES WAREHOUSE AGREEMENT (this "Agreement")
is made as of this 21st day of December, 1995, by and between
SEARS, ROEBUCK AND CO., a New York corporation ("Sears"), having
its offices at 3333 Beverly Road, Hoffman Estates, Illinois 60179
and SEARS RECEIVABLES FINANCING GROUP, INC., a Delaware
corporation ("SRFG") having its office at 3711 Kennett Pike,
Greenville, Delaware 19807.
WHEREAS, Sears and SRFG are parties to the following
agreements (collectively, the "Purchase and Contribution
Agreements"):
(i) Purchase Agreement dated as of January
18, 1990, and Assignment dated as of January 18,
1990, each relating to the Sears Credit Account
Trust 1990 A, as amended by that certain
Additional Assignment dated as of June 1, 1992, as
amended by that certain Supplemental Purchase
Agreement dated as of September 15, 1994 (the
"SCAT 1990 A Purchase Agreement");
(ii) Contribution Agreement dated as of
January 18, 1990, and Assignment dated as of
January 18, 1990, each relating to the Sears
Credit Account Trust 1990 A, as amended by that
certain Supplemental Contribution Agreement dated
as of September 15, 1994 (the "SCAT 1990 A
Contribution Agreement");
(iii) Purchase Agreement dated as of
March 1, 1990, and Assignment dated as of March 1,
1990, each relating to the Sears Credit Account
Trust 1990 B, as amended by that certain
Supplemental Purchase Agreement dated as of
September 15, 1994 (the "SCAT 1990 B Purchase
Agreement");
(iv) Contribution Agreement dated as of March
1, 1990, and Assignment dated as of March 1, 1990,
each relating to the Sears Credit Account Trust
1990 B, as amended by that certain Supplemental
Contribution Agreement dated as of September 15,
1994 (the "SCAT 1990 B Contribution Agreement");
(v) Purchase Agreement dated as of April 19,
1990, and Assignment dated as of April 19, 1990,
each relating to the Sears Roebuck Euro Accounts
Receivable Select Trust 1990-1, as amended by that
certain Additional Assignment dated as of June 4,
1993, as amended by that certain Supplemental
Purchase Agreement dated as of September 15, 1994
(the "Euro 1990-1 Purchase Agreement");
(vi) Contribution Agreement dated as of April
19, 1990, and Assignment dated as of April 19,
1990, each relating to the Sears Roebuck Euro
Accounts Receivable Select Trust 1990-1, as
amended by that certain Supplemental Contribution
Agreement dated as of September 15, 1994 (the
"Euro 1990-1 Contribution Agreement");
(vii) Purchase Agreement dated as of
August 1, 1990, and Assignment dated as of August
1, 1990, each relating to the Sears Credit Account
Trust 1990 C, as amended by that certain
Supplemental Purchase Agreement dated as of
September 15, 1994 (the "SCAT 1990 C Purchase
Agreement");
(viii) Contribution Agreement dated as of
August 1, 1990, and Assignment dated as of August
1, 1990, each relating to the Sears Credit Account
Trust 1990 C, as amended by that certain
Supplemental Contribution Agreement dated as of
September 15, 1994 (the "SCAT 1990 C Contribution
Agreement");
(ix) Purchase Agreement dated as of October
16, 1990, relating to the Sears Credit Account
Trust 1990 D, as amended by that certain
Supplemental Purchase Agreement dated as of
September 15, 1994 (the "SCAT 1990 D Purchase
Agreement"); and
(x) Contribution Agreement dated as of
October 16, 1990, relating to the Sears Credit
Account Trust 1990 D, as amended by that certain
Supplemental Contribution Agreement dated as of
September 15, 1994 (the "SCAT 1990 D Contribution
Agreement").
WHEREAS, pursuant to the provisions of the Purchase and
Contribution Agreements, Sears did sell, transfer and assign and
otherwise convey to SRFG, without recourse, all right, title and
interest of Sears in and to certain receivables.
WHEREAS, SRFG transferred the receivables into various
trusts, which have now terminated.
WHEREAS, when such trusts terminated, the receivables
from each trust were transferred by the trustee with respect
thereto to SRFG.
WHEREAS, Sears and SRFG desire to amend the terms and
conditions by which SRFG holds such receivables, and to permit
SRFG to hold the receivables in additional accounts on the same
terms and conditions.
WHEREAS, Sears and SRFG desire to permit SRFG to
transfer receivables into trusts, whether now existing or to be
formed in the future.
WHEREAS, Sears and SRFG may desire in the future to
amend the terms and conditions by which SRFG holds receivables
contributed or sold to it by Sears pursuant to other purchase and
contribution agreements.
NOW THEREFORE, in consideration of the foregoing, other
good and valuable consideration and the mutual terms and
covenants contained herein, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall,
unless the context otherwise requires, have the following
meanings (such meanings to be equally applicable to the singular
and plural forms of the terms defined):
"Account" shall mean an open-end retail charge plan for
specified Persons, maintained by Sears or an affiliate of Sears
with respect to the sale of goods or services, receivables under
which are transferred to SRFG pursuant to this Agreement. Unless
SRFG otherwise elects, no Account shall be a Charged-Off Account
as of the Account Selection Date. Each Account shall be
identified by account number on Schedule 1 to this Agreement (as
such Schedule 1 is amended from time to time). The definition of
Account shall include each account (a "Transferred Account") into
which an Account shall be transferred provided that (i) such
transfer was made in accordance with the Credit Guidelines and
(ii) such Transferred Account can be traced or identified as an
account into which an Account has been transferred. The term
"Account" shall be deemed to refer to an Additional Account only
from and after the Additional Account Cut-Off Date with respect
thereto.
"Account Selection Date" for any Account, shall mean,
collectively, the last day of the Due Periods ending in September
1989, November 1989, February 1990 and June 1990 and, with
respect to Additional Accounts, the Account Selection Date
identified in the Additional Assignment with respect thereto.
"Add-ons" shall mean Receivables arising in the
Accounts after the Cut-Off Date.
"Addition Date" shall mean the date of an Additional
Assignment as described in Section 3.01 hereof.
"Additional Account Cut-Off Date" shall have the
meaning specified in Section 3.01 hereof.
"Additional Accounts" shall mean Accounts designated as
Additional Accounts pursuant to Section 3.01 or 3.02 hereof.
"Additional Assignment" shall have the meaning
specified in Section 3.01 hereof.
"Agreement" shall mean this Receivables Warehouse
Agreement and all amendments hereof and supplements hereto.
"Billing Cycle" for any Account shall mean the billing
cycle for such Account as determined by Sears or the applicable
affiliate of Sears in accordance with its normal practice.
"Charged-Off Account" shall mean each Account with
respect to which the Receivables in such Account have been
charged-off as uncollectible.
"Collections" shall mean (i) all payments including
Insurance Proceeds, if any, received by Sears or an affiliate of
Sears in respect of the Receivables at one of its central
administrative units charged with processing funds and recording
them in Sears or such affiliate's records, as applicable, in the
form of cash, checks, wire transfers, ATM transfers or other
forms of payment in accordance with a Credit Agreement in effect
from time to time and (ii) amounts treated as Collections
pursuant to various provisions of each Pooling and Servicing
Agreement. A Collection processed on an Account in excess of the
aggregate amount of Receivables in such Account shall be credited
to such Account or refunded to the Obligor by Sears or an
affiliate of Sears in accordance with its normal practice.
"Contributed Receivables" shall mean the Receivables
that were originally transferred by Sears to SRFG pursuant to the
SCAT 1990 A Contribution Agreement, the SCAT 1990 B Contribution
Agreement, the Euro 1990-1 Contribution Agreement, the SCAT 1990
C Contribution Agreement and the SCAT 1990 D Contribution
Agreement.
"Credit Agreement" shall mean, with respect to an
Account, the contract governing such Account.
