As filed with the Securities and Exchange Commission on October 30, 1996
Registration No. 333-10843
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
SRI RECEIVABLES PURCHASE CO., INC.
(Exact name of registrant as specified in its charter)
---------------------------
9999
(Primary Standard Industrial
Classification Code Number)
DELAWARE 51-0349276
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
10201 SOUTH MAIN STREET
HOUSTON, TEXAS 77025
(713) 667-5601
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)
---------------------------
JAMES A. MARCUM
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
SRI RECEIVABLES PURCHASE CO., INC.
10201 SOUTH MAIN STREET
HOUSTON, TEXAS 77025
(713) 667-5601
(Name, address, including zip
code, and telephone number,
including area code, of
agent for service)
COPY TO:
KENNETH P. MORRISON
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
(312) 861-2000
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [ ]
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
Proposed
Proposed Maximum
Title of Each Class of Amount to be Maximum Aggregate Amount of
Securities to be Registered Registered Offering Price Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
12.5% Series B Notes $30,000,000 100% $30,000,000 (1)
1993-1 Class D Certificate $30,000,000 N/A N/A /(2)
1995-1 Class D Certificate $5,120,000 N/A N/A $100-(2)
Transferor Certificate N/A N/A N/A \(2)
======================================================================================================================
</TABLE>
(1) A registration fee of $10,344.83 was previously paid with respect to the
12.5% Series B Notes in connection with the filing of Registration
Statement No. 333-10843.
(2) Pursuant to Section 6(b) of the Securities Act of 1933, the registrant is
paying the minimum $100 fee with respect to the Collateral Certificates.
---------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS
OF PART I OF FORM S-4)
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front Cover Page; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Summary; Summary Historical Financial and
Charges and Other Information......................... Operating Data of SRPC; Risk Factors; Selected
Historical Financial and Operating Data of SRPC;
Business of SRPC; The Exchange Offer; Certain
Federal Income Tax Consequences
4. Terms of the Transaction.............................. Outside Front Cover Page; Summary; The
Exchange Offer; Description of Notes; Certain
Federal Income Tax Consequences
5. Pro-Forma Financial Information....................... Inapplicable
6. Material Contacts with the Company Being
Acquired.............................................. Inapplicable
7. Additional Information Required....................... Inapplicable
8. Interests of Named Experts and Counsel................ Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........ Inapplicable
10. Information with Respect to S-3 Registrants........... Inapplicable
11. Incorporation of Certain Information by
Reference............................................. Inapplicable
12. Information with Respect to S-2 or S-3
Registrants........................................... Inapplicable
13. Incorporation of Certain Information by
Reference............................................. Inapplicable
<PAGE>
14. Information with Respect to Registrants other Outside Front Cover Page; Summary; Risk
than S-3 or S-2 Registrants........................... Factors; Selected Historical Financial and
Operating Data of SRPC; SRPC Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business of SRPC;
Business of SRI; SRI's Credit Card Business; The
Accounts; Financial Statements of SRPC
15. Information with Respect to S-3 Companies............. Inapplicable
16. Information with Respect to S-2 or S-3
Companies............................................. Inapplicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies............................. Inapplicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited.................... Inapplicable
19. Information if Proxies, Consents or Management; Executive Compensation; Certain
Authorizations are not to be Solicited or in an Relationships and Related Transactions; Principal
Exchange Offer........................................ Stockholders
</TABLE>
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED OCTOBER 30, 1996
PROSPECTUS
SRI RECEIVABLES PURCHASE CO., INC.
OFFER TO EXCHANGE ITS 12.5% SERIES B NOTES FOR ANY AND ALL
OF ITS OUTSTANDING 12.5% TRUST CERTIFICATE-BACKED NOTES
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996,
UNLESS EXTENDED.
SRI Receivables Purchase Co., Inc., a Delaware corporation ("SRPC"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (the "PROSPECTUS") and the accompanying Letter of Transmittal (the
"LETTER OF TRANSMITTAL" which, together with the Prospectus, constitutes the
"EXCHANGE OFFER") to exchange its 12.5% Series B Notes (the "NEW NOTES"), which
have been registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), pursuant to the Registration Statement of which this
Prospectus is a part, for a like principal amount of its issued and outstanding
12.5% Trust Certificate-Backed Notes (the "OLD NOTES"), of which an aggregate of
$30 million in principal amount is outstanding. The New Notes will evidence the
same debt as the Old Notes (which they replace) and will be issued under and be
entitled to the benefits of the Indenture, dated as of ______________, 1996 (the
"INDENTURE"), by and among SRPC, Specialty Retailers, Inc., a Delaware
corporation ("SRI"), as administrative agent (in such capacity, the
"ADMINISTRATIVE AGENT") and Bankers Trust Company, as indenture trustee (in such
capacity, the "INDENTURE TRUSTEE") and as collateral agent (in such capacity,
the "COLLATERAL AGENT"). The Old Notes and the New Notes are referred to herein
collectively as the "NOTES." The form and terms of the New Notes will be
identical in all material respects to the form and terms of the Old Notes except
that the New Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof. See "The
Exchange Offer" and "Description of the Notes."
The New Notes are being issued by SRPC, a wholly owned subsidiary of Palais
Royal, Inc., a Texas corporation ("PALAIS"). Palais is a wholly owned subsidiary
of SRI, which is a wholly owned subsidiary of the holding company Stage Stores,
Inc., a Delaware corporation ("STAGE STORES"), previously known as Apparel
Retailers, Inc. ("ARI").
Principal on the Notes is expected to be paid in one installment on
December 15, 2000. Interest on the Notes will accrue at the rate of 12.5% per
annum and will be payable semi-annually on June 15 and December 15 of each year,
commencing on December 16, 1996, except that under certain circumstances,
interest on the Notes will be payable monthly.
The Notes will be subject to redemption on or after December 15, 1997 at
the option of SRPC, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices set forth herein, plus accrued and unpaid
interest, if any, to the redemption date. In addition, the Notes will be subject
to early amortization upon the occurrence of any Event of Default. The Notes are
secured by the Collateral Certificates. See "Description of the Collateral." The
Collateral Certificates will be pledged to the Indenture Trustee or the
Collateral Agent for the benefit of holders of the Notes.
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" ON PAGE 21 FOR A DISCUSSION OF CERTAIN RISKS
TO BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
____________________, 1996
<PAGE>
PRINCIPAL, INTEREST AND PREMIUM, IF ANY, ON THE NOTES WILL BE SECURED
BY, AND WILL BE PAID SOLELY FROM THE DISTRIBUTIONS ON, THE COLLATERAL
CERTIFICATES. THE NOTES WILL NOT BE GENERAL RECOURSE OBLIGATIONS OF SRPC AND
HOLDERS WILL NOT HAVE RECOURSE TO OTHER ASSETS OF SRPC. FURTHERMORE, THE NOTES
WILL NOT BE OBLIGATIONS OF STAGE STORES, SRI, PALAIS OR ANY OF THEIR AFFILIATES
AND HOLDERS WILL NOT HAVE RECOURSE TO THE ASSETS OF STAGE STORES, SRI, PALAIS OR
SUCH AFFILIATES.
SPRC has not issued, and has no current plans to issue, any significant
debt that would be senior to, subordinate to, or pari passu with the Notes.
Under the Indenture, SRPC may issue additional debt securities that are pari
passu with or subordinate to, but not senior to, the Notes; however, SPRC is
restricted by its certificate of incorporation and certain contractual covenants
from incurring additional indebtedness without the consent of the Rating
Agencies and certain Certificateholders.
SRPC will accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on , 1996, unless extended
(such date, or such later date to which the Exchange Offer may be extended, the
"EXPIRATION DATE"). Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date, unless previously
accepted for exchange by SRPC. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain customary conditions, which may be waived
by SRPC. See "The Exchange Offer."
Any waiver, extension or termination of the Exchange Offer will be
publicly announced by SRPC through a release to the Dow Jones News Service and
as otherwise required by applicable law or regulations.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "COMMISSION") to third parties, SRPC believes that New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold, and otherwise transferred by a holder thereof (other
than broker-dealers, as set forth below, and any holder that is an "affiliate"
of SRPC within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the New Notes in the
ordinary course of its business and has no arrangement or understanding with any
person to participate in the distribution of the New Notes. Eligible Holders
wishing to accept the Exchange Offer must represent to SRPC in the Letter of
Transmittal that such conditions have been met. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer." Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering such
prospectus, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by such
broker-dealer in connection with resale of New Notes received for such
broker-dealer's own account in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. SRPC has agreed that, for a period of six months from the
date on which the Registration Statement is declared effective, it will make
this Prospectus available to any such broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
The New Notes constitute a new issue of securities with no established
trading market. SRPC does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. BT Securities Corporation (the "INITIAL PURCHASER") has made application
on behalf of SRPC to have the Old Notes designated for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. No
assurance can be given that an active public or other market will develop for
the Notes or as to the liquidity of the trading market for the Notes. Any Old
Notes not tendered and accepted in the Exchange Offer will continue to accrue
interest and will remain outstanding and will be entitled to all the rights and
preferences and will be subject to the limitations applicable thereto under the
Indenture. Following consummation of the Exchange Offer, Holders of Old Notes
will continue to be subject to the existing restrictions upon transfer thereof
and SRPC will have no further obligation to such Holders to provide for the
registration under the Securities Act of the Old Notes held by them. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
Holder's ability to sell untendered Old Notes could be adversely affected.
- 2 -
<PAGE>
This Prospectus, together with the Letter of Transmittal, is being sent
to all registered holders of Old Notes as of , 1996.
- 3 -
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION..........................................................7
SUMMARY........................................................................8
The Companies..............................................................8
The Offering..............................................................12
The Exchange Offer .......................................................12
New Notes ................................................................15
Certain Structural Features...............................................20
Use of Proceeds...........................................................20
Risk Factors..............................................................20
SUMMARY HISTORICAL FINANCIAL DATA
OF SRPC...................................................................21
RISK FACTORS..................................................................22
The Notes and the Collateral Certificates.................................22
Limited Recourse Provisions of the Notes;
Non-Petition Obligation...............................................22
Subordination; Possible Collateral
Impairment............................................................22
Limited Foreclosure Rights................................................22
Payments and Maturity.....................................................23
Interest Rate Risk........................................................23
Control...................................................................23
Ability to Issue New Series of Notes......................................23
Master Trust Considerations...............................................23
Lack of Public Market.....................................................24
Transfer of the Receivables; Insolvency
Risk Considerations...................................................24
Possible Changes to the Terms of the
Accounts..............................................................25
Consumer and Debtor Protection Laws.......................................25
Equalization Account......................................................26
Ratings...................................................................26
Possible Impact of SRI and Palais
Guarantees............................................................26
Business of SRI...........................................................26
Social, Legal and Economic Factors and
Seasonality...........................................................26
Forms of Payment in SRI Stores............................................27
Dependence on SRI and Palais..............................................27
Competition...............................................................27
USE OF PROCEEDS...............................................................28
CAPITALIZATION OF SRPC........................................................29
SELECTED HISTORICAL FINANCIAL DATA
OF SRPC...................................................................30
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................31
General...................................................................31
Results of Operations.....................................................32
Liquidity and Capital Resources...........................................33
BUSINESS OF SRPC..............................................................35
BUSINESS OF SRI...............................................................36
General...................................................................36
Retail Concept and Operating Strategy.....................................36
Growth Strategy...........................................................38
Company Operations........................................................39
Competition...............................................................41
Employees.................................................................41
Properties................................................................41
Litigation................................................................42
SRI'S CREDIT CARD BUSINESS....................................................43
General...................................................................43
New Account Underwriting..................................................43
Creation of Account Balances..............................................44
Account Balances and Yield Experience.....................................45
Loss and Delinquency Experience...........................................45
Plan for Credit Card Bank.................................................47
THE ACCOUNTS..................................................................49
Billing And Payments......................................................52
MANAGEMENT....................................................................54
EXECUTIVE COMPENSATION........................................................55
Compensation Committee....................................................56
Management and Employment
Agreements............................................................57
Stock Option Plan.........................................................58
1996 Equity Incentive Plan................................................58
SRI Retirement Plan.......................................................61
Company Deferred Compensation Plan........................................63
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS..............................................................64
PRINCIPAL STOCKHOLDERS........................................................65
DESCRIPTION OF CERTAIN
INDEBTEDNESS OF STAGE STORES
AND ITS AFFILIATES........................................................67
Revolving Note............................................................67
Bank of Boston Facility...................................................67
SRI Debt..................................................................67
Other Debt................................................................68
THE EXCHANGE OFFER ...........................................................70
Purpose and Effect of the Exchange Offer..................................70
Terms of the Exchange Offer ..............................................71
Expiration Date; Extensions; Amendments...................................71
Interest on the New Notes ................................................71
Procedures for Tendering..................................................72
Terms and Conditions of the Letter of
Transmittal ..........................................................73
Withdrawal of Tenders ....................................................74
Conditions to the Exchange Offer .........................................74
Exchange Agent ...........................................................75
Fees and Expenses ........................................................75
Accounting Treatment .....................................................75
Other ....................................................................76
DESCRIPTION OF THE NOTES......................................................77
Principal, Maturity and Interest..........................................77
Optional Redemption.......................................................77
Cash Flows Allocable to the Holders.......................................78
Accounts..................................................................79
- 4 -
<PAGE>
TABLE OF CONTENTS (CONTINUED)
PAGE
----
Deposits into the Interest Reserve Account................................79
Deposits into the Principal Reserve
Account...............................................................80
Transfers to the Payment Account;
Payment of Principal and Interest.....................................81
Final Payments............................................................82
Statements to Holders of the Notes........................................82
Events of Default and Remedies............................................82
Collateral Security.......................................................83
No Personal Liability of Directors,
Officers, Employees and Shareholders..................................84
Legal Defeasance..........................................................84
Amendment, Supplement and Waiver..........................................85
Transfer and Exchange.....................................................85
Book-Entry, Delivery and Form.............................................85
Certificated Securities...................................................87
Same-Day Settlement and Payment...........................................87
Registration Rights.......................................................87
Concerning the Indenture Trustee..........................................87
Additional Information....................................................88
DESCRIPTION OF THE COLLATERAL.................................................89
Overview of Trust Allocations.............................................89
The Outstanding Certificates..............................................89
Principal Terms...........................................................90
Trust Assets..............................................................92
Receivables...............................................................92
Amortization Period.......................................................93
Shared Principal Collections..............................................93
Transferor Percentage Cash Flows..........................................94
Transferor Shared Principal Collection
Cash Flows............................................................94
Transferor Excess Finance Charge Cash
Flows.................................................................94
Transferor/Class D Cash Flows.............................................95
Class D Daily Cash Flows..................................................95
Eligible Accounts; Eligible Receivables ..................................95
Automatic Addition of Accounts ..........................................96
Removal of Accounts.......................................................96
Collection and Other Servicing Procedures.................................97
Discount Option .........................................................97
Trust Accounts ..........................................................98
Equalization Account ....................................................98
Allocation Percentages....................................................99
Application of Collections...............................................100
Reallocation of Cash Flows...............................................108
Interest Rate Caps.......................................................108
Defaulted Receivables; Rebates and
Fraudulent Charges; Portfolio
Reassignment .......................................................108
Recourse Arrangements....................................................109
Investor Charge-Offs .................................................109
Final Payment of Principal on Senior
Certificates; Termination ..........................................110
Pay Out Events .........................................................111
Servicing Compensation and Payment of
Expenses ...........................................................113
Certain Matters Regarding SRPC and SRI...................................113
Servicer Default .......................................................114
The Receivables Trustee..................................................115
Definitions..............................................................116
HYPOTHETICAL MODEL SCENARIOS.................................................125
Overview.................................................................125
The Model................................................................125
Model Assumptions........................................................126
Hypothetical Inputs......................................................127
Basic Monthly Outputs....................................................131
Stress Factors...........................................................132
Simplified Priorities....................................................132
Model Results............................................................133
Certain Definitions......................................................134
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES..............................................................136
Transfer of Receivables..................................................136
Certain Matters Relating to Bankruptcy...................................136
Consumer and Debtor Protection Laws......................................137
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.............................................................137
Debt Characterization and Interest Income ...............................138
Exchange of Old Notes for New Notes......................................138
Disposition of Notes.....................................................138
Information Reporting and Backup
Withholding .........................................................139
Tax Consequences to Foreign Holders .....................................139
ERISA CONSIDERATIONS.........................................................139
PLAN OF DISTRIBUTION ........................................................140
LEGAL MATTERS................................................................141
INDEPENDENT ACCOUNTANTS......................................................141
INDEX OF DEFINED TERMS.......................................................142
INDEX TO FINANCIAL STATEMENTS................................................F-1
- 5 -
<PAGE>
AVAILABLE INFORMATION
SRPC has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "REGISTRATION STATEMENT") under the
Securities Act covering the New Notes offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, omits certain information
contained in the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to SRPC and
the Exchange Offer, reference is made to the Registration Statement and the
exhibits and the financial statements, notes and schedules filed as a part
thereof, which may be inspected at the public reference facilities of the
Commission, at the addresses set forth below. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the document or matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
SRPC will be subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and in accordance
therewith will file reports and other information with the Commission. The
Registration Statement, as well as such reports and other information filed by
SRPC pursuant to the Exchange Act, may be inspected and copied (at prescribed
rates) at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices
of the Commission at 7 World Trade Center, Suite 1300, New York, New York 10048
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Such material may also be obtained from the World Wide Web site
maintained by the Commission (http://www.sec.gov).
In the event that SRI ceases to be subject to the information
requirements of the Exchange Act, SRI has agreed that, so long as the Notes
remain outstanding, it will file with the Commission and distribute to holders
of the Notes copies of the financial information that would have been contained
in such annual reports and quarterly reports, including management's discussion
and analysis of financial condition and results of operations, that SRI would
have been required to file with the Commission pursuant to the Exchange Act.
Such financial information shall include annual reports containing consolidated
financial statements and notes thereto, together with an opinion thereon
expressed by independent accountants, as well as quarterly reports containing
unaudited condensed consolidated financial statements for the first three
quarters of each fiscal year. SRI will also make such reports available to
prospective purchasers of the Notes, securities analysts and broker-dealers upon
their request. In addition, SRI has agreed that for so long as any of the Notes
remain outstanding it will make available to any prospective purchaser of the
Notes or beneficial owner of the Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act, until such
time as SRPC has either exchanged the Notes for securities identical in all
material respects which have been registered under the Securities Act or until
such time as the holders thereof have disposed of such Notes pursuant to an
effective registration statement filed by SRPC.
- 6 -
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS AND
IN THE INDENTURE. SRPC'S FISCAL YEAR ENDS ON THE SATURDAY NEAREST TO JANUARY 31
IN THE FOLLOWING CALENDAR YEAR. REFERENCES TO YEARS MEAN SRPC'S FISCAL YEAR. FOR
EXAMPLE, REFERENCES TO "1995" MEAN THE FISCAL YEAR ENDED FEBRUARY 3, 1996.
INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" PRIOR TO MAKING A DECISION TO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER. FOR A LISTING OF THE PAGES ON WHICH TERMS ARE DEFINED, SEE "INDEX OF
DEFINED TERMS" APPEARING ON PAGE 139.
THE COMPANIES
SRPC
SRPC is an indirect, wholly owned, limited-purpose subsidiary of SRI
and was formed in 1993 to implement SRI's private label credit card accounts
receivable securitization program (the "ACCOUNTS RECEIVABLE PROGRAM"). SRPC is
operated in a fashion that is intended to ensure that its assets and liabilities
are distinct from those of SRI and its other affiliates so that SRPC's creditors
would be entitled to satisfy their claims from SRPC's assets prior to any
distribution to SRI or its affiliates. SRPC purchases, on a daily basis in
transactions intended to be true sales for creditors' rights purposes, all of
the accounts receivable generated by holders of SRI's proprietary credit cards
through Palais, the originator of the receivables. SRPC in turn transfers, on a
daily basis, all of the accounts receivable so purchased, to the SRI Receivables
Master Trust (the "TRUST"), which was also formed in connection with the
Accounts Receivable Program. See "Business of SRPC." SRPC's principal executive
offices are located at 10201 South Main Street, Houston, Texas 77025 (Telephone
Number (713) 667-5601).
SRI
GENERAL
SRI, through Palais, operates retail stores under the trade names
"Bealls," "Palais Royal" and "Stage." SRI's retail concept is to offer
moderately priced, branded fashion apparel, accessories and footwear for women,
men and children. SRI currently operates 314 stores in twenty states located
throughout the central United States. These stores are smaller than typical
department stores yet larger than most specialty stores. The store format allows
SRI to operate in small towns and communities with as few as 15,000 people or in
large metropolitan and suburban areas. During 1995, SRI opened 68 new stores,
the majority of which were opened under the name Stage. To date in 1996, SRI has
opened 25 stores and consummated the acquisition of Uhlmans Inc. ("UHLMANS"), a
privately held retailer with 34 locations in Ohio, Indiana and Michigan. SRI
plans to open 10 stores during the remainder of 1996. See "Business of SRI--
General" and "--Growth Strategy."
RETAIL CONCEPT AND OPERATING STRATEGY
SUCCESSFUL RETAIL CONCEPT. SRI's retail concept centers on providing
moderately priced branded fashion apparel, accessories and footwear for women,
men and children. SRI believes that its retail concept is successful because of
its (i) ability to operate profitably in smaller markets, (ii) effective
merchandising strategy and automated merchandise allocation system, (iii)
emphasis on customer service, (iv) targeted advertising and marketing strategy,
and (v) strong operating and information systems and technology.
ABILITY TO OPERATE PROFITABLY IN SMALLER MARKETS. SRI's store format
and locations are designed to offer a convenient and efficient shopping
experience for customers. The stores are typically between 18,000 and 30,000
square feet in size, which is smaller than typical department stores yet larger
than most specialty stores. SRI's store format is
- 7 -
<PAGE>
large enough to offer apparel and accessories for all members of the family and
small enough to allow for profitable strategic location either in rural markets
where SRI faces lower levels of competition and lower occupancy costs, or in
numerous, convenient locations in metropolitan/suburban areas. SRI's smaller
market stores generally experience higher profit margins due to lower operating
costs, including payroll and advertising costs.
EFFECTIVE MERCHANDISING STRATEGY AND AUTOMATED MERCHANDISE ALLOCATION
SYSTEM. SRI's merchandising strategy focuses on the traditionally higher margin
merchandise categories of women's, men's and children's apparel, accessories and
footwear. SRI offers a select assortment of first-quality, moderately priced
merchandise that is divided into distinct departments, including misses, men's,
boy's, shoes, intimate apparel, juniors, children's, accessories, cosmetics and
gifts. Merchandise mix may vary significantly from store to store to accommodate
differing demographic factors. SRI offers leading national brand names as well
as its own private label quality merchandise. SRI's 42 buyers, who have an
average of approximately 10 years of experience with SRI, regularly evaluate new
vendors and the market for new merchandise. Buyers are responsible for specific
merchandise categories to enhance their knowledge of the related vendors and the
merchandise available in their assigned categories. SRI believes that the
combination of the size and experience of its buyer group, its strong
merchandising systems and its participation in a cooperative buying service
allows SRI to compete effectively with department and specialty stores.
EMPHASIS ON CUSTOMER SERVICE. A primary corporate objective is to
provide excellent customer service through stores staffed with highly trained
and motivated sales associates. In many of its smaller stores, SRI has
implemented its "Team One" operating format, which focuses employees on selling
and customer service during peak hours while handling non-customer oriented
tasks such as shipping/receiving and security tagging during off-peak hours.
This format allows for better customer service through the utilization of
greater numbers of personnel directly for customer service while also allowing
for the efficient completion of other tasks. SRI monitors the quality of its
customer service and actively solicits feedback by conducting over 3,000
telephone surveys with its credit card customers each month. SRI believes that
its strong customer service is a significant competitive advantage over
department stores, which generally offer lower levels of customer service.
ADVERTISING AND MARKETING. SRI defines its target market as
fashion-conscious, middle-income consumers, primarily females aged 20 to 55, in
both urban and rural markets. Store layouts and visual merchandising are
designed to create a friendly, modern and convenient shopping environment,
consistent with making the customer feel "at home." SRI uses a multi-media
advertising approach to build traffic in the stores, and makes efficient use of
its proprietary credit card database to communicate directly with its customers
through the mail. In some urban markets, including the greater Houston area, SRI
is able to spread the cost of advertising across a concentrated group of stores.
STRONG OPERATING AND INFORMATION SYSTEMS AND TECHNOLOGY. SRI supports
its retail concept with highly automated, integrated systems in such areas as
merchandising, sales promotions, credit, personnel management, store design,
accounting and distribution. SRI has developed and utilizes an automated store
personnel scheduling system that analyzes historical hourly sales trends to
schedule sales personnel accordingly. This system optimizes labor costs while
producing a higher level of customer service. SRI's merchandising systems assist
merchandise planners in allocating inventory for each store based on its
specific attributes and recent sales trends. Additional systems allow SRI to
efficiently transfer slow moving merchandise to stores selling such items more
rapidly, identify merchandise requiring markdowns and maintain in-stock
positions in basic items such as hosiery and jeans. These systems have enabled
SRI to better manage its inventory while reducing costs and have contributed to
an improvement in margins.
GROWTH STRATEGY
The following are the primary elements of SRI's growth strategy:
NEW STORE OPENINGS IN SMALLER MARKETS. In 1995, SRI opened 68 new
stores in ten states, compared to ten new store openings in three states in
1994. To date in 1996, SRI has opened 25 stores and has acquired 34 additional
stores as a result of the Uhlmans acquisition. SRI plans to open 10 stores
during the remainder of 1996. See "Business of SRI--Growth Strategy."
- 8 -
<PAGE>
SRI continues to identify locations in both its existing and new
markets which are potential sites for new stores. Such sites are primarily
located in smaller communities, where SRI experiences its highest margins and
where SRI believes it has a competitive advantage over local retailers and where
traditionally it is also difficult for larger department stores to operate
profitably. In addition, expansion into these markets may be accomplished at a
lower cost than in larger markets, which together with SRI's use of its existing
systems such as merchandising, credit, distribution and store personnel
scheduling in these markets, thereby minimizes the incremental cost of opening
new stores.
MAKING SELECTED STRATEGIC ACQUISITIONS. SRI believes that it can
benefit from selected strategic acquisitions by (i) applying its merchandising,
sales and customer service methods to acquired retailers, (ii) introducing its
strong management systems and (iii) consolidating overhead functions. SRI
believes that such acquisitions allow it to improve overall profitability by
amortizing its fixed cost structure over a larger revenue base and by improving
sales per square foot and profitability of acquired stores. SRI believes that
retail chains operating in small towns offer attractive acquisition
opportunities, as such markets typically have only limited competition from
locally owned retailers and little or no competition from regional department
stores.
SRI AS ADMINISTRATIVE AGENT
SRI will act as Administrative Agent under the Indenture for the New
Notes being offered in the Exchange Offer.
SRI's principal executive offices are located at 10201 South Main
Street, Houston, Texas 77025 (Telephone Number (713) 667-5601).
- 9 -
<PAGE>
CORPORATE ORGANIZATION
The table set forth below describes the pro forma (indicated by double lines)
corporate organization reflecting the exchange offer being made hereby.
<TABLE>
<CAPTION>
<S> <C>
Stage Stores, Inc.
|
|
|
Specialty Retailers, Inc.
(Servicer)
|
|
|
Palais Royal, Inc.
(Originator)
True | | ' $ and/or
Sale of | | /|\ Revolving
Receivables \|/ | | Note
' | |
SRI Receivables Transfer of
Purchase Co., Inc. Receivables \ SRI Receivables
Pledge of Class D (Holder of Class D --------------------- Master Trust
---------------- Certificates and /
| Transferor Certificate)
|
|Certificates and " ' ' |
|Certain Rights with " /"\ /|\ |
|Respect to Transferor " " | |
|Certificate for " " | |Previously placed
|Benefit of 12.5%" "12.5% Trust | |Class A, B and C
|Noteholders Series B" "Certificate-Backed $| |Certificates
| Notes" "Notes | |
\|/ \"/ " | \|/
' ' " | '
Trustee or Noteholders Investors in Series 1993-1
Collateral Agent and Series 1995-1
</TABLE>
-10-
<PAGE>
THE OFFERING
Notes...............................The Old Notes were sold by SRPC on May 30,
1996 to the Initial Purchaser pursuant to a
Purchase Agreement, dated as of May 23, 1996
(the "PURCHASE AGREEMENT"). The Initial
Purchaser subsequently resold the Old Notes
to qualified institutional buyers pursuant
to Rule 144A and to persons other than U.S.
persons outside the United States in
reliance upon Regulation S under the
Securities Act and to a limited number of
institutional accredited investors that
agreed to comply with certain transfer
restrictions and other conditions (the
"OFFERING").
Registration Rights Agreement.......Pursuant to the Purchase Agreement, SRPC and
the Initial Purchaser entered into a
Registration Rights Agreement, dated as of
May 30, 1996 (the "REGISTRATION RIGHTS
AGREEMENT"), which grants the Holders of the
Old Notes certain exchange and registration
rights. The Exchange Offer is being made
pursuant to the Registration Rights
Agreement and such exchange rights terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered..................$30,000,000 aggregate principal amount of
12.5% Series B Notes, which have been
registered under the Securities Act.
The Exchange Offer..................$1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
Old Notes duly tendered and not withdrawn
prior to acceptance thereof. SRPC will issue
the New Notes to Holders (who have properly
tendered and not withdrawn their Old Notes)
as promptly as practicable after the
Expiration Date.
Transferability of New Notes Under
Federal Securities Laws............Based on an interpretation by the staff of
the Commission set forth in no- action
letters issued to third parties, SRPC
believes that New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and
otherwise transferred by any Holder thereof
(other than broker-dealers, as set forth
below, and any such Holder that is an
"affiliate" of SRPC within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such New Notes
are acquired in the ordinary course of such
Holder's business, that such Holder has no
arrangement or understanding with any person
to participate in the distribution of such
New Notes and that such Holder is not
engaging in or intending to engage in the
distribution of the New Notes. Each
broker-dealer that receives New Notes for
its own account in exchange for Old Notes
that were acquired as a result of
market-making or other trading activity must
acknowledge that it will deliver a
prospectus in connection with any resale of
such New Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, such broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it may
be amended or supplemented from time to
time, may be used by such broker-dealer in
connection with resales of New Notes
received in exchange for Old Notes where
such New Notes were acquired by such
broker-dealer as a result of
- 11 -
<PAGE>
market-making activities or other trading
activities. SRPC has agreed that, for a
period of six months from the date on which
the Registration Statement is declared
effective, it will make this Prospectus
available to any such broker-dealer for use
in connection with any such resale. See
"Plan of Distribution." Any Holder who
tenders in the Exchange Offer with the
intention to participate, or for the purpose
of participating, in a distribution of the
New Notes or who is an affiliate of SRPC may
not rely on the position of the staff of the
Commission enunciated in EXXON CAPITAL
HOLDINGS CORPORATION (available May 13,
1988) or similar no-action letters and, in
the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with a secondary resale
transaction. Failure to comply with such
requirements in such instance may result in
such Holder incurring liability under the
Securities Act for which the holder is not
indemnified by SRPC.
This Exchange Offer is not being made to,
nor will SRPC accept surrenders for exchange
from, Holders of Old Notes in any
jurisdiction in which this Exchange Offer or
the acceptance thereof would not be in
compliance with the securities or blue sky
laws of such jurisdiction.
Expiration Date.....................5:00 p.m., New York City time, on , 1996
unless the Exchange Offer is extended, in
which case the term "EXPIRATION DATE" means
the latest date and time to which the
Exchange Offer is extended. SRPC has no
current intention to extend the Exchange
Offer. Any extension, if made, will be
publicly announced through a release to the
Dow Jones News Service and as otherwise
required by applicable law or regulations.