"Credit Guidelines" shall mean the policies and
procedures relating to the operation of the credit business of
Sears or its affiliates, including, without limitation, the
written policies and procedures and the exercise of judgment by
employees of Sears or its affiliates in accordance with the
normal practice of Sears or its affiliates, as applicable, for
determining the creditworthiness of credit customers and the
extension of credit to customers, and relating to the maintenance
of credit accounts and collection of credit receivables, as such
policies and procedures may be amended from time to time.
"Cut-Off Date" for any Account shall mean (i) with
respect to any Account the Receivables in which were originally
transferred to SRFG pursuant to the SCAT 1990 A Purchase
Agreement or the SCAT 1990 A Contribution Agreement, the last day
of the Due Period ending in December 1989, (ii) with respect to
any Account the Receivables in which were originally transferred
to SRFG pursuant to the SCAT 1990 B Purchase Agreement or the
SCAT 1990 B Contribution Agreement, the last day of the Due
Period ending in February 1990, (iii) with respect to any Account
the Receivables in which were originally transferred to SRFG
pursuant to the Euro 1990-1 Purchase Agreement or the Euro 1990-1
Contribution Agreement, the last day of the Due Period ending in
March 1990, (iv) with respect to the SCAT 1990 C Purchase
Agreement or the SCAT 1990 C Contribution Agreement, the last day
of the Due Period ending in July 1990, (v) with respect to the
SCAT 1990 D Purchase Agreement or the SCAT 1990 D Contribution
Agreement, the last day of the Due Period ending in September
1990, and (vi) with respect to any Additional Account, the
Additional Account Cut-Off Date with respect thereto. The Cut-
Off Dates for the Accounts are sometimes collectively referred to
as the "Cut-Off Date."
"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 SRFG at
one of Sears or an affiliate of Sears central administrative
units charged with processing funds and recording them in Sears
or such affiliate's records (without regard to the effective date
of such recordation).
"Distribution Date" shall mean any day which is a
Distribution Date pursuant to any Pooling and Servicing
Agreement.
"Due Period" for any Account at any time, shall mean
the period included in each 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, which 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 Receivable" shall mean each Receivable: (i)
which is payable in United States dollars, (ii) which was created
in compliance, in all material respects, with all Requirements of
Law applicable to Sears or one of its affiliates, as applicable,
and SRFG and pursuant to a Credit Agreement which complies, in
all material respects, with all Requirements of Law applicable to
Sears or one of its affiliates, as applicable, and SRFG, (iii) as
to which, if such Receivable was created before the Original
Agreement Date or the relevant Addition Date, as applicable, at
the time of the conveyance of such Receivable to SRFG, Sears had
or will have good and marketable title thereto free and clear of
all Liens, (iv) as to which, if such Receivable was created on or
after the Original Agreement Date or the relevant Addition Date,
as applicable, at the time of the creation of such Receivable,
SRFG or, as applicable, the Trust to which such Receivable has
been transferred pursuant to the applicable Pooling and Servicing
Agreement, had or will have good and marketable title thereto
free and clear of all Liens arising under or through Sears with
respect to such Receivable, and (v) which constitutes an
"account", "general intangible" or "chattel paper" under and as
defined in Article 9 of the UCC as then in effect in the State of
Illinois or the State of Arizona, as applicable.
"Finance Charge Receivables" with respect to any
Account for any Due Period will mean the amount billed as finance
charges and, if applicable, fees accounted for as finance charges
on such Account for such Due Period.
"Governmental Authority" shall mean the United States
of America, any state or other political subdivision thereof.
"Ineligible Receivable" shall have the meaning
specified in Section 6.05(d) hereof.
"Insurance Proceeds" shall mean any amounts recovered
pursuant to any credit life insurance policies covering any
Obligor with respect to Receivables under such Obligor's Account.
"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.
"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.
"Original Agreement Date" shall mean (i) with respect
to any Account the Receivables in which were originally
transferred to SRFG pursuant to the SCAT 1990 A Purchase
Agreement or the SCAT 1990 A Contribution Agreement, January 18,
1990; (ii) with respect to any Account the Receivables in which
were originally transferred to SRFG pursuant to the SCAT 1990 B
Purchase Agreement or the SCAT 1990 B Contribution Agreement,
March 1, 1990; (iii) with respect to any Account the Receivables
in which were originally transferred to SRFG pursuant to the Euro
1990-1 Purchase Agreement or the Euro 1990-1 Contribution
Agreement, April 19, 1990; (iv) with respect to any Account the
Receivables in which were originally transferred to SRFG pursuant
to the SCAT 1990 C Purchase Agreement or the SCAT 1990 C
Contribution Agreement, August 1, 1990; (v) with respect to any
Account the Receivables in which were originally transferred to
SRFG pursuant to the SCAT 1990 D Purchase Agreement or the SCAT
1990 D Contribution Agreement, October 16, 1990, and (vi) with
respect to any Additional Account designated as such pursuant to
a Trust Account Assignment, the date identified in the Trust
Account Assignment as the Original Agreement Date.
"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.
"Pooling and Servicing Agreement" shall mean each
Pooling and Servicing Agreement by and among Sears as Servicer,
SRFG as Seller and the Trustee with respect thereto, as each such
Pooling and Servicing Agreement may be amended or supplemented
from time to time, pursuant to which Receivables have been
transferred to a Trust.
"Portfolio Repurchase Event" shall have the meaning set
forth in Section 6.05(a) hereof.
"Principal Receivable" shall mean each Receivable other
than Finance Charge Receivables. Any Principal Receivables that
the Seller is required to convey to a Trust pursuant to a Pooling
and Servicing Agreement, and is unable to convey to such Trust as
provided in Section 6.04, shall not be included in calculating
the aggregate amount of Principal Receivables.
"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. A Receivable shall not include
any amount owing under an Account in which the Receivables have
been repurchased pursuant to Section 6.05(d).
"Receivable Repurchase Event" shall have the meaning
set forth in Section 6.05(c) hereof.
"Receivables Purchase Price" shall mean the amounts
paid to Sears by SRFG pursuant to the SCAT 1990 A Purchase
Agreement, the SCAT 1990 B Purchase Agreement, the Euro 1990-1
Purchase Agreement, the SCAT 1990 C Purchase Agreement and the
SCAT 1990 D Purchase Agreement.
"Requirements of Law" for any Person shall mean the
certificate of incorporation and by-laws or other organizational
or governing documents of such Person, and any requirement of any
law, rule or regulation or Governmental Authority, in each case
applicable to or binding upon such Person or to which such Person
is subject, whether federal, state or local (including, without
limitation, usury laws, the Federal Truth in Lending Act and
Regulation Z and Regulation B of the Board of Governors of the
Federal Reserve System); provided, however, that any such
requirement shall not be deemed a Requirement of Law if the
enforcement of such requirement would not have a material adverse
effect upon the collectability of the Receivables taken as a
whole.
"Sears" shall mean Sears, Roebuck and Co., a New York
corporation, and its successors and assigns.
"Seller Servicing Fee" shall have the meaning set forth
in Section 7.02 hereof.
"SRFG" shall mean Sears Receivables Financing Group,
Inc., a Delaware corporation, its successors and assigns.
"Trust" shall mean any Sears Credit Account Trust or
Sears Credit Account Master Trust formed pursuant to a Pooling
and Servicing Agreement.
"Trust Account Assignment" shall have the meaning
specified in Section 3.02 hereto.
"Trustee" shall mean the institution executing any
Pooling and Servicing Agreement as Trustee, or its successor in
interest, or any successor trustee appointed as therein provided.
"UCC" shall mean the Uniform Commercial Code, as
amended from time to time, as in effect in any specified
jurisdiction.
ARTICLE II
PURCHASE AND SALE OF THE RECEIVABLES
OR CONTRIBUTION OF RECEIVABLES AS CAPITAL
Section 2.01 Purchase and Sale of Receivables.