Accrued Interest on the New Notes and
Old Notes..........................Holders of Old Notes that are accepted for
exchange will not receive any accrued
interest thereon. However, each New Note
will bear interest from the most recent date
to which interest has been paid on the Old
Note for which such New Note was exchanged,
or if no interest has been paid, from the
date of original issuance of such Note.
Conditions to the Exchange Offer....The Exchange Offer is subject to certain
customary conditions, which may be waived by
SRPC. See "The Exchange Offer--Conditions to
the Exchange Offer" and "--Terms of the
Exchange Offer."
Procedures for Tendering Notes......Each Holder of an Old Note wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together
with the Old Notes and any other required
documentation to the Exchange Agent at the
address set forth herein prior to 5:00 p.m.,
New York City time, on the Expiration Date.
By executing a Letter of Transmittal, each
Holder represents to SRPC that, among other
things, the New Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such New Notes, whether or not
such person is the Holder, that neither the
Holders nor any such other person has any
arrangement or understanding with any person
to participate in the distribution of such
- 12 -
<PAGE>
New Notes, that such Holder is not engaging
in or intending to engage in the
distribution of the New Notes and that
neither the Holder nor any such other person
is an "affiliate" of SRPC, as defined under
Rule 405 of the Securities Act. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer."
Special Procedure for Beneficial
Owners..............................Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior
to completing and executing a Letter of
Transmittal and delivering Old Notes, either
make appropriate arrangements to register
ownership of the Old Notes in such owner's
name or obtain a properly completed bond
power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See
"The Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery Procedures......Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, a Letter of Transmittal or
any other documents required by the Letter
of Transmittal to the Exchange Agent prior
to the Expiration Date, must tender their
Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering."
Withdrawal Rights...................Subject to the conditions set forth herein,
tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
Acceptance of Old Notes and Delivery
of New Notes........................Subject to the terms and conditions of the
Exchange Offer, including the reservation of
certain rights by SRPC, SRPC will accept for
exchange any and all Old Notes which are
properly tendered in the Exchange Offer, and
not withdrawn, prior to 5:00 p.m., New York
City time, on the Expiration Date. Subject
to such terms and conditions, the New Notes
issued pursuant to the Exchange Offer will
be delivered promptly following the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer" and
"--Conditions to the Exchange Offer."
Exchange Agent......................Bankers Trust Company is serving as Exchange
Agent (the "EXCHANGE AGENT") in connection
with the Exchange Offer. The Exchange
Agent's telephone number is (800) 735-7777.
Certain Federal Income Tax
Considerations.....................Holders will not recognize gain for federal
income tax purposes in respect of the
exchange of Old Notes for New Notes. Each
New Note will have the same adjusted tax
basis as the Old Note for which it was
exchanged. The holding period of each New
Note will include the holding period of the
Old Note for which it is exchanged. See
"Certain Federal Income Tax Consequences."
Persons considering the exchange of Old
Notes for New Notes should consult their tax
advisors with regard to the application of
the United States federal income tax laws to
their particular situations as
- 13 -
<PAGE>
well as any tax consequences arising under
the laws of any state, local or foreign
taxing jurisdiction.
Untendered Notes....................Following the consummation of the Exchange
Offer, Holders of Old Notes will not have
any further registration rights and such Old
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes
could be adversely affected. Old Notes that
are not exchanged pursuant to the Exchange
Offer will remain outstanding and continue
to accrue interest.
Consequences of Failure to Exchange.The Old Notes that are not exchanged
pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such Old
Notes may be resold only (i) to SRPC, (ii)
pursuant to Rule 144A or Rule 144 under the
Securities Act or pursuant to some other
exemption from registration under the
Securities Act, (iii) outside the United
States to a foreign person pursuant to the
requirements of Regulation S under the
Securities Act or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
NEW NOTES
General ...........................The form and terms of the New Notes are the
same as the form and terms of the Old Notes
(which they replace) except that (i) the New
Notes have been registered under the
Securities Act and, therefore, will not bear
legends restricting the transfer thereof and
(ii) Holders of New Notes will not be
entitled to certain rights under the
Registration Rights Agreement, which rights
will terminate when the Exchange Offer is
consummated. The New Notes will evidence the
same debt as the Old Notes and will be
entitled to the benefits of the Indenture.
See "Description of the Notes."
Notes Offered.......................$30,000,000 principal amount of 12.5% Series
B Notes, which have been registered under
the Securities Act. The Notes will be issued
in registered form, without coupons, and in
denominations of $1,000 and integral
multiples thereof.
Note Interest.......................The Notes will bear interest at the rate of
12.5% per annum payable semi- annually on
June 15 and December 15, commencing on
December 16, 1996. Interest will be paid to
holders of record on the last day of the
preceding month. Under certain
circumstances, interest will be payable
monthly. See "Description of the
Notes--Deposits into the Interest Reserve
Account."
Note Principal......................Principal is expected to be paid in full on
December 15, 2000 (the "EXPECTED MATURITY
DATE").
Optional Redemption.................The Notes will be subject to redemption at
the option of SRPC, in whole or in part,
upon not less than 30 nor more than 60 days'
notice, at the redemption prices set forth
below (expressed as percentages of principal
amount) plus accrued and unpaid interest
thereon to the redemption date, if redeemed
during the applicable period beginning on
the dates indicated below:
- 14 -
<PAGE>
YEAR PERCENTAGE
---- ----------
December 15, 1996....... The greater of (i) 106.25% or (ii) 100% plus
the coupon discounted at a rate equal to the
yield on the date of the redemption notice
of the class of United States Treasury Notes
maturing closest to August 15, 1999, plus
100 basis points, to August 15, 1999
December 15, 1998....... 106.25%
August 15, 1999 and
thereafter.............. 100%
Limited Recourse....................Principal, interest and premium, if any, on
the Notes will be secured by, and will be
paid solely from distributions on, the
Collateral Certificates (including any
excess cash flows allocable to the
Collateral Certificates). See "Description
of the Notes--Principal, Maturity and
Interest." The Notes will not be general
recourse obligations of SRPC and Holders
will not have recourse to other assets of
SRPC. Furthermore, the Notes will not be
obligations of Stage Stores, SRI, Palais or
any of their affiliates and Holders will not
have recourse to the assets of Stage Stores,
SRI, Palais or such affiliates.
Collateral Certificates.............The Notes will be secured by the 1993-1
Class D Certificate and the 1995-1 Class D
Certificate (collectively, the "CLASS D
CERTIFICATES"), totaling $35,120,000 in
aggregate principal amount, and certain
rights with respect to the Transferor
Certificate (together with the Class D
Certificates, the "COLLATERAL
CERTIFICATES"). SRPC will assign and pledge
to the Indenture Trustee the Collateral
Certificates for the benefit of the Holders
of the Notes pursuant to one or more pledge
agreements. In addition, SRPC may issue
additional notes from time to time ranking
PARI PASSU with the Notes offered hereby.
The Collateral Certificates represent
undivided interests in the assets of the
Trust, which was formed pursuant to a
Pooling and Servicing Agreement between
SRPC, as Transferor, SRI, as Servicer, and
Bankers Trust Company, as Trustee (together
with any amendments and supplements thereto,
the "POOLING AND SERVICING AGREEMENT").
On July 30, 1993, $140,000,000 aggregate
Invested Amount of floating rate
Certificates (Classes A-1, B-1 and C-1) were
issued by the Trust and sold to investors,
and a $30,000,000 Class D-1 Certificate was
issued by the Trust to SRPC. On August 11,
1995, $25,000,000 aggregate Invested Amount
of Floating Rate Certificates (Classes A-1,
B-1 and C-1) were issued by the Trust and
sold to investors, and a $5,120,000 Class
D-1 Certificate, was issued by the Trust to
SRPC. On July 30, 1993, the Trust also
established a facility for the issuance of
up to $40 million in revolving certificates
(the "1993-2 CLASS A-R CERTIFICATES") and
issued revolving 1993-2 Class B Certificates
pursuant to which up to $15.6 million may be
drawn by SRPC (the "1993-2 CLASS B-R
CERTIFICATES"). The Class D Certificates,
the 1993-1 Class A, B and C Certificates,
the 1995-1 Class A, B and C Certificates and
the 1993-2 Class A-R Certificates and 1993-2
Class B-R Certificates are collectively
referred to herein as the "INVESTOR
CERTIFICATES." At the option of the
Transferor, the invested amount of the
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<PAGE>
1993-2 Class B-R Certificates can be
increased up to $15.6 million or reduced to
zero from time to time while such
certificates are outstanding. The Transferor
draws on the 1993-2 Class B-R Certificates
primarily to fund working capital needs
during the Seasonal Period. The 1993-2 Class
B-R Certificates will not be pledged to the
Indenture Trustee or the Collateral Agent
for the benefit of Holders of Notes.
The Transferor Certificate represents the
fractional undivided interest in the Trust
assets that is not represented by the
Invested Amount of any outstanding Series of
Investor Certificates (the "TRANSFEROR
CERTIFICATE"). The amount of the Transferor
Certificate will vary, according to the
amount of Principal Collections held by the
Trust, the level of utilization of the
1993-2 Class A-R Certificates and 1993-2
Class B-R Certificates and other factors.
See "Description of the Collateral--The
Outstanding Certificates" and "--Principal
Terms." A Minimum Transferor Interest is
required to be maintained equal to (i)
during November, December and January, 2% of
the sum of the aggregate amount of principal
Receivables in the Trust and the amount on
deposit in the Equalization Account and (ii)
at all other times, zero. SRPC, as holder of
the Transferor Certificate, is entitled to
the Transferor Daily Cash Flows. See
"Description of the Notes--Cash Flows
Allocable to the Holders."
The Class D Certificates do not bear
interest. The Class D Certificates are
subordinated in right of payment to the
other Investor Certificates of the
corresponding Series. No distributions will
be made on a Class D Certificate until such
time as payment of the full Invested Amount
with respect to the Class A, B and C
Certificates of the same Series has been
made. The Class D Certificates will be
entitled to the Note Allocation Percentage
of Class D Daily Cash Flows. See "Risk
Factors-- Subordination" and "Description of
the Notes--Deposits into the Principal
Reserve Account--Generally."
Trust Assets........................The Trust's assets include (i) all
Receivables existing from time to time in
the Accounts, (ii) all funds to be collected
from cardholders in respect of the
Receivables, (iii) all right, title and
interest of SRPC in, to and under the
Receivables Purchase Agreement, (iv) the
Interest Rate Caps for each Series, (v) the
benefit of funds on deposit in the
Equalization Account, (vi) the Collection
Account, Distribution Account, Interest
Funding Account and the Principal Account
for each Series and (vii) proceeds of the
foregoing. The Receivables consist of
amounts charged by cardholders to the
Accounts for goods and services, and all
related monthly finance charges, late
charges, returned check fees, proceeds
allocable to finance charges, certain
recoveries (net of collection expenses) on
Receivables which were previously charged
off as uncollectible, and all other fees
billed to cardholders on the Accounts in any
month. The amount of Receivables fluctuates
from day to day as new Receivables are
generated and as existing Receivables are
collected, written off as uncollectible, or
otherwise adjusted.
The Receivables in the Trust are divided
into two components: principal Receivables
and finance charge Receivables. At any time,
finance charge Receivables are equal to all
amounts billed in respect of the periodic
- 16 -
<PAGE>
finance charges, late charges, returned
check fees, transaction charges, all other
fees and charges and recoveries, plus
discount option receivables, if any, and
investment earnings on amounts on deposit in
the Equalization Account and the Principal
Reserve Account, if any, as of the date of
determination. Principal Receivables are
equal to the remainder of such Receivables.
Principal Reserve Account...........The Indenture Trustee will establish and
maintain a Principal Reserve Account for the
benefit of Holders of the Notes. Commencing
on the first business day in the June 2000
Fiscal Month, or earlier upon the occurrence
of certain events, SRPC will deposit into
the Principal Reserve Account a required
percentage of daily cash flows in order to
facilitate the repayment of the Notes on the
Expected Maturity Date. The amount to be
retained in the Principal Reserve Account
will in no event be required to exceed the
outstanding principal amount of the Notes.
See "Description of the Notes--Deposits into
the Principal Reserve Account."
Interest Reserve Account............The Indenture Trustee will establish and
maintain an interest reserve account for the
benefit of Holders of the Notes. Commencing
on the first business day of each month,
SRPC will deposit into the interest reserve
account a specified percentage of daily cash
flows until the applicable monthly interest
reserve amount has been set aside. See
"Description of the Notes--Deposits into the
Interest Reserve Account."
Originator Recourse Arrangements....The Collateral Certificates will have the
benefit of certain payments required to be
made by SRPC to the Trust for the benefit of
Certificateholders with respect to breaches
of representations and warranties and
diluted receivables. Such payment
obligations of SRPC are supported by
corresponding obligations imposed on Palais
pursuant to the Amended and Restated
Receivables Purchase Agreement by and among
SRPC and Palais (as amended, the
"RECEIVABLES PURCHASE AGREEMENT"),
including: (i) in the event of a breach of
any representation or warranty made by
Palais with respect to a Receivable sold by
Palais or in the event that a Receivable
sold by Palais is not an Eligible
Receivable, Palais is obligated to pay SRPC
the outstanding balance of the Receivable;
(ii) in the event of a breach of certain
representations and warranties made by
Palais, SRPC may direct Palais to repurchase
an amount of Receivables as designated by
SRPC; and (iii) if SRI as Servicer adjusts
downward the amount of any Receivable
because of a rebate, refund, unauthorized
charge, billing error or return of
merchandise, or adjusts downward the amount
of any Receivable without receiving
collections therefor or charging off such
amount as uncollectible, then Palais may be
required to pay SRPC such amount. In
addition, subject to certain limitations,
SRI will indemnify SRPC from liabilities
incurred as a result of actions of SRI as
Servicer.
Events of Default...................Following the occurrence of an Event of
Default, the Notes will be subject to early
amortization. See "Description of the
Notes--Deposits into the Interest Reserve
Account," "--Deposits into the Principal
Reserve Account," "--Transfers to the
Payment Account; Payment of Principal and
Interest" and-- "Events of Default and
Remedies."
- 17 -
<PAGE>
Indenture Trustee...................Bankers Trust Company.
Collateral Agent....................Bankers Trust Company.
Administrative Agent................Specialty Retailers, Inc.
Tax Status..........................In the opinion of Kirkland & Ellis ("FEDERAL
TAX COUNSEL"), for federal income tax
purposes the Notes will be characterized as
debt and the issuance of the Notes will not
cause the Trust to be characterized as an
association (or publicly traded partnership)
taxable as a corporation. SRPC and each
Holder, by acceptance of a Note, will agree
to treat the Notes as debt. See "Certain
Federal Income Tax Consequences."
Non-Petition Covenant...............Each Holder agrees that, prior to a date
that is one year and one day after the
payment in full of the Notes and the
Investor Certificates, it will not commence,
or join with any other creditor of SRPC in
commencing, any bankruptcy or similar
proceeding against SRPC.
Ratings.............................The Notes are rated B+ by Standard & Poor's,
a Division of The McGraw- Hill Companies
("S&P") and BB- by Duff & Phelps Credit
Rating Co. ("DCR").
- 18 -
<PAGE>
CERTAIN STRUCTURAL FEATURES
The Notes are secured by (i) a pledge to the Indenture Trustee for the
benefit of Holders of (x) $35,120,000 in aggregate principal amount of Class D
Certificates and (y) the Interest Reserve Account and the Principal Reserve
Account and (ii) a pledge of the Transferor Certificate to the Collateral
Trustee for the benefit of Holders and future holders of notes issued by SRPC.
Payments on the Notes will be supported by certain cash flows generated
from the accounts receivable allocable to the Class D Certificates and the
Transferor Interest. Excess finance charges and, to the extent of any Transferor
Interest, principal and finance charge collections allocated to the Transferor
Interest are available sources of cash flow.
See "Description of the Notes--Cash Flows Allocable to the Holders."
In addition, the Collateral Certificates will have the benefit of
certain payments required to be made by SRPC to the Trust for the benefit of
Certificateholders. Such payment obligations of SRPC are supported by
corresponding obligations imposed on Palais pursuant to the Receivables Purchase
Agreement. Collections allocated to the holder of the Transferor Certificate and
the Class D Certificates are available to fund a reserve that will be available
to fund the payment of the Notes prior to payment in full of the principal
amount of the Senior Certificates. See "Description of the Collateral--Recourse
Arrangements."
USE OF PROCEEDS
SRPC will not receive any cash proceeds from the Exchange Offer. The
net proceeds of the Offering, which were approximately $27.5 million after
payment of the Initial Purchaser's commission and related expenses, were
transferred to Palais and ultimately used to fund the acquisition of Uhlmans.
See "Use of Proceeds."
RISK FACTORS
Before tendering their Old Notes in the Exchange Offer, Holders should
consider carefully certain risk factors relating to the Notes. See "Risk
Factors."
- 19 -
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF SRPC
The following table presents summary historical financial data of
SRPC derived from the Financial Statements of SRPC. The information in the table
should be read in conjunction with the Financial Statements of SRPC included
elsewhere in this Prospectus. No pro forma data is shown because SRPC has
incurred no meaningful interest expense with respect to the Notes or otherwise.
<TABLE>
<CAPTION>
From
Six Months Ended Fiscal Year (1) Inception to
----------------------------- -------------------- January 29,
August 3, 1996 July 29, 1995 1995 1994 1994
----------------------------- -------- -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Service charge income ................. $ 5,770 $ 5,124 $ 10,523 $ 8,070 $ 4,026
Earnings related to accounts receivable
sold to Trust (2) ................... 1,277 6,210 3,549 22,361 12,242
Interest income (expense) on balances
with Palais ......................... 1,090 316 825 495 (88)
Interest income ....................... 49 67 228 104 94
Interest Expense ...................... (668) -- -- -- --
Amortization of debt issue costs ...... (92) -- -- -- --
General and administrative expenses ... (58) (74) (154) (156) (65)
Bad debt (expense) recovery (3) ....... (4,834) 3,026 8,327 (6,072) (7,235)
-------- -------- -------- -------- --------
Operating income .................... 2,534 14,669 23,298 24,802 8,974
Income tax expense .................... (960) (5,447) (8,651) (9,031) (3,194)
-------- -------- -------- -------- --------
Net income ............................ $ 1,574 $ 9,222 $ 14,647 $ 15,771 $ 5,780
======== ======== ======== ======== ========
Dividends paid to Palais .............. $ 29,477 $ 13,181 $ 26,454 $ 5,579 $ --
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Undivided interest in accounts
receivable, net ..................... $ 55,343 $ 55,844 $ 62,454 $ 60,814 $ 40,193
Total assets .......................... 74,260 69,354 77,688 74,543 57,048
Payable to Palais ..................... 8,908 4,097 18,522 8,928 233
Other current liabilities ............. 4,746 3,652 2,806 1,919 7,549
Stockholder's equity .................. 30,606 61,605 56,360 63,696 49,266
- ----------------------
</TABLE>
(1) All fiscal years presented consist of fifty-two weeks except 1995 which
consisted of fifty-three weeks.
(2) The earnings related to accounts receivable sold to the Trust decreased in
1995 due to an increase in the purchase price of receivables. See note 3 to
SRPC's audited Financial Statements.
(3) The bad debt recovery in 1995 was due to the repurchase by Palais of
defaulted accounts receivable which were expensed by SRPC for financial
reporting purposes in 1994 and 1993.
- 20 -
<PAGE>
RECENT DEVELOPMENTS
On October 30, 1996, Stage Stores and certain selling stockholders
completed an initial public offering of 12,650,000 shares of its Common Stock
(the "COMMON STOCK OFFERING"). The net proceeds received by Stage Stores and
such selling stockholders from such offering were approximately $196 million,
and Stage Stores expects to use its proceeds to purchase for cash up to all of
the outstanding ARI Senior Discount Debentures described below (see "Description
of Certain Indebtedness of Stage Stores and Its Affiliates"), to pay a consent
fee for the elimination or amendment of certain covenants in the ARI Senior
Discount Debentures, to pay consent fees for amendments to certain covenants in
the indebtedness of SRI, and to make a payment of a $2.0 million fee to
terminate the professional service agreement with Bain. Following the
consummation of such offering, the Stage Stores Common Stock commenced quotation
on the Nadsaq National Market under the symbol "STGE."
RISK FACTORS
HOLDERS SHOULD CONSIDER CAREFULLY THE INFORMATION SET FORTH BELOW, AS
WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE TENDERING
THEIR OLD NOTES IN THE EXCHANGE OFFER.
THE NOTES AND THE COLLATERAL CERTIFICATES
LIMITED RECOURSE PROVISIONS OF THE NOTES; NON-PETITION OBLIGATION
The Notes are secured by, and will be paid solely from distributions
on, the Collateral Certificates. See "Description of the Notes--Principal,
Maturity and Interest." The Notes will not be general obligations of SRPC and
Holders will not have recourse to other assets of SRPC. Furthermore, the Notes
will not be obligations of Stage Stores, SRI, Palais or any of their affiliates
and Holders will not have recourse to the assets of Stage Stores, SRI, Palais or
such affiliates.
Each Holder will agree that, prior to a date that is one year and one
day after the payment in full of the Notes and the Investor Certificates, it
will not commence, or join with any other creditor of SRPC in commencing, any
bankruptcy or similar proceeding against SRPC.
SUBORDINATION; POSSIBLE COLLATERAL IMPAIRMENT
The Class D Certificates, which constitute the principal security for
the Notes, do not bear interest and are subordinated in right of payment to the
Senior Certificates. See "Description of the Collateral--Application of
Collections." No principal distributions will be made in respect of the Class D
Certificates until all of the Invested Amounts of the Senior Certificates have
been paid or set aside.
The Class D Invested Amount, which represents the principal balance of
the Class D Certificates, will be reduced (by unreimbursed Class D Investor
Charge-Offs) prior to the allocation of Investor Charge-Offs to any Senior
Certificates. The Class D Invested Amount will also be reduced by the amount of
funds deposited in the Negative Carry Account. Thus, the value of the Class D
Certificates as collateral may decrease over the life of the Notes. See
"Description of the Collateral--Investor Charge-Offs."
LIMITED FORECLOSURE RIGHTS
Upon the occurrence of an Event of Default, the Indenture Trustee may
foreclose upon the Collateral Certificates only under certain conditions. If the
Notes become due and payable prior to the Expected Maturity Date or are not paid
in full at the Expected Maturity Date, then only if the Class Invested Amounts
with respect to all current or future Investor Certificates that have a higher
initial rating than the Notes have been paid in full to the holders thereof will
the Indenture Trustee have the right to foreclose upon the Collateral
Certificates in accordance with instructions from the Holders of a majority in
aggregate principal amount of the Notes or, in the absence of such instructions,
in such manner as the Indenture Trustee deems appropriate in its discretion. The
proceeds received by the Indenture Trustee
- 21 -
<PAGE>
will be applied by the Indenture Trustee first to pay expenses and fees and
other amounts payable to the Indenture Trustee and thereafter to pay all amounts
then owing to the Holders.
PAYMENTS AND MATURITY
The Receivables may be paid at any time and there is no assurance that
there will be additional Receivables created in the Accounts (or that new
Accounts will be created) or that any particular pattern of cardholder
repayments will occur, all of which may adversely affect the Collateral
Certificates. If there were a significant decline in the amount of Receivables
generated and the Transferor Interest were reduced below the Minimum Transferor
Interest or amounts in the Equalization Account result in significant Negative
Carry Amounts, a Pay Out Event could occur and the commencement of the Early
Amortization Period could be triggered. In addition, changes in periodic finance
charges can alter cardholder monthly payment rates. A significant decrease in
the cardholder monthly payment rate could slow the return of principal on the
Investor Certificates and the Transferor Certificate, which could extend the
payment of principal on the Notes beyond the Expected Maturity Date. See
"Description of the Collateral--Pay Out Events" for a discussion of other Pay
Out Events. If a Pay Out Event occurs, the Early Amortization Period will
commence and the average life and maturity of the Collateral Certificates may be
significantly reduced. A Pay Out Event would constitute an Event of Default
under the Indenture and may result in early payment of the Notes.
INTEREST RATE RISK
The payment of principal and interest on the Notes will be funded in
part by Transferor Excess Finance Charge Cash Flows. Because the Senior
Certificates of Series 1993-1 and Series 1995-1 receive interest payments
calculated based on a floating rate, as LIBOR increases to the level at which
cap payments are made pursuant to the interest rate caps for such Series, the
amount of Transferor Excess Finance Charge Cash Flows may be reduced and,
accordingly, payment on the Notes could be affected.
CONTROL
The Class A, B and C Certificateholders have the ability to control the
outcome of votes on certain matters that could affect the Collateral
Certificates, including the declaration of a Pay Out Event for either Designated
Series and the termination of SRI as Servicer. In addition, the Pooling and
Servicing Agreement and the Receivables Purchase Agreement may be amended
without the prior consent of the Holders of the Notes. However, SRPC must
consent to any such amendment. SRPC will agree with Holders not to grant any
such consent if such amendment would materially adversely affect the rights of
Holders without first obtaining the consent of the Holders of a majority of the
outstanding principal amount of the Notes. See "Description of the
Notes--Amendment, Supplement and Waiver."
ABILITY TO ISSUE NEW SERIES OF NOTES
SRPC may issue additional series of notes ranking pari passu with, or
subordinated to, the Notes. Any such issuance may increase the leverage of SRPC.
SRPC will not issue such additional series of notes without first obtaining the
confirmation by the Rating Agencies of the then existing ratings on the Notes.
Any such new series of notes would be secured by the Transferor Retained Class
of a newly issued series and by a ratable interest in the Transferor
Certificate.
MASTER TRUST CONSIDERATIONS
The Trust, as a master trust, is expected to issue additional series of
Investor Certificates from time to time. While the principal terms of any series
will be specified in a supplement to the Pooling and Servicing Agreement, the
provisions of a supplement and, therefore, the terms of any additional series,
will not be subject to the review or consent of Holders of Notes or holders of
the Investor Certificates of any previously issued series. Such principal terms
may include methods for determining applicable investor percentages and
allocating collections, provisions creating security or enhancements, different
classes of certificates (including subordinated classes of certificates),
provisions subordinating the new series to another series (if the supplement
relating to such series so permits) or another series to such new series (if the
supplement for such other series so permits), and any other amendment or
supplement to the Pooling and Servicing
- 22 -
<PAGE>
Agreement which is made applicable only to the new Series. In addition, the
provisions of any supplement may give the holders of the Certificates issued
pursuant thereto consent, approval, or other rights that could result in such
holders having the power to cause SRPC, SRI, or the Receivables Trustee to take
or refrain from taking certain actions, including actions with respect to the
exercise of certain rights and remedies under the Pooling and Servicing
Agreement, without regard to the position or interest of the Certificateholders
of any other Series. There can be no assurance that the principal terms of any
other Series, including any Series issued from time to time hereafter, might not
have an adverse impact on the timing and amount of payments received by SRPC, as
holder of the Collateral Certificates, which may affect payment of the Notes.
LACK OF PUBLIC MARKET
The Old Notes have not been registered under the Securities Act and, if
not exchanged for New Notes pursuant to this Prospectus, will continue to be
subject to significant restrictions on resale. The New Notes constitute a new
issue of securities with no established trading market. SRPC does not intend to
list the Notes on any national securities exchange or to seek the admission
thereof to trading on the NASDAQ Stock Market. Prior to this offering, there has
been no active market for the Notes. Application has been made to have the Old
Notes designated for trading in the PORTAL market. No assurance can be given
that an active public or other market will develop for the Notes or as to the
liquidity of the trading market for the Notes.
TRANSFER OF THE RECEIVABLES; INSOLVENCY RISK CONSIDERATIONS
The Receivables Purchase Agreement provides that Palais sells all of
its right, title, and interest in and to the Receivables owned by it to SRPC.
Palais represents and warrants in the Receivables Purchase Agreement that the
sale of Receivables to SRPC is a valid transfer and assignment of the
Receivables to SRPC. Palais and SRPC have agreed that if, notwithstanding their
intent, the sale of Receivables to SRPC is not treated as a sale, the
Receivables Purchase Agreement will be deemed to create a security interest in
the Receivables. In a bankruptcy proceeding involving SRI or Palais, if the sale
of the Receivables is not treated as a sale, but is deemed to create a security
interest in the Receivables, SRPC's interest in the Receivables may be subject
to tax or other governmental liens relating to Palais and arising before the
subject Receivables came into existence and to certain administrative expenses
of the bankruptcy proceeding. Palais has taken certain actions required to
perfect SRPC's interest in the Receivables.
While the Pooling and Servicing Agreement provides that SRPC transfer
all of its right, title, and interest in and to the Receivables to the Trust, a
court could treat such transactions as an assignment of collateral as security
for the benefit of holders of certificates issued by the Trust. It is possible
that the risk of such treatment may be increased by the retention by SRPC of the
Transferor Certificate, the Class D Certificates, a class of the Variable
Funding Certificates and any other Transferor Retained Class. SRPC represents
and warrants in the Pooling and Servicing Agreement that the transfer of the
Receivables to the Trust is either a valid transfer and assignment of the
Receivables to the Trust or the grant to the Trust of a security interest in the
Receivables. SRPC has taken and will take certain actions required to perfect
the Trust's interest in the Receivables and warrants that if the transfer to the
Trust is deemed to be a grant to the Trust of a security interest in the
Receivables, the Receivables Trustee will have a first priority perfected
security interest therein, subject only to permitted liens. If the transfer of
the Receivables to the Trust is deemed to create a security interest therein
under the Uniform Commercial Code, a tax or government lien on property of SRPC
arising before Receivables come into existence may have priority over the
Trust's interest in such Receivables.
See "Certain Legal Aspects of the Receivables--Transfer of Receivables."
To the extent that SRPC has granted a security interest in the
Receivables to the Trust and that security interest was validly perfected before
any insolvency of SRPC and was not granted or taken in contemplation of
insolvency or with the intent to hinder, delay, or defraud SRPC or its
creditors, that security interest should not be subject to avoidance in the
event of insolvency or receivership of SRPC, and payments to the Trust with
respect to the Receivables should not be subject to recovery by a bankruptcy
trustee or receiver of SRPC. If, however, such a bankruptcy trustee or receiver
were to assert a contrary position, delays in payments on the Collateral
Certificates and possible reductions in the amount of those payments could
occur, which would adversely affect payment of the Notes. If a bankruptcy
trustee or receiver were appointed for SRI, and no Servicer Default other than
such bankruptcy or receivership or insolvency of SRI exists, the bankruptcy
trustee or receiver may have the power to prevent either the Receivables Trustee
or the
- 23 -
<PAGE>
majority of the Certificateholders from effecting a transfer of servicing to a
successor Servicer. If a bankruptcy trustee or receiver were appointed for SRPC,
causing a Pay Out Event with respect to all Series then outstanding, new
Principal Receivables would not be transferred to the Trust pursuant to the
Pooling and Servicing Agreement and the Receivables Trustee would sell the
portion of the Receivables allocable in accordance with the Pooling and
Servicing Agreement to each Series (unless holders of more than 50% of the
principal amount of each class of each Series instruct otherwise), thereby
causing early termination of the Trust and a loss to the Certificateholders
(including SRPC, as holder of the Class D Certificates) if the net proceeds
allocable to the Certificateholders from such sale, if any, were insufficient to
pay the Certificateholders in full. The net proceeds of any such sale of the
portion of the Receivables allocated in accordance with the Pooling and
Servicing Agreement to each Series will first be used to pay amounts due to
holders of the Class A, B and C Certificates, and will thereafter be used to pay
amounts due to the Class D Certificateholders. If the only Pay Out Event to
occur is either the insolvency of SRPC or the appointment of a bankruptcy
trustee or receiver for SRPC, the bankruptcy trustee or receiver may have the
power to continue to require SRPC to transfer new Receivables to the Trust and
to prevent the early sale, liquidation, or disposition of the Receivables and
the commencement of the Early Amortization Period. In addition, a bankruptcy
trustee or receiver for SRPC may have the power to cause early payment of the
Certificates, which would cause the early repayment of the Notes. There can be
no assurance that Holders would be able to reinvest any such accelerated
distribution in other suitable investments having a comparable yield. See
"Certain Legal Aspects of the Receivables--Transfer of Receivables."
POSSIBLE CHANGES TO THE TERMS OF THE ACCOUNTS
Pursuant to the Receivables Purchase Agreement, Palais does not
transfer the Accounts to SRPC, but only the Receivables arising in the Accounts.
Pursuant to the Pooling and Servicing Agreement, SRPC does not transfer the
Accounts to the Trust, but only such Receivables. Palais has the right to
determine the monthly periodic finance charges and other fees that will be
applicable from time to time to the Accounts, to alter the minimum monthly
payment required on the Accounts, and to change various other terms with respect
to the Accounts and to take such other actions as the market may dictate. A
decrease in the monthly periodic finance charge and other fees would decrease
the effective yield on the Accounts and could result in the occurrence of a Pay
Out Event and the commencement of an Early Amortization Period. Under the
Receivables Purchase Agreement, Palais may change the terms of the contracts
relating to the Accounts or its credit and collection policies only if certain
conditions are met and if such change is permitted by SRPC. There can be no
assurance that changes in applicable law, changes in the marketplace, or prudent
business practice might not result in a determination by Palais to take actions
which would change the terms of the Accounts. Certain changes in the terms of
the Accounts could adversely affect the Collateral Certificates and the Notes.
CONSUMER AND DEBTOR PROTECTION LAWS
The Accounts and the Receivables are subject to numerous federal and
state consumer protection laws which impose requirements on the making and
collection of consumer loans. Such laws, as well as any new laws or rulings
which may be adopted, may adversely affect SRI's ability to collect on the
Receivables or maintain previous levels of finance charges, late fees, and other
fees. Any failure by SRI to comply with such legal requirements also could
adversely affect SRI's ability to collect on the Receivables. Although SRPC
makes certain representations and warranties relating to the validity and
enforceability of the Accounts and the Receivables, the Trustee does not make
any examination of the Receivables or the records relating thereto for the
purpose of establishing the presence or absence of defects or compliance with
such representations and warranties, or for any other purpose, or assume any
responsibility for the enforceability, accuracy or completeness of such
representations and warranties. In the event of a breach of certain
representations and warranties, SRPC may be obligated to accept the reassignment
and transfer of the entire Trust portfolio. See "Certain Legal Aspects of the
Receivables--Consumer and Debtor Protection Laws."
Application of federal and state bankruptcy and debtor relief laws to
the obligations represented by the Receivables could adversely affect the
Collateral Certificates and the Notes, if such laws result in any Receivables
being written off as uncollectible. See "Description of the
Collateral--Defaulted Receivables; Rebates and Fraudulent Charges; Portfolio
Reassignment."
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<PAGE>
EQUALIZATION ACCOUNT
Under certain circumstances, the Pooling and Servicing Agreement
requires the deposit of funds into the Equalization Account. Such amounts
deposited in the Equalization Account are invested in specified Cash
Equivalents, which are likely to earn a much lower yield than the Receivables.
Such lower yield may result in a reduction of Portfolio Yield, which in turn may
result in a Pay Out Event, which in turn would cause the early repayment of the
Notes. There can be no assurance that the Holders would be able to reinvest any
such accelerated distribution in other suitable investments having a comparable
yield.
RATINGS
The Notes are rated B+ by S&P and BB- by DCR. The ratings address the
likelihood of the receipt by Holders of payments required under the Indenture,
and are based primarily on the credit quality of the Notes.
A security rating is not a recommendation to buy, sell or hold
securities, inasmuch as such ratings do not comment as to the market price or
suitability for a particular investor, and may be subject to revision or
withdrawal at any time by S&P or DCR if, in their judgment, circumstances so
warrant. The ratings do not address the likelihood of an Event of Default. The
ratings of the Notes are also dependent on the ratings of any senior unsecured
debt of SRI. S&P has informed SRI and SRPC that, if any such debt were
downgraded by S&P, the Notes would also be subject to downgrading. Each security
rating should be evaluated independently of any other security rating.
SRPC has not requested a rating on the Notes by any rating agency other
than S&P and DCR. There can be no assurance as to whether any other rating
agency will rate the Notes, or, if it does, what rating would be assigned by any
such other rating agency. A rating on the Notes by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Notes by S&P and
DCR.
POSSIBLE IMPACT OF SRI AND PALAIS GUARANTEES
SRI is obligated as a guarantor of Palais's obligations under the
Revolving Credit Agreement, and Palais is a guarantor of SRI's Senior Notes and
Senior Subordinated Notes. See "Description of Other Indebtedness of SRI and its
Affiliates." To the extent that Palais is obligated to satisfy the guarantee of
SRI's debt in whole or in part, the ability of Palais to meet its obligation
under the Receivables Purchase Agreement to repurchase from SRPC certain
receivables may be impaired.
BUSINESS OF SRI
SOCIAL, LEGAL AND ECONOMIC FACTORS AND SEASONALITY
Changes in credit card use and payment patterns by cardholders may
result from a variety of social, legal and economic factors. There is no basis
for predicting whether, or to what extent, social, legal or economic factors
will affect future card use or repayment patterns. The origination of
Receivables generated by SRI is affected by local economic conditions, which are
beyond the control of both SRPC and SRI. As a result, any decline in the
economic conditions in these localities, particularly in the Houston area where
SRI operates 34 stores, could have a material adverse effect on SRI's and SRPC's
profitability and on the payments on the Notes. As most of the cardholders have
mailing addresses in Texas, restrictive legislative actions in Texas could also
have a direct impact on the timing and amount of payments on the Collateral
Certificates and may impact the timing of payments on the Notes. SRI currently
has six stores located near the Texas-Mexico border and has plans to open
several additional stores in that region. Economic conditions in Mexico, and
particularly any devaluation of the Mexican peso, may affect the generation of
Receivables and the collectibility of Receivables in the Texas-Mexico border
region. Any decline in the generation and collectibility of such Receivables
could adversely affect the Collateral Certificates and the Notes. See "The
Accounts--Composition of Accounts by Geographic Distribution."
SRI's business is seasonal and its sales and profits traditionally have
been lower during the first nine months of the year (February through October)
and higher during the last three months of the year (November through January).
- 25 -
<PAGE>
Any substantial decrease in sales for the last three months of the year could
have a material adverse effect on the generation of Receivables and, as a
result, the Collateral Certificates, which may have a direct impact on the
timing of payments on the Notes.
FORMS OF PAYMENT IN SRI STORES
All of the SRI stores accept cash, checks and Visa, MasterCard and
Discover cards in addition to SRI Cards. Sales using cash, checks and such other
credit cards do not generate Receivables. See "SRI's Credit Card Business--
Creation of Account Balances." Purchases using cash, checks and non-SRI cards
accounted for approximately 44% of net sales in 1995. Purchases using SRI Cards
have historically been lower in recently opened stores than in more mature
stores because of the time necessary to attract new accounts and to acclimate
new customers to the use of SRI Cards. Although the use of SRI Cards in recently
opened SRI stores has historically increased as such stores mature, there can be
no assurance that sales through SRI Cards will continue to increase or maintain
their historic percentage of retail sales.
DEPENDENCE ON SRI AND PALAIS
The SRI Cards currently can be used to purchase merchandise and
services only from SRI stores. Accordingly, the Trust is dependent upon SRI
stores for the generation of Receivables. The Receivables Purchase Agreement
does not prohibit Palais from selling all or a portion of its business or assets
or SRI from selling stock of Palais. Accordingly, there can be no assurance that
Palais will continue to generate Receivables at the same rate as in prior years,
which may affect the Collateral Certificates and payment on the Notes.
COMPETITION
The retail apparel business is highly competitive. Although competition
varies widely from market to market, SRI faces substantial competition,
particularly in urban markets, from national, regional and local department and
specialty stores. Some of SRI's competitors are considerably larger than SRI and
have substantially greater financial and other resources than SRI. There can be
no assurance that SRI will continue to generate Receivables at the same rate as
in prior years, which may affect the Collateral Certificates and, accordingly,
payment on the Notes.
- 26 -
<PAGE>
USE OF PROCEEDS
SRPC will not receive any cash proceeds from the Exchange Offer. The
net proceeds of the Offering, which were approximately $27.5 million after
payment of the Initial Purchaser's discount and related expenses, were
transferred to Palais and ultimately used to fund in part the acquisition of
Uhlmans.
SRPC applied such proceeds to help fund (i) the purchase by Palais, for
approximately $28.7 million in cash consideration and the assumption and
repayment of debt (subject to adjustments), of the capital stock of Uhlmans and
(ii) the integration costs and capital expenditures relating to the Uhlmans
acquisition. See "Business of SRI--Growth Strategy."
- 27 -
<PAGE>
CAPITALIZATION OF SRPC
The following table sets forth the capitalization of SRPC as of
August 3, 1996. This presentation should be read in conjunction with the
Financial Statements of SRPC and other information appearing elsewhere in this
Prospectus.
August 3, 1996
--------------
(dollars in
thousands)
Payable to Palais .............................. $ 8,908
--------
12.5% Trust Certificate-Backed Notes ........... 30,000
Stockholder's equity ........................... 30,606
--------
Total capitalization ........................... 60,606
--------
Total capitalization and payable to Palais $ 69,514
========
- 28 -
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF SRPC
The following table presents summary historical financial data of
SRPC derived from the Financial Statements of SRPC. The information in the table
should be read in conjunction with the Financial Statements of SRPC included
elsewhere in this Prospectus. No pro forma data is shown because SRPC has
incurred no meaningful interest expense with respect to the Notes or otherwise.
<TABLE>
<CAPTION>
From
Six Months Ended Fiscal Year (1) Inception to
----------------------------- -------------------- January 29,
August 3, 1996 July 29,1995 1995 1994 1994
----------------------------- -------- -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Service charge income ................. $ 5,770 $ 5,124 $ 10,523 $ 8,070 $ 4,026
Earnings related to accounts receivable
sold to Trust (2) .................. 1,277 6,210 3,549 22,361 12,242
Interest income (expense) on balances
with Palais ........................ 1,090 316 825 495 (88)
Interest income ....................... 49 67 228 104 94
Interest expense ...................... (668) -- -- -- --
Amortization of debt issue costs ...... (92) -- -- -- --
General and administrative expenses ... (58) (74) (154) (156) (65)
Bad debt (expense) recovery (3) ....... (4,834) 3,026 8,327 (6,072) (7,235)
-------- -------- -------- -------- --------
Operating income ................... 2,534 14,669 23,298 24,802 8,974
Income tax expense .................... (960) (5,447) (8,651) (9,031) (3,194)
-------- -------- -------- -------- --------
Net income ............................ $ 1,574 $ 9,222 $ 14,647 $ 15,771 $ 5,780
======== ======== ======== ======== ========
Dividends paid to Palais .............. $ 29,477 $ 13,181 $ 26,454 $ 5,579 $ --
======== ======== ======== ======== ========
OTHER DATA:
Ratio of earnings to fixed charges (4) 4.33 -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Undivided interest in accounts
receivable, net ..................... $ 55,343 $ 55,844 $ 62,454 $ 60,814 $ 40,193
Total assets .......................... 74,260 69,354 77,688 74,543 57,048
Payable to Palais ..................... 8,908 4,097 18,522 8,928 233
Other current liabilities ............. 4,746 3,652 2,806 1,919 7,549
Stockholder's equity .................. 30,606 61,605 56,360 63,696 49,266
- ----------------------
</TABLE>
(1) All fiscal years presented consist of fifty-two weeks except 1995 which
consisted of fifty-three weeks.
(2) The earnings related to accounts receivable sold to the Trust decreased in
1995 due to an increase in the purchase price of receivables. See note 3 to
SRPC's audited Financial Statements.
(3) The bad debt recovery in 1995 was due to the repurchase by Palais of
defaulted accounts receivable which were expensed by SRPC for financial
reporting purposes in 1994 and 1993.
(4) Prior to the issuance of the Notes, SRPC had no significant fixed charges.
Accordingly, the ratio of earnings to fixed charges is only presented for
the six months ended August 3, 1996.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
OVERVIEW OF SRPC AND SRI. SRPC is an indirect, wholly owned,
limited-purpose subsidiary of SRI and was formed in 1993 pursuant to the
Accounts Receivable Program. SRPC purchases substantially all of the accounts
receivable generated by the use of the SRI Cards on a daily basis and sells
these accounts receivable to the Trust. SRI, through Palais, operates retail
stores under the trade names "Bealls", "Palais Royal" and "Stage." SRI offers to
its customers a proprietary credit card which can only be used to purchase
merchandise and services at SRI locations. SRPC is dependent upon Palais for the
generation of accounts receivable as Palais is its only source of accounts
receivable.
SRI's retail concept is to offer moderately priced, branded fashion
apparel, accessories and footwear for women, men and children. SRI currently
operates 314 stores in twenty states located throughout the central United
States. These stores are smaller than typical department stores yet larger than
most specialty stores. The store format allows SRI to operate in small towns and
communities with as few as 15,000 people or in large metropolitan and suburban
areas.
ACCOUNTS RECEIVABLE PROGRAM. The Accounts Receivable Program provides
SRPC with a source of funds from the sale of accounts receivable to the Trust.
In connection with the implementation of the Accounts Receivable Program, Palais
transferred or sold all of its accounts receivable to SRPC. SRPC, in turn, sold
all of the accounts receivable to the Trust for $140.0 million in cash and a
certificate representing an undivided interest in the Trust. The Trust obtained
the $140.0 million through the issuance of term certificates to third-party
investors. The Trust has also issued a $25.0 million term certificate and $40.0
million of revolving certificates, each representing undivided interests in the
Trust. The holders of the revolving certificates agreed to purchase interests in
the Trust equal to the amount of accounts receivable in the Trust above the
level required (aggregating $200.1 million at August 3, 1996) to support the
term certificates (and, during the fourth quarter, a seasonal minimum retained
interest of SRPC) up to a maximum of $40.0 million. If receivable balances in
the Trust fall below the level required to support the term certificates, the
seasonal retained interest and revolving certificates, certain principal
collections may be retained in the Trust until such time as the accounts
receivable balances exceed the amount of accounts receivable required to support
the Trust Certificates and any required transferor's interest. As of August 3,
1996, the outstanding balance under the revolving certificate was $1.1 million.
The Trust may issue additional series of certificates from time to time on
various terms. Terms of any future series will be determined at the time of
issuance.
On an ongoing daily basis, Palais sells substantially all of the
accounts receivable generated from purchases by the holders of SRI's proprietary
credit card to SRPC. SRPC in turn sells, on a daily basis, the accounts
receivable purchased from Palais to the Trust in exchange for cash or a
certificate representing an undivided interest in the Trust. SRPC's retained
interest in such accounts receivable at August 3, 1996 was $55.8 million, which
represented 25.2% of total accounts receivable outstanding in the Trust. The
remaining interest in the Trust is held by third-party investors. Such retained
interest is effectively subordinated to the interests of such third-party
investors and is pledged to secure the Notes.
Total accounts receivable sold to the Trust during 1995 and 1994 were
$306.8 million and $278.6 million, respectively. The cash flows generated from
the accounts receivable in the Trust are dedicated to (i) the purchase of new
accounts receivable generated by Palais, (ii) payment of a return on the
certificates and (iii) the payment of a servicing fee to SRI. Any remaining cash
flows are remitted to SRPC. The term certificates entitle the holders to receive
a return, based upon LIBOR, plus a specified margin paid on a quarterly basis.
Principal payments commence in December 1999 but can be accelerated upon
occurrence of certain events. The revolving certificate entitles the holder to
receive a return based upon a floating LIBOR rate, plus a specified margin, or
prime rate, at the option of SRPC paid on a monthly basis. The Trust is
currently protected against increases above 12% under an agreement entered into
with a bank. The Trust is exposed to loss in the event of non-performance by the
bank. However, the Trust does not anticipate non-performance by the bank. At
August 3, 1996, the average rate of return on the term certificates was 6.6%.
The purchase commitment for the revolving certificate is five years, subject to
renewal at the option of the parties. The revolving certificate holders are
entitled to repayment in the event the accounts receivable decrease below that
required to support such certificates.
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<PAGE>
The three most significant components of SRPC's statement of income are
(i) service charge income, (ii) earnings related to accounts receivable sold to
the Trust and (iii) bad debt expense. Service charge income only includes the
amount of service charge and late fee income attributable to SRPC's retained
interest in accounts receivable. Earnings related to accounts receivable sold to
the Trust are calculated based upon actual and projected: (a) service charge and
late fee income attributable to accounts receivable sold to the Trust less
(b)(i) payments of returns to the holders of the Investor Certificates, (ii)
premium payments to Palais for the purchase of accounts receivable in excess of
face value and (iii) payments of servicing fees to SRI. Bad debt expense
represents actual and projected defaulted accounts receivable less proceeds from
the sale of defaulted accounts receivable to Palais pursuant to the Amendment
(as defined below).
Effective October 1994, the Receivables Purchase Agreement and the
Pooling and Servicing Agreement were amended to allow SRPC to sell defaulted
accounts receivable to Palais, subject to certain limitations (the "AMENDMENT").
Sales of defaulted accounts receivable are limited to 95% of the immediately
preceding fiscal year's default ratio applied to eligible accounts receivable
transferred to the Trust during any fiscal period. The allowance for doubtful
accounts and the obligation under recourse provision which exist at any point in
time represents SRPC's estimate of defaulted accounts receivable that exceed the
maximum allowed to be sold by SRPC.
Effective during 1995, the Receivables Purchase Agreement was amended
to allow a floating purchase price of the receivables purchased by SRPC from
Palais. As a result of this amendment, SRPC paid Palais premiums of $9.3 million
for the first six months of 1996 and $12.0 million for fiscal 1995.
The financial information, discussion and analysis that follow should
be read in conjunction with SRPC's Financial Statements included elsewhere
herein and SRI's Consolidated Financial Statements included in SRI's 1995 Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
SIX MONTHS ENDED AUGUST 3, 1996 COMPARED TO SIX MONTHS ENDED JULY 29, 1995
Service charge income for the first six months of 1996 increased 11.8%
to $5.7 million from $5.1 million in the first six months of 1995. Such increase
was due to an increase in average accounts receivable balances combined with the
increased yield on the accounts receivable portfolio resulting primarily from an
increase in late fee charges applied to delinquent accounts.
Earnings related to the sale of accounts receivable for the first six
months of 1996 decreased 79.0% to $1.3 million from $6.2 million for the first
six months of 1995. The majority of such decrease was due to a $9.3 million
premium on accounts receivable purchased during the first six months of 1996,
partially offset by a $4.5 million increase in service charge income generated
by accounts receivable in the Trust. All accounts receivable were purchased at
face value during the first six months of 1995.
Pursuant to the Amendment, SRPC sold $7.7 million and $13.2 million in
defaulted accounts receivable during the first six months of 1996 and 1995,
respectively, to Palais. The decrease in defaulted accounts receivable sold was
primarily due to the sale of $6.7 million of defaulted accounts receivable
during the first six months of 1995 which were expensed by SRPC for financial
reporting purposes during 1994 and 1993. Without giving effect the sale of 1994
and 1993 defaulted accounts receivable, bad debt expense increased 29.7% to $4.8
million for the first six months of 1996 versus $3.7 million for the first six
months of 1995 as a result of an increase in personal bankruptcies in Texas
combined with a higher level of accounts receivable.
1995 COMPARED TO 1994
Service charge income for 1995 increased 29.6% to $10.5 million from
$8.1 million in 1994. Such increase was due to (i) an increase in average
accounts receivable balances, (ii) an increase in the late fee rate charged on
delinquent accounts discussed above and (iii) the fifty-third week of 1995.
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<PAGE>
Earnings related to the sale of accounts receivable for 1995 decreased
84.4% to $3.5 million from $22.4 million in 1994. The majority of such decrease
was due to the reversal of $9.1 million of reserves into income during 1994
related to the sale of defaulted accounts receivable to Palais pursuant to the
Amendment combined with a $12.0 million premium for accounts receivable
purchased during 1995. Without giving effect to these unusual items, earnings
related to the sale of accounts receivable increased 16.5% to $15.5 million from
$13.3 million in 1994. Such increase was due to a $5.9 million increase in
service charge income as discussed above partially offset by a $2.9 million
increase in the return to Certificateholders due to higher prevailing interest
rates during 1995.
Pursuant to the Amendment, SRPC sold $26.4 million and $5.6 million in
defaulted accounts receivable to Palais during 1995 and 1994, respectively, that
had been previously expensed by SRPC for financial reporting purposes. Such
amount is included in bad debt (expense) recovery in the statement of income.
The $20.8 million increase in defaulted accounts receivable sold was due to a
full year of sales during 1995 versus five months during 1994 combined with the
sale during 1995 of $11.8 million in defaulted accounts receivable which were
expensed by SRPC for financial reporting purposes during 1994 and 1993. Without
giving effect to defaulted accounts receivable sold, bad debt expense increased
53.8% to $18.0 million during 1995 from $11.7 million during 1994 due to an
increase in the ratio of charge-offs to average accounts receivable balances to
7.9% in 1995 from 6.0% in 1994 as a result of an increase in personal
bankruptcies in Texas combined with a higher level of accounts receivable.
1994 COMPARED TO 1993
Service charge income increased 102.5% to $8.1 million in 1994 from
$4.0 million in 1993. Earnings related to accounts receivable sold to the Trust
increased 83.6% to $22.4 million in 1994 from $12.2 million in 1993. Such
increases were due to a full year of results for 1994 versus six months in 1993
(as SRPC was incorporated on July 27, 1993).
Pursuant to the Amendment, SRPC sold $5.6 million in accounts
receivable during 1994 to Palais which had been previously expensed by SRPC for
financial reporting purposes. Such amount is included in bad debt (expense)
recovery in the statement of income. Without giving effect to defaulted accounts
receivable sold, bad debt expense increased 62.5% from $7.2 million during 1993
to $11.7 million during 1994 due to a full year of results for 1994 versus six
months in 1993.
LIQUIDITY AND CAPITAL RESOURCES
SRPC issued $30.0 million in aggregate principal amount of the Notes on
May 30, 1996. Substantially all of the net proceeds from the issuance of the
Notes were transferred to Palais to fund the acquisition of Uhlmans. The Notes
are secured by the Collateral Certificates, including SRPC's retained interest
in accounts receivable. Interest on the Notes is payable semi-annually on June
15 and December 15 of each year, commencing December 15, 1996 from amounts
received by SRPC from such retained interest. The scheduled amortization of
principal will commence in December 1999. The issuance of the Notes does not
impact the ability of the Trust to issue additional certificates under the
Accounts Receivable Program to third-party investors.
Intercompany interest is charged at LIBOR plus 1.0% (6.5% at August 3,
1996). The payable balance to Palais was $8.9 million and $18.5 million at
August 3, 1996 and February 3, 1996, respectively. The payable balance is
generally higher during the fourth quarter of the year due to increased
transfers of accounts receivable from Palais due to Christmas season sales.
During June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS 125").
The statement provides standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. A transfer
will be considered a sale to the extent consideration other than beneficial
interests in the assets transferred are recieved in exchange and control over
the assets is surrendered. SRPC is currently evaluating the accounting
implications of the standards set forth in this statement. Although SRPC has not
completed its evaluation of this statement and is unable to determine the exact
impact of the adoption of the statement, SRPC believes the adoption of SFAS 125
will not have a material impact on its financial position or results of
operations.
SRPC's primary sources of funds are the issuance of term certificates
by the Trust to third-party investors, advances under the revolving certificate
and collections on accounts receivable previously sold or transferred to the
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<PAGE>
Trust. SRPC's primary uses of funds include dividends paid to Palais, payment of
interest on the Notes and the purchase of accounts receivable from Palais.
Dividends paid to Palais during 1995 and 1994 were $26.5 million and $5.6
million, respectively. The increase in dividends paid to Palais during 1995 as
compared to 1994 was due to the purchase of defaulted accounts receivable
pursuant to the Amendment. Prior to April 1996, SRPC declared a cash dividend in
the amount of defaulted accounts receivable sold to Palais. Management does not
anticipate declaring such a dividend during the remainder of 1996 but
anticipates that dividends paid to Palais during 1996 will be approximately
equal to its 1996 net income plus $27.5 million of proceeds from the issuance of
the Notes. Management anticipates that interest payments on the Notes will be
approximately $3.8 million during the next twelve months. Management believes
that collections on accounts receivable will be sufficient to permit the Company
to meet its cash requirements during the next twelve months.
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<PAGE>
BUSINESS OF SRPC
SRPC is an indirect, wholly owned, limited-purpose subsidiary of SRI
and was formed in 1993 to implement SRI's Accounts Receivable Program. SRPC is
operated in a fashion that is intended to ensure that its assets and liabilities
are distinct from those of SRI and its other affiliates so that SRPC's creditors
would be entitled to satisfy their claims from SRPC's assets prior to any
distribution to SRI or its affiliates. SRPC purchases, on a daily basis in
transactions intended to be true sales for creditors' rights purposes, all of
the accounts receivables generated by holders of the SRI Cards through Palais,
the originator of the Receivables. In the event of a breach of representation or
warranty by Palais with respect to a Receivable sold by Palais or in the event
that a Receivable sold by Palais is not an Eligible Receivable, Palais may be
obligated to make certain payments to SRPC or to repurchase such Receivable.
SRPC in turn transfers to the Trust, on a daily basis, all of the accounts
receivable so purchased. The Trust has contracted with SRI to service the
Receivables as Servicer. See "Description of the Collateral--Collection and
Other Servicing Procedures."
On July 30, 1993, in the first series of transactions under the
Accounts Receivable Program, the Trust issued and sold to investors $140 million
of term certificates (the 1993-1 Class A Certificates, 1993-1 Class B
Certificates and 1993-1 Class C Certificates). In addition, the Trust issued
$40.0 million of revolving certificates (the 1993-2 Class A-R Certificates). The
holders of the revolving certificates agreed to purchase interests in the Trust
equal to the amount of accounts receivable in the Trust above the level required
(aggregating $200.1 million at August 3, 1996) to support the term certificates
(and, during the fourth quarter, a seasonal minimum retained interest of SRPC)
up to a maximum of $40.0 million. In the 1993 issuance, the Trust sold to SRPC
the $30 million Series 1993-1 Class D Certificate and the revolving 1993-2 Class
B-R Certificates pursuant to which up to $15.6 million may be drawn by SRPC.
From time to time, there may be no amounts drawn on the 1993-2 Class A-R
Certificates and the 1993-2 Class B-R Certificates. The Trust also issued to
SRPC in 1993 an exchangeable Transferor Certificate, representing the fractional
undivided interest in the Trust's assets that are not represented by the
Certificates issued to investors. On August 11, 1995, the Transferor exchanged
the Transferor Certificate for a new series of certificates comprised of $25
million of additional term certificates (the 1995-1 Class A Certificates, the
1995-1 Class B Certificates and the 1995-1 Class C Certificates), which the
Transferor sold to investors, and the $5.1 million 1995-1 Class D Certificate,
which, together with a Transferor Certificate of reduced principal amount, were
retained by the Transferor. See "Description of the Collateral--The Outstanding
Certificates." At the option of SRPC, the Trust may issue additional series of
certificates from time to time.
Terms of any future series will be determined at the time of issuance.
The Notes are secured by, and will be paid solely from distributions
on, the Class D Certificates and the Transferor Certificate, to the extent
specified herein, which represent undivided interests in the assets of the
Trust. Payments on the Notes will be supported by certain cash flows generated
from the accounts receivable allocable to the Class D Certificates and the
Transferor Interest. See "Description of the Notes--Cash Flows Allocable to the
Holders." In addition, the Collateral Certificates will have the benefit of
certain payments required to be made by SRPC to the Trust for the benefit of
Certificateholders. See "Description of the Collateral--Recourse Arrangements."
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<PAGE>
BUSINESS OF SRI
GENERAL
SRI, through Palais, operates retail stores under the trade names
"Bealls," "Palais Royal" and "Stage." SRI's retail concept is to offer
moderately priced, branded fashion apparel, accessories and footwear for women,
men and children. SRI currently operates 314 stores in twenty states located
throughout the central United States.
Stores have been operated under the Bealls and Palais Royal tradenames
since the 1920s and have developed strong name recognition in the markets they
serve. Bealls stores are primarily located in rural markets in Texas, Oklahoma
and New Mexico while Palais Royal is located primarily in Houston, Texas. The
Stage tradename was developed by SRI in 1994, has been registered nationally and
is the trade name that SRI intends to promote in all markets where its
traditional names are unrecognized. During 1995, SRI opened 68 new stores, the
majority of which were opened under the name Stage.
Stage Stores (formerly ARI) was formed during 1993 as the direct parent
of SRI when the existing stockholders of SRI exchanged all of their common stock
for common stock of ARI. Concurrent with the formation of ARI, ARI completed its
refinancing (the "REFINANCING") and distribution plans. The Refinancing included
the implementation of the Accounts Receivable Program, the formation of SRPC and
the issuance of new SRI long-term debt instruments which replaced certain
previously existing SRI debt. The Refinancing, together with funds generated
internally, provided capital to finance new store openings and the acquisition
of 45 Beall-Ladymon leases.
During 1993, management formalized its growth strategy to expand into
small market areas where SRI can become the dominant retailer by providing
quality, branded merchandise for the entire family at a fair price. SRI is
implementing this strategy by either opening new stores in select locations or
acquiring select apparel retail concerns or their related store leases.
RETAIL CONCEPT AND OPERATING STRATEGY
SUCCESSFUL RETAIL CONCEPT. SRI's retail concept centers on providing
moderately priced branded fashion apparel, accessories and footwear for women,
men and children. SRI believes that its retail concept is successful because of
its (i) ability to operate profitably in smaller markets, (ii) effective
merchandising strategy and automated merchandise allocation system, (iii)
emphasis on customer service, (iv) targeted advertising and marketing strategy
and (v) strong operating and information systems and technology.
ABILITY TO OPERATE PROFITABLY IN SMALLER MARKETS. SRI's store format
and locations are designed to offer a convenient and efficient shopping
experience for customers. The stores are typically between 12,000 and 30,000
square feet in size, which is smaller than typical department stores yet larger
than most specialty stores. SRI's store format is large enough to offer apparel
and accessories for all members of the family and small enough to allow for
profitable strategic location either in rural markets where SRI faces lower
levels of competition and lower occupancy costs, or in numerous, convenient
locations in metropolitan/suburban areas. SRI's smaller market stores generally
experience higher profit margins due to lower operating costs, including payroll
and advertising costs.
Many of SRI's stores are located in small towns and communities with
15,000 to 30,000 people, or even fewer. SRI believes that its ability to operate
stores profitably in small markets is an important competitive advantage over
department stores, which are generally unable to operate profitably in small
communities. In addition, SRI's stores have an advantage over locally operated
retailers due to SRI's ability to offer a broader and higher quality assortment
of continuously replenished, branded merchandise at fair prices. In larger
communities, SRI's retailing concept differentiates it from both department and
specialty stores. As compared to department stores, SRI believes that it offers
multiple convenient locations and better customer service. As compared to
specialty stores, SRI believes that its stores offer more leading brand names
and a greater assortment of merchandise. All of SRI's stores have several
distinctive features, such as store size, layout and location, merchandising
strategy and personalized customer service, which are designed to provide a
convenient shopping experience and to build strong customer loyalty.