(a) Transfer of Receivables. Sears hereby
confirms that it has sold, transferred, assigned and otherwise
conveyed and does hereby sell, transfer, assign and otherwise
convey to SRFG, without recourse, all right, title and interest
of Sears in and to the Receivables (other than the Contributed
Receivables) existing as of the applicable Cut-Off Dates and
thereafter created, all monies due or to become due with respect
thereto and all proceeds (as defined in Section 9-306 of the UCC
as in effect in the State of Illinois) of such Receivables and
Insurance Proceeds, if any, relating thereto. In the event such
sale, transfer, assignment or conveyance is deemed not to
constitute a valid transfer and assignment to SRFG of all right,
title and interest of Sears in and to such property, Sears does
hereby confirm that it has granted and does hereby grant to SRFG
a security interest therein.
(b) Receivables Purchase Price. In consideration
for the Receivables (except the Contributed Receivables) and
payment by Sears of all expenses of SRFG incurred in connection
with the establishment of the Trusts pursuant to the applicable
Pooling and Servicing Agreements (regardless of the amount of
such expenses), SRFG (i) paid to Sears the Receivables Purchase
Price, (ii) hereby confirms that it has agreed and hereby agrees
to loan (without further action of SRFG) to Sears all Collections
in respect of the Receivables without interest until such funds
are to be disbursed by Sears as Servicer to or on behalf of SRFG
as Seller in accordance with the terms of each applicable Pooling
and Servicing Agreement, which loan shall be payable to SRFG on
demand, and (iii) in further consideration for the Add-ons,
agrees to purchase such Add-ons pursuant to Section 7.03 hereof.
Section 2.02 Contribution of Receivables. Sears
hereby confirms that it has transferred, assigned and otherwise
conveyed and does hereby sell, transfer, assign and otherwise
convey to SRFG, without recourse, all right, title and interest
of Sears in and to the Contributed Receivables existing as of the
applicable Cut-Off Dates and thereafter created, all monies due
or to become due with respect thereto and all proceeds (as
defined in Section 9-306 of the UCC as in effect in the State of
Illinois) of such Receivables and Insurance Proceeds, if any,
relating thereto. In the event such transfer, assignment or
conveyance is deemed not to constitute a valid transfer and
assignment to SRFG of all right, title and interest of Sears in
and to such property, Sears does hereby confirm that it has
granted and hereby grants to SRFG a security interest therein to
secure the obligations of Sears under this Agreement.
ARTICLE III
CONVEYANCE OF ADDITIONAL RECEIVABLES
Section 3.01 Conveyance of Receivables in New
Additional Accounts.
Transfer of Additional Accounts. Upon the request
of SRFG, Sears shall designate from time to time Additional
Accounts to be included as Accounts, the receivables of which
shall be contributed to SRFG or, at Sears written election, sold
to SRFG. Any such designation of Additional Accounts shall be
effective as of the Additional Account Cut-Off Date specified by
SRFG and set forth in the Additional Assignment (as defined
below) ("Additional Account Cut-Off Date"), and shall be
accomplished by the delivery to SRFG by Sears of an executed
written Assignment of Receivables in Additional Accounts (the
"Additional Assignment") substantially in the form of Annex A-1
or Annex A-2 hereto and a computer file, hard copy or microfiche
list containing a true and complete list of all Additional
Accounts identified by account number. If Sears has elected in
writing to sell the receivables in such Additional Accounts to
SRFG, such Additional Assignment shall also be accompanied by the
payment to Sears by SRFG of funds sufficient to purchase the
Receivables in such Additional Accounts on the same terms that
SRFG purchases Add-ons pursuant to Section 7.03. Simultaneously
with the execution of an Additional Assignment, Schedule 1 hereto
shall be amended to include the Additional Accounts.
Section 3.02 Inclusion of Receivables from Trusts.
Sears and SRFG may from time to time designate
Additional Accounts to be included as Accounts under this
Agreement pursuant to an Assignment of Receivables of Trust
Accounts substantially in the form of Annex B hereto (a "Trust
Account Assignment"). As of the Addition Date, the transfer of
the Receivables in such Additional Accounts from Sears to SRFG
shall be governed solely by the terms of this Agreement (as the
same may be amended by such Trust Account Assignment) and any
prior agreements between Sears and SRFG with respect to the
Receivables in such Additional Accounts shall terminate.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01 Representations and Warranties of SRFG.
SRFG hereby represents and warrants to Sears as of the date
hereof:
(a) Organization, etc. SRFG has been duly
incorporated and is validly existing as a corporation and in
good standing under the laws of the State of Delaware, and
has full corporate power and authority to execute and
deliver this Agreement and to perform the terms and
provisions hereof.
(b) Due Authorization. The execution, delivery
and performance by SRFG of this Agreement have been duly
authorized by all necessary corporate action, do not require
any approval or consent of any governmental agency or
authority, do not and will not conflict with any material
provision of the Certificate of Incorporation or By-Laws of
SRFG, and do not and will not conflict with or result in a
breach which would constitute a material default under, any
agreement for borrowed money binding upon or applicable to
it or such of its property which is material to it, or to
the best of SRFG's knowledge, any law or governmental
regulation or court decree applicable to it or such material
property, and this Agreement is the valid, binding and
enforceable obligation of SRFG, except as the same may be
limited by bankruptcy, receivership, insolvency,
reorganization, moratorium or similar laws now or hereafter
in effect relating to creditors' rights generally or general
principles of equity (whether considered in a proceeding at
law or in equity) and the discretion of the court before
which any proceeding therefor may be brought.
Section 4.02 Representations and Warranties of Sears.
Sears hereby represents and warrants to SRFG as of the date
hereof:
(a) Organization, etc. Sears has been duly
incorporated and is validly existing as a corporation and in
good standing under the laws of the State of New York, and
has full corporate power and authority to execute and
deliver this Agreement and to perform the terms and
provisions hereof.
(b) Due Authorization. The execution, delivery
and performance by Sears of this Agreement have been duly
authorized by all necessary corporate action, do not require
any approval or consent of any governmental agency or
authority, do not and will not conflict with any material
provision of the Amended and Restated Certificate of
Incorporation or By-Laws of Sears, and do not and will not
conflict with or result in a breach which would constitute a
material default under, any agreement for borrowed money
binding upon or applicable to it or such of its property
which is material to it or its subsidiaries (whether or not
consolidated) taken as a whole, or to the best of Sears
knowledge, any law or governmental regulation or court
decree applicable to it or such material property, and this
Agreement is the valid, binding and enforceable obligation
of Sears except as the same may be limited by bankruptcy,
receivership, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to
creditors' rights generally, or general principles of equity
(whether considered in a proceeding at law or in equity) and
the discretion of the court before which any proceeding
therefor may be brought.
(c) Accuracy of Information. All information
heretofore furnished by Sears in writing to SRFG for
purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all such information
hereafter furnished by Sears in writing to SRFG will be,
true and accurate in every material respect or based on
reasonable estimates on the date as of which such
information is stated or certified.
(d) Transfer of Receivables. As of the date of
this Agreement, each Receivable then existing on such date
will be, to the best knowledge of Sears, an Eligible
Receivable. In the case of Additional Accounts, as of any
Addition Date, each Receivable then existing under such
Additional Accounts will be, to the best knowledge of Sears,
an Eligible Receivable.
(e) Creation of Receivables. As of the date of
the creation of any Receivable subsequent to the date of
this Agreement, such Receivable will be, to the best
knowledge of Sears, an Eligible Receivable.
(f) Selection of Accounts. The Accounts were not
selected on any basis indicative of creditworthiness, except
that Charged-Off Accounts were not included.
(g) Adverse Proceedings. To the best knowledge
of Sears, there are no proceedings or investigations pending
against Sears before any court, regulatory body,
administrative agency, or other tribunal or governmental
instrumentality having jurisdiction over Sears (A) asserting
the invalidity of this Agreement, (B) seeking to prevent the
consummation of any of the transactions contemplated by this
Agreement or (C) seeking any determination or ruling which
in the judgment of Sears would materially and adversely
affect the performance by Sears of its obligations under
this Agreement or the validity or enforceability of this
Agreement.