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<PAGE>
EFFECTIVE MERCHANDISING STRATEGY AND AUTOMATED MERCHANDISE ALLOCATION
SYSTEM. SRI's merchandising strategy focuses on the traditionally higher margin
merchandise categories of women's, men's and children's apparel, accessories and
footwear. SRI offers a select assortment of first-quality, moderately priced
merchandise that is divided into distinct departments, including misses, men's,
boy's, shoes, intimate apparel, juniors, children's, accessories, cosmetics and
gifts. Merchandise mix may vary significantly from store to store to accommodate
differing demographic factors. SRI offers leading national brand names such as
Levi Strauss, Liz Claiborne, Bill Blass, Carole Little, Kasper by Leslie Fay,
Elizabeth Arden, Guess, Dockers, Hanes, Haggar, Chorus Line, Parson Place, Nike,
Reebok and other moderately priced, high quality brands, as well as its own
private label quality merchandise. SRI's 42 buyers, who average approximately 10
years of experience with SRI, regularly evaluate new vendors and the market for
new merchandise. Buyers are responsible for specific merchandise categories to
enhance their knowledge of the related vendors and the merchandise available in
their assigned categories. This focused buying approach, combined with SRI's
in-depth understanding of each of its individual markets and its highly
automated merchandise allocation system, enables SRI to keep each of its stores
stocked with a broad, frequently replenished assortment of high quality
merchandise that has been finely tuned to meet the fashion needs of its
customers. In addition, SRI is a member of Associated Merchandising Corporation
("AMC"), a cooperative buying service, through which SRI purchases imported
merchandise for its private label program. Such membership provides SRI with
group purchasing opportunities offering higher profit margins. SRI believes that
the combination of the size and experience base of its buyer group, its strong
merchandising systems and its participation in AMC allows SRI to compete
effectively with department and specialty stores.
Offering merchandise at moderate prices is also an important element of
SRI's merchandising strategy. In addition, SRI offers promotions to its
customers at selected events during the year.
SRI's merchandising strategy is based upon its in-depth understanding
of the needs of its customer base. Bealls and Palais Royal have over 70 years of
presence in their respective markets. SRI's primary target customers are women
who are high school and college graduates between the ages of 20 and 55 with
household incomes between $30,000 and $75,000. SRI attempts to maximize its
share of its target customers' purchases by carrying merchandise for the entire
family, since the target customer is often the principal decision-maker of where
to purchase the family's apparel. In addition, SRI markets basic, essential
clothing such as jeans, slacks, shirts, and simple but fashionable dresses,
which are not as subject to cyclical impact on discretionary spending as high
fashion items.
SRI believes that it can continue to increase sales and operating
income through its automated inventory planning, allocation and transfer
systems. SRI has devoted significant computer programming resources to the
design and development of, and created a new division to implement, its
automated, algorithm-based merchandise allocation and transfer systems. These
systems allow specific merchandise to be allocated and, if necessary,
transferred to stores where it is being more rapidly sold. SRI believes that the
use of this proprietary system, which maximizes in-stock positions by
merchandise class, increases sales and reduces markdowns, thereby improving
margins.
EMPHASIS ON CUSTOMER SERVICE. A primary corporate objective is to
provide excellent customer service through stores staffed with highly trained
and motivated sales associates. In many of its smaller stores, SRI has
implemented its "Team One" operating format, which focuses employees on selling
and customer service during peak hours while handling non-customer oriented
tasks such as shipping/receiving and security tagging during off-peak hours.
This format allows for better customer service through the utilization of
greater numbers of personnel directly for customer service while also allowing
for the efficient completion of other tasks. SRI monitors the quality of its
customer service and actively solicits feedback by conducting over 3,000
telephone surveys with its credit card customers each month. SRI believes that
its strong customer service is a significant competitive advantage over
department stores which generally offer lower levels of customer service.
In contrast to many competitors, SRI provides extensive training to new
sales associates in order to provide a uniformly high level of service to
customers. All sales associates are evaluated and compensated based on sales and
on their ability to meet specific customer service standards, such as offering
prompt assistance to a customer upon entering a department, suggesting
additional complementary items, responding promptly to fitting room needs once
the customer rings a "call button" mounted inside each fitting room in certain
stores, sending thank-you notes to charge customers, contacting customers about
promotional events, and establishing consistent contact with customers in order
to create a customer base for each sales associate. In addition, sales
associates are provided with a clearly defined career path
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<PAGE>
wherein superior performance leads to career advancement, recognition and
improved compensation. SRI believes that this approach allows it to better
retain employees and provide better customer service than its competitors. SRI's
"never- say-no" policy forbids sales associates in SRI from saying "no" to a
customer request without involving their immediate supervisor.
SRI's private label credit card program includes more than 1.5 million
active accounts, providing approximately 55.6% of net sales in 1995, and is an
important element of its customer service. SRI provides its cardholders with
additional services and special sales and promotions, which SRI believes builds
strong customer loyalty. SRI believes that promotions utilizing the cardholder
base are among the most effective promotions undertaken by SRI. SRI's most
active cardholders (those who purchase $750 or more of merchandise per year) are
automatically entitled to VIP membership, which includes extra services such as
free gift wrapping, emergency check cashing, free credit card registration,
discounts on alterations, free 24-hour message service and other benefits.
ADVERTISING AND MARKETING. SRI defines its target market as
fashion-conscious, middle-income consumers, primarily females aged 20 to 55, in
both urban and rural markets. Store layouts and visual merchandising are
designed to create a friendly, modern and convenient shopping environment,
consistent with making the customer feel "at home."
SRI uses a multi-media advertising approach to build traffic in the
stores, and makes efficient use of its proprietary credit card database to
communicate directly with its customers through the mail. In some urban markets,
including the greater Houston area, SRI is able to spread the cost of
advertising across a concentrated group of stores. Newspaper advertising
accounted for approximately 60% of the media budget in 1994 and 1995, with the
balance devoted to radio, television and direct mail. SRI spent $22.3 million
(approximately 3.9% of sales) and $25.9 million (approximately 3.8% of sales) on
advertising and promotion media, payroll and production in 1994 and 1995,
respectively.
STRONG OPERATING AND INFORMATION SYSTEMS AND TECHNOLOGY. SRI supports
its retail concept with highly automated, integrated systems in such areas as
merchandising, sales promotions, credit, personnel management, store design,
accounting and distribution. SRI believes that its automated systems provide it
with a significant competitive advantage over competitors that lack similar
capabilities. For example, SRI has developed and utilizes an automated store
personnel scheduling system that analyzes historical hourly sales trends to
schedule sales personnel accordingly. This system optimizes labor costs while
producing a higher level of customer service. SRI believes that these systems
increase sales per square foot, reduce markdowns and overhead and create
important efficiencies and cost savings in the most labor intensive areas of the
business, allowing store personnel to focus on customer service and selling.
SRI's merchandising systems assist merchandise planners in allocating inventory
for each store based on its specific attributes and recent sales trends.
Additional systems allow SRI to efficiently transfer slow moving merchandise to
stores selling such items more rapidly, identify merchandise requiring markdowns
and maintain in-stock positions in basic items such as hosiery and jeans. These
systems have enabled SRI to better manage its inventory while reducing costs and
have contributed to an improvement in margins.
GROWTH STRATEGY
The following are the primary elements of SRI's growth strategy:
NEW STORE OPENINGS IN SMALLER MARKETS. In 1995, SRI opened 68 new
stores in ten states, including as a result of the Beall-Ladymon acquisition
described below, compared to ten new store openings in three states in 1994. In
1996, SRI expects to open 35 new stores and has acquired 34 additional stores as
a result of the acquisition of Uhlmans.
SRI continues to identify locations in both its existing and new
markets which are potential sites for new stores. Such sites are primarily
located in smaller communities, where SRI traditionally experiences its highest
margins and where SRI believes it has a competitive advantage over local
retailers and where it is also difficult for larger department stores to operate
profitably. In addition, expansion into these markets may be accomplished at a
lower cost than in larger markets, which together with SRI's use of its existing
systems such as merchandising, credit, distribution and store personnel
scheduling in these markets, thereby minimizes the incremental cost of opening
new stores.
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<PAGE>
MAKING SELECTED STRATEGIC ACQUISITIONS. SRI believes that it can
benefit from selected strategic acquisitions by (i) applying its merchandising,
sales and customer service methods to acquired retailers, (ii) introducing its
strong management systems and (iii) consolidating overhead functions. SRI
believes that such acquisitions allow it to improve overall profitability by
amortizing its fixed cost structure over a larger revenue base and by improving
sales per square foot and profitability of acquired stores. SRI believes that
retail chains operating in small towns offer attractive acquisition
opportunities, as such markets typically have only limited competition from
locally owned retailers and little or no competition from regional department
stores. During 1994, this strategy resulted in the acquisition of forty-five
store leases from Beall-Ladymon, located primarily in Louisiana, Arkansas and
Mississippi. The former Beall-Ladymon stores reopened in the first quarter of
1995 under the name of Stage, the banner that SRI has registered nationally and
intends to promote in all new markets where its traditional names are
unrecognized. Management continues to actively search for other potential
locations that meet its site selection criteria, which include market size,
economic demographics, customer profile and competitive environment and, as a
result, expects to open 35 total new stores in 1996. Substantially all of these
additional stores are being opened as Stage stores.
SRPC applied the proceeds of the Offering (i) to the purchase by
Palais, for approximately $28.7 million in cash consideration and the assumption
and repayment of debt (subject to adjustments), of the capital stock of Uhlmans
and (ii) to the funding by Palais of integration costs and capital expenditures
relating to the Uhlmans acquisition. Uhlmans sells moderately priced, branded
apparel and accessories for men, women and children, principally in small urban
centers in the midwest where Uhlmans' 34 stores had sales of approximately $60
million in fiscal year 1995. The acquisition is intended to help SRI broaden its
national distribution base and pursue its growth strategy in the midwest. SRI
believes that it can increase margins and achieve economies previously not
obtained by Uhlmans by implementing SRI's credit and collection policies and
buying and merchandising strategies and by reducing central office overhead and
warehousing and distribution costs.
COMPANY OPERATIONS
MERCHANDISE PURCHASING AND ALLOCATION. SRI offers a select assortment
of quality, moderately priced soft goods, which are divided into departments
including misses, men's, boys, juniors, children's, intimate, petites,
accessories, cosmetics, gifts and shoe departments. Sales associates are
encouraged to adopt a "can do" attitude in order to "exceed a customer's
expectations." Merchandise mix may vary significantly from store to store to
accommodate differing demographic factors. SRI modifies its assortments to focus
on merchandise its buyers expect will have the broadest appeal to its targeted
customers based upon sales analyses and individual store attributes.
SRI purchases merchandise from a vendor base of over 2,000 suppliers.
SRI's leading vendors for 1995 were Levi Strauss, Liz Claiborne, Haggar, Guess,
Hanes, Nike, Chorus Line, Parson Place and Reebok. SRI was one of Levi Strauss's
top ten customers in 1995. No one supplier accounted for more than 9% of SRI's
1995 purchases. SRI is also a member of the cooperative buying service AMC, and
as such is entitled to make purchases of imported merchandise for its private
label program. The membership provides SRI with group purchasing opportunities.
Private label products result in better gross margins for SRI and excellent
value for the customer, as a result of the lower purchase cost of such apparel
as compared to branded items in the same categories. Private label purchases
were approximately 11%, 10% and 8% of total purchases in 1995, 1994 and 1993,
respectively. SRI currently intends to keep private label merchandise sales
below 15% of total purchases.
- 38 -
<PAGE>
Set forth below is certain information regarding the percentage of net
sales by major merchandise departments for SRI for 1995 and 1994.
DEPARTMENT 1995 1994
---------- ---------- ----------
Mens and Young Men.................................. 22% 20%
Misses Sportswear................................... 15 15
Juniors............................................. 13 15
Accessories and Gifts............................... 9 10
Children............................................ 9 9
Shoes............................................... 8 8
Intimate............................................ 6 6
Special Sizes....................................... 5 5
Cosmetics........................................... 5 4
Misses Dresses...................................... 4 4
Boys................................................ 3 3
1 1
Furs and Coats...................................... ---------- ----------
100% 100%
Total............................................... ========== ==========
SRI's integrated merchandising systems provide its buyers with the
information and analytical support needed to maximize efficiency and to increase
sales, reduce markdowns and increase inventory turnover through better inventory
management. These systems include, among others: (i) an automated merchandise
financial planning and allocation system which recognizes the attributes and
current merchandise needs by classification of merchandise for each store; (ii)
a staple stock replenishment system to ensure SRI is in stock on basic items
such as hosiery, foundation garments, dress shirts and jeans; (iii) markdown
exception analysis and merchandise transfer exception reporting; and (iv) an
assortment planning system which enables SRI to closely tailor the merchandise
assortment in each store based on local demographics and historical trends and
automatically allocate merchandise accordingly. SRI utilizes its information
systems to monitor slow and fast moving merchandise for the purpose of enabling
SRI to transfer slower moving merchandise from one store to another store where
such merchandise is selling more rapidly.
CREDIT SERVICES. SRI offers its own private label credit card program,
which enhances SRI's relationship with core customers by tailoring credit
availability to individual customers and facilitating frequent communication of
promotional offerings. The number of private label credit accounts and dollar
volume of charges reflects an important element in SRI's marketing strategy. SRI
believes that private label credit card holders shop more regularly and purchase
more merchandise than customers who pay cash. In addition, SRI maintains a
database of all charge purchases of these customers. This data base is a
significant competitive advantage, allowing SRI to target promotional material,
via direct mail, to its regular customers. At February 3, 1996, there were more
than 1.5 million active accounts. Private label credit card purchases provided
approximately 55.6% of net sales in 1995. SRI seeks to develop and grow such
credit card purchases through a marketing strategy emphasizing (i) direct mail
of promotional materials to existing cardholders to communicate new merchandise
offerings, (ii) promotion of customer incentive programs and (iii) the issuance
of new credit through the opening of new accounts and extension of credit on
existing accounts. It is SRI's policy to expand the number and use of private
label credit card accounts on a controlled basis by utilizing computerized
systems such as point-scoring for approving new accounts and behavioral scoring
for monitoring account performance and approving additional purchases.
SRI supports its private label credit card program with an efficient
back office credit operation in Jacksonville, Texas. SRI's internally developed,
fully computerized and highly automated credit systems analyze customer payment
histories, automatically approve or reject new sales at point of sale and enable
account representatives to efficiently collect delinquent accounts. See "SRI's
Credit Card Business."
MANAGEMENT INFORMATION SYSTEMS. SRI relies on proprietary management
information systems to maximize productivity and minimize costs in the most
labor-intensive areas of its business, including merchandising, distribution,
personnel management, credit and accounting. In addition, SRI's merchandising
systems allow it to maximize its return
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<PAGE>
on inventory investment and its gross profit margin by facilitating good
merchandise planning, efficient allocation of merchandise and timely markdowns
of slow selling items.
SRI has made substantial investments in management information systems
and utilizes a central mainframe computer which supports almost every aspect of
the business. In addition, electronic point-of-sale ("POS") terminals at each
store record and transmit to SRI's corporate headquarters a real time, full
accounting of each day's sales by transaction and item. SRI has an independent
dedicated communications system which links its corporate headquarters with each
store, thus allowing the merchandising department to track sales of all items at
all stores at all times and enabling immediate POS credit approval for the use
of private label credit cards.
DISTRIBUTION. SRI's 450,000 square foot automated and centralized
distribution center enables it to distribute most merchandise within 48 hours of
receipt and has the current capacity to support in excess of $1 billion in
aggregate annual sales volume. Management feels that the distribution center's
existing capacity could be expanded, with certain enhancements, to handle
additional SRI needs. SRI's centralized distribution system results in more
efficient distribution costs per unit, lower freight costs and reduced accounts
payable processing costs. In 1995, SRI entered into an arrangement with a major
freight forwarder for the delivery of merchandise from the distribution center
to all SRI stores on a daily basis. Pursuant to this arrangement, the price paid
by SRI is based upon the weight of the shipments rather than the number of
pieces of inventory delivered. Such pricing results in a more cost-efficient
method of distribution. Distribution expenses, net of handling fees charged to
vendors, were less than 0.5% of net sales in each of 1994 and 1995, which SRI
believes is below industry averages.
COMPETITION
The retail apparel business is highly competitive. Although competition
varies widely from market to market, SRI faces substantial competition,
particularly in urban markets, from national, regional and local department and
specialty stores. Some of SRI's competitors are considerably larger than SRI and
have substantially greater financial and other resources than SRI. SRI believes
that its distinctive retail concept, combined with its emphasis on operating
system and technology, distinguishes it from department store and specialty
store competitors. SRI believes that its knowledge of local markets has enabled
it to establish a strong franchise in most of its markets.
EMPLOYEES
During 1995, SRI employed an average of 9,946 employees, of which 1,069
were salaried and 8,877 were hourly. Central office (which includes corporate,
credit and distribution center offices) employees averaged 296 salaried and 684
hourly employees during 1995. In its stores during 1995, SRI employed an average
of 773 salaried and 8,193 hourly employees. Such averages will vary during the
year as SRI traditionally hires additional employees and increases the hours of
part-time employees during peak seasonal selling periods. There are no
collective bargaining agreements in effect with respect to any of SRI's
employees. SRI believes that it has a good relationship with its employees.
SRI has developed performance monitoring systems to assure achievement
of selling and service standards at the store level. All of SRI's sales
associates participate in incentive-based compensation programs with objectives
that are defined at the individual department and store level. During 1995, 95%
of all Company personnel participated in incentive and recognition programs
based on individual performance.
PROPERTIES
SRI's corporate headquarters is located in a 130,000 square foot
building in Houston, Texas. SRI leases the land and building at its Houston
facility. See "Certain Relationships and Related Transactions--Transactions with
Management." SRI owns its distribution center and its credit department
facility, both located in Jacksonville, Texas.
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<PAGE>
SRI currently operates stores located in the following states:
Number
of
Location Stores
- ---------------------------------------------------------------------
Alabama.................................................. 3
Arizona ................................................. 2
Arkansas................................................. 13
Colorado................................................. 11
Illinois................................................. 11
Indiana.................................................. 3
Iowa..................................................... 6
Kansas................................................... 3
Louisiana................................................ 27
Michigan................................................. 6
Minnesota ............................................... 1
Mississippi.............................................. 7
Missouri................................................. 5
Nebraska ................................................ 1
New Mexico............................................... 9
Ohio..................................................... 25
Oklahoma................................................. 13
South Dakota ............................................ 2
Texas.................................................... 165
Wyoming.................................................. 1
-----------
Total........................................... 314
Stores range in size from 4,000 to 46,000 square feet with the majority
between 12,000 and 30,000 square feet. In general, Palais Royal stores are
located in metropolitan Houston; Bealls stores are located in small rural
markets primarily in Texas, Oklahoma, New Mexico and Alabama; and Stage stores
are located in states other than Texas, Oklahoma, New Mexico and Alabama. These
stores are primarily located in strip shopping centers. All store locations are
leased except for three Bealls stores and two Stage stores that are owned. All
leases provide for a base rent amount plus contingent rentals, generally based
upon a percentage of gross sales. The recently acquired Uhlmans stores, the
majority of which will be operated by SRI as Stage stores, range in size from
4,100 to 32,900 square feet, with the majority between 12,000 and 20,000 square
feet.
LITIGATION
From time to time SRI and its subsidiaries are involved in various
litigation matters arising in the ordinary course of its business. None of the
matters in which SRI or its subsidiaries are currently involved, either
individually or in the aggregate, is material to the financial position, results
of operations or cash flows of SRI or its subsidiaries.
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<PAGE>
SRI'S CREDIT CARD BUSINESS
GENERAL
SRI provides certain credit related services for the stores operated by
its wholly owned subsidiary, Palais. SRI also performs certain credit related
services in its role as Servicer under the Pooling and Servicing Agreement. SRI
performs these services at its credit operations located in Jacksonville, Texas
and Houston, Texas. SRI credit operations involve approximately 234 full and
part-time employees and an internally developed, computerized and highly
automated credit collection system. The system analyzes customer payment
histories, automatically approves or rejects new sales at point of sale and
enables account representatives to efficiently contact delinquent customers and
respond to customer needs in the collections effort. Data processing support for
SRI's credit card business is provided by SRI's Management Information Services
division located in Houston, Texas.
The Accounts under which the Receivables arise are created by Palais
and enable the holders of the credit cards issued by Palais (the "SRI CARDS") to
purchase all of the various types of merchandise and services offered by SRI.
NEW ACCOUNT UNDERWRITING
The vast majority of all new accounts are originated through in-store
solicitations by sales associates. New account applications are also solicited
from certain target groups through direct mail campaigns that may be coordinated
with the opening of new stores or other special promotions. Such direct mail
solicitations often include pre-approved applications. Such pre-approved
applications are often directed at college students meeting various criteria and
other persons who have been pre-screened through information available from
credit bureaus to identify potential customers who are likely to respond to
solicitations and who present a positive credit profile.
All credit applications received from prospective cardholders, other
than pre-approved applications, are evaluated through the use of computerized
credit scoring systems. These systems rate applicants for several factors
including length of time at residence, occupation, number of inquiries and worst
reference from a credit bureau report, and other characteristics. Based upon the
outcome of the processing, the application may be approved and assigned a credit
limit, denied, or designated for further follow-up. During the credit
application process, applications are also reviewed for fraud, irregular credit
bureau reports and the possibility of duplicate accounts. In some cases, an
application is processed immediately to permit the applicant, if approved, to
make purchases on the same day. In addition, if a customer has a major credit
card, an account can be opened immediately via on-line access to credit bureaus
from the store location using credit bureau scores for approval and limit
setting, and the customer is then granted immediate credit availability.
During 1995, SRI approved approximately 82% of new applications
(including in-store applications) which had not been pre-approved. SRI may
change its credit evaluation policies or screening methods at any time.
Each cardholder is subject to an agreement governing the terms and
conditions of such cardholder's account. Pursuant to each agreement, SRI,
through its subsidiary Palais, reserves the right, subject to applicable law, to
change or terminate any terms, conditions, services or features of the related
account (including increasing or decreasing finance charges, other charges or
minimum payments). Credit guidelines are maintained by SRI and are adjusted
upward or downward at each monthly billing cycle based on credit account history
behavioral scoring models. Such models, developed and continuously monitored in
conjunction with an outside credit consultant, calculate a numerical risk
evaluation for each score value, and are used by management to determine credit
authorization and risk limit decisions for each account. Each account
transaction is entered and approved at the time of the transaction through
direct communication with SRI's centralized credit authorization system.
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<PAGE>
CREATION OF ACCOUNT BALANCES
Account balances are created through the use of the SRI Cards to charge
purchases of merchandise and services from SRI stores, and, to a minimal extent,
ancillary services such as special purpose insurance with respect to account
balances. Consequently, the Trust depends on the continued ability of the stores
operated by Palais to generate credit sales. In addition, because many of the
SRI stores accept Visa, MasterCard and Discover cards, the Trust also depends
upon decisions of customers purchasing merchandise and services to use the SRI
Cards rather than such other cards or cash.
SRI believes that newly opened stores experience a lower use of SRI
Cards as the preferred payment method. In 1995, SRI opened 68 new stores, in
which sales through SRI Cards accounted for approximately 47% of total retail
sales. SRI believes that the opening of these new stores largely contributed to
the decrease in use of SRI Cards as a percentage of retail sales from 57.4% to
55.6% from 1994 to 1995. SRI expects that the use of SRI Cards in these new
stores will increase as the stores mature. SRI also believes that the increase
in the use of other credit cards in SRI stores from 7.5% of total sales in 1993
to 9.8% in 1995 was attributable largely to the acceptance by Palais Royal of
such other cards and the increase in the use of co-branded cards generally
throughout the United States.
The following table summarizes for the periods indicated the
percentages of total retail sales made with the SRI Cards compared with cash and
checks and all other cards currently accepted by the SRI stores.
RETAIL SALES BY PAYMENT METHOD
Fiscal Year
--------------------------------------
1995 1994 1993
------- ------- -------
Percent of Retail Sales(1)
--------------------------------------
SRI Cards ......................... 55.6% 57.4% 57.4%
All Other Cards(2) ................ 9.8 9.2 7.5
Cash and Checks ................... 34.6 33.4 35.1
------- ------- -------
Total ............................. 100.0% 100.0% 100.0%
======= ======= =======
- -----------------------
(1) Retail sales include the price of merchandise, sales tax and service fees.
(2) Includes VISA, MasterCard and Discover. Palais Royal stores began accepting
these cards during 1992.
The Palais Royal and Bealls accounts require a minimum payment of
one-eighth of the balance rounded to the nearest five dollars, with a minimum
payment of $5.00. Stage accounts minimum payment requirements are as follows:
STAGE MINIMUM PAYMENTS
Account
Balance Minimum Payment
--------------- --------------------
Under $10 the Account Balance
$10 to $100 $10
$101 to $150 $15
$151 to $200 $20
$201 to $250 $25
$251 to $300 $30
$301 to $350 $35
$351 to $400 $40
$401 to $450 $45
$451 to $500 $50
Over $500 1/10 of the Account Balance
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<PAGE>
ACCOUNT BALANCES AND YIELD EXPERIENCE
The following table shows total and average Receivables balances,
finance and other charges billed, and the yield therefrom for the portfolio of
SRI Cards accounts (the "SRI PORTFOLIO"):
ACCOUNT BALANCES AND YIELD EXPERIENCE FOR THE SRI PORTFOLIO
(dollars in thousands)
Fiscal Year
---------------------------------
1995 1994 1993
-------- -------- --------
Total Receivables outstanding at year end .. $228,354 $210,941 $189,237
Average Receivables outstanding (1) ........ $207,142 $183,318 $172,668
Net finance charges and fees billed ........ $ 41,827 $ 34,712 $ 32,459
Yield from finance charges and fees (2) .... 20.2% 18.9% 18.8%
- ------------
(1) Average Receivables outstanding is calculated based on Receivables
outstanding at the end of each fiscal month for each period indicated.
(2) Yield from finance charges and fees is calculated as net finance charges
and fees billed divided by the average Receivables outstanding.
Finance charges are computed on the average daily balance of an
account. The annual percentage rate is 21% for most states. The most recent
in-state annual percentage rate change that affected SRI took place in Texas on
October 1, 1991 when the annual percentage rate was increased to 21% from 18%.
The change was phased-in on a "grandfathered" basis; new purchases are assessed
for the higher rate while balances created prior to the rate change continue to
be charged the lesser rate of 18% until paid. Finance charges are assessed from
the date of purchase where permitted by applicable state law, although a grace
period is applicable if the account is paid in full within 30 days following the
billing date.
SRI has implemented certain changes which increased the yield of the
SRI Portfolio. On August 28, 1995, the late fee was increased to $10.00, from a
fee of the lesser of $5.00 or 5% of the minimum payment past due after 10 days,
assessed on account payments 21 days past due. The increase in yield from
finance charges and fees from 1994 to 1995 was attributable largely to such
increase in the late fee charged. A late fee may only be charged once to a
specific payment due.
Cash collections on the SRI Portfolio may not reflect the historical
experience shown in the account balances and yield experience table. During
periods of increasing delinquencies, billings of monthly finance charges and
fees may exceed cash receipts as amounts collected on Receivables lag behind
amounts billed to obligors. Conversely, as delinquencies decrease, cash receipts
may exceed billings of monthly finance charges and fees as amounts collected in
a current period may include amounts billed during prior periods. However, SRI
believes that during the periods shown, revenues on an as-billed basis closely
approximated revenues on a cash basis. Revenues from monthly finance charges and
fees on both an as-billed and a cash basis will be affected by numerous factors,
including the monthly finance charges and fees on principal Receivables, the
fluctuation of the principal Receivables portfolio, the amount of other fees
paid by obligors, the percentage of obligors who pay off their balances in full
each month and do not incur monthly finance charges on purchases, promotional
programs at the SRI stores, and changes in the delinquency rate on the
Receivables. Revenue from monthly finance charges and fees also varies somewhat
within a fiscal year due to the seasonal nature of SRI's business.
LOSS AND DELINQUENCY EXPERIENCE
All receivables in a particular account are considered delinquent if
such account has an unpaid balance past the original due date. Such accounts
with amounts of $5.00 or more past due are assigned to SRI's collection system.
Under current procedures, cardholders automatically receive a statement message
advising such cardholders of the account delinquency. When an account enters the
collection system it is given a score by various scoring models, which result in
the assignment of the account to one of three collection strategies. Each
collection strategy provides for a series of
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<PAGE>
actions which principally consist of statement messages, collection notices and
telephone contacts. Accounts are scored on their billing dates and are reviewed
at 15-day intervals and assigned to progressively more active collection
strategies. The current policy of SRI is generally to recognize a loss on a
receivable after the seventh month following the last payment on an account or,
if no such payment has been made, eight months following the origination of such
receivable. SRI may change its charge-off policy and collection practices at any
time in accordance with its business judgment and applicable law.
The following table sets forth the loss experience with respect to
payments by cardholders for the SRI Portfolio for each of the periods presented.
There can be no assurance, however, that the loss experience for the Receivables
in the future will be similar to the historical experience set forth below.
LOSS EXPERIENCE FOR THE SRI PORTFOLIO
(dollars in thousands)
Fiscal Year
----------------------------------
1995 1994 1993
--------- -------- ---------
Average Receivables outstanding(1) ....... $ 207,142 $183,318 $ 172,668
Net charge-offs(2) ....................... $ 16,398 $ 11,062 $ 9,616
Net charge-offs as a percentage of average
Receivables outstanding(3) .......... 7.92% 6.03% 5.57%
- -------------------------
(1) Average receivables outstanding is calculated based on Receivables
outstanding at the end of each fiscal month for each period indicated.
(2) Net charge-offs reflects charge-offs relating to merchandise purchases less
recoveries, and does not include the amount of any reductions in average
receivables outstanding due to fraud, returned goods or customer disputes.
(3) SRI believes that the increase in such percentages from 1993 to 1995 was
attributable to an increase in late fees, which generally have higher
charge-off rates, an increase in personal bankruptcies during such period,
and the devaluation of the Mexican peso during such period.
The following table sets forth the delinquency experience with
respect to accounts for which no payment had been received within 30 days of the
end of the most recent billing cycle for each such account for each of the
periods shown (stated on a sum of the cycles basis) for the SRI Portfolio for
each of the periods presented. The table does not include "current delinquent"
accounts, which are accounts which are delinquent but for which SRI has received
some payment in the 30 days preceding the most recent billing date. The amounts
shown in the table as "past due" are the total receivables for such accounts.
There can be no assurance, however, that the delinquency experience for the SRI
Portfolio in the future will be similar to the historical experience set forth
below.
AVERAGE DELINQUENCIES FOR THE SRI PORTFOLIO
(dollars in thousands)
<TABLE>
<CAPTION>
Average for Fiscal Year(1)
------------------------------------------------------------------------
1995 1994 1993
----------------------- ---------------------- -----------------------
Amount Percentage(2) Amount Percentage(2) Amount Percentage(2)
------- ------------- ------- ------------- -------- -------------
<C> <C> <C> <C> <C> <C> <C>
61-90 days past due ..... $ 7,922 3.89% $ 6,180 3.43% $ 5,593 3.27%
91-120 days past due .... 4,013 1.97 2,905 1.61 2,479 1.45
121 days or more past due 9,225 4.53 6,426 3.57 5,262 3.08
- --- ------- ---- ------- ---- ------- ----
Total ................... $21,160 10.39% $15,511 8.61% $13,334 7.80%
======= ===== ======= ==== ======= ====
</TABLE>
- --------------------------------
(1) Average delinquencies is the arithmetic average of delinquencies by
category at the last cycle closing of each fiscal month during each period
indicated.
(2) The percentages are the quotients obtained by dividing the delinquent
amount by average receivables outstanding.
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<PAGE>
Losses and delinquencies are affected by a number of factors, including
competitive and general economic conditions and consumer debt levels. Additional
late fee and finance charge assessments began in September 1995 with a change in
the amounts of late fees assessed. The late fee increased from 5% of the payment
with a cap of $5.00 (for 77% of the Receivables) to $10.00. SRI believes that
the increase in late fees resulted in increased delinquencies and increased
write-offs because payments made by cardholders (to the extent inadequate to pay
all outstanding finance charges, late fees and principal) are applied to finance
charges and late fees before being applied to the principal balance. As a higher
percentage of such payments is used to satisfy late fees, a greater amount of
the principal remains unpaid. Losses and delinquencies have also increased from
1993 to 1995 as a result of an increase in personal bankruptcies during such
period and the devaluation of the Mexican Peso during such period. It is not
possible to determine the precise extent to which the loss and delinquency
experience described above reflects the influence of these factors.
The following table summarizes the repurchases of Receivables in
defaulted Accounts and Receivables Dilutions by Palais since 1993 and the yield
on the SRI Portfolio during such period. For a description of such repurchases,
see "Description of the Collateral--Defaulted Receivables; Rebates and
Fraudulent Charges, Portfolio Reassignment."
RECEIVABLES REPURCHASES AND NET PORTFOLIO YIELD
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Defaulted Receivables repurchased(1) ................ $14,297 $12,644 $ 5,840
Dilution repurchases(2) ............................. $46,787 $39,834 $39,372
Net Portfolio Yield on Series 1993-1 Certificates(3). 3.33% 4.35% 6.98%
Net Portfolio Yield on Series 1995-1 Certificates(3). 3.49% N/A(4) N/A(4)
</TABLE>
- -------------
(1) Receivables repurchased are allocated to the fiscal year in which such
Receivable was charged off, not the fiscal year when the repurchase
occurred.
(2) Includes only Receivables Dilutions in respect of merchandise which was
refused or returned by a cardholder or Receivables created through a
fraudulent or counterfeit charge.
(3) Net Portfolio Yield means Portfolio Yield minus the Base Rate. See
"Description of the Collateral--Pay Out Events."
(4) Not applicable since the Series 1995-1 Certificates were not issued until
August 1995.
PLAN FOR CREDIT CARD BANK
SRI is currently considering organizing a national credit card bank
(the "BANK") as a wholly owned subsidiary. SRI believes that the chartering of a
national bank would enable it to continue to offer its customers services on
competitive terms while reducing the costs of its credit card program and
increasing the size of its accounts receivable pool. SRI's credit operations are
currently subject to the differing laws of the various jurisdictions in which
SRI offers credit. The lack of uniformity in SRI's current lending structure
results in higher operating costs and decreased efficiency in extending credit
than SRI expects to experience through the Bank. The increased flexibility
afforded by a national bank charter will permit SRI, through the Bank, to act
more efficiently in adjusting credit terms nationwide and in expanding the types
of credit offered to SRI's customers.
The activities of the Bank would be limited to those permitted for
credit card banks under the Bank Holding Company Act of 1956, as amended by the
Competitive Equality Banking Act of 1987, and under the Bank's articles of
association. The Bank will also be subject to independent supervision and
examination by federal banking regulators, such as the Office of the Comptroller
of the Currency (the "OCC") and the Federal Deposit Insurance Corporation (the
"FDIC"). In addition, the Bank will be required to comply with certain capital
adequacy and maintenance regulations,
- 46 -
<PAGE>
affiliate transaction prohibitions and general banking safety and soundness
requirements. There can be no assurance that the Bank will be established.
- 47 -
<PAGE>
THE ACCOUNTS
The Accounts include substantially all of the SRI Card accounts, some
of which are recently solicited and unseasoned. At February 3, 1996, there were
more than 1.5 million active Accounts (characterized by having purchases in the
prior twelve months). The Receivables include delinquent Receivables and may
include obligations of cardholders who are or are about to become bankrupt or
insolvent, as well as Accounts already charged off (although the Receivables in
such charged-off Accounts are considered to have a zero balance). Additional
accounts originated in the normal operation of the credit card business are
generally added on a daily basis as Automatic Additional Accounts. See
"Description of the Collateral--Automatic Addition of Accounts."
The Receivables arising from the Accounts at February 3, 1996 totaled
$228.4 million. Approximately 3.0% of the total Receivables were represented by
finance charge Receivables. At February 3, 1996, the average principal
Receivable balance of the Accounts was $232. At February 3, 1996, the Accounts
had an average credit guideline of $740, and the percentage of aggregate total
Receivable balance to the aggregate total credit guideline in the accounts was
approximately 33%. At February 3, 1996, 44% of the Accounts with a balance had
been opened prior to December 31, 1991. Billing addresses for the Accounts
include the majority of states in the U.S., Mexico, Canada and other countries.
The following tables summarize the SRI Portfolio on a consolidated
basis for all SRI stores by various criteria at February 3, 1996. Because the
composition of the SRI Portfolio may change in the future, these tables are not
necessarily indicative of the character of the Receivables at any time after
February 3, 1996.
COMPOSITION OF ACCOUNTS BY ACCOUNT BALANCE
for billing cycles ending on or before
February 3, 1996
(dollars in thousands)
Percentage of
Percentage of Total
Number of Total Number Receivables Receivables
Accounts(1) of Accounts Outstanding(1) Outstanding
----------- ------------ -------------- -------------
$0.00 or Less ........ 20,882 2.19% $ (505) (0.22)%
$0.01 to $250.00 ..... 578,858 60.68 63,950 27.35
$250.01 to $500.00 ... 243,428 25.52 86,108 36.83
$500.01 to $750.00 ... 67,649 7.09 41,125 17.59
$750.01 to $1,000.00 . 26,303 2.76 22,351 9.56
$1,000.01 to $1,250.00 12,102 1.27 13,464 5.76
$1,250.01 to $1,500.00 3,005 0.32 4,048 1.73
$1,500.01 to $1,750.00 911 0.10 1,460 0.62
$1,750.01 to $2,000.00 411 0.04 765 0.33
$2,000.01 or More .... 380 0.03 1,049 0.45
------- ------ --------- ------
Total ..... 953,929 100.00% $ 233,815 100.00%
======= ====== ========= ======
- ----------------------
(1) Represents accounts which had a balance at February 3, 1996, stated on a
sum of cycles basis.
- 48 -
<PAGE>
COMPOSITION OF ACCOUNTS BY CREDIT LIMITS
at February 3, 1996
(dollars in thousands)
Percentage of
Percentage of Total
Number of Total Number Receivables Receivables
Accounts(1) of Accounts Outstanding(1) Outstanding
----------- ------------- -------------- -------------
$0.00 ................ 143,027 14.99% $ 48,568 20.77%
$0.01 to $250.00 ..... 39,260 4.12 5,323 2.28
$250.01 to $500.00 ... 172,235 18.06 36,733 15.71
$500.01 to $750.00 ... 27,020 2.83 7,290 3.12
$750.01 to $1,000.00 . 251,677 26.38 63,242 27.05
$1,000.01 to $1,250.00 283,976 29.77 59,816 25.58
$1,250.01 to $1,500.00 5,829 0.61 4,507 1.93
$1,500.01 to $1,750.00 777 0.08 915 0.39
$1,750.01 to $2,000.00 29,330 3.07 6,455 2.76
$2,000.01 or More .... 798 0.09 966 0.41
----------- ------------- -------------- -------------
Total ..... 953,929 100.00% $233,815 100.00%
=========== ============ ============== =============
- ----------------------
(1) Represents accounts which had a balance at February 3, 1996, stated on a
sum of cycles basis.
COMPOSITION OF ACCOUNTS BY PAYMENT STATUS
for billing cycles ending on or before
February 3, 1996
(dollars in thousands)
Percentage of
Percentage of Total
Number of Total Number Receivables Receivables
Accounts(1) of Accounts Outstanding(1) Outstanding
----------- ------------ -------------- -------------
Current .............. 658,865 69.07% $143,603 61.42%
Current delinquent(2) 71,500 7.50 24,688 10.56
1-30 days past due ... 145,851 15.29 40,017 17.11
31-60 days past due .. 33,457 3.51 9,500 4.06
61-90 days past due .. 14,585 1.53 4,771 2.04
91-120 days past due . 9,980 1.05 3,531 1.51
Over 120 days past due 19,691 2.05 7,705 3.30
----------- ------------ -------------- -------------
Total ..... 953,929 100.00% $233,815 100.00%
=========== ============ ============== =============
- ----------------------
(1) Represents Accounts which had a balance at February 3, 1996, stated on a
sum of cycles basis.
(2) Payment was received in the current period but was not sufficient to
satisfy all amounts in arrears.
- 49 -
<PAGE>
COMPOSITION OF ACCOUNTS BY AGE
for billing cycles ending on or before
February 3, 1996
(dollars in thousands)
Percentage
Percentage of of Total
Number of Total Number Receivables Receivables
Accounts(1) of Accounts Outstanding(1) Outstanding
----------- ------------ -------------- -----------
1996 ........... 7,078 0.74% $ 791 0.34%
1995 ........... 251,227 26.34 50,527 21.61
1994 ........... 127,047 13.32 30,829 13.19
1993 ........... 87,078 9.13 22,615 9.67
1992 ........... 61,773 6.47 16,338 6.99
1991 or earlier 419,726 44.00 112,715 48.20
----------- ------------ -------------- -----------
Total 953,929 100.00% $ 233,815 100.00%
=========== ============ ============== ===========
- ----------------------
(1) Represents Accounts which had a balance at February 3, 1996, stated on a
sum of cycles basis.
COMPOSITION OF ACCOUNTS BY GEOGRAPHIC DISTRIBUTION
at February 3, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage of
Percentage of Total
Number of Number of Total Number Receivables Receivables
Location Stores Accounts(1) of Accounts Outstanding(1) Outstanding
- ---------------- --------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Alabama ........ 3 19,131 0.68% $ 1,400 0.60%
Arkansas ....... 12 70,694 2.53 6,475 2.77
Colorado ....... 13 256,988 9.20 5,341 2.28
Illinois ....... 5 16,202 0.58 712 0.30
Iowa ........... 3 17,132 0.61 212 0.09
Kansas ......... 2 8,252 0.30 315 0.13
Louisiana ...... 26 146,983 5.26 14,227 6.08
Mississippi .... 6 24,146 0.86 2,296 0.98
Missouri ....... 4 20,490 0.73 675 0.29
New Mexico ..... 8 55,316 1.98 4,857 2.08
Oklahoma ....... 13 87,726 3.14 5,681 2.43
Texas .......... 161 1,614,789 57.79 180,551 77.22
Wyoming ........ 1 6,988 0.25 137 0.06
Other .......... -- 449,572 16.09 10,936 4.69
--------- ------------ ------------- -------------- --------------
Total 257 2,794,409 100.00% $233,815 100.00%
========= ============ ============= ============== ==============
- ----------------------
</TABLE>
(1) Represents Accounts which have been opened or had a purchase in the
last three years or which had either a positive or negative balance
at February 3, 1996.
- 50 -
<PAGE>
BILLING AND PAYMENTS
The accounts for Bealls, Palais Royal and Stage are segregated and
grouped into billing cycles for purposes of administrative convenience. Each
billing cycle has a separate monthly billing date (which may vary slightly from
month to month) at which time the activity in the related accounts during the
month ending on such billing date is processed and billed to cardholders. New
accounts are assigned to billing cycles in a manner which is intended, for
purposes of administrative convenience, to equalize the number of accounts in
the billing cycles.
Monthly billing statements are sent by SRI's data processing facility
in Houston, Texas to holders of the SRI Cards who have positive or negative
balances. The billing statements present the total amount due and show the
allocation between principal, current fees, current finance charges, and the
minimum payment due. Subject to applicable law, late fees and returned check
fees are also added to a cardholder's outstanding balance. No issuance fees,
annual fees, over credit limit fees, or transaction fees are currently charged
to obligors on the Accounts. Palais may change its billing practices, including
the minimum monthly payment amounts, at any time. See "Description of the
Collateral--Collection and Other Servicing Procedures."
A monthly finance charge is assessed on the Accounts, except those
Accounts that have a zero balance at the beginning or end of any month. The
charge is based on the average daily balance outstanding on an Account during a
monthly billing period and is calculated by multiplying the average daily
balance by the applicable finance charge rate. Current purchase transactions are
included in the average daily balance where permitted by the applicable state
law. Finance charges are assessed from date of purchase, although a grace period
is applicable if the account is paid in full within 30 days following the
billing date. Payments by obligors generally are applied in the following order
(pursuant to applicable law): (i) finance charges; (ii) other charges or fees;
and (iii) the unpaid principal balance of purchases allocated first to the
longest outstanding receivable. The annual finance charge rate is 21% per annum,
generally subject (where permitted) to a minimum monthly charge of $.50, except
in those states in which a lower rate is established by law and in those states
in which a lower rate is chosen by SRI for competitive reasons. For 1995, the
average net finance charge rate including late fees for the SRI Portfolio was
20.2% per annum (excluding late fees, such rate was 18.0%). Under the terms of
the account agreements governing the Accounts, SRI may change its finance charge
rates at any time. There can be no assurance that finance charges, fees, and
other charges will remain at current levels in the future. See "Description of
the Collateral--Collection and Other Servicing Procedures" and "Risk
Factors--Possible Changes to the Terms of the Accounts."
SRPC expects that there will be sufficient funds to pay the principal
amount of the Notes in full on the Expected Maturity Date, based on the
following assumptions: (a) cardholder monthly payment rates for the Accounts are
not less than 12.49% (which rate is the payment rate assumed beginning in month
three of the Model described in "Hypothetical Model Scenarios--Hypothetical
Inputs--Payment Rate" and is below the lowest monthly payment rate shown in the
"Cardholder Monthly Payment Rates--SRI Portfolio" table below), (b) the
aggregate amount of principal Receivables outstanding, together with funds on
deposit in the Equalization Account, does not decline below $204,000,000 prior
to the Expected Maturity Date, (c) the total amount of Investor Charge-Offs as a
percentage of total Receivables outstanding and yield from finance charge
Receivables, fees, and other charges remain constant at the levels indicated in
the related tables for the fiscal year ended February 3, 1996, and (d) no Event
of Default occurs. SRPC cannot predict, and no assurance can be given, as to the
cardholder monthly payment rates that will actually occur in any future period,
as to whether any of the above assumptions will prove to have been correct, or
as to whether the actual rate of payment of principal of the Notes will be as
anticipated. The occurrence of any event that results in worse conditions than
those assumed could materially affect the payment experience of the Notes.
The following table sets forth the highest and lowest cardholder
monthly payment rates for the SRI Portfolio during any month in the period shown
and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of total closing monthly
account balances during the periods shown. Payment rates shown in the table are
based on amounts which would be deemed payments of principal Receivables and
finance charge Receivables with respect to the Accounts.
- 51 -
<PAGE>
CARDHOLDER MONTHLY PAYMENT RATES (1)
SRI PORTFOLIO
Fiscal Year
-------------------------------------
1995 1994 1993
-------- -------- --------
Lowest Month ...................... 15.0% 15.2% 14.8%
Highest Month ..................... 20.2 19.5 22.8
Monthly Average ................... 17.3 16.5 17.0
- --------------------
(1) Annualized.
The amount of collections of Receivables may vary from month to month
due to seasonal variations, general economic conditions, payment habits of
individual cardholders, and other factors. There can be no assurance that
collections of principal Receivables with respect to the SRI Portfolio, and thus
the rate at which the Holders could expect to receive payments of principal on
their Notes, will be similar to the historical experience set forth above. If an
Event of Default occurs, the average life and maturity of the Notes could be
significantly reduced.
- 52 -
<PAGE>
MANAGEMENT
The following sets forth certain information with respect to the
directors and executive officers of SRPC.
NAME AGE POSITION
- --------------------------------------------------------------------------------
Bernard Fuchs 70 Chairman
Carl Tooker 49 President and Chief Executive Officer
James Marcum 37 Executive Vice President and Chief Financial Officer
Joshua Bekenstein 38 Director
Adam Kirsch 35 Director
Andrew Stidd 39 Director
Mr. Fuchs has been involved in retailing since 1944. He began his
career with Grayson Shops of California and subsequently served as Executive
Vice President and Chief Operating Officer of S. Klein in New York from 1960
through 1967. He came to Palais as Executive Vice President and Chief Operating
Officer in 1967 and became President and Chief Executive Officer in 1979. Mr.
Fuchs was Chairman and Chief Executive Officer of SRI from December 1988 until
July 1994 when Mr. Tooker was appointed Chief Executive Officer. Mr. Fuchs
continues to serve as Chairman.
Mr. Tooker joined SRI as a Director, President and Chief Operating
Officer in July 1993. On July 1, 1994, Mr. Tooker was appointed Chief Executive
Officer. Mr. Tooker has 24 years of experience in the retail industry, 18 of
which were spent in the May Co. where he served as Chairman and Chief Operating
Officer of Filene's of Boston from 1988 to 1990. In 1990, Mr. Tooker joined
Rich's, a division of Federated Department Stores, Inc., as President and Chief
Operating Officer, and in 1991 Mr. Tooker was promoted to Rich's Chief Executive
Officer, where he served until joining SRI in 1993.
Mr. Marcum joined SRI in June 1995 as Executive Vice President and
Chief Financial Officer. Prior to joining SRI, Mr. Marcum held various positions
at the Melville Corporation where he was employed since 1983 and where he served
as Treasurer from 1986 to 1989, Vice President and Controller of Marshalls,
Inc., a division of the Melville Corporation, from 1989 to 1990 and from 1990 to
1995 as Senior Vice President and Chief Financial Officer of Marshalls, Inc.
From 1980 to 1983, Mr. Marcum was employed at Coopers and Lybrand L.L.P.
Mr. Bekenstein has been a director since December 1988 and was Vice
Chairman of the Board of Directors and Chief Financial Officer of SRI from May
1992 until June 1995 when Mr. Marcum was appointed Chief Financial Officer. In
March 1996, Mr. Bekenstein resigned as Vice Chairman. Mr. Bekenstein continues
to serve as a director. Mr. Bekenstein has been a Managing Director of Bain
Capital, Inc. since May 1993 and a General Partner of Bain Venture Capital since
its inception in 1987. Mr. Bekenstein also currently serves on the Board of
Directors of Waters Corporation.
Mr. Kirsch has been a Managing Director of Bain Capital, Inc. since May
1993 and a General Partner of Bain Venture Capital since 1990 and was an
associate and principal of Bain from 1987 to 1990. Mr. Kirsch also currently
serves as a director of Brookstone, Inc., Duane Reade Holding Corp., Dade
Holdings Inc. and the Wesley-Jessen Corporation.
Mr. Stidd has been a director of SRPC since March 1996. Mr. Stidd has
served as Vice President of Lord Securities Corporation since April 1987. From
1979 to 1987, Mr. Stidd worked for and was associated with Goldman Sachs & Co.
- 53 -
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summarizes the principal components of compensation of
SRPC's Chief Executive Officer and its other two executive officers. The
compensation and benefits set forth below fully reflect compensation and
benefits earned for work performed on behalf of SRI and SRPC.
<TABLE>
<CAPTION>
LONG-TERM
COMPEN-
SATION
ANNUAL COMPENSATION AWARDS
------------------------------------ -----------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS/ COMP.
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) SARS(#) ($)(1)
- ------------------------------- ------ ------- ------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bernard Fuchs, ................ 1995 437,500 28,870 189,375(2) -- 252
Chairman 1994 450,000 65,265 35,625(3) -- 1,260
1993 450,000 59,200 3,713,000(4) 186,612 1,260
Carl Tooker, .................. 1995 538,416 43,305 67,600(5) -- 87
President and 1994 468,750 56,128 67,600(5) 47,363 174
Chief Executive Officer 1993 247,916 75,000 132,116(6) 189,454 --
James Marcum, ................. 1995 183,333 55,000 184,722(7) 94,727 173
Executive Vice President 1994 -- -- -- -- --
and Chief Financial Officer 1993 -- -- -- -- --
- ---------------------
</TABLE>
(1) Amounts shown for 1995 reflect premiums paid for life insurance coverage.
(2) Amount shown reflects a distribution related to options vested of $35,625
and the value realized upon the exercise of options for Common Stock of
$153,750. Value realized is based upon the fair market value of the stock
at the exercise date minus the exercise price.
(3) Amount shown reflects a distribution related to options vested.
(4) Amount shown reflects the value realized upon the exercise of options for
Common Stock. Value realized is based upon the fair market value of the
stock at the exercise date minus the exercise price.
(5) Amount shown reflects a distribution related to options vested of $38,000
and housing and automobile allowances of $29,600 paid to Mr. Tooker during
1994 and 1995.
(6) Amount shown reflects moving expenses of $114,861 and housing and
automobile allowances of $17,255 paid to Mr. Tooker during 1993.
(7) Amount shown reflects moving expenses paid to Mr. Marcum during 1995.
- 54 -
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following discloses options granted during 1995 for SRPC's executive
officers.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation For
Individual Grants Option Term
--------------------------------------------------------- -----------------------------
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to 10%
SARs Employees in 5% Annual Annual
Granted(#) Fiscal Year Exercise or Growth Rate Growth
Name (1) (%) Base Price ($) Expiration Date ($) Rate ($)
- ------------ ---------- ------------ -------------- --------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
James Marcum 94,727 23.2 3.04 6/01/05 180,000 459,000
- ------------
</TABLE>
(1) All of such options were granted under SRI's Third Amended and Restated
Stock Option Plan. The options granted under such plan are subject to
vesting and repurchase provisions upon termination of employment.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following summarizes exercises of stock options (granted in prior
years) by SRPC's executive officers during 1995, as well as the number and value
of all unexercised options held by SRPC's officers at the end of 1995.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at FY-
FY-End (#) End($)(2)
------------- ----------------
Shares
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Unexercisable Unexercisable
- ------------- ------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Bernard Fuchs 79,949 153,750 44,426/62,235 210,540/264,120
Carl Tooker -- -- 85,254/151,563 420,000/702,000
James Marcum -- -- -/94,727 -/212,000
- -------------
</TABLE>
(1) Value is based upon the fair market value of the stock at the exercise
date minus the exercise price. Fair market value is determined in good
faith by the Board of Directors and is based upon historical and projected
financial performance.
(2) Value is based upon the fair market value of the stock as of February 3,
1996 minus the exercise price.
COMPENSATION COMMITTEE
The current members of the Compensation Committee of SRI are Mr.
Fuchs and Mr. Bekenstein, who served in such capacities during the last fiscal
year. Mr. Fuchs abstains from voting on matters relating directly to his
compensation as an executive officer.
- 55 -
<PAGE>
MANAGEMENT AND EMPLOYMENT AGREEMENTS
FUCHS MANAGEMENT AGREEMENT
SRI, Bain Capital, Inc. ("BAIN") and certain of its affiliates,
Citicorp Venture Capital ("CVC") and Bernard Fuchs entered into a management
agreement (the "FUCHS MANAGEMENT AGREEMENT"), dated as of May 26, 1989 and
amended effective February 1, 1993, pursuant to which (i) SRI employed Mr. Fuchs
as an executive officer and (ii) Mr. Fuchs purchased from Bain and certain of
its affiliates, and an affiliate of Citicorp, in the aggregate, 278,259 shares
of SRI's common stock for $0.09 per share and 250 shares of SRI's senior
preferred stock for $1,000 per share (subsequently redeemed in connection with a
refinancing of SRI in 1993). The Fuchs Management Agreement provides that
transfers of common stock by Mr. Fuchs are subject to certain rights to first
offer and refusal of SRI and the other parties to the Fuchs Management
Agreement.
Pursuant to the Fuchs Management Agreement, Mr. Fuchs served as
Chairman of the Board and Chief Executive Officer until July 1, 1994 when Mr.
Tooker was appointed Chief Executive Officer. Mr. Fuchs continues to serve as
Chairman. The Fuchs Management Agreement, as amended, provides for a base salary
plus an annual incentive bonus based on an increase in SRI's pretax income
(excluding any increase or decrease in pretax income attributable to any
financial restructuring) as compared to the fiscal year in which SRI recorded
its highest pretax income prior to the fiscal year for which the bonus is being
paid. The incentive bonus is applicable to fiscal years 1993 through 1998. Mr.
Fuchs may also be awarded discretionary bonuses by SRI's Compensation Committee
elected by the Board of Directors. The Fuchs Management Agreement generally
restricts Mr. Fuchs from competing with SRI or its subsidiaries for a period of
24 months after his termination, except for termination without cause. Mr.
Fuchs's base salary for 1996,1997 and 1998 shall be $300,000, $200,000 and
$100,000, respectively.
In connection with the February 1993 amendment to the Fuchs Management
Agreement, SRI also entered into a stock option agreement with Mr. Fuchs
providing the grant of options to acquire up to 142,090 shares of SRI's common
stock at an original purchase price of $5.28 per share. Such options are subject
to vesting and repurchase restrictions. In connection with the formation of ARI,
such options were converted into options to acquire shares of ARI (now Stage
Stores) common stock (the "COMMON STOCK") at a price of $0.11 per share and the
right to receive payments equaling $1.00 per option share ratably over the
vesting schedule.
TOOKER EMPLOYMENT AGREEMENT
Stage Stores and Carl Tooker expect to enter into an employment
agreement (the "TOOKER EMPLOYMENT AGREEMENT") which will provide for Mr.
Tooker's employment as President and Chief Executive Officer. The Tooker
Employment Agreement will provide for an initial base salary of $600,000 plus an
annual incentive bonus as agreed to with the Compensation Committee. The Tooker
Employment Agreement will also provide for annual performance and salary
reviews, and for participation in all other bonus and benefit plans available to
executive officers of Stage Stores.
If Stage Stores terminates Mr. Tooker other than for good cause (as
defined in the Tooker Employment Agreement) or if Mr. Tooker voluntarily
terminates his employment for good reason, Mr. Tooker would be entitled to 18
months' base salary, any accrued or unpaid bonus, salary and deferred
compensation, any expense allowances and any earned but unpaid benefits under
Stage Stores' benefit plans. The Tooker Employment Agreement will also provide
that, following a change in control (as defined in the Tooker Employment
Agreement) if Mr. Tooker is terminated other than for good cause or Mr. Tooker
resigns for good reason, Mr. Tooker would be entitled to three years' base
salary (as opposed to eighteen months) plus the amounts referred to above. In
the event of a change of control of Stage Stores in which Stage Stores does not
survive, all unvested options for the purchase of Common Stock held by Mr.
Tooker would vest immediately. The Tooker Employment Agreement will contain
certain non-compete and confidentiality provisions. The Tooker Employment
Agreement will renew annually in accordance with its terms unless terminated by
either party.
MARCUM EMPLOYMENT AGREEMENT
Stage Stores expects to enter into an employment agreement with James
Marcum (the "MARCUM EMPLOYMENT AGREEMENT") which will provide for an initial
base salary of $300,000 as well as annual incentive bonuses as agreed to
- 56 -
<PAGE>
with the Compensation Committee. The Marcum Employment Agreement will also
provide for annual performance reviews, salary increases at the discretion of
the Compensation Committee, and participation in all other bonus and benefit
plans available to executive officers of Stage Stores.
If Stage Stores terminates Mr. Marcum other than for good cause (as
defined in the Marcum Employment Agreement), Mr. Marcum would be entitled to one
year's base salary, any accrued or unpaid bonus, salary and deferred
compensation, any expense allowances, and any earned but unpaid benefits under
Stage Stores' benefit plans. The Marcum Employment Agreement will also provide
that, following a change of control (as defined in the Marcum Employment
Agreement), Mr. Marcum would be entitled to two years' base salary (as opposed
to one) plus the amounts referred to above. In the event of a change of control
of Stage Stores in which Stage Stores does not survive, all unvested options for
the purchase of Common Stock held by Mr. Marcum would vest immediately. The
Marcum Employment Agreement will contain certain non-compete and confidentiality
provisions. The Marcum Employment Agreement will renew annually in accordance
with its terms unless terminated by either party.
MANAGEMENT AGREEMENTS
SRI, Bain and certain of its affiliates and CVC also entered into
management agreements with certain other officers, pursuant to which such
officers purchased from either Bain and certain of its affiliates, and
affiliates of Citicorp or SRI, shares of Common Stock and Senior Preferred Stock
of ARI (subsequently redeemed in connection with the Refinancing). The shares of
Common Stock acquired pursuant to such management agreements ("EXECUTIVE STOCK")
are subject to certain vesting provisions in addition to restrictions on
transfer and repurchase options. The management agreements give SRI, or if SRI
does not exercise its repurchase right, Bain and certain of its affiliates, CVC
and Acadia, the right to repurchase all or a portion of such Executive Stock
upon termination of the officer's employment. The repurchase price upon
termination is the lower of the fair market value or the original cost to the
officer for unvested Executive Stock and the fair market value for vested
Executive Stock. Executive Stock vests 40% two years from the date of issue and
in 20% annual increments thereafter.
If the Board of Directors and the holders of a majority of the Common
Stock then outstanding approve the sale of SRI to an independent third party
(whether by merger, consolidation or sale of all or substantially all of the
outstanding capital stock), the holders of Executive Stock are required to
consent and raise no objections against such transaction. Additionally, holders
of Executive Stock are required to agree to sell all of their Executive Stock
and rights to acquire Common Stock issued pursuant to the Stock Option Plan, as
defined below, if the transaction is structured as a sale of stock. SRI has the
right to redeem the Executive Stock held by any holder who fails to comply with
these provisions.
STOCK OPTION PLAN
In 1993, Stage Stores adopted the Third Amended and Restated Stock
Option Plan, a successor plan to prior Stage Stores plans (the "STOCK OPTION
PLAN"), designed to provide incentives to present and future execute,
managerial, marketing, technical, other key employees, and consultants and
advisors of Stage Stores and its subsidiaries as selected in the sole discretion
of the Board of Directors. The Stock Option Plan provided for aggregate options
grants of up to 1,894,540 shares. As of September 20, 1996, options to purchase
an aggregate of 1,511,523 shares of Common Stock at prices from $0.11 to $21.11
are currently outstanding under the Stock Option Plan. In connection with the
Common Stock Offering, the Compensation Committee has granted options to
purchase 255,762 shares of Common Stock under this plan to members of executive
management at an exercise price of $21.11 per share with a five-year cliff
vesting requirement. No additional grants shall be made under the Stock Option
Plan after the consummation of the Common Stock Offering.
1996 EQUITY INCENTIVE PLAN
In connection with the Common Stock Offering, Stage Stores has adopted
the 1996 Equity Incentive Plan (the "INCENTIVE PLAN") designed to update and
replace the Stock Option Plan.
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The Incentive Plan provides for the granting to employees and other key
individuals who perform services for Stage Stores and its subsidiaries
("PARTICIPANTS") of the following types of incentive awards: stock options,
stock appreciation rights ("SARS"), restricted stock, performance units,
performance grants and other types of awards that the Board of Directors or the
Compensation Committee (the "PLAN ADMINISTRATOR") deems to be consistent with
the purposes of the Incentive Plan. An aggregate of 1,500,000 shares of Common
Stock have been reserved for issuance under the Incentive Plan; however, no
Participant shall be entitled to receive grants of Common Stock, stock options
or SARs with respect to Common Stock, in any calendar year in excess of 400,000
shares in the aggregate. The Incentive Plan affords Stage Stores latitude in
tailoring incentive compensation for the retention of key personnel, to support
corporate and business objectives, and to anticipate and respond to a changing
business environment and competitive compensation practices.
The Plan Administrator will have exclusive discretion to select the
Participants and to determine the type, size and terms of each award, to modify
the terms of awards, to determine when awards will be granted and paid, and to
make all other determinations which it deems necessary or desirable in the
interpretation and administration of the Incentive Plan. The Incentive Plan is
scheduled to terminate ten years from the date that the Incentive Plan was
initially approved and adopted by the stockholders of Stage Stores, unless
extended for up to an additional five years by action of the Board of Directors.
With limited exceptions, including termination of employment as a result of
death, disability or retirement, or except as otherwise determined by the Plan
Administrator, rights to these forms of contingent compensation are forfeited if
a recipient's employment or performance of services terminates within a
specified period following the award. Generally, a Participant's rights and
interest under the Incentive Plan will not be transferable except by will or by
the laws of descent and distribution.
Options, which include nonqualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Common Stock at
a price fixed by the Plan Administrator. The option price may be less than,
equal to or greater than the fair market value of the underlying shares of
Common Stock, but in no event less than the fair market value on the date of
grant. Options generally will expire not later than ten years after the date on
which they are granted. Options will become exercisable at such times and in
such installments as the Plan Administrator shall determine. Payment of the
option price must be made in full at the time of exercise in such form
(including, but not limited to, cash or Common Stock of Stage Stores) as the
Plan Administrator may determine.