ARTICLE V
ADDITIONAL ACTS
Section 5.01 Computer Files Marked. Sears shall, at
its own expense, on or prior to the date hereof, indicate in its
computer files or in the computer files of its affiliates, as
applicable, that Receivables created in connection with the
Accounts have been sold or otherwise conveyed to SRFG pursuant to
this Agreement and deliver to SRFG a computer file, hard copy or
microfiche list containing a true and complete list of all such
Accounts, identified by account number.
Section 5.02 Evidence of UCC Filing. Sears shall
record and file, at its own expense, one or more financing
statements with respect to the Receivables now existing and
hereafter created for the sale or transfer of accounts, general
intangibles or chattel paper as defined in Sections 9-105 and 9-
106 of the UCC as in effect in the State of Illinois meeting the
requirements of Illinois law, in such manner as is necessary to
perfect the sale, transfer, assignment and conveyance of such
Receivables to SRFG, and shall deliver a file-stamped copy of
such financing statement or other evidence of such filing to
SRFG.
ARTICLE VI
COVENANTS OF SEARS
Sears agrees with SRFG as follows:
Section 6.01 Protection of Right, Title and Interest.
(a) Initial Filing. Sears shall cause all
financing statements and continuation statements and any other
necessary documents covering SRFG's right, title and interest to
the Receivables to be promptly filed, and at all times to be kept
recorded, registered and filed, all in such manner and in such
places as may be required by law fully to preserve and protect
the right, title and interest of SRFG hereunder to all property
sold, transferred, assigned or otherwise conveyed hereunder.
Sears shall deliver to SRFG file-stamped copies of, or filing
receipts for, any document recorded, registered or filed as
provided above, as soon as available following such recording,
registration or filing. SRFG shall cooperate fully with Sears in
connection with the obligations set forth above and will execute
any and all documents reasonably required to fulfill the intent
of this Section 6.01(a).
(b) Name Change. Within fifteen days after Sears
makes any change in its name, identity or corporate structure
which would make any financing statement or continuation
statement filed in accordance with paragraph (a) above seriously
misleading within the meaning of Section 9-402(7) of the UCC as
in effect in Illinois, Sears shall give SRFG notice of any such
change and shall file such financing statements or amendments as
may be necessary to continue the perfection of the SRFG security
interest in the Receivables and the proceeds thereof.
Section 6.02 Security Interests. Except for the
conveyances hereunder and pursuant to any applicable Pooling and
Servicing Agreement, Sears will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or
suffer to exist any Lien on any Receivable, whether existing as
of the applicable Cut-Off Date or thereafter created, or any
interest therein, and Sears shall defend the right, title and
interest of SRFG in, to and under such Receivables, whether
existing as of the applicable Cut-Off Date or thereafter created,
against all claims of third parties claiming through or under
Sears. The conveyance of existing or future Receivables to SRFG,
or grant of a security interest therein, under this Agreement or
which is confirmed hereby shall, in the case of Receivables
arising under a Credit Agreement that constitutes chattel paper
or a part of chattel paper, be deemed to include a conveyance of
an interest in, or grant of a security interest in, such chattel
paper to the extent necessary to fully perfect the interest of
SRFG in such Receivables.
Section 6.03 Credit Agreements and Guidelines. Sears
shall service and administer the Accounts in a particular state
or similar jurisdiction in accordance with policies identical to
those used in servicing and administering the accounts of Sears
or one of its affiliates, as applicable, that are substantially
similar to the Accounts in such jurisdiction. The terms and
provisions of a Credit Agreement may be changed in any respect
(including, without limitation, the calculation of the amount, or
the timing, of charge-offs) only if such change is made
applicable to the entire portfolio of accounts of Sears or one of
its affiliates, as applicable, that are substantially similar to
the Accounts, obligors of which are resident in a particular
affected state or similar jurisdiction, and not only to Accounts.
Section 6.04 Account Allocations. In the event that
Sears is unable for any reason to transfer Add-ons to SRFG in
accordance with the provisions of this Agreement (including,
without limitation, by reason of any governmental agency having
regulatory authority over Sears or any court of competent
jurisdiction ordering that Sears not convey any Add-ons to SRFG)
then, in any such event, Sears agrees to allocate and pay to
SRFG, after the date of such inability, all Collections with
respect to Principal Receivables, and all amounts which would
have constituted Collections with respect to Add-ons which would
have been Principal Receivables but for Sears inability to
transfer such Add-ons; and Sears agrees to have such amounts
applied as Collections in accordance with Section 2.01(b) and
Article VII hereof and in accordance with any applicable Pooling
and Servicing Agreement. If Sears is unable pursuant to any
Requirement of Law to allocate Collections as described above,
Sears agrees that it shall, in any such event, allocate after
such date payments to each Account with respect to the principal
balance of such Account first to the oldest principal balance of
such Account and to have such payments applied as Collections in
accordance with Section 2.01(b) and Article VII of this Agreement
and or accordance with any applicable Pooling and Servicing
Agreement. The parties hereto agree that Receivables with
respect to finance charges, whenever created, accrued in respect
of Principal Receivables which have been conveyed to SRFG by
Sears shall continue to be owned by SRFG notwithstanding any
cessation of the transfer of additional Principal Receivables to
SRFG and Collections with respect thereto shall continue to be
allocated and paid in accordance with Article VII.
Section 6.05 Repurchase Obligations of Sears Relating
to the Agreement and the Receivables.
(a) Binding Obligation; Valid Transfer and
Assignment. If as of the date of this Agreement or as of any
date on which there is an assignment of Additional Accounts:
(i) this Agreement does not constitute a
legal, valid and binding obligation of Sears enforceable
against Sears in accordance with its terms, except as such
enforceability may be limited by bankruptcy, receivership,
insolvency, reorganization, moratorium or similar laws now
or hereafter in effect relating to creditors' rights
generally or general principles of equity (whether
considered in a proceeding at law or in equity) and the
discretion of the court before which any proceeding therefor
may be brought;
(ii) this Agreement or appropriate
assignment, as the case may be, constitutes a sale or
transfer of the Receivables existing as of the applicable
Cut-Off Date and thereafter created, and of all proceeds (as
defined in the UCC as in effect in the State of Illinois) of
such Receivables, but does not constitute a valid transfer
and assignment to SRFG of all right, title and interest of
Sears in and to such property, or such property will not be
owned by SRFG free and clear of any Lien of any Person
claiming through or under Sears; or
(iii) any of the representations and
warranties under Sections 4.02(a), (b) or (c) are not true
and correct and such breach is not cured within 60 days (or
such longer period, not in excess of 150 days, as may be
agreed to by SRFG) after receipt of written notice by Sears,
then a "Portfolio Repurchase Event" shall have occurred.
(b) Repurchase of Portfolio. If at any time a
Portfolio Repurchase Event shall have occurred and be continuing,
SRFG, by notice then given in writing to Sears, may direct Sears
to purchase an amount of Principal Receivables (as specified
below) within 60 days of such notice, or within such longer
period as may be specified in such notice, and Sears shall be
obligated to purchase such Receivables on a Distribution Date
occurring within such period on the terms and conditions set
forth below; provided, however, that no such purchase shall be
required to be made if, at any time during such period, such
Portfolio Repurchase Event shall not adversely affect in any
material respect the interests of SRFG. Sears shall pay SRFG on
the Distribution Date an amount equal to the purchase price for
such Receivables. The purchase price will be equal to the amount
of Principal Receivables at the end of the Due Period related to
such Distribution Date; provided, however, that if an assignment
of Additional Accounts results in a Portfolio Repurchase Event,
only the Receivables of such Additional Accounts shall be
repurchased at a price equal to the amount of Principal
Receivables at the end of the Due Period related to such
Distribution Date that are attributable to the Additional
Accounts. Payment of the purchase price shall be considered a
repayment in full of such Receivables. On the Distribution Date
on which such payment is made, the Receivables to be so purchased
and all the monies due or to become due with respect thereto and
all proceeds of such Receivables shall be released to Sears, and
SRFG shall execute and deliver such instruments of transfer or
assignment, including, without limitation, any document necessary
to release SRFG's interest in such Receivables and to release any
filing evidencing, perfecting or continuing such interest, in
each case without recourse, representation or warranty (except
for the warranty that since the date of transfer by Sears under
this Agreement SRFG has not sold, transferred or encumbered any
such Receivables or interest therein other than pursuant to any
applicable Pooling and Servicing Agreement), as shall be
reasonably requested by Sears to vest in Sears, or its designee
or assignee, all right, title and interest of SRFG in and to such
Receivables, all monies due or to become due with respect thereto
and all proceeds of such Receivables.