An SAR may be granted alone, or in tandem with another option or award,
or a holder of an option or other award may be granted a related SAR, either at
the time of grant or by amendment thereafter. In the event that an SAR is
granted in tandem with another award, the holder of the SAR must surrender the
SAR and surrender, unexercised, any related option or other award, and the
holder will receive in exchange, at the election of the Plan Administrator, cash
or Common Stock or other consideration, or any combination thereof, equal in
value to the difference between the exercise price or option price per share and
the fair market value per share on the last business day preceding the date of
exercise, times the number of shares subject to the SAR or option or other
award, or portion thereof, which is exercised.
A restricted stock award is an award of a given number of shares of
Common Stock which are subject to a restriction against transfer and to a risk
of forfeiture during a period set by the Plan Administrator. During the
restriction period, the Participant generally has the right to vote and receive
dividends on the shares. Dividends received while under restriction are treated
as compensation.
Performance grants are awards whose final value, if any, is determined
by the degree to which specified performance objectives have been achieved
during an award period set by the Plan Administrator, subject to such
adjustments as the Plan Administrator may approve based on relevant factors.
Performance objectives are based on such measures of performance, including,
without limitation, measures of industry, Stage Stores, unit or Participant
performance, or any combination of the foregoing, as the Plan Administrator may
determine. The Committee may make such adjustments in the computation of any
performance measure as it deems appropriate. A target value of an award is
established (and may be amended thereafter) by the Plan Administrator and may be
a fixed dollar amount, an amount that varies from time to time based on the
value of a share of Common Stock, or an amount that is determinable from other
criteria specified by the Plan Administrator. Payment of the final value of an
award is made as promptly as practicable after the end of the award period or at
such other time or times as the Plan Administrator may determine.
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Upon the liquidation or dissolution of Stage Stores all outstanding
awards under the Incentive Plan shall terminate immediately prior to the
consummation of such liquidation or dissolution, unless otherwise provided by
the Plan Administrator. In the event of a proposed sale of all or substantially
all of the assets of Stage Stores, or the merger of Stage Stores with or into
another corporation, all restrictions on any outstanding awards may lapse and
Participants may be entitled to the full benefit of such awards, as determined
by the Plan Administrator, immediately prior to the closing date of such sale or
merger.
CERTAIN FEDERAL TAX CONSEQUENCES UNDER THE INCENTIVE PLAN
The following discussion addresses certain federal income tax
consequences under current law to recipients of awards made under the Incentive
Plan. The following discussion is intended only as a general summary of the
federal income tax consequences arising under the Incentive Plan based upon the
Internal Revenue Code of 1986, as amended (the "CODE") as currently in effect.
Because federal income tax consequences will vary as a result of individual
circumstances, each Participant should consult his tax advisor with respect to
the tax consequences of such participation. Moreover, the following summary
relates only to a Participants' federal income tax treatment, and the state,
local and foreign tax consequences may be substantially different.
A Participant to whom a nonqualified stock option is granted will not
recognize any income at the time of the grant. When a Participant exercises a
nonqualified stock option, he generally will recognize ordinary compensation
income equal to the difference, if any, between the fair market value of the
Common Stock he receives at such time and the option's exercise price. The
Participant's tax basis in such shares will be equal to the exercise price paid
plus the amount includable in his gross income as compensation, and his holding
period for such shares will begin on the day on which he recognizes taxable
income in respect of such shares.
A Participant to whom an incentive stock option is granted will not
recognize any ordinary income at the time of grant or at the time of exercise.
However, upon the exercise of an incentive stock option, the Participant
generally will be required to include the excess of fair market value of the
Common Stock over the option's exercise price in his alternative minimum taxable
income and, as a result, he may be subject to an alternative minimum tax
("AMT"). In order to obtain incentive stock option treatment for federal income
tax purposes, a Participant (i) must be an employee of the Company or a
subsidiary continuously from the date of grant until any termination of
employment and (ii) in the event of such a termination, must exercise an
incentive stock option within three months after such termination, except if
disabled, in which case exercise may occur within one year from the date of
termination of employment. If a Participant holds Common Stock received upon the
exercise of an incentive stock option for more than one year after exercise and
more than two years after the option was granted (the "STATUTORY HOLDING
PERIODS"), then upon a sale of such Common Stock he will recognize long-term
capital gain or loss equal to the difference, if any, between the sale price of
such shares and the option's exercise price. If the Participant has not held
such shares for the Statutory Holding Periods, when he sells such share (a
"DISQUALIFYING DISPOSITION") he will recognize ordinary compensation income
equal to the lesser of (i) the excess, if any, of the fair market value of such
shares on the date of exercise over the exercise price or (ii) the excess, if
any, of the sale price over the exercise price. Any additional gain or any loss
on such sale will constitute capital gain or loss, short- or long-term depending
upon whether the Participant has held the Common Stock for more than one year
after the exercise date. The tax basis of such shares to the Participant, for
purposes of computing such other gain or loss, will be equal to the exercise
price paid plus the amount includable in his gross income as compensation, if
any.
A participant will not recognize any taxable income as a result of the
inclusion of SARs in a nonqualified stock option or an incentive stock option.
At the time of exercise, a Participant generally will recognize ordinary
compensation income in an amount equal to the cash and the fair market value of
the Common Stock he receives to satisfy his SARs. The Participant's tax basis in
any such shares received pursuant to a SAR will be equal to the amount
includable in his gross income as compensation in respect of such shares, and
the Participant's holding period therefor will begin on the day on which he
recognizes taxable income in respect of such shares.
With respect to restricted stock awards, unless he files a timely
election with the Internal Revenue Service under Section 83(b) of the Code (a
"SECTION 83(B) ELECTION"), a Participant who receives Common Stock pursuant to a
restricted stock award will not recognize any taxable income upon the receipt of
such award, but will recognize taxable compensation income at the time his
interest in such shares is no longer subject to the repurchase option imposed by
the
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Plan in an amount equal to the fair market value of such shares at such time.
Alternatively, by filing a Section 83(b) election within 30 days after the
shares are granted, the Participant may elect to recognize ordinary income equal
to the fair market value of the shares on the grant date. In either event, the
Participant's tax basis in such shares will be equal to the amount includable in
his gross income as compensation, and his holding period for such shares will
begin on the date his compensation income is determined. If a Participant does
not make a Section 83(b) election, dividends paid on restricted stock awards
will be includable in his income as compensation when received.
A Participant to whom a performance grant award is made will not
recognize taxable income at the time such award is made. Such Participant
generally will recognize taxable income, however, at the time cash, Common Stock
or other Stage Stores securities or property are paid to him pursuant to such
award in an amount equal to the amount of such cash and the fair market value at
such time of such shares, securities or property. The tax basis of any such
shares, securities or property received by a Participant pursuant to a
performance grant award will be equal to the amount includable in his gross
income as compensation in respect of such shares, securities or property, and
the holding period therefor will begin on the day on which he recognizes taxable
income in respect of such shares, securities or property. Any income equivalents
paid to a Participant with respect to his performance grant award should
generally be regarded as compensation.
If a Participant who receives Common Stock under the Incentive Plan
(whether pursuant to the exercise of an option, as a restricted stock award, or
as a performance grant award) is subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") (such recipient, an
"INSIDER"), the tax consequences may be different from those described above.
Generally, an Insider will not recognize income (or, in the case of the exercise
of an incentive stock option, alternative minimum taxable income) on receipt of
Common Stock until he is no longer subject to liability with respect to the
disposition of such Common Stock. However, by filing a Section 83(b) election
with the Internal Revenue Service no later than 30 days after the date of
transfer of property (e.g., after exercise of a nonqualified stock option that
was granted within six months of such exercise to the extent a six month holding
period is required), an Insider may elect to be taxed based upon the fair market
value of the Common Stock at the time of such transfer.
Subject to certain limitations described in the next paragraph, the
company for which a Participant is performing services generally will be allowed
to deduct amounts that are includable in the Participant's income as ordinary
compensation income at the time such amounts are so includable, provided that
such amounts qualify as reasonable compensation for personal services actually
rendered.
With limited exceptions, Stage Stores may not deduct certain
compensation paid to its chief executive officer or any of its four other
highest paid executives to the extent such compensation exceeds $1 million in
any taxable year. Depending on the circumstances, some or all of the
compensation paid to such an executive under the Incentive Plan may be
nondeductible.
SRI RETIREMENT PLAN
The Specialty Retailers, Inc. Restated Retirement Plan (the "SRI
RETIREMENT PLAN") is a qualified defined benefit plan. Benefits under the SRI
Retirement Plan are administered through a trust arrangement providing benefits
in the form of monthly payments or a single lump sum payment. The SRI Retirement
Plan covers substantially all employees who have completed one year of service
with 1,000 hours of service. The SRI Retirement Plan is administered by the
retirement plan committee (the "COMMITTEE"), and its three to five members are
appointed by SRI. All determinations of the Committee are made in accordance
with the provisions of the SRI Retirement Plan in a uniform and
nondiscriminatory manner.
Generally, a participant is eligible for a benefit on his/her normal
retirement date, which is the later of age 65 or the fifth anniversary of the
date of hire. A participant may elect an early retirement benefit if he/she is
at least 55 years old, has 10 Years of Service (as defined below) and retires
from active employment with SRI. Early retirement benefits are reduced according
to a formula established in the SRI Retirement Plan based upon each full month
that the participant's age is less than 65 on the date the payments commence. If
a participant who is vested terminates employment, he/she is entitled to a
deferred benefit payable at his/her normal retirement date or an earlier date,
if requested, but not before age 55.
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The amount of a participant's retirement benefit is based on each Year
of Credited Service (as defined below) and on his/her earnings for that year.
The individual yearly benefits are then totaled to determine the annual benefit
at age 65. A participant's accrued benefits in the superseded plan are
determined in accordance with the terms of those plans except as modified by the
terms of the SRI Retirement Plan. The annual amount of the participant's normal
retirement benefit is derived, subject to certain limitations, by adding (i) 1%
of earnings up to $30,600 plus 1 1/2% of the excess of such earnings over
$30,600 for each Year of Credited Service earned on or after July 1, 1989
through December 31, 1991, (ii) 1% of earnings up to $31,800 plus 1 1/2% of the
excess of such earnings over $31,800 for each Year of Credited Service earned
after December 31, 1991, (iii) 1% of earnings up to $42,500 plus 1 1/2% of the
excess of such earnings over $42,500 for each Year of Credited Service earned
after December 31, 1994 and (iv) accrued benefits determined in accordance with
the terms of the SRI Retirement Plan under any superseded plan. The normal
retirement benefit formula produces an annual benefit which is paid to the
participant in equal monthly installments. The standard form of payment for a
single participant is a monthly benefit payable for the participant's life only.
The standard form of payment for a married participant is a 50% joint and
survivor benefit, which provides a reduced monthly benefit to the participant
during his/her lifetime, and 50% of that benefit to the participant's spouse for
his/her lifetime in the event of the participant's death. Other forms of the
payment are also provided including lump sum payouts, but they require
participant election. In addition, the Committee may elect to pay the benefit
equivalent of a benefit payable at normal retirement date in the form of a lump
sum payment, if the lump sum payment does not exceed $3,500.
Any participant who is credited with 1,000 or more hours of service in
a calendar year receives a "YEAR OF SERVICE," while any participant who is
credited with 1,284 or more hours of service in a calendar year receives a "YEAR
OF CREDITED SERVICE." Years of Service determine a participant's eligibility for
benefits under the SRI Retirement Plan, and the percentage vested in those
benefits. After five Years of Service, a participant is 100% vested.
Participants in any superseded plan earn Years of Service and Years of Credited
Service pursuant to sightly different criteria for plan years beginning prior to
January 1, 1990.
The SRI Retirement Plan is funded entirely by SRI contributions which
are held by a trustee for the exclusive benefit of the participants. SRI
voluntarily agreed to contribute the amounts necessary to provide the assets
required to meet the future benefits payable to SRI Retirement Plan
participants. Under the SRI Retirement Plan, contributions are not specifically
allocated to individual participants. Although SRI intends to continue the SRI
Retirement Plan indefinitely, it can terminate the plan at any time, upon which
all participants will become 100% vested in any benefit accrued to the extent
funds are available in trust. In this event, assets will be allocated to benefit
categories in the order specified in the SRI Retirement Plan.
The Specialty Retailers, Inc. Benefit Equalization Plan (the
"EQUALIZATION PLAN") is a nonqualified defined benefit plan which is intended to
replace the benefits that cannot be provided under the terms of the SRI
Retirement Plan on account of certain limitation imposed under the Internal
Revenue Code (for example, the SRI Retirement Plan cannot consider compensation
for a participant which is in excess of $150,000 when determining the
participant's benefit). The Equalization Plan is unfunded. However, upon a
change of control as defined in the Equalization Plan, SRI is required to
deposit into a rabbi trust sufficient funds to cover all obligations then
accrued under the Equalization Plan.
SRI is currently considering adopting a supplemental employee
retirement plan (the "PROPOSED SERP"). If adopted, the Proposed SERP may provide
for certain additional retirement benefits for SRI's senior management upon
retirement at or after a certain age with a certain number of years of service
with SRI. Additionally, the Proposed SERP may provide for certain accelerated
benefits which could be triggered upon, among other things, a change of control
of Stage Stores.
The estimated annual benefits payable upon retirement under the SRI
Retirement Plan and Equalization Plan at normal retirement age subject to
certain adjustments permitted by applicable federal law, for the individuals
named in the cash compensation table above would be as follows: Mr. Fuchs-$0;
Mr. Tooker-$172,000; and Mr. Marcum- $133,000. No amounts were paid or
distributed during 1995 or to date in 1996 pursuant to the SRI Retirement Plan
to any of the individuals named or included in the group in the cash
compensation table above.
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COMPANY DEFERRED COMPENSATION PLAN
On February 26, 1996 and effective April 1, 1996, SRI adopted the
Specialty Retailers, Inc. Deferred Compensation Plan (the "DEFERRED COMPENSATION
PLAN") that provides officers of SRI with the opportunity to participate in an
unfunded, deferred compensation program that is not qualified under the Code.
Generally, the Code and ERISA restrict contributions to a 401(k) plan by highly
compensated employees. The Deferred Compensation Plan is intended to allow
officers to defer income at the same rates as those employees not restricted by
such regulations. Under the Deferred Compensation Plan, participants may defer
up to 15% of their salary and bonus (not otherwise covered by SRI's 401(k) plan)
and earn a rate of return based on select indices chosen by each participant.
SRI may, but is not obligated to, establish a grantor trust for the purposes of
holding assets to provide benefits to the participants. SRI will match 25% of
the first 6% of each participant's contributions to the Deferred Compensation
Plan not otherwise covered by SRI's 401(k) plan. Company contributions vest over
five years of service.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Substantially all of SRPC's transactions are with SRI, Palais or the
Trust. See Notes 3 and 4 to SRPC's annual financial statements contained
elsewhere herein. SRPC sells, on a daily basis, the accounts receivable
purchased from Palais to the Trust. SRI acts as agent to service the accounts
receivable and receives a servicing fee equal to 2% of the certificates
outstanding. During 1995, SRPC paid $3.8 million of servicing fees to SRI and
sold $306.8 million of accounts receivable to the Trust.
In connection with purchase of accounts receivable discussed above,
SRPC will record a payable to or a receivable from Palais. Intercompany interest
is charged at LIBOR plus 1.0% (6.5% at August 3, 1996). Interest income on
intercompany balances was $0.8 million during 1995.
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PRINCIPAL STOCKHOLDERS
Stage Stores' authorized equity consists of Common Stock and Class B
Common Stock. Except as otherwise described herein, all shares of Common Stock
and Class B Common Stock are identical and entitle the holders thereof to the
same rights and privileges (except with respect to voting privileges). Holders
of Class B Common Stock may elect at any time to convert any or all of such
shares into Common Stock, on a share-for-share basis, to the extent the holder
thereof is not prohibited from owning additional voting securities by virtue of
regulatory restrictions. The holders of Common Stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. Except as
required by law, holders of Class B Common Stock do not have the right to vote
on any matters to be voted upon by the stockholders. As of September 20, 1996,
1,351,967 shares of Class B Common Stock were outstanding, 1,250,584 of which is
owned by Court Square Capital Limited (see note (4) to ownership table below).
The percentage of shares of Common Stock is calculated assuming all Class B
Common Stock is converted.
The table below sets forth certain information regarding ownership of
Common Stock as of September 20, 1996 (adjusted for the closing of the Common
Stock Offering on October 30, 1996) assuming exercise of options exercisable
within sixty days of such date by (i) each person or entity who owns of record
or beneficially 5% or more of the Common Stock, (ii) each director and named
executive officer of Stage Stores and (iii) all executive officers and directors
of Stage Stores as a group. Except as indicated, each of such stockholders is
assumed to have sole voting and dispositive power as to the shares shown.
NUMBER OF PERCENTAGE OF
SHARES OF SHARES OF
NAME COMMON STOCK COMMON STOCK
---------- ------------ -------------
Joshua Bekenstein (1)........................... 3,569,447 15.3%
Adam Kirsch (1)................................. 3,580,248 15.4%
Bain and the Tyler Entities (2)................. 3,547,828 15.2%
Acadia Partners, L.P. (3)....................... 3,030,095 13.0%
Court Square Capital Limited (4)................ 1,620,651 7.0%
Bernard Fuchs (5)............................... 1,067,526 4.6%
Carl Tooker..................................... 141,901 *
Mark Shulman.................................... 40,733 *
Jerry Ivie (6).................................. 32,323 *
James Marcum.................................... 18,945 *
Stephen Lovell.................................. 14,209 *
Lasker Meyer (7)................................ 12,800 *
Peter Mulvihill (8)............................. 0 *
All executive officers and directors as a group
(10 Persons) (9)....................... 4,930,304 21.2%
- --------------
* Less than 1%.
(1) Amounts shown include shares beneficially owned by Bain and the Tyler
Entities. Mr. Bekenstein and Mr. Kirsch may be deemed to share voting and
dispositive power as to all shares owned by Bain and the Tyler Entities.
(2) The Tyler Entities (the "TYLER ENTITIES") include Tyler Capital Fund, L.P.,
Tyler Massachusetts, L.P., and Tyler International, L.P.-II. Such entities
are managed by Bain. Bain is a California limited partnership with seven
individuals serving as general partners, including Joshua Bekenstein and
Adam Kirsch who are directors of SRI. See "Management." The address of Bain
and the Tyler Entities is Bain Capital, Two Copley Place, Boston,
Massachusetts 02116.
(3) Amounts shown represent shares held by the nominee of Acadia and shares
held by FWHY-Coinvestment I Partner L.P. ("FCP") and Rosecliff-Specialty
Retailing 1989 Partners, L.P. ("ROSECLIFF"), both affiliates of Acadia. The
address of Acadia and FCP is 201 Main Street, Fort Worth, Texas 76102. The
address of Rosecliff is 65 East 55th Street, New York, New York 10022.
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(4) Court Square Capital Limited, a Delaware corporation ("COURT SQUARE"), is a
direct wholly owned subsidiary of Citicorp Banking Corporation, a Delaware
corporation, which is a direct wholly owned subsidiary of Citicorp, a
Delaware corporation. Amount and percentage shown include 1,250,584 shares
of non-voting Class B Common Stock owned by Court Square. Each share of
non-voting Class B Common Stock is convertible, subject to certain
restrictions, into one share of Common Stock. The address of Court Square
is 399 Park Avenue, 6th Floor, New York, New York 10043.
(5) Amount shown for Mr. Fuchs includes (i) 445,216 shares held by The Fuchs
Family Limited Partnership for which Mr. Fuchs may be deemed to possess
beneficial ownership and (ii) 8,904 options which are exercisable within 60
days.
(6) Includes 334 shares of Common Stock that may be acquired through options
exercisable within 60 days.
(7) Includes 1,670 shares of Common Stock that may be acquired through options
exercisable within 60 days.
(8) Mr. Mulvihill is a director and a managing director of the investment
adviser to Acadia. In addition, Mr. Mulvihill holds indirectly a limited
interest in Acadia and holds directly a limited interest in Oak Hill.
However, he does not hold or share voting or dispositive power as to shares
beneficially owned by Acadia or Oak Hill.
(9) Amount shown includes 10,908 shares of Common Stock that such persons or
group could acquire upon the exercise of options exercisable within 60
days.
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DESCRIPTION OF CERTAIN INDEBTEDNESS OF STAGE STORES AND ITS AFFILIATES
REVOLVING NOTE
In connection with the purchase of Receivables by SRPC from Palais,
SRPC may increase the principal amount of a note payable to Palais (the
"REVOLVING NOTE") in lieu of making a cash payment. Interest accrues on the
outstanding principal amount of the Revolving Note at an annual rate equal to
LIBOR plus 1%. All amounts paid by SRPC with respect to the Revolving Note shall
be allocated first to accrued interest until all such interest is paid and then
to outstanding principal and shall be payable out of Excess Cash. "EXCESS CASH"
means all cash and cash equivalents held by SRPC in excess of any other due and
owing obligations of SRPC, including the Notes, and any reserves against future
obligations which SRPC deems reasonably necessary or prudent to establish and
maintain, including amounts in the Interest Reserve Account and the Principal
Reserve Account. Palais may only look to Excess Cash for payment of the
Revolving Note and, to the extent that such amounts are insufficient, Palais
shall not have any claim against SRPC or additional recourse against SRPC (other
than with respect to Excess Cash available in the future). The Revolving Note
may not be sold or otherwise transferred. However, the Revolving Note may be
pledged to a creditor of Palais or SRI. SRPC may offset any amount due and owing
by Palais against any amount due and owing by SRPC to Palais under the terms of
the Revolving Note. SRPC has the option to repay all or any portion of the
accrued interest on and principal of any Revolving Note at any time.
BANK OF BOSTON FACILITY
SRI has a revolving credit agreement with The First National Bank of
Boston (the "CREDIT AGREEMENT") under which it may draw up to $25.0 million. Of
this amount, up to $15.0 million may be used to support letters of credit. As of
August 3, 1996, $14.5 million of the capacity under the Credit Agreement was
utilized of which $7.0 million was used to collateralize letters of credit. SRI
also has a separate credit agreement with The First National Bank of Boston for
seasonal working capital needs (the "SEASONAL CREDIT AGREEMENT" and together
with the Credit Agreement, the "REVOLVING CREDIT AGREEMENT"). Funds are
available under the Seasonal Credit Agreement from August 15 through January 15
of each calendar year (the "SEASONAL PERIOD"). The Revolving Credit Agreement is
available through February 3, 1998 and provides for a commitment fee of 1/2 of
1% of the average daily unused portion of the commitment amount paid on a
quarterly basis. Interest is charged on outstanding loans at a base rate plus a
specified margin. The base rate is the higher of the bank's prime rate or 1/2 of
1% above the Federal Funds Effective Rate. The specified margin range is 1.25%
to 2.75% based on calculated debt service ratios as defined in the agreement.
During 1995, the availability under the Credit Agreement was never less than
$4.5 million. During the Seasonal Period, the availability under the Revolving
Credit Agreement was never less than $11.5 million. The Revolving Credit
Agreement contains covenants which, among other things, restrict (i) incurrence
of additional debt, (ii) purchase of certain investments, (iii) payment of
dividends, (iv) formation of certain business combinations, (v) disposition of
certain assets, (vi) acquisition of subordinated debt, (vii) use of proceeds
received, (viii) aggregate amount of capital expenditures to $31.0 million
during 1995 and (ix) certain transactions with related parties. The Revolving
Credit Agreement also requires that SRI maintain a debt service ratio above a
minimum level. The Revolving Credit Agreement is secured by SRI's distribution
center located in Jacksonville, Texas, including equipment located therein, and
a pledge of SRPC's stock. The net book value of the distribution center was
approximately $10.7 million at February 3, 1996.
SRI DEBT
SENIOR NOTES. During 1993, SRI issued 10% Senior Notes Due 2000 (the
"SENIOR NOTES"). The Senior Notes were originally issued in an aggregate
principal amount of $150.0 million and bear interest at 10% payable
semi-annually on February 15 and August 15. SRI is required to make a mandatory
sinking fund payment on August 15, 1999 equal to twenty-five percent of the
original principal amount. Stage Stores has purchased $20.0 million of the
Senior Notes which satisfied a portion of the August 15, 1999 sinking fund
requirement. The Senior Notes are generally unsecured obligations and rank
senior to all subordinated debt including the Series B Senior Subordinated
Notes.
SERIES B SENIOR SUBORDINATED NOTES. During 1993, SRI issued 11% Series
B Senior Subordinated Notes Due 2003 (the "SERIES B SENIOR SUBORDINATED NOTES").
The Series B Senior Subordinated Notes were originally issued in an aggregate
principal amount of $100.0 million and bear interest at 11% payable
semi-annually on February 15 and August
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15. SRI is required to make a mandatory sinking fund payment on August 15, 2002
equal to forty percent of the original principal amount. The Series B Senior
Subordinated Notes are subordinated to the obligations under the Senior Notes.
SERIES D SENIOR SUBORDINATED NOTES. During 1995, SRI issued $18.3
million in an aggregate principal amount of 11% Series D Senior Subordinated
Notes Due 2003 (the "SERIES D SENIOR SUBORDINATED NOTES"). The Series D Senior
Subordinated Notes were issued at a discount of $1.8 million and bear interest
at 11% payable semi-annually on February 15 and August 15 of each year. The
original issue discount is being charged to interest expense over the term to
maturity using the effective interest method. The combination of coupon interest
payments and original issue discount results in an effective interest rate of
13.0%. SRI is required to make a mandatory sinking fund payment on September 15,
2002 equal to forty percent of the original aggregate principal amount of the
Series D Senior Subordinated Notes. The Series D Senior Subordinated Notes rank
PARI PASSU with the existing Series B Senior Subordinated Notes (collectively,
the "SENIOR SUBORDINATED NOTES").
The Senior Notes and the Senior Subordinated Notes contain restrictive
covenants which, among other things (i) limit SRI's ability to sell certain
assets, pay dividends, retire its common stock or retire certain debt, (ii)
limit its ability to incur additional debt or issue stock and (iii) limit
certain related party transactions.
OTHER DEBT
The increasing rate 3 Bealls Holding, Inc. ("BEALLS HOLDING")
Subordinated Debentures Due 2002 (the "BEALLS HOLDING SUBORDINATED DEBENTURES")
in aggregate principal amount of approximately $15.0 million bear interest at
10% through 1994, 11% in 1995 and 12% thereafter until maturity. Interest is
payable semi-annually on June 30 and December 31. Original issue discount of
$7.3 million is being charged to interest expense over the term to maturity
using the effective interest method. The combination of coupon interest payments
and original issue discount results in an effective interest rate of 20.9%. The
Bealls Holding Subordinated Debentures may be prepaid, at ARI's option, at their
face value. ARI is required to redeem the Bealls Holding Subordinated Debentures
beginning no later than December 31, 1997, in no more than six equal annual
installments. The Bealls Holding Subordinated Debentures are subordinated to all
debt except the ARI Senior Discount Debentures. SRI is the primary obligor under
these debentures.
In connection with the acquisition of Fashion Bar, FB Holdings, Inc.
("FB HOLDINGS") issued approximately $3.6 million aggregate principal amount of
7% FB Holdings Subordinated Notes Due 2000 ("FB HOLDINGS SUBORDINATED NOTES") to
former stockholders of Fashion Bar. The FB Holdings Subordinated Notes were
recorded at their estimated fair value at issuance date of $3.1 million. The
difference between the estimated fair value and principal amount of $0.5 million
is being charged to interest expense over the term to maturity using the
effective interest method. The FB Holdings Subordinated Notes are due in two
equal installments on June 30, 1999 and 2000. SRI is required to prepay certain
principal amounts of the FB Holdings Subordinated Notes in certain
circumstances. The FB Holdings Subordinated Notes bear interest at 7% per annum,
payable quarterly. The combination of coupon interest payments and original
issue discount results in an effective interest rate of 9.0%. Prior to and
including June 1995, SRI paid interest in the form of additional FB Holdings
Subordinated Notes; thereafter, interest will be paid in cash. The principal
amount of FB Holdings Subordinated Notes at February 3, 1996 was $4.4 million.
The FB Holdings Subordinated Notes are subordinated to all debt except the ARI
Senior Discount Debentures. SRI is the primary obligor under these notes.
In connection with the acquisition of Bealls, Bealls Holding issued the
7% Bealls Holding Junior Subordinated Debentures Due 2003 ("BEALLS HOLDING
JUNIOR SUBORDINATED DEBENTURES") at a face value of approximately $12.5 million,
net of discount of approximately $8.4 million. Such discount is being charged to
interest expense over the term to maturity using the effective interest method.
The Bealls Holding Junior Subordinated Debentures are limited to an aggregate
principal amount of approximately $18.3 million. Interest is payable
semi-annually on June 30 and December 31. The combination of coupon interest
payments and original issue discount results in an effective interest rate of
39.4%. The principal amount of Bealls Holding Junior Subordinated Debentures are
subordinated to all debt except the ARI Senior Discount Debentures. SRI is the
primary obligor under these debentures.
The Port Arthur Industrial Development Revenue Bond (the "PORT ARTHUR
IDRB") bears interest at 75% of the prime rate payable monthly. The interest
rate applicable to the Port Arthur IDRB at February 3, 1996 was 6.6%. The
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Port Arthur IDRB is collateralized by a building with a net book value of
approximately $1.7 million. Under a separate agreement, SRI is required to make
scheduled annual sinking fund payments ranging from $0.1 million to $0.2
million.
During 1993, Stage Stores (then ARI) completed the Refinancing, which
included the (i) replacement of SRI's previous accounts receivable facility with
the Trust and the Investor Certificates and (ii) the issuance by SRI of the
Senior Notes and Series B Senior Subordinated Notes. The proceeds from the
Refinancing were used primarily to replace certain previously outstanding debts.
As a result of the Refinancing, Stage Stores recorded an extraordinary charge of
$16.2 million net of applicable income taxes of $8.8 million during 1993.
Concurrent with the Refinancing, Stage Stores completed its
distribution plan which included the issuance of $149.1 million aggregate
principal amount of 12 3/4% Senior Discount Debentures Due 2005 (the "ARI SENIOR
DISCOUNT DEBENTURES"), the proceeds of which were used to make a distribution to
the stockholders of ARI.
The ARI Senior Discount Debentures were issued at a discount of
approximately $69.1 million. Substantially all of the net proceeds from the ARI
Senior Discount Debentures were used to make cash payments to the holders of
Common Stock equal to $5.85 per share. Interest begins to accrue in August 1998
and is payable semi-annually on February 15 and August 15 commencing February
15, 1999. The discount is being charged to interest expense over the term to
maturity using the effective interest method which, together with the coupon
interest, results in a 12.74% effective interest rate. The ARI Senior Discount
Debentures contain restrictions which, among other things, limit (i) the payment
of dividends, (ii) the repurchase of stock and subordinated debt, (iii) the
acquisition of additional debt or the creation of certain liens, (iv)
disposition of certain assets and (v) certain related party intercompany
transactions. The ARI Senior Discount Debentures are secured by all of the
issued and outstanding common stock of SRI and is subordinated to all debt.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by SRPC on May 30, 1996 to the Initial
Purchaser. The Initial Purchaser subsequently resold the Old Notes to qualified
institutional buyers pursuant to Rule 144A and to persons other than U.S.
persons outside the United States in reliance upon Regulation S under the
Securities Act and to a limited number of institutional accredited investors
that agreed to comply with certain transfer restrictions and other conditions.
In connection therewith, SRPC entered into the Registration Rights Agreement,
which grants Holders of the Old Notes certain exchange and registration rights.