(c) Eligibility of Receivables. In the event
that any representation or warranty under Section 4.02(d) or
4.02(e) is not true and correct in any material respect as of the
date specified therein with respect to any Receivable and such
breach has a material adverse effect on SRFG's interest in the
Receivables and is not cured within 60 days (or such longer
period as may be agreed to by SRFG) after receipt of written
notice by Sears, then a "Receivable Repurchase Event" shall have
occurred. The determination of materiality pursuant to this
subsection (c) shall be made by an officer of Sears in his sole
reasonable judgment; provided, however, that if the aggregate
amount of Ineligible Receivables (as defined in any Pooling and
Servicing Agreement) as of the last day of the immediately
preceding Due Period exceeds five percent of the interest of SRFG
in the Receivables (as defined in such Pooling and Servicing
Agreement) as a whole as of the last day of the immediately
preceding Due Period, an officer of Sears will be deemed to have
made an affirmative determination of such materiality with
respect to Ineligible Receivables in the applicable Trust.
(d) Purchase of Ineligible Receivables. If at
any time a Receivable Repurchase Event shall have occurred and be
continuing, Sears shall purchase all the Receivables in each
Account in which there is any Receivable as to which such event
relates (an "Ineligible Receivable") on the terms and conditions
set forth below; provided, however, that Sears shall not purchase
any Receivables that have been transferred to a Trust unless a
Receivables Repurchase Event (as defined in the applicable
Pooling and Servicing Agreement) shall have occurred with respect
to such Trust. Sears shall purchase all the Receivables in each
Account with an Ineligible Receivable on the Distribution Date
related to the then current Due Period by paying SRFG the face
amount of such Ineligible Receivables. Such payment shall be
considered a repayment in full of such Receivables. Upon each
such purchase by Sears of Receivables, SRFG shall automatically
and without further action be deemed to sell, transfer, assign
and otherwise convey to Sears, without recourse, representation
or warranty (except for the warranty that since the date of
transfer by Sears under this Agreement SRFG has not sold,
transferred or encumbered any such Receivable or interest therein
other than pursuant to any applicable Pooling and Servicing
Agreement), all the right, title and interest of SRFG in and to
such Receivables, all monies due or to become due with respect
thereto, all proceeds thereof and all Receivables thereafter
created in such Account. SRFG shall execute such documents and
instruments of transfer or assignment, including, without
limitation, any document necessary to release SRFG's interest in
such Receivables and to release any filing evidencing, perfecting
or continuing such interest and take such other actions as shall
reasonably be requested by Sears to effect the conveyance of such
Receivables pursuant to this subsection. The obligation of Sears
to purchase any Ineligible Receivables shall constitute the sole
remedy available to SRFG for a Receivable Repurchase Event.
Section 6.06 Receivables Not to be Evidenced by
Promissory Notes. Sears will take no action to cause any
Receivable to be evidenced by any instrument (as defined in the
UCC as in effect in the State of Illinois) except in connection
with its enforcement or collection of an Account.
ARTICLE VII
COLLECTIONS
Section 7.01 Statement. On each Distribution Date,
Sears shall deliver to SRFG a statement dated such Distribution
Date and accompanied by such information as SRFG may reasonably
request as long as it can be provided without unreasonable effort
and expense to Sears. Sears shall deliver to SRFG the Monthly
Servicer's Certificate (as defined in each Pooling and Servicing
Agreement) in accordance with the requirements of each applicable
Pooling and Servicing Agreement.
Section 7.02 Servicing Fee. As compensation for its
servicing of the Accounts hereunder and under each Pooling and
Servicing Agreement and as reimbursement of its expenses as set
forth in the immediately following paragraph, Sears shall be
entitled to receive a monthly servicing fee in respect of any Due
Period (or portion thereof) (the "Seller Servicing Fee"), payable
in arrears on each Distribution Date (except that the Seller
Servicing Fee shall only be paid on the first Distribution Date
of each month if such month contains more than one Distribution
Date) in the amounts provided in each Pooling and Servicing
Agreement; provided, however, that such amounts may be modified
pursuant to any related Series Supplement (as defined in any
applicable Pooling and Servicing Agreement), and provided,
further, that any amounts paid to Sears in respect of the Seller
Servicing Fee for any Trust pursuant to the terms of any purchase
agreement or contribution agreement between Sears and SRFG with
respect to such Trust, shall be deducted from the Seller
Servicing Fee to be paid hereunder. Sears may deduct the Seller
Servicing Fee from any funds otherwise to be disbursed by Sears
to SRFG pursuant to the Pooling and Servicing Agreement, any
series supplement thereunder and Section 2.01(b).
Sears expenses include the reasonable fees and
disbursements of independent accountants and all other expenses
incurred by Sears in connection with its activities hereunder.
Sears shall be required to pay such expenses for its own account,
and shall not be entitled to any payment from SRFG therefor other
than the Seller Servicing Fee.
Section 7.03 Purchase of Add-Ons. On each
Distribution Date, after giving effect to any transactions on
such day pursuant to each Pooling and Servicing Agreement, SRFG
shall purchase from Sears, and Sears shall sell, for cash or for
cancellation of indebtedness, all Add-ons created in the Accounts
during the Due Period related to such Distribution Date;
provided, however, that Sears may at its option, elect (in a
writing executed subsequent to the date of this Agreement) to
contribute such Add-ons to SRFG. Purchases of Add-ons shall (i)
be on such terms between SRFG and Sears as at the time of
acquisition by SRFG shall not in the opinion of SRFG be
materially less favorable to SRFG than accepted credit practice
for transactions of a generally similar character and (ii) be
acquired by SRFG on a basis which in the opinion of SRFG
reasonably reflects the general credit conditions at the time of
the acquisition taking into account the quality of such Add-ons
and other pertinent factors.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.01 Obligations of Sears. The obligations of
Sears to SRFG under this Agreement shall not be affected by
reason of any invalidity, illegality or irregularity of any
Account.
Section 8.02 Amendment. This Agreement may be amended
from time to time by a written amendment duly executed and
delivered by Sears and SRFG.
Section 8.03 Replacement of other Agreements. This
agreement replaces and supersedes the Purchase and Contribution
Agreements, which shall no longer have any force and effect;
provided, however, that any transfer of receivables, grant of
security interests, loan or contribution of receivables contained
therein shall survive and is hereby confirmed.
Section 8.04 Waivers. No failure or delay on the part
of SRFG in exercising any power, right or remedy under this
Agreement, any Additional Assignment or any Trust Account
Assignment shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or remedy
preclude any other or further exercise thereof or the exercise of
any other power, right or remedy.
Section 8.05 Notices. All communications and notices
pursuant hereto to either party shall be in writing or by
facsimile and addressed or delivered to it at its address (or in
case of telex, at its telex number at such address) shown in the
opening portion of this Agreement or at such other address as may
be designated by it by notice to the other party and, if mailed
or sent by telegraph or telex, shall be deemed given when mailed,
communicated to the telegraph office or transmitted by telex. In
the case of Sears, such notice shall be directed to the attention
of Senior Vice President, General Counsel and Secretary, and in
the case of SRFG such notice shall be directed to the attention
of the Secretary.
Section 8.06 Costs and Expenses. In addition to
paying all expenses of SRFG incurred in connection with the
issuance of investor certificates pursuant to the Pooling and
Servicing Agreements, Sears agrees to pay all reasonable out-of-
pocket costs and expenses of SRFG, excluding fees and expenses of
counsel, in connection with the perfection as against third
parties of SRFG's right, title and interest in and to the
Receivables and the enforcement of any obligation of Sears
hereunder.
Section 8.07 Confidential Information. SRFG agrees
that it will neither use nor disclose to any person the names and
addresses of the Obligors, except in connection with the
enforcement of SRFG's rights hereunder, under the Accounts, under
any Pooling and Servicing Agreement or as required by law.
Section 8.08 Headings and Cross-references. The
various headings in this Agreement are included for convenience
only and shall not affect the meaning or interpretation of any
provision of this Agreement. References in this Agreement to
Section names or numbers are to such Sections of this Agreement,
unless the context otherwise requires.
Section 8.09 Governing Law. This Agreement and each
assignment shall be governed by and construed in accordance with
the internal laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of this 21st day of December, 1995.
SEARS, ROEBUCK AND CO.
By: /s/ Alice M. Peterson
Name: Alice M. Peterson
Title: Vice President and
Treasurer
SEARS
RECEIVABLES FINANCING GROUP, INC.
By: /s/ Stephen D. Carp
Name: Stephen D. Carp
Title: President
ANNEX A-1
FORM OF ADDITIONAL ASSIGNMENT
ADDITIONAL ASSIGNMENT No. _____, dated as of _________,
19__, by Sears, Roebuck and Co., a New York corporation
("Sears"), to Sears Receivables Financing Group, Inc., a Delaware
corporation ("SRFG") pursuant to the Receivables Warehouse
Agreement referred to below.
W I T N E S S E T H:
WHEREAS, Sears and SRFG are parties to the Receivables
Warehouse Agreement, dated as of December 21, 1995 (hereinafter
as such agreement may have been, or may from time to time be,
amended, supplemented or otherwise modified, the "Receivables
Warehouse Agreement");
WHEREAS, pursuant to the Receivables Warehouse
Agreement, Sears wishes to designate Additional Accounts to be
included as Accounts and to contribute the Receivables of such
Additional Accounts, existing as of the Additional Account Cut-
Off Date, to SRFG (as each such term is defined in the
Receivables Warehouse Agreement).
NOW THEREFORE, in consideration of the foregoing, other
good and valuable consideration and the mutual terms and
covenants contained herein, SRFG and Sears hereby agree as
follows:
1. Defined Terms. All capitalized terms defined in
the Receivables Warehouse Agreement and used herein shall have
such defined meanings when used herein, unless otherwise defined
herein.
"Addition Date" shall mean, with respect to the
Additional Accounts designated hereby, ________, 19___.
"Additional Account Cut-Off Date" shall mean, with
respect to the Additional Accounts designated hereby, the first
day of the Due Period ending in ___________, 19___.
2. Designation of Additional Accounts. Sears does
hereby deliver herewith a computer file, hard copy or microfiche
list containing a true and complete list of each credit account
which as of the Additional Account Cut-Off Date shall be deemed
to be an Additional Account, such accounts being identified by
account number. Such list is marked as Schedule 1 to this
Additional Assignment and is hereby incorporated into and made a
part of this Additional Assignment and Schedule 1 attached to the
Receivables Warehouse Agreement.
3. Conveyance of Receivables.
(a) Sears hereby transfers, assigns and otherwise
conveys to SRFG, without recourse, all right, title and interest
of Sears in and to the Receivables existing on and after the
Additional Account Cut-Off Date and thereafter created in the
Additional Accounts designated hereby, all monies due or to
become due with respect thereto, and all proceeds (as defined in
Section 9-306 of the UCC as in effect in the State of Illinois)
of such Receivables and Insurance Proceeds, if any, relating
thereto. In the event such sale, transfer, assignment or
conveyance is deemed not to constitute a valid transfer and
assignment to SRFG of all right, title and interest of Sears in
and to such property, Sears does hereby grant to SRFG a security
interest therein to secure the obligations of Sears under this
Additional Assignment and the Receivables Warehouse Agreement.
(b) In connection with such transfer, Sears
agrees to record and file, at its own expense, a financing
statement with respect to the Receivables now existing and
hereafter created in the Additional Accounts designated hereby
(which may be a single financing statement with respect to all
such Receivables) for the transfer of accounts, general
intangibles or chattel paper as defined in Sections 9-105 and 9-
106 of the UCC as in effect in the State of Illinois meeting the
requirements of applicable state law in such manner and in such
jurisdictions as are necessary to perfect the transfer and
assignment of such Receivables to SRFG, and to deliver a file-
stamped copy of such financing statement or other evidence of
such filing (which may, for purposes of this Section 3, consist
of telephone confirmation of such filing) to SRFG on or prior to
the date of this Additional Assignment.
(c) In connection with such transfer, Sears further
agrees, at its own expense, on or prior to the date of this
Additional Assignment to indicate, or to cause to be indicated,
in Sears computer files or in the computer files of an affiliate
of Sears, as applicable, that Receivables created in connection
with the Additional Accounts designated hereby have been
transferred to SRFG pursuant to this Additional Assignment.
4. Acceptance by SRFG. SRFG hereby acknowledges its
acceptance of all right, title and interest previously held by
Sears in and to the Receivables now existing and hereafter
created in the Additional Accounts designated hereby. SRFG
further acknowledges that, prior to or simultaneously with the
execution and delivery of this Additional Assignment, Sears
delivered to SRFG the computer file, hard copy or microfiche list
described in Section 2 of this Additional Assignment.
5. Amendment of the Receivables Warehouse Agreement.
The Receivables Warehouse Agreement is hereby amended by
providing that all references to the "Receivables Warehouse
Agreement," to "this Agreement" and "herein" shall be deemed from
and after the Addition Date to be a dual reference to the
Receivables Warehouse Agreement as supplemented by this
Additional Assignment. Except as expressly amended hereby, all
of the representations, warranties, terms, covenants and
conditions of the Receivables Warehouse Agreement shall remain
unamended and shall continue to be, and shall remain, in full
force and effect in accordance with its terms and except as
expressly provided herein shall not constitute or be deemed to
constitute a waiver of compliance with or consent to non-
compliance with any term or provision of the Receivables
Warehouse Agreement.
6. Counterparts. This Additional Assignment may be
executed in any number of counterparts all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this
Additional Assignment No. _____ to be duly executed and delivered
by their respective duly authorized officers on the day and year
first above written.
SEARS, ROEBUCK AND CO.
By:
Name:
Title:
SEARS
RECEIVABLES FINANCING GROUP, INC.
By:
Name:
Title:
ANNEX A-2
FORM OF ADDITIONAL ASSIGNMENT
ADDITIONAL ASSIGNMENT No. _____, dated as of _________,
19__, by Sears, Roebuck and Co., a New York corporation
("Sears"), to Sears Receivables Financing Group, Inc., a Delaware
corporation ("SRFG"), pursuant to the Receivables Warehouse
Agreement referred to below.
W I T N E S S E T H:
WHEREAS, Sears and SRFG are parties to the Receivables
Warehouse Agreement, dated as of December 21, 1995 (hereinafter
as such agreement may have been, or may from time to time be,
amended, supplemented or otherwise modified, the "Receivables
Warehouse Agreement");
WHEREAS, pursuant to the Receivables Warehouse
Agreement, Sears wishes to designate Additional Accounts to be
included as Accounts and SRFG wishes to purchase the Receivables
of such Additional Accounts, now existing and hereafter created
(as each such term is defined in the Receivables Warehouse
Agreement).
NOW THEREFORE, in consideration of the foregoing, other
good and valuable consideration and the mutual terms and
covenants contained herein, SRFG and Sears hereby agree as
follows:
1. Defined Terms. All capitalized terms defined in
the Receivables Warehouse Agreement and used herein shall have
such defined meanings when used herein, unless otherwise defined
herein.