SRPC agreed to commence the Exchange Offer promptly after the Registration
Statement has been declared effective. A copy of the form of Registration Rights
Agreement has been filed as an exhibit to the Registration Statement and is
available from SRPC upon request. See "Available Information." Unless the
context requires otherwise, the term "HOLDER" with respect to the Exchange Offer
means any person in whose name Old Notes are registered on the books of SRPC or
any other person who has obtained a properly completed bond power from the
registered holder, or any person whose Old Notes are held of record by the
Depository Trust Company, New York, New York ("DTC"), who desires to deliver
such Old Notes by book-entry transfer at DTC.
SRPC has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on an interpretation by the staff of the Commission set
forth in no-action letters issued to third parties, SRPC believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any Holder of such New
Notes (other than any such Holder that is an "affiliate" of SRPC within the
meaning of Rule 405 under the Securities Act and except in the case of
broker-dealers, as set forth below) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business, that such
Holder has no arrangement or understanding with any person to participate in the
distribution of such New Notes and that such holder is not engaging in or
intending to engage in the distribution of the New Notes. Any Holder who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
New Notes or who is an affiliate of SRPC may not rely on such interpretation by
the staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. Any resales or other transfers of New Notes
must also be conducted in compliance with applicable state securities or blue
sky laws. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder of Old Notes will
represent to SRPC that, among other things, (i) the New Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of business of
the person receiving such New Notes, whether or not such person is such Holder,
(ii) neither the Holder of Old Notes nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, (iii) that such holder is not engaging in or intending to
engage in the distribution of the New Notes and (iv) neither the Holder nor any
such other person is an "affiliate" of SRPC within the meaning of Rule 405 under
the Securities Act or, if such Holder is an "affiliate," that such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. If the tendering Holder is a
broker-dealer (whether or not it is also an "affiliate") that will receive New
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that is will deliver a prospectus in connection with any
resale of such New Notes.
Following the consummation of the Exchange Offer, Holders of Old Notes
not tendered will not have any further registration rights and the Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for the Old Notes could be adversely affected.
This Prospectus, together with the Letter of Transmittal, is being sent
to all registered Holders as of , 1996.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, SRPC will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. Subject to the minimum denomination requirements of the
New Notes, SRPC will issue $1,000 principal amount of New Notes in exchange for
each $1,000 principal amount of outstanding Old Notes accepted in the Exchange
Offer. Holders may tender some or all of their Old Notes pursuant to the
Exchange Offer. However, Old Notes may be tendered only in integral multiples of
$1,000. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange. As of the date
hereof, $30,000,000 of the Old Notes were outstanding.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) the Holders of New Notes will
not be entitled to certain rights under the Registration Rights Agreement. The
New Notes will evidence the same debt as the Old Notes and will be entitled to
the benefits of the Indenture.
Holders of Old Notes do not have any appraisal or dissenters' rights
under the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. SRPC intends to conduct the Exchange Offer
in accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
SRPC shall be deemed to have accepted validly tendered Old Notes when,
as and if SRPC has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering Holders for the purpose
of receiving the New Notes from SRPC. If any tendered Old Notes are not accepted
for exchange because of an invalid tender, the occurrence of certain other
events set forth herein or otherwise, certificates for any such unaccepted Old
Notes will be returned, without expense, to the tendering Holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. SRPC will pay all charges and expenses, other
than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
________________, 1996, unless SRPC, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Although SRPC has no
current intention to extend the Exchange Offer, SRPC reserves the right to
extend the Exchange Offer at any time and from time to time by giving oral or
written notice to the Exchange Agent and by timely public announcement
communicated, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Old Notes previously tendered pursuant to the Exchange Offer
and not withdrawn will remain subject to the Exchange Offer.
SRPC expressly reserves the right (i) to terminate the Exchange Offer
and not accept for exchange any Old Notes if any of the events set forth below
under "Conditions to the Exchange Offer" shall have occurred and shall not have
been waived by SRPC and (ii) to amend the terms of the Exchange Offer in any
manner.
INTEREST ON THE NEW NOTES
Holders of Old Notes that are accepted for exchange will not receive
accrued interest thereon. However, each New Note will bear interest from the
most recent date to which interest has been paid on the Old Note for which such
New Note was exchanged, or if no interest has been paid, from the date of
original issuance of such Note.
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PROCEDURES FOR TENDERING
The tender to SRPC of Old Notes by a Holder thereof pursuant to one of
the procedures set forth below will constitute an agreement between such Holder
and SRPC in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal. A Holder of the Old Notes may tender
the same by (i) properly completing and signing the Letter of Transmittal or a
facsimile thereof (all references in this Prospectus to the Letter of
Transmittal shall be deemed to include a facsimile thereof) and delivering the
same, together with the certificate or certificates representing the Old Notes
being tendered (if in certificated form) and any required signature guarantees,
to the Exchange Agent at its address set forth in the Letter of Transmittal on
or prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered Holder (which term, for the purposes described herein, shall include
any participant in DTC whose name appears on a security listing as the owner of
Old Notes), the signature of such signer need not be guaranteed. In any other
case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to SRPC and duly executed by the
registered Holder and the signature on the endorsement or instrument of transfer
must be guaranteed by a commercial bank or trust company located or having an
office or correspondent in the United States, or by a member firm of a national
securities exchange or of the National Association of Securities Dealers, Inc.
(any of the foregoing hereinafter referred to as an "ELIGIBLE INSTITUTION"). If
the New Notes and/or Old Notes not exchanged are to be delivered to an address
other than that of the registered Holder appearing on the register for the Old
Notes, the signature in the Letter of Transmittal must be guaranteed by an
Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PRIOR INSURANCE OBTAINED,
AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. AS AN
ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR NOTES SHOULD BE SENT TO SRPC. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instruction
to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
SRPC understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish an account with respect to the
Old Notes at DTC for the purpose of facilitating the Exchange Offer, and subject
to the establishment thereof, any financial institution that is a participant in
DTC's system may make book-entry delivery of Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account with respect to the
Old Notes in accordance with DTC's procedure for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at the address
set forth in the Letter of Transmittal on or prior to the Expiration Date, or,
if the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures.
If the Holder desires to accept the Exchange Offer and time will not
permit a Letter of Transmittal or Old Notes to reach the Exchange Agent before
the Expiration Date or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if the Exchange Agent has received
at its office on or prior to the Expiration Date, a letter, telegram or
facsimile transmission from an Eligible Institution setting forth the name and
address of the tendering Holder, the name(s) in which the Old Notes are
registered and, if possible, the certificate number(s) of the Old
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Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days after the
date of execution of such letter, telegram or facsimile transmission by the
Eligible Institution, the Old Notes, in proper form for transfer (or a
confirmation of book-entry transfer of such Old Notes into the Exchange Agent's
account at DTC), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), SRPC may, at its option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
A tender will be deemed to have been received as of the date when (i)
the tendered Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC) is received by the Exchange
Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by SRPC, whose determination will be final and binding. SRPC reserves
the absolute right to reject any or all tenders not in proper form or the
acceptance for exchange of which may, in the option of SRPC's counsel, be
unlawful. SRPC also reserves the absolute right to waive any of the conditions
of the Exchange Offer or any defect or irregularity in the tender of any Old
Notes. None of SRPC, the Exchange Agent or any other person will be under any
duty to give notification of any defects or irregularities in tenders or incur
any liability for failure to give any such notification.
In addition, SRPC reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date and (b) to the extent permitted by applicable law, purchase
Old Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers will differ from the terms of the
Exchange Offer.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "TENDERING HOLDER")
exchanges, assigns and transfers the Old Notes to SRPC and irrevocably
constitutes and appoints the Exchange Agent as the Tendering Holder's agent and
attorney-in-fact to cause the Old Notes to be assigned, transferred and
exchanged. The Tendering Holder represents and warrants that it has full power
and authority to tender, exchange, assign and transfer the Old Notes and to
acquire New Notes issuable upon the exchange of such tendered Old Notes, and
that, when the same are accepted for exchange, SRPC will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
Tendering Holder also warrants that it will, upon request, execute and deliver
any additional documents deemed by SRPC to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Old Notes or transfer
ownership of such Old Notes on the account books maintained by DTC. All
authority conferred by the Tendering Holder will survive the death, bankruptcy
or incapacity of the Tendering Holder and every obligation of the Tendering
Holder shall be binding upon the heirs, legal representatives, successors,
assigns, executors and administrators of such Tendering Holder.
By executing the Letter of Transmittal, each Holder will make to SRPC
the representations set forth above under the heading "--Purpose and Effect of
the Exchange Offer."
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WITHDRAWAL OF TENDERS
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable,
except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date.
To be effective, a written, telegram, telex or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at the address set
forth in the Letter of Transmittal not later than the close of business on the
Exchange Date. Any such notice of withdrawal must specify the Holder named in
the Letter of Transmittal as having tendered Old Notes to be withdrawn, the
certificate numbers of Old Notes to be withdrawn and the principal amount
thereof, a statement that such Holder is withdrawing his election to have such
Old Notes exchanged, and the name of the registered Holder of such Old Notes,
and must be signed by the Holder in the same manner as the original signature on
the Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence satisfactory to SRPC that the person withdrawing the
tender has succeeded to the beneficial ownership of the Old Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Old Notes
promptly following receipt of notice of withdrawal. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn Old Notes or otherwise comply with DTC procedure. All
questions as to the validity of notices of withdrawal, including time of
receipt, will be determined by SRPC, and such determination will be final and
binding on all parties.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, SRPC will not be required to issue New Notes in
exchange for any properly tendered Old Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News
Service), or, at its option, modify or otherwise amend the Exchange Offer, if
either of the following events occur:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority, including
the staff of the Commission, which, in the reasonable judgment of SRPC, would
prohibit, restrict or otherwise render illegal consummation of the Exchange
Offer, or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes to be offered for resale, resold and
otherwise transferred by Holders thereof (other than broker-dealers and any such
Holder which is an "affiliate" of SRPC within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such New Notes are acquired in
the ordinary course of such Holders' business and such Holders have no
arrangement or understanding with any person to participate in the distribution
of such New Notes.
SRPC expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Old Notes upon the occurrence of either of the
foregoing conditions. In addition, SRPC may amend the Exchange Offer at any time
prior to the Expiration Date if either of the conditions set forth above occur.
Moreover, regardless of whether either of such conditions has occurred, SRPC may
amend the Exchange Offer in any manner which, in its good faith judgment, is
advantageous to Holders of the Old Notes.
The foregoing conditions are for the sole benefit of SRPC and may be
waived by SRPC, in whole or in part, in its reasonable discretion. The foregoing
conditions must be either satisfied or waived prior to termination of the
Exchange Offer. Any determination made by SRPC concerning an event, development
or circumstance described or referred to above will be final and binding on all
parties.
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EXCHANGE AGENT
Bankers Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
BY MAIL (REGISTERED OR CERTIFIED MAIL RECOMMENDED):
BT Services Tennessee, Inc.
Reorganization Unit
P.O. Box 292737
Nashville, TN 37229-2737
BY OVERNIGHT COURIER OR BY HAND:
BT Services Tennessee, Inc.
Reorganization Unit
Corporate Trust & Agency Group
648 Grassmere Park Drive
Nashville, TN 37211
BY HAND:
Bankers Trust Company
Corporate Trust & Agency Group
123 Washington Street - First Floor Window
New York, NY 10008
BY FACSIMILE: (615) 835-3701 CONFIRM BY TELEPHONE: (800) 735-7777
Delivery to an address other than as set forth above, or transmission
of instructions via a facsimile number other than the one set forth above, will
not constitute a valid delivery.
FEES AND EXPENSES
The expense of soliciting tenders will be borne by SRPC. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone or in person by officers and regular employees of SRPC
and its affiliates. No additional compensation will be paid to any such officers
and employees who engage in soliciting tenders.
SRPC has not retained any dealer-manager or other soliciting agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. SRPC, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
SRPC will pay all transfer taxes, if any, applicable to the exchange of
Old Notes pursuant to the Exchange Offer. If, however, certificates representing
New Notes, or Old Notes for principal amounts not tendered or accepted for
exchange, are to be delivered to, or are to be issued in the name of, any person
other than the registered Holder of the 0Old Notes tendered or if a transfer tax
is imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes as reflected in SRPC's accounting records on the date of the exchange
because the exchange of the Old Notes for the New Notes is the completion of the
selling process contemplated in the issuance of the Old Notes. Accordingly, no
gain or loss for accounting purposes will be recognized. The expenses of the
Exchange Offer will be amortized over the term of the New Notes.
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OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by SRPC. Neither the delivery of
this Prospectus nor any exchange made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of SRPC
since the respective dates as of which information is given herein. The Exchange
Offer is not being made to (nor will tenders be accepted from or on behalf of)
Holders of Old Notes in any jurisdiction in which the making of the Exchange
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, SRPC may, at its discretion, take such action as it may
deem necessary to make the Exchange Offer in any such jurisdiction and extend
the Exchange Offer to Holders of Old Notes in such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the Exchange
Offer to be made by a licensed broker or dealer, the Exchange Offer is being
made on behalf of SRPC by one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
As a result of the making of the Exchange Offer, SRPC will have
fulfilled a covenant contained in the terms of the Registration Rights
Agreement. Holders of the Old Notes who do not tender their certificates in the
Exchange Offer will continue to hold such certificates and will be entitled to
all the rights, and limitations applicable thereto under the Indenture except
for certain registration rights under the Registration Rights Agreement and
except that the Old Notes will not be entitled to the liquidated damages
provided for in the Registration Rights Agreement relating to the timing of
consummation of the Exchange Offer. All untendered Old Notes will continue to be
subject to the restrictions on transfer set forth in the Indenture and the Old
Notes. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for untendered Old Notes could be adversely
affected.
FOR INFORMATION CONCERNING THE TAX CONSEQUENCES OF THE EXCHANGE OFFER
AND OF HOLDING THE NEW NOTES, SEE "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS."
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DESCRIPTION OF THE NOTES
The following summary of certain provisions of the 12.5% Series B Notes
does not purport to be complete and is qualified in its entirety by reference to
the Indenture among SRPC, SRI, as Administrative Agent and Bankers Trust
Company, as Indenture Trustee and Collateral Agent. A copy of the Indenture and
the Registration Rights Agreement described below is available to investors upon
request. The Notes will accrue interest at the rate of 12.5% per annum and will
be secured by the Collateral Certificates. See "Description of the Collateral."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $30,000,000 and
have an Expected Maturity Date of December 15, 2000. Principal is expected to be
paid on the Notes in one payment on the Expected Maturity Date. If principal is
not paid in full on the Expected Maturity Date it will be paid monthly
thereafter on each Monthly Payment Date, to the extent of available funds.
Interest on the Notes will accrue at the rate per annum set forth on the cover
page of this Prospectus and will be payable semi-annually on June 15 and
December 15 of each year, including the Expected Maturity Date (or, if any such
day is not a business day, the first business day thereafter) (each a
"SEMI-ANNUAL INTEREST PAYMENT DATE"), commencing December 16, 1996, except that,
on and after the occurrence of an Event of Default with respect to the Notes, or
on any day following the Expected Maturity Date, interest will be payable on the
15th day (or, if such day is not a business day, then the first business day
thereafter) of each month (each a "MONTHLY PAYMENT DATE" and together with each
Semi-Annual Interest Payment Date, a "PAYMENT DATE"). Interest will accrue from
each Payment Date to the day preceding the next succeeding Monthly Payment Date.
Interest will be paid to holders of record on the last day of the month
preceding each Payment Date. Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the closing date of the Offering. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
Principal, interest and premium, if any, on the Notes will be secured
by, and will be paid solely from distributions on, the Collateral Certificates
to the extent provided herein.
The Notes will be payable both as to principal and interest by the
Indenture Trustee through the Depositary in immediately available funds.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at the option of SRPC, in whole
or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices set forth below (expressed as percentages of principal amount)
plus accrued and unpaid interest thereon to the redemption date, if redeemed
during the twelve-month period beginning on the dates indicated below:
YEAR PERCENTAGE
December 15, 1996.............. The greater of (i) 106.25% or (ii) 100% plus the
coupon discounted at a rate equal to the yield
on the date of the redemption notice of the
class of United States Treasury Notes maturing
closest to August 15, 1999, plus 100 basis
points, to August 15, 1999
December 15, 1998.............. 106.25%
August 15, 1999 and thereafter. 100%
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made on a PRO RATA basis, by lot or by such
method as the Indenture Trustee shall deem fair and appropriate, except that no
Note of less than $1,000 shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 days
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but not more than 60 days before the redemption date to each Holder to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such notice shall state the portion
thereof to be issued in the name of the Holder thereof upon cancellation of the
original Note. On and after the redemption date, interest ceases to accrue on
the Notes or portions of them called for redemption.
CASH FLOWS ALLOCABLE TO THE HOLDERS
The Notes will benefit from, and the Interest Reserve Account relating
to the Notes will contain funds deposited in respect of, the Note Allocation
Percentage of Transferor Daily Cash Flows. The "NOTE ALLOCATION PERCENTAGE"
shall equal (i) the sum of the Class D Initial Invested Amounts of the
Designated Series divided by (ii) the sum of the Class D Initial Invested
Amounts of the Designated Series plus the Invested Amounts of the Certificates
of each Transferor Retained Class that have been pledged for the benefit of any
additional issuances of notes by SRPC except that with respect to any Transferor
Retained Class of any Variable Funding Series such amount shall be the Invested
Amount of such Class of Variable Funding Series on the first day of the then
current Fiscal Month.
"TRANSFEROR DAILY CASH FLOWS" means, on any date of determination, (x)
the sum of (i) Transferor Percentage Principal Cash Flows, (ii) Transferor
Percentage Finance Charge Cash Flows, (iii) Released Equalization Account Cash
Flows, (iv) Transferor Shared Principal Collection Cash Flows, (v) Transferor
Excess Finance Charge Cash Flows, and (vi) Transferor/Class D Cash Flows minus
(y) funds deposited in the Equalization Account to maintain the Transferor
Interest at least equal to the Minimum Transferor Interest.
The following capitalized terms are derived from the Pooling and
Servicing Agreement, Receivables Purchase Agreement and each applicable
Supplement:
"CLASS D DAILY CASH FLOWS" means on any business day, the payments of
Class D Principal made to the Class D Certificateholder of each Designated
Series.
"RELEASED EQUALIZATION ACCOUNT CASH FLOWS" means on any business day
the amounts released from the Equalization Account and distributed to the
Transferor by reason of the Transferor Interest exceeding the Minimum Transferor
Interest.
"TRANSFEROR" means SRPC.
"TRANSFEROR/CLASS D CASH FLOWS" means, on any date of determination (x)
during the Revolving Period, the sum for all Designated Series of the Class D
Floating Allocation Percentage of Principal Collections for such Designated
Series for such day and (y) during the Amortization Period, the sum for all
Designated Series of the Class D Fixed Allocation Percentage of Principal
Collections for such Designated Series, which are paid to the Transferor.
"TRANSFEROR EXCESS FINANCE CHARGE CASH FLOWS" means Excess Finance
Charge Collections for all outstanding Series that would otherwise be paid to
the Transferor.
"TRANSFEROR PERCENTAGE FINANCE CHARGE CASH FLOWS" means on each
business day (i) the product of (a) the Transferor Percentage on such day and
(b) Finance Charge Collections on such day minus (ii) any amount of such portion
of Finance Charge Collections applied to satisfy the Required Amount of any
Series.
"TRANSFEROR PERCENTAGE PRINCIPAL CASH FLOWS" means on each business day
the product of (a) the Transferor Percentage on such day and (b) Principal
Collections on such day.
(a) "TRANSFEROR SHARED PRINCIPAL COLLECTION CASH FLOWs" means Principal
Collections or Finance Charge Collections that are treated as Shared Principal
Collections, EXCEPT to the extent that such Shared Principal Collections are
applied to (i) Principal Shortfalls on any Series, or (ii) repayment of
principal of any Variable Funding Certificates.
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ACCOUNTS
The Indenture Trustee will establish and maintain an interest reserve
account (the "INTEREST RESERVE ACCOUNT"), a principal reserve account (the
"PRINCIPAL RESERVE ACCOUNT") and a payment account (the "PAYMENT ACCOUNT"), each
in the name of the Indenture Trustee and under its exclusive dominion and
control for the benefit of the Holders. Funds on deposit in the Interest Reserve
Account and the Principal Reserve Account will be invested, at the direction of
the Administrative Agent in Cash Equivalents. Any earnings (net of losses and
investment expenses) on funds in the Interest Reserve Account and the Principal
Reserve Account will be paid to SRPC or, at SRPC's option, retained in the
Interest Reserve Account or the Principal Reserve Account, as applicable, and
applied toward then current reserve requirements and the Principal Reserve
Account. The Indenture Trustee will have the revocable power to make withdrawals
and payments from the Interest Reserve Account and the Principal Reserve Account
for the purpose of making deposits and payments required under the Indenture.
The amounts on deposit in the Payment Account shall not be invested.
DEPOSITS INTO THE INTEREST RESERVE ACCOUNT
GENERALLY
In the absence of an Event of Default, interest will be paid to Holders
on each Semi-Annual Interest Payment Date.
Commencing on the first business day of the June 1996 Fiscal Month and
prior to the Rapid Reserve Period and so long as an Event of Default has not
occurred, on each business day during each of the first four Fiscal Months in a
Semi-Annual Interest Period (each such month, a "SCHEDULED DEPOSIT MONTH") SRPC
shall deposit in the Interest Reserve Account an amount equal to 10% of the Note
Allocation Percentage of Transferor Daily Cash Flows, until SRPC has deposited
an amount (the "MONTHLY INTEREST RESERVE AMOUNT") equal to 25% of the
Semi-Annual Interest Payment Amount.
If deposits are being made by SRPC pursuant to the preceding paragraph
and an amount has not been deposited into the Interest Reserve Account equal to
the Monthly Interest Reserve Amount in any Scheduled Deposit Month, SRPC shall,
beginning on the first business day following a Scheduled Deposit Month in which
the Monthly Interest Reserve Amount was not deposited into the Interest Reserve
Account and on each business day thereafter through the last business day of the
sixth Fiscal Month related to such Semi-Annual Interest Period, deposit into the
Interest Reserve Account an amount equal to 100% of the Note Allocation
Percentage of Transferor Daily Cash Flows until such time as SRPC has deposited
in the Interest Reserve Account an amount equal to (i) the current Fiscal
Month's Monthly Interest Reserve Amount, if any, and (ii) any portion of the
Monthly Interest Reserve Amount for any prior Fiscal Month that has not
previously been deposited into the Interest Reserve Account.
During the Rapid Reserve Period, on each business day during each
Scheduled Deposit Month, SRPC shall deposit in the Interest Reserve Account an
amount equal to 50% of the Note Allocation Percentage of Excess Transferor Daily
Cash Flows, until SRPC has deposited an amount equal to the Monthly Interest
Reserve Amount for such Fiscal Month. SRPC shall make the deposits referred to
in the preceding sentence until the amounts on deposit in the Interest Reserve
Account equal the Semi-Annual Interest Payment Amount.
If deposits are being made by SRPC pursuant to the preceding paragraph
and an amount has not been deposited into the Interest Reserve Account equal to
the Monthly Interest Reserve Amount in any Scheduled Deposit Month, SRPC shall,
on the first business day of the Fiscal Month following the Scheduled Deposit
Month in which the Monthly Interest Reserve Amount was not deposited into the
Interest Reserve Account, and on each business day thereafter through the last
business day of the sixth Fiscal Month related to such Semi-Annual Interest
Period, deposit into the Interest Reserve Account an amount equal to the Note
Allocation Percentage of Excess Transferor Daily Cash Flows, until such time as
the Semi-Annual Interest Payment Amount has been deposited in the Interest
Reserve Account.
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"EXCESS TRANSFEROR DAILY CASH FLOWS" means the amount by which
Transferor Daily Cash Flows exceeds the amount paid as Class D Daily Cash Flows.
"FISCAL MONTH" means the monthly period ending on the Saturday of the
last week in any month, based on a standard retail 4/5/4-week calendar quarter,
with March, June, September and December always containing 5 weeks. All other
months are 4-week periods, except for the January Fiscal Month, which ends on
the Saturday closest to January 31. The Fiscal Months "in" or "related to" a
Semi-Annual Interest Period or a Monthly Interest Period during which
collections are reserved to make payments on the Notes are those Fiscal Months
which begin approximately two weeks before the commencement of the Semi-Annual
Interest Period or Monthly Interest Period and which end approximately two weeks
before the end of the Semi-Annual Interest Period or Monthly Interest Period.
For example, the Fiscal Months of June through November are related to the
Semi-Annual Interest Period whose Semi-Annual Interest Payment Date is December
15, and, if Monthly Periods are in effect, the Fiscal Month of December will be
related to the Monthly Interest Period whose Monthly Payment Date is January 15.
"MONTHLY INTEREST PAYMENT AMOUNT" means with respect to any Monthly
Interest Period one-twelfth of the product of (i) the interest rate set forth on
the cover page of this Prospectus and (ii) the principal amount of the Notes as
of the close of business on the first day of such Monthly Interest Period.
"MONTHLY INTEREST PERIOD" means for a Monthly Payment Date, each period
from and including the previous Monthly Payment Date (or in the case of the
first Monthly Payment Date, the previous Semi-Annual Interest Payment Date) to
and including the day preceding such Monthly Payment Date.
"RAPID RESERVE PERIOD" means the period beginning on the first day of
the December 1999 Fiscal Month and continuing until the earlier of the Expected
Maturity Date and the occurrence of an Event of Default.
"SEMI-ANNUAL INTEREST PAYMENT AMOUNT" means, for any Semi-Annual
Interest Payment Date, one-half of the product of (i) the interest rate set
forth on the cover page of this Prospectus and (ii) the principal amount of the
Notes (plus, (i) for the initial Payment Date, interest accrued from the May 30,
1996 to June 14, 1996 and (ii) for the last Semi-Annual Interest Payment Date,
an additional day's interest calculated on the basis of a 365-day year).
"SEMI-ANNUAL INTEREST PERIOD" means each six-month period ending on the
day preceding a Semi-Annual Interest Payment Date.
EVENT OF DEFAULT
Following the occurrence of an Event of Default and following the
Expected Maturity Date, rather than paying interest semi-annually, SRPC will pay
interest on a monthly basis on each Monthly Payment Date. On each Monthly
Payment Date following the occurrence of an Event of Default, SRPC will pay
interest to the Holders equal to the Monthly Interest Payment Amount. SRPC will
deposit into the Interest Reserve Account on each business day of the related
Fiscal Month (other than the last business day of such Fiscal Month) an amount
equal to 100% of the Note Allocation Percentage of Excess Transferor Daily Cash
Flows, until an amount equal to 125% of the Monthly Interest Payment Amount has
been deposited into the Interest Reserve Account.
On each business day beginning on the day on which an Event of Default
occurs as a result of a Purchase Termination Event which causes SRPC to be
foreclosed from purchasing further Receivables under the Receivables Purchase
Agreement (a "PURCHASE TERMINATION EVENT OF DEFAULT"), SRPC will deposit in the
Interest Reserve Account 100% of the Note Allocation Percentage of Transferor
Daily Cash Flows.
DEPOSITS INTO THE PRINCIPAL RESERVE ACCOUNT
GENERALLY
Prior to the first day of the June 2000 Fiscal Month, so long as an
Event of Default has not occurred, no depos its will be made into the Principal
Reserve Account.
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On and after the June 2000 Fiscal Month, so long as a Purchase
Termination Event of Default shall not have occurred, on each business day SRPC
shall deposit into the Principal Reserve Account the sum of (i) the Class D
Daily Cash Flows and (ii) the excess of the Note Allocation Percentage of Excess
Transferor Daily Cash Flows over the amount thereof required to be deposited in
the Interest Reserve Account on such day, until such time as an amount equal to
the outstanding principal amount of the Notes has been deposited into the
Principal Reserve Account.
EVENT OF DEFAULT
On each business day on and after the date on which an Event of Default
(other than a Purchase Termination Event of Default) shall have occurred, and on
each business day following the Expected Maturity Date until an amount equal to
the outstanding balance of the Notes is deposited in the Principal Reserve
Account, SRPC shall deposit into the Principal Reserve Account the sum of (i)
the Class D Daily Cash Flows and (ii) the excess of the Note Allocation
Percentage of Excess Transferor Daily Cash Flows over the amount thereof
required to be deposited in the Interest Reserve Account.
Notwithstanding the foregoing paragraph, following the occurrence of a
Purchase Termination Event of Default, SRPC will not make any additional
deposits into the Principal Reserve Account and will only make the deposits into
the Interest Reserve Account as described in "--Deposits into the Interest
Reserve Account" above.
TRANSFERS TO THE PAYMENT ACCOUNT; PAYMENT OF PRINCIPAL AND INTEREST
The Indenture Trustee, acting in accordance with the instructions of
the Administrative Agent, will on the following dates cause the following
amounts to be withdrawn and deposited into the Payment Account to the extent
available in the Interest Reserve Account or the Principal Reserve Account, as
applicable:
(a) Unless an Event of Default has occurred, on the Semi-Annual
Interest Payment Date from the Interest Reserve Account, an
amount equal to the Semi-Annual Interest Payment Amount.
(b) On the Expected Maturity Date, from the Principal Reserve
Account, an amount equal to the principal amount of the Notes.
(c) Following the occurrence of an Event of Default that is not a
Purchase Termination Event of Default, on each Monthly Payment
Date, (i) from the Interest Reserve Account, the Monthly
Interest Payment Amount plus any overdue interest and (ii)
from the Principal Reserve Account, the amount on deposit in
the Principal Reserve Account at the close of business on the
business day prior to such Monthly Payment Date.
(d) Following a Purchase Termination Event of Default, on the
Monthly Payment Date, (i) from the Interest Reserve Account,
the Monthly Interest Payment Amount, (ii) from the Principal
Reserve Account, the amount on deposit in the Principal
Reserve Account at the close of business on the business day
prior to such Monthly Payment Date, and (iii) from the
Interest Reserve Account, the remaining amount on deposit in
the Interest Reserve Account at the close of business on the
business day prior to such Monthly Payment Date after
withdrawing the amount described in clause (i) of this
paragraph.
On each Semi-Annual Interest Payment Date, any Monthly Payment Date and
the Expected Maturity Date, the Administrative Agent shall cause the amounts on
deposit in the Payment Account to be withdrawn and paid by the Indenture Trustee
to each Holder that was a Holder on the related Record Date.
The amounts described in clauses (a), (c) (i) and (d) (i) shall be
applied as payments in respect of interest and the amounts described in clauses
(b), (c) (ii) and (d) (ii) and (iii) shall be applied as payments in respect of
principal on the Notes.
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Payments to Holders shall be made by the Indenture Trustee in
immediately available funds (or, if certificated Notes have been issued, by
check mailed by the Indenture Trustee to each Holder's address of record in the
records of the paying agent).
FINAL PAYMENTS
SRPC will not be required to make any deposits into the Interest
Reserve Account or the Principal Reserve Account after the last day of the
Fiscal Month immediately preceding the Legal Maturity Date. If after the Legal
Maturity Date the principal amount of the Notes has not been reduced to zero,
the payments shall be made to Holders from the proceeds of the sale of the
Receivables contemplated by the Series 1995-1 Supplement up to an amount that
would reduce the principal amount of the Notes to zero. "LEGAL MATURITY DATE"
means January 15, 2003.