"Addition Date" shall mean, with respect to the
Additional Accounts designated hereby, ________, 19___.
"Additional Account Cut-Off Date" shall mean, with
respect to the Additional Accounts designated hereby, the first
day of the Due Period ending in ________________, 19__.
2. Designation of Additional Accounts. Sears does
hereby deliver herewith a computer file, hard copy or microfiche
list containing a true and complete list of each credit account
which as of the Additional Account Cut-Off Date shall be deemed
to be an Additional Account, such accounts being identified by
account number. Such list is marked as Schedule 1 to this
Additional Assignment and is hereby incorporated into and made a
part of this Additional Assignment and Schedule 1 attached to the
Receivables Warehouse Agreement.
3. Conveyance of Receivables.
(a) Sears hereby sells, transfers, assigns and
otherwise conveys to SRFG, without recourse, all right, title and
interest of Sears in and to the Receivables existing on and after
the Additional Account Cut-Off Date and thereafter created in the
Additional Accounts designated hereby, all monies due or to
become due or to become due with respect thereto, and all
proceeds (as defined in Section 9-306 of the UCC as in effect in
the State of Illinois) of such Receivables and Insurance
Proceeds, if any, relating thereto. In the event such sale,
transfer, assignment or conveyance is deemed not to constitute a
valid transfer and assignment to SRFG of all right, title and
interest of Sears in and to such property, Sears does hereby
grant to SRFG a security interest therein.
(b) In connection with such sale, Sears agrees to
record and file, at its own expense, a financing statement with
respect to the Receivables now existing and hereafter created in
the Additional Accounts designated hereby (which may be a single
financing statement with respect to all such Receivables) for the
sale of accounts, general intangibles or chattel paper as defined
in Sections 9-105 and 9-106 of the UCC as in effect in the State
of Illinois meeting the requirements of applicable state law in
such manner and in such jurisdictions as are necessary to perfect
the sale and assignment of such Receivables to SRFG, and to
deliver a file-stamped copy of such financing statement or other
evidence of such filing (which may, for purposes of this Section
3, consist of telephone confirmation of such filing) to SRFG on
or prior to the date of this Additional Assignment.
(c) In connection with such sale, Sears further
agrees, at its own expense, on or prior to the date of this
Additional Assignment to indicate, or to cause to be indicated,
in Sears computer files or in the computer files of an affiliate
of Sears, as applicable, that Receivables created in connection
with the Additional Accounts designated hereby have been sold to
SRFG pursuant to this Additional Assignment.
4. Acceptance by SRFG. SRFG hereby acknowledges its
acceptance of all right, title and interest previously held by
Sears in and to the Receivables now existing and hereafter
created in the Additional Accounts designated hereby. SRFG
further acknowledges that, prior to or simultaneously with the
execution and delivery of this Additional Assignment, Sears
delivered to SRFG the computer file, hard copy or microfiche list
described in Section 2 of this Additional Assignment.
5. Amendment of the Receivables Warehouse Agreement.
The Receivables Warehouse Agreement is hereby amended by
providing that all references to the "Receivables Warehouse
Agreement," to "this Agreement" and "herein" shall be deemed from
and after the Addition Date to be a dual reference to the
Receivables Warehouse Agreement as supplemented by this
Additional Assignment. Except as expressly amended hereby, all
of the representations, warranties, terms, covenants and
conditions of the Receivables Warehouse Agreement shall remain
unamended and shall continue to be, and shall remain, in full
force and effect in accordance with its terms and except as
expressly provided herein shall not constitute or be deemed to
constitute a waiver of compliance with or consent to non-
compliance with any term or provision of the Receivables
Warehouse Agreement.
6. Counterparts. This Additional Assignment may be
executed in any number of counterparts all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this
Additional Assignment No. _____ to be duly executed and delivered
by their respective duly authorized officers on the day and year
first above written.
SEARS, ROEBUCK AND CO.
Name:
Title:
SEARS RECEIVABLES FINANCING GROUP, INC.
Name:
Title:
ANNEX B
FORM OF ASSIGNMENT OF RECEIVABLES OF TRUST ACCOUNTS
ASSIGNMENT OF RECEIVABLES OF TRUST ACCOUNTS No. _____,
dated as of _________, 19__, by Sears, Roebuck and Co., a New
York corporation ("Sears"), to Sears Receivables Financing Group,
Inc., a Delaware corporation ("SRFG"), (the "Trust Account
Assignment") pursuant to the Receivables Warehouse Agreement
referred to below.
W I T N E S S E T H:
WHEREAS, Sears and SRFG are parties to the Receivables
Warehouse Agreement, dated as of December 21, 1995 (hereinafter
as such agreement may have been, or may from time to time be,
amended, supplemented or otherwise modified, the "Receivables
Warehouse Agreement");
WHEREAS, Sears and SRFG are parties to the Purchase
Agreement dated __________, 19__ (the "Purchase Agreement") and
the Contribution Agreement dated _____, 19__ (the "Contribution
Agreement").
WHEREAS, pursuant to the Receivables Warehouse
Agreement, Sears wishes to designate the Accounts, the
Receivables in which were transferred to SRFG by Sears pursuant
to the Purchase Agreement and the Contribution Agreement, as
Additional Accounts to be included as Accounts under the
Receivables Warehouse Agreement and SRFG wishes to hold the
Receivables of such Additional Accounts, now existing and
hereafter created, pursuant to the terms of the Receivables
Warehouse Agreement (as each such term is defined in the
Receivables Warehouse Agreement).
NOW THEREFORE, in consideration of the foregoing, other
good and valuable consideration and the mutual terms and
covenants contained herein, SRFG and Sears hereby agree as
follows:
1. Defined Terms. All capitalized terms defined in
the Receivables Warehouse Agreement and used herein shall have
such defined meanings when used herein, unless otherwise defined
herein.
"Addition Date" shall mean, with respect to the
Additional Accounts designated hereby, ________, 19___.
"Additional Account Cut-Off Date" shall mean, with
respect to the Additional Accounts designated hereby, the Cut-Off
Date.
"Additional Contributed Receivables" shall mean those
Receivables transferred to SRFG by Sears pursuant to the
Contribution Agreement.
"Additional Receivables Purchase Price" shall mean the
amount paid by SRFG to Sears under the Purchase Agreement.
"Cut-Off Date" shall mean, with respect to the
Additional Accounts designated hereby, the first day of the Due
Period ending in ________________, 19__.
"Original Agreement Date" shall mean, with respect to
the Additional Accounts designated hereby, ________________,
19__.
2. Designation of Additional Accounts. Sears does
hereby deliver herewith a computer file, hard copy or microfiche
list containing a true and complete list of each credit account
which as of the Additional Account Cut-Off Date shall be deemed
to be an Additional Account, such accounts being identified by
account number. Such list is marked as Schedule 1 to this Trust
Account Assignment and is hereby incorporated into and made a
part of this Trust Account Assignment and Schedule 1 attached to
the Receivables Warehouse Agreement.
3. Conveyance of Receivables.
(a) (1) Sears hereby confirms that it has sold,
transferred, assigned and otherwise conveyed to SRFG, without
recourse, all right, title and interest of Sears in and to the
Receivables (other than the Additional Contributed Receivables)
existing on and after the Cut-Off Date and thereafter created in
the Additional Accounts designated hereby, all monies due or to
become due or to become due with respect thereto, and all
proceeds (as defined in Section 9-306 of the UCC as in effect in
the State of Illinois) of such Receivables and Insurance
Proceeds, if any, relating thereto. In the event such sale,
transfer, assignment or conveyance is deemed not to constitute a
valid transfer and assignment to SRFG of all right, title and
interest of Sears in and to such property, Sears does hereby
confirm that it has granted and does hereby grant to SRFG a
security interest therein.
(2) Sears hereby confirms that it has
transferred, assigned and otherwise conveyed to SRFG, without
recourse, all right, title and interest of Sears in and to the
Additional Contributed Receivables existing as of the Cut-Off
Date and thereafter created, all monies due or to become due with
respect thereto and all proceeds (as defined in Section 9-306 of
the UCC as in effect in the State of Illinois) of such
Receivables and Insurance Proceeds, if any, relating thereto. In
the event such transfer, assignment or conveyance is deemed not
to constitute a valid transfer and assignment to SRFG of all
right, title and interest of Sears in and to such property, Sears
does hereby confirm that it has granted and does hereby grant to
SRFG a security interest therein to secure the obligations of
Sears under this Agreement.
(b) In connection with such confirmation of the sale
or transfer, Sears agrees to record and file, at its own expense,
a financing statement with respect to the Receivables now
existing and hereafter created in the Additional Accounts
designated hereby (which may be a single financing statement with
respect to all such Receivables) for the sale of accounts,
general intangibles or chattel paper as defined in Sections 9-105
and 9-106 of the UCC as in effect in the State of Illinois
meeting the requirements of applicable state law in such manner
and in such jurisdictions as are necessary to perfect the sale
and assignment of such Receivables to SRFG, and to deliver a file-
stamped copy of such financing statement or other evidence of
such filing (which may, for purposes of this Section 3, consist
of telephone confirmation of such filing) to SRFG on or prior to
the date of this Trust Account Assignment.
(c) In connection with such confirmation of the sale
or transfer, Sears further agrees, at its own expense, on or
prior to the date of this Trust Account Assignment to indicate,
or to cause to be indicated, in Sears computer files or in the
computer files of an affiliate of Sears, as applicable, that
Receivables created in connection with the Additional Accounts
designated hereby have been sold or transferred to SRFG as
confirmed in this Trust Account Assignment.
4. Receivables Purchase Price. In consideration for
the Receivables in the Additional Accounts (except the Additional
Contributed Receivables) and payment by Sears of all expenses of
SRFG incurred in connection with the establishment of the Trusts
pursuant to the applicable Pooling and Servicing Agreements
(regardless of the amount of such expenses), SRFG (i) paid to
Sears the Additional Receivables Purchase Price, (ii) hereby
confirms that it has agreed and hereby agrees to loan (without
further action of SRFG) to Sears all Collections in respect of
the Receivables in Additional Accounts without interest until
such funds are to be disbursed by Sears as Servicer to or on
behalf of SRFG as Seller in accordance with the terms of each
applicable Pooling and Servicing Agreement, which loan shall be
payable to SRFG on demand.
5. Acceptance by SRFG. SRFG hereby acknowledges its
acceptance of all right, title and interest previously held by
Sears in and to the Receivables now existing and hereafter
created in the Additional Accounts designated hereby. SRFG
further acknowledges that, prior to or simultaneously with the
execution and delivery of this Trust Account Assignment, Sears
delivered to SRFG the computer file, hard copy or microfiche list
described in Section 2 of this Trust Account Assignment.
6. Amendment of the Receivables Warehouse Agreement.
The Receivables Warehouse Agreement is hereby amended by
providing that all references to the "Receivables Warehouse
Agreement," to "this Agreement" and "herein" shall be deemed from
and after the Addition Date to be a dual reference to the
Receivables Warehouse Agreement as supplemented by this Trust
Account Assignment. Except as expressly amended hereby, all of
the representations, warranties, terms, covenants and conditions
of the Receivables Warehouse Agreement shall remain unamended and
shall continue to be, and shall remain, in full force and effect
in accordance with its terms and except as expressly provided
herein shall not constitute or be deemed to constitute a waiver
of compliance with or consent to non-compliance with any term or
provision of the Receivables Warehouse Agreement.
7. Counterparts. This Trust Account Assignment may
be executed in any number of counterparts all of which taken
together shall constitute one and the same instrument.
8. Replacement of Other Agreements. This agreement
replaces and supersedes the Purchase and Contribution Agreements,
which shall no longer have any force and effect; provided,
however, that any transfer of receivables, grant of security
interests, loan or contribution of receivables contained therein
shall survive and is hereby confirmed.
IN WITNESS WHEREOF, the undersigned have caused this
Assignment of Receivables of Trust Accounts to be duly executed
and delivered by their respective duly authorized officers on the
day and year first above written.
SEARS, ROEBUCK AND CO.
Name:
Title:
SEARS RECEIVABLES FINANCING GROUP, INC.
Name:
Title:
[LETTERHEAD OF LATHAM & WATKINS]
December 1, 1999
File No. 008883-0725
SRFG, Inc
3711 Kennett Pike
Greenville, Delaware 19807
Re: Sears Credit Account Master Trust II
Registration Statement on Form S-3
Ladies and Gentlemen:
In connection with the filing of the registration
statement on Form S-3 with the Securities and Exchange Commission
on December 2, 1999 (the "Registration Statement") by SRFG, Inc.
(formerly Sears Receivables Financing Group, Inc.) ("SRFG")
relating to the Sears Credit Account Master Trust II (the
"Trust"), we consent to the filing of the forms of our opinion as
to certain creditors' rights matters and our opinion relating to
certain matters with respect to Sears National Bank as exhibits
5.2 and 5.3 to the Registration Statement, respectively, and to
the use of our firm name under the captions "Insolvency Related
Matters" and "Legal Matters" in the prospectus and prospectus
supplement included in the registration statement.
Very truly yours,
/s/ Latham & Watkins
[LETTERHEAD OF GREENBERG TRAURIG]
December 2, 1999
SRFG, Inc.
3711 Kennett Pike
Greenville, Delaware 19807
Re: Registration Statement on Form S-3 for Sears
Credit Account Master Trust II
Ladies and Gentlemen:
We expressly consent to inclusion of the form of our
opinion relating to Sears National Bank in connection with
Sears Credit Account Master Trust II as an exhibit to the
Registration Statement on Form S-3 for Sears Credit Account
Master Trust II, and to the filing of our opinion with any
appropriate governmental agency.
Very truly yours,
/s/ Greenberg Traurig, a partnership
of limited liability entities
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below, being an officer or director or both of
SRFG, INC., a Delaware corporation (the "Corporation"), hereby
does constitute and appoint GEORGE F. SLOOK, KEITH E. TROST AND
LARRY R. RAYMOND, with full power to each of them to act alone,
as the true and lawful attorneys and agents of the undersigned,
with full power of substitution and resubstitution to each of
said attorneys, to execute, deliver or file any and all
instruments and to do any and all acts and things which said
attorneys and agents, or any of them, deem advisable to enable
the Corporation to comply with the Securities Act of 1933, as
amended, and any requirements or regulations of the Securities
and Exchange Commission in respect thereto, in connection with
the registration under said Securities Act of certificates of
interest in grantor trusts to be issued by, or on behalf of, the
Corporation under the provisions of appropriate trust
instruments, including specifically, but without limitation of
the general authority hereby granted, the power and authority to
sign his name as a director or officer, or both, of the
Corporation, as indicated below opposite his signature, to the
registration statements, or any amendments, post-effective
amendments, supplements or papers supplemental thereto to be
filed in respect of said certificates of interest, and any
additional registration statements filed pursuant to Rule 462,
and the undersigned hereby does fully ratify and confirm all that
said attorneys and agents, or any of them, or the substitute of
any of them, shall do or cause to be done by virtue hereof.
Signature Title Date
/s/George F. Slook President, Chief November 23,
George F. Slook Executive Officer 1999
and Director
(Principal Executive
Officer)
/s/Keith E. Trost Vice President, November 23,
Keith E. Trost Treasurer and 1999
Assistant Secretary
(Principal Financial
and Accounting
Officer)
/s/Thomas N. Beckmann Director November 23,
Thomas N. Beckmann 1999
/s/Larry R. Raymond Director November 23,
Larry R. Raymond 1999
/s/B.T. Reidy Director November 23,
B.T. Reidy 1999
/s/Norman Tucker Director November 23,
Norman Tucker 1999
/s/Perry N. Weine Director November 23,
Perry N. Weine 1999