STATEMENTS TO HOLDERS OF THE NOTES
On each Payment Date, the Indenture Trustee will include with each
payment to Holders of the Notes a statement prepared by the Administrative
Agent, setting forth the following information:
(i) the total amount distributed;
(ii) the amount of such distribution allocable to payments of
interest on the Notes;
(iii) the amount of such distribution allocable to payments of
principal on the Notes;
(iv) the Class D Invested Amounts for Series 1993-1 and Series
1995-1 and the Transferor Interest as of the last day of the
preceding Fiscal Month;
(v) whether an Event of Default or Purchase Termination Event of
Default has occurred;
(vi) whether a Pay Out Event or Servicer Default has occurred with
respect to either Designated Series; and
(vii) the amount, if any, by which Portfolio Yield exceeded the Base
Rate for each Designated Series for the preceding Fiscal
Month.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following occurrences
constitutes a default on the Notes (a "DEFAULT"): (i) default for 30 days in the
payment when due of interest on the Notes; (ii) breach of certain restrictions
on SRPC's ability to consolidate with or merge into another corporation or
convey or transfer its properties and assets substantially as an entirety; (iii)
failure by SRPC for 60 days after notice to SRPC by the Indenture Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with other agreements in the Indenture or the Notes; (iv)
defaults under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by SRPC whether such indebtedness now exists or is created after the
date of the Indenture, which default (a) is caused by a failure to pay when due
principal or interest on such indebtedness within the grace period provided in
such indebtedness (a "PAYMENT DEFAULT") or (b) results in the acceleration of
such indebtedness prior to its express maturity and, in each case, the principal
amount of such indebtedness, together with the principal amount of any other
such indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5 million or more; (v) a final
judgment or final judgments for the payment of money are entered by a court or
courts of competent jurisdiction against SRPC and such judgment or judgments
remain undischarged for a period (during which execution shall not be
effectively stayed) of 60 days, except that the aggregate of all such
undischarged judgments exceeds $1 million; (vi) certain events of bankruptcy or
insolvency with respect to SRPC; (vii) the occurrence of a Purchase Termination
Event, Pay Out Event or Servicer Default regardless of whether the
Certificateholders have exercised a remedy with respect thereto; (viii) defaults
of SRI pursuant to its outstanding Senior Notes and Senior Subordinated Notes or
any
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indebtedness issued to extend, refinance or replace the Senior Notes or Senior
Subordinated Notes, which default results in the acceleration of such
indebtedness; or (ix) SRPC shall become subject to regulation by the Commission
as an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
Defaults arising under clauses (i), (ii), (vi), (vii) and (viii) above
will constitute an automatic event of default (an "EVENT OF DEFAULT"). Defaults
arising under clauses (iii), (iv), (v) and (ix) above will constitute an Event
of Default only upon the affirmative vote of the Holders of more than 50% of the
outstanding principal amount of the Notes. If an Event of Default occurs and is
continuing, all outstanding Notes will become due and payable without further
action or notice. The Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Holders of Notes have only the rights
with respect to the Collateral Certificates that are described in "--Collateral
Security" below.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of SRPC with the
intention of avoiding payment of the premium that SRPC would have had to pay if
SRPC then had elected to redeem the Notes pursuant to the optional redemption
provisions of the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law.
Following the occurrence of an Event of Default, SRPC will redeem the
Notes in part on each Monthly Payment Date without premium or penalty to the
extent that funds have been deposited in the Principal Reserve Account.
Although a Default will be deemed to have occurred if payments of
principal with respect to SRI's outstanding Senior Notes and Senior Subordinated
Notes are accelerated, the Indenture does not contain covenants that restrict
SRPC's ability to incur additional debt which is pari passu or subordinate to
the Notes, declare dividends or dispose of assets. Pursuant to the Indenture,
SRPC may not incur debt that is senior to the Notes.
SRPC is required to deliver to the Indenture Trustee annually a
statement regarding compliance with the Indenture, and SRPC is required upon
becoming aware of any default or Event of Default, to deliver to the Indenture
Trustee a statement specifying such default or Event of Default.
Bankers Trust Company, the Indenture Trustee, is an affiliate of the
Initial Purchaser and the Receivables Trustee. As such, upon the occurrence of
an Event of Default, it will have a conflicting interest within the meaning of
the Trust Indenture Act of 1939, as amended, and under a Trust Indenture Act
qualified indenture would then be required to resign. Bankers Trust Company has
notified SRPC that, upon the occurrence of an Event of Default, it intends to
resign as Indenture Trustee. At such time, SRPC would promptly appoint a
successor Indenture Trustee. Within one year after such successor Indenture
Trustee takes office, Holders of a majority in principal amount of the then
outstanding Notes may appoint a successor Indenture Trustee to replace the
successor Indenture Trustee appointed by SRPC.
COLLATERAL SECURITY
The Notes will be secured by the Class D Certificates and the rights
under the Transferor Certificate to the Transferor Daily Cash Flows and the
Class D Cash Flows described above. The rights under the Transferor Certificate
that are retained by the Transferor may be pledged by the Transferor as security
for future series of notes or for such other corporate purposes as the
Transferor deems appropriate. SRPC will assign and pledge to the Indenture
Trustee the Collateral Certificates for the benefit of the Holders of the Notes
pursuant to the Indenture. SRPC shall retain at all times the right to exchange
the Transferor Certificate for a new Series of Certificates and a Transferor
Certificate with a reduced outstanding amount. If the Notes become due and
payable prior to the Expected Maturity Date or are not paid in full at the
Expected Maturity Date, then only if the Class Invested Amounts with respect to
all current or future Investor Certificates that have a higher initial rating
than the Notes have been paid in full to the holders thereof will the Indenture
Trustee have the right to foreclose upon the Collateral Certificates in
accordance with instructions from the Holders of a majority in aggregate
principal amount of the Notes or, in the absence of such instructions, in such
manner as the Indenture Trustee deems appropriate in its absolute discretion.
The proceeds received by the
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Indenture Trustee will be applied by the Indenture Trustee first to pay expenses
and fees and other amounts payable to the Indenture Trustee and thereafter to
pay all amounts then owing to the Holders.
The Indenture and any pledge agreement will provide that the Collateral
Certificates will be released upon payment in full of the Notes in accordance
with the terms of the Notes and the Indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of SRPC, as
such, shall have any liability for any obligations of SRPC under the Notes or
the Indenture or any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such waiver is against public policy.
LEGAL DEFEASANCE
SRPC may, at its option and at any time, elect to have its obligations
discharged with respect to the Notes ("LEGAL DEFEASANCE"). Such Legal Defeasance
means that SRPC shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes except for (i) the rights of
Holders of such Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii)
SRPC's obligations with respect to such Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trust, duties and immunities of the
Indenture Trustee, and SRPC's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the applicable Indenture.
In order to exercise Legal Defeasance, (i) SRPC must irrevocably
deposit with the Indenture Trustee, in trust, for the benefit of the Holders of
the Notes, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be, of
such principal or installment of principal of and premium, if any, or interest
on such Notes; (ii) SRPC shall have delivered to the Indenture Trustee an
opinion of counsel in the United States reasonably acceptable to the Indenture
Trustee confirming that (A) SRPC has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of such Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
with respect to the Indenture resulting from the incurrence of Indebtedness, all
or a portion of which will be used to defease the Notes concurrently with such
incurrence) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (iv) such Legal Defeasance shall not result in a breach or violation
of, or constitute a default under the Indenture or any other material agreement
or instrument to which SRPC or any of its Subsidiaries is a party or by which
SRPC or any of its Subsidiaries is bound; (v) SRPC shall have delivered to the
Indenture Trustee an officer's certificate stating that the deposit was not made
by SRPC with the intent of preferring the Holders of such Notes over any other
creditors of SRPC or others; and (vi) SRPC shall have delivered to the Indenture
Trustee an officer's certificate and an opinion of counsel, each stating that
all conditions precedent provided for or relating to the Legal Defeasance have
been complied with.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the following paragraphs, the Indenture and the
Notes may be amended or supplemented with the consent of the Holders of at least
a majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for such Notes),
and any existing default or compliance with any provision of the Indenture or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for such Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Note held by a non-consenting Holder) (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the Expected Maturity Date or
Legal Maturity Date or alter or waive the provisions with respect to the
redemption of the Notes, (iii) reduce the rate of or change the time for payment
of interest on any Note, (iv) waive a Default or Event of Default in the payment
of principal of, premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount thereof and a waiver of the payment default that resulted from
such acceleration), (v) make any Note payable in money other than that stated in
the Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of the Holders of Notes to receive
payments of principal of or interest on the Notes or (vii) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder, SRPC
and the Indenture Trustee may amend or supplement the Indenture or the Notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to provide for the assumption
of SRPC's obligations to the Holders of the Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder.
In addition, the Pooling and Servicing Agreement and the Receivables
Purchase Agreement may be amended without the prior consent of the Holders of
the Notes. However, SRPC must consent to any such amendment. SRPC will agree
with Holders not to grant any such consent if such amendment would materially
adversely affect the rights of Holders without first obtaining the consent of
the Holders of the majority of the outstanding principal amount of the Notes.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the
Indenture. The registrar under the Indenture and the Indenture Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and SRPC may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. SRPC is not required to transfer
or exchange any Note selected for redemption. Also, SRPC is not required to
transfer or exchange any Note for a period of 15 days before a selection of such
Notes to be redeemed.
The registered Holder of a Note will be treated as the owner for all
purposes.
BOOK-ENTRY, DELIVERY AND FORM
Except as described in the next paragraph, the New Notes initially will
be represented by a single, permanent global certificate in definitive, fully
registered form (the "GLOBAL NOTE"). The Global Note will be deposited on the
date of closing of the Exchange Offer (the "CLOSING DATE") with, or on behalf
of, the Depositary and registered in the name of a nominee of the Depositary.
Any Old Notes (i) originally purchased by or transferred to "foreign
purchasers" or Accredited Investors who are not QIBs or (ii) held by QIBs who
elected to take physical delivery of their certificates instead of holding their
interest through the Global Note (and which are thus ineligible to trade through
the Depositary) (collectively referred to herein as the "NON-GLOBAL PURCHASERS")
were issued in registered form (the "CERTIFICATED SECURITY"). Upon the
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transfer of any Certificated Security initially issued to a Non-Global
Purchaser, such Certificated Security will, unless the transferee requests
otherwise or the Global Note has previously been exchanged in whole for
Certificated Security, be exchanged for an interest in the Global Note.
THE GLOBAL NOTE
SRPC expects that pursuant to procedures established by Depositary (i)
upon the issuance of the Global Note, the Depositary or its custodian will
credit, on its internal system, the principal amount of Notes of the individual
beneficial interests represented by such Global Note to the respective accounts
of persons who have accounts with such Depositary and (ii) ownership of
beneficial interests in the Global Note will be shown on, and the transfer of
such ownership will be effected only through, records maintained by the
Depositary or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants). Such accounts were initially designated by or on behalf of the
Initial Purchaser and ownership of beneficial interests in the Global Note will
be limited to persons who have accounts with the Depositary ("DEPOSITARY
PARTICIPANTS") or persons who hold interests through Depositary participants.
QIBs may hold their interests in the Global Note directly through the Depositary
if they are Depositary participants in such system, or indirectly through
organizations which are Depositary participants in such system.
So long as the Depositary or its nominee, is the registered owner or
holder of the Notes, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global Note
for all purposes under the Indenture. No beneficial owner of an interest in the
Global Note will be able to transfer that interest except in accordance with
Depositary's procedures, in addition to those provided for under the Indenture
with respect to the Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on, the Global Note will be made to the Depositary or its
nominee, as the case may be, as the registered owner thereof. None of SRPC, the
Trustee or any paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
SRPC expects that the Depositary or its nominee, upon receipt of any
payment of principal, premium, if any, or interest in respect of the Global
Note, will credit Depositary participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Note as shown on the records of the Depositary or its nominee.
SRPC also expects that payments by Depositary participants to owners of
beneficial interests in the Global Note held through such participants will be
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between Depositary participants in the Depositary will be
effected in the ordinary way in accordance with Depositary rules and will be
settled in clearinghouse funds. If a Holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such Holder must transfer its interest in the Global Note, in
accordance with the normal procedures of Depositary and with the procedures set
forth in the Indenture.
The Depositary has advised SRPC that it will take any action permitted
to be taken by a Holder of Notes (including the presentation of Notes for
exchange as described below) only at the direction of one or more Depositary
participants to whose account the Depositary interests in the Global Note are
credited and only in respect of such portion of the aggregate principal amount
of Notes as to which such participant or participants has or have given such
direction. However, if there is an Event of Default under the Indenture, the
Depositary will exchange the Global Note for Certificated Securities, which it
will distribute to its participants.
The Depositary has advised SRPC as follows: the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section
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17A of the Exchange Act. The Depositary was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Depositary participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the Depositary system is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Depositary participant, either directly
or indirectly ("INDIRECT PARTICIPANTS").
Although the Depositary has agreed to the foregoing procedures in order
to facilitate transfers of interests in the Global Note among participants of
the Depositary, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither SRPC nor the Indenture
Trustee will have any responsibility for the performance by the Depositary or
its participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
CERTIFICATED SECURITIES
If the Depositary is at any time unwilling or unable to continue as a
depositary for the Global Note and a successor depositary is not appointed by
SRPC within 90 days, Certificated Securities will be issued in exchange for the
Global Note.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes (including
principal, premium, if any, and interest) be made in immediately available
funds. Secondary trading in long-term notes and debentures of corporate issuers
is generally settled in clearing-house or next-day funds. In contrast, the New
Notes are expected to be eligible to trade in the PORTAL Market and to trade in
the Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in the New Notes will therefore be required by the
Depositary to be settled in immediately available funds. No assurance can be
given as to the effect, if any, of such settlement arrangements on trading
activity in the New Notes.
REGISTRATION RIGHTS
On May 30, 1996, SRPC entered into the Registration Rights Agreement
with the Initial Purchaser. Pursuant to the Registration Rights Agreement, SRPC
agreed to file with the Commission the Registration Statement with respect to
the New Notes. Upon effectiveness of the Registration Statement, SRPC will
effect the Exchange Offer. The rights granted to Holders pursuant to the
Registration Rights Agreement terminate upon the consummation of the Exchange
Offer.
CONCERNING THE INDENTURE TRUSTEE
The Indenture contains certain limitations on the rights of the
Indenture Trustee, should the Indenture Trustee become a creditor of SRPC, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Indenture
Trustee will be permitted to engage in other transactions; however, if the
Indenture Trustee acquires any conflicting interest it must eliminate such
conflict within 90 days.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Indenture Trustee, subject
to certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Indenture Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Indenture Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Indenture Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to SRPC at 10201 South Main Street, Houston, Texas
77025, Attention: Corporate Secretary.
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DESCRIPTION OF THE COLLATERAL
SRPC's payment obligations under the Notes will be secured by the
Collateral Certificates (comprised of the $30,000,000 Class D-1 Certificate,
Series 1993-1 and the $5,120,000 Class D-1 Certificate Series 1995-1 and certain
rights with respect to the Transferor Certificate). SRPC will assign and pledge
to the Indenture Trustee the Collateral Certificates for the benefit of Holders
of the Notes pursuant to the Indenture. See "Description of the
Notes--Collateral Security." SRPC will receive cash flows in respect of the
Class D Certificates and the Transferor Certificate. Certain of such cash flows,
to the extent of the Note Allocation Percentage, will be applied for the benefit
of the Holders as described in "Description of the Notes--Deposits into the
Interest Reserve Account" and "Description of the Notes-- Deposits into the
Principal Reserve Account."
OVERVIEW OF TRUST ALLOCATIONS
The Trust assets include (i) all Receivables existing from time to time
in the Accounts, (ii) all funds to be collected from cardholders in respect of
the Receivables, (iii) all right, title and interest of SRPC in, to and under
the Receivables Purchase Agreement, (iv) the Interest Rate Caps, for each
Series, (v) the benefit of funds on deposit in the Equalization Account, (vi)
the Collection Account, the Distribution Account, the Interest Funding Account
and the Principal Account for each Series and (vii) proceeds of the foregoing.
The Trust's assets are allocated among each Series and the Transferor Interest.
Certificateholders do not have any recourse against any assets of the Trust
other than those allocated to such Certificateholders pursuant to the Pooling
and Servicing Agreement and any applicable Supplement. The Transferor Interest
represents the right to the assets of the Trust not allocated to any
Certificateholders. The principal amount of the Transferor Interest fluctuates
as the amount of Receivables in the Trust, the Invested Amount of each
Designated Series, the amount of the Variable Funding Certificates and the
amount on deposit in the Equalization Account changes from time to time.
Collections on the Receivables are deposited into the Collection
Account maintained in the name of the Trust and are allocated on each business
day between Finance Charge Collections and Principal Collections. Finance Charge
Collections and Principal Collections are then allocated on each business day
among the Transferor Interest and the respective interests of the
Certificateholders of each Series issued and outstanding. In general, in
accordance with such allocations and provisions of the Pooling and Servicing
Agreement and such applicable Supplement, (i) Finance Charge Collections and
certain other amounts will be applied on each business day to fund interest
payments on the Certificates of any Series then outstanding, to pay certain fees
and expenses, to cover investor default amounts and to reimburse investor
charge-offs and to make required payments to SRPC, and (ii) Principal
Collections and certain other amounts are applied on each business day to fund
principal on the Certificates of any Series then outstanding (including through
deposits made to the Principal Account for such Series and to make required
payments to SRPC), EXCEPT that during any Revolving Period applicable to a
Series, Principal Collections otherwise allocable to the Certificateholders of
such Series (other than such amounts allocable to a Transferor Retained Class,
such as the Class D Certificates, which will either be deposited in the
Equalization Account to the extent required or paid to the Transferor) are
treated as Shared Principal Collections and first paid to the amortizing Series
and then paid to the holder of the Transferor Certificate or, to the extent
required pursuant to the Pooling and Servicing Agreement, deposited in the
Equalization Account. See "--Application of Collections--Allocations" and
"--Application of Collections--Payment of Fees, Interest and Other Items."
THE OUTSTANDING CERTIFICATES
The Class D Certificates and the Transferor Certificate represent
undivided interests in the assets of the Trust. The Trust was formed pursuant to
the Pooling and Servicing Agreement between SRPC, as Transferor, SRI, as
Servicer, and Bankers Trust (Delaware), as Trustee (the "RECEIVABLES TRUSTEE").
SRPC, SRI and the Receivables Trustee from time to time execute supplements to
the Pooling and Servicing Agreement (each, a "SUPPLEMENT") in connection with
the issuance of each series (each, a "SERIES") of certificates representing an
undivided interest in the assets of the Trust (the "CERTIFICATES"). Each
Supplement contains information concerning the rights and obligations of the
holders of the Certificates (each, a "CERTIFICATEHOLDER") of that Series. The
Series pursuant to which the 1993-1 Certificates and the 1995-1 Certificates
were issued are sometimes each referred to herein as a "DESIGNATED SERIES."
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Pursuant to the Series 1993-1 Supplement to the Pooling and Servicing
Agreement dated as of July 30, 1993 (the "SERIES 1993-1 SUPPLEMENT"),
$121,500,000 aggregate principal amount of Floating Rate Class A-1 Certificates,
Series 1993-1 (the "1993-1 CLASS A CERTIFICATES"), $8,500,000 aggregate
principal amount of Floating Rate Class B-1 Certificates, Series 1993-1 (the
"1993-1 CLASS B CERTIFICATES") and $10,000,000 aggregate principal amount of
Floating Rate Class C-1 Certificates, Series 1993-1 (the "1993-1 CLASS C
CERTIFICATES") were issued to investors, and a $30,000,000 Class D-1
Certificate, Series 1993-1 (the "1993-1 CLASS D CERTIFICATE") was issued to
SRPC. The 1993-1 Class A, B, C and D Certificates are referred to as the "1993-1
CERTIFICATES."
Pursuant to the Series 1993-2 Supplement to the Pooling and Servicing
Agreement dated as of July 30, 1993 (the "SERIES 1993-2 SUPPLEMENT"), the 1993-2
Class A-R Certificates and the 1993-2 Class B-R Certificates (collectively, the
"1993-2 CERTIFICATES") were issued. The Class B-R Certificates do not bear
interest. None of the 1993-2 Certificates will be pledged to the Indenture
Trustee for the benefit of the Holders. The principal amount of the 1993-2
Certificates is subject to being increased or decreased at the option of the
Transferor during the Revolving Period for the 1993-2 Certificates. The 1993-2
Certificates are subject to termination by SRPC, at its option.
The Trust may issue additional Series of Certificates with fluctuating
principal amounts (any such Certificates, including the 1993-2 Certificates,
being the "VARIABLE FUNDING CERTIFICATES" and each such Series, including the
Series 1993-2, being a "VARIABLE FUNDING SERIES"). The principal amount of the
Variable Funding Certificates will vary from time to time at the option of SRPC.
Pursuant to the Series 1995-1 Supplement to the Pooling and Servicing
Agreement dated as of August 11, 1995 (the "SERIES 1995-1 SUPPLEMENT"),
$21,700,000 aggregate principal amount of Floating Rate Class A-1 Certificates,
Series 1995-1 (the "1995-1 CLASS A CERTIFICATES"), $1,500,000 aggregate
principal amount of Floating Rate Class B-1 Certificates, Series 1995-1 (the
"1995-1 CLASS B CERTIFICATES") and $1,800,000 aggregate principal amount of
Floating Rate Class C-1 Certificates, 1995-1 (the "1995-1 CLASS C CERTIFICATES")
were issued to investors, and a $5,120,000 Class D-1 Certificate, Series 1995-1
(the "1995-1 CLASS D CERTIFICATE") was issued to SRPC. The 1995-1 Class A, B, C
and D Certificates are referred to as the "1995-1 CERTIFICATES".
The Transferor Certificate represents the fractional undivided interest
in the Trust assets that is not represented by the Investor Certificates. The
amount of the Transferor Certificate varies daily according to the amount of
Principal Collections held by the Trust, the amount on deposit in the
Equalization Account, the level of utilization of the Variable Funding
Certificates and other factors.
PRINCIPAL TERMS
The principal terms of each class of each Series of Certificates are as
follows:
1993-1 CLASS A CERTIFICATES
Class A Initial Invested Amount...........................$121,500,000
Class A Certificate Rate..................................LIBOR + .82%
Class A Expected Final Payment Date.......................June 1, 2000
Scheduled Amortization Period Commencement Date.......December 1, 1999
Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date............................................July 30, 1993
Ratings........................................................AAA/AAA
1993-1 CLASS B CERTIFICATES
Class B Initial Invested Amount.............................$8,500,000
Class B Certificate Rate.................................LIBOR + 1.39%
Class B Expected Final Payment Date..................September 1, 2000
Scheduled Amortization Period Commencement Date.......December 1, 1999
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Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date............................................July 30, 1993
Ratings............................................................A/A
1993-1 CLASS C CERTIFICATES
Class C Initial Invested Amount............................$10,000,000
Class C Certificate Rate.................................LIBOR + 3.00%
Class C Expected Final Payment Date..................September 1, 2000
Scheduled Amortization Period Commencement Date.......December 1, 1999
Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date............................................July 30, 1993
Ratings........................................................BBB/BBB
1993-1 CLASS D CERTIFICATE
Class D Initial Invested Amount............................$30,000,000
Class D Certificate Rate............................................0%
Scheduled Amortization Period Commencement Date.......December 1, 1999
Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date............................................July 30, 1993
1993-2 CLASS A-R CERTIFICATES
Class A-R Stated Amount....................................$40,000,000
Class A-R Invested Amount (as of February 3, 1996)..................$0
Class A-R Certificate Rate.......................Revolving Credit
Facility Cost of Funds
Scheduled Amortization Period Commencement Date.......December 1, 1999
Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date............................................July 30, 1993
Ratings........................................................AAA/AAA
1993-2 CLASS B-R CERTIFICATES
Class B-R Stated Amount....................................$15,555,556
Class B-R Invested Amount (as of February 3, 1996)..................$0
Class B-R Certificate Rate..........................................0%
Scheduled Amortization Period Commencement Date.......December 1, 1999
Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date............................................July 30, 1993
1995-1 CLASS A CERTIFICATES
Class A Initial Invested Amount............................$21,700,000
Class A Certificate Rate..................................LIBOR + .52%
Scheduled Amortization Period Commencement Date.......December 1, 1999
Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date..........................................August 11, 1995
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Ratings........................................................AAA/AAA
1995-1 CLASS B CERTIFICATES
Class B Initial Invested Amount.............................$1,500,000
Class B Certificate Rate..................................LIBOR +1.50%
Scheduled Amortization Period Commencement Date.......December 1, 1999
Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date..........................................August 11, 1995
Ratings............................................................A/A
1995-1 CLASS C CERTIFICATES
Class C Initial Invested Amount.............................$1,800,000
Class C Certificate Rate..................................LIBOR +1.50%
Scheduled Amortization Period Commencement Date.......December 1, 1999
Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date..........................................August 11, 1995
Ratings........................................................BBB/BBB
1995-1 CLASS D CERTIFICATE
Class D Initial Invested Amount.............................$5,120,000
Class D Certificate Rate............................................0%
Scheduled Amortization Period Commencement Date.......December 1, 1999
Scheduled Series Termination Date......................January 1, 2003
Series Servicing Fee Percentage.....................................2%
Issuance Date..........................................August 11, 1995
TRUST ASSETS
The Trust's assets include (i) all Receivables existing from time to
time in the Accounts, (ii) all funds to be collected from cardholders in respect
of the Receivables, (iii) all right, title and interest of SRPC in, to and under
the Receivables Purchase Agreement, (iv) the Interest Rate Caps, for each
Series, (v) the benefit of funds on deposit in the Equalization Account, (vi)
the Collection Account, Distribution Account, Interest Funding Account and the
Principal Account for each Series and (vii) proceeds of the foregoing.
SRPC purchases all of the Receivables arising from time to time (i) in
all of the consumer revolving credit card accounts which were owned by Palais on
the Original Closing Date for the Series 1993-1 Certificates, (ii) in each
Automatic Additional Account and (iii) in certain circumstances, each
Supplemental Account (collectively, the "ACCOUNTS"), whether such Receivables
are then existing or thereafter created.
SRPC automatically transfers to the Trust all of its right, title and
interest in and to the Receivables purchased by it. SRPC has the right, under
certain circumstances, to cause the Receivables in any Removed Accounts to no
longer be transferred to the Trust and to accept the transfer from the Trust of
all Receivables in any Removed Accounts, whether such Receivables are then
existing or thereafter created.
RECEIVABLES
The Receivables consist of amounts charged by cardholders to the
Accounts for goods and services, and all related monthly finance charges, late
charges, returned check fees, proceeds allocable to finance charges, certain
recoveries (net of collection expenses) on Receivables which were previously
charged off as uncollectible, and all other
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fees billed to cardholders on the Accounts in any Fiscal Month ("RECEIVABLES").
The amount of Receivables fluctuates from day to day as new Receivables are
generated and as existing Receivables are collected, written off as
uncollectible, or otherwise adjusted.
AMORTIZATION PERIOD
During an Amortization Period for any Series, Principal Collections
allocable to the Certificates (other than the Transferor Retained Class) and
certain other amounts are no longer reinvested in the Trust, but instead are
distributed for each Series as principal payments quarterly on each Distribution
Date beginning with the first Distribution Date following the Amortization
Period Commencement Date. Following the payment in full of the Invested Amount
of the Senior Certificates, Principal Collections are distributed to the Class D
Certificateholders until the Class D Invested Amount for such Series is paid in
full. See "--Final Payment of Principal on Senior Certificates; Termination."
SHARED PRINCIPAL COLLECTIONS
To the extent that Principal Collections and certain other amounts that
are allocated to the Certificates of any Class of any Series (other than any
Transferor Retained Class, such as the Class D Certificates) are not needed to
make payments to the Certificateholders of such Class or required to be
deposited in the Principal Account for such Series, they may be applied to cover
principal payments due to or for the benefit of Certificateholders of another
Series, including principal payments which SRPC elects to make with respect to
the Variable Funding Certificates. Any amount not so applied will be deposited
in the Equalization Account, to the extent required pursuant to the Pooling and
Servicing Agreement and the remainder will be distributed to SRPC, as holder of
the Transferor Certificate. In addition, any such reallocation will not result
in a reduction in the Certificateholders' Interest of the Series to which such
Principal Collections were initially allocated. Such amounts are referred to
herein as "SHARED PRINCIPAL COLLECTIONS" and are derived from the following
sources:
(A) for each business day during a Revolving Period for a
Designated Series, (i) the product of (a) the Floating
Allocation Percentage for such Designated Series and (b)
Principal Collections allocated to such Designated Series as
set forth in clause (iv) of "--Application of
Collections--Allocations;" (ii) the amount allocated with
respect to the unpaid Investor Default Amount for such
Designated Series for the current day and any prior business
day during the then-current Fiscal Month as described in
clause (3) of "--Application of Collections--Payment of Fees,
Interest and Other Items--Designated Series;" and (iii) for
such Designated Series, the amount allocated with respect to
the unreimbursed Class A Investor Charge-Offs, Class B
Investor Charge-Offs, Class C Investor Charge-Offs and Class D
Investor Charge-Offs as described in clauses (4), (6) and (7)
of "-- Application of Collections--Payment of Fees, Interest
and Other Items--Designated Series;"
(B) for each business day during a Revolving Period for a Variable
Funding Series, to the extent not used to pay amounts in
respect of principal of the Variable Funding Certificates, (i)
the product of (a) the Class Variable Funding Floating
Allocation Percentage for such Variable Funding Series and (b)
Principal Collections allocated to such Variable Funding
Series; (ii) the unpaid Investor Default Amount for such
Variable Funding Series for the current day and any prior
business day during the then-current Fiscal Month as described
in clause (C) of "--Application of Collections--Payment of
Fees, Interest and Other Items--Variable Funding Series;" and
(iii) the amount of remaining and unreimbursed Class A-R
Investor Charge-Offs and Class B-R Investor Charge-Offs as
described in clauses (D) and (E) of "--Application of
Collections--Payment of Fees, Interest and Other Items--
Variable Funding Series;" and
(C) for each business day during an Amortization Period for a
Designated Series, (i) on and prior to the day on which the
Class Invested Amount for the Class A Certificateholders of
such Designated Series has been deposited in the Principal
Account for such Designated Series, the product of (a) the sum
of the Class Fixed Allocation Percentage for the Class B
Certificates of such Designated Series and the Class Fixed
Allocation Percentage for the Class C Certificates of such
Designated Series,
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multiplied by (b) the Principal Collections allocated to such
Designated Series; (ii) on and after the day on which the
Class Invested Amount for the Class A Certificates of such
Designated Series has been deposited in the Principal Account
for such Designated Series, the product of (a) the sum of the
Class Fixed Allocation Percentage for the Class A Certificates
and the Class C Certificates of such Designated Series,
multiplied by (b) Principal Collections allocated to such
Designated Series; and (iii) on and after the day on which the
Class Invested Amount for the Class B Certificates of such
Designated Series has been deposited in the Principal Account
for such Designated Series, the product of (a) the sum of the
Class Fixed Allocation Percentage for the Class A Certificates
and the Class B Certificates of such Designated Series,
multiplied by (b) Principal Collections allocated to such
Designated Series.
TRANSFEROR PERCENTAGE CASH FLOWS
PRINCIPAL COLLECTIONS. On each business day, SRPC, as holder of the
Transferor Certificate, will receive a portion of Principal Collections equal to
(i) the product of (a) the Transferor Percentage and (b) Principal Collections
less (ii) the amount of Principal Collections deposited in the Equalization
Account as set forth in the second sentence under "--Finance Charge
Collections."
FINANCE CHARGE COLLECTIONS. On each business day, SRPC as holder of the
Transferor Certificate, will receive an amount equal to (i) the product of (a)
the Transferor Percentage and (b) Finance Charge Collections minus (ii) the sum
of (a) the amount of Finance Charge Collections deposited in the Equalization
Account as set forth in the next sentence and (b) any amount of such portion of
Finance Charge Collections applied to satisfy the Required Amount of any Series
pursuant to "--Application of Collections--Payment of Fees, Interest and Other
Items."
Principal Collections and Finance Charge Collections allocated and
otherwise payable to SRPC as set forth above on any business day will instead be
deposited in the Equalization Account, if and to the extent of any Minimum
Transferor Interest Deficiency for such business day.
RELEASED EQUALIZATION ACCOUNT CASH FLOWS. On each business day during a
Revolving Period for a Designated Series, SRPC is entitled to receive funds from
the Equalization Account in the amount by which the Transferor Interest exceeds
the Minimum Transferor Interest for such day. See "--Equalization Account."
TRANSFEROR SHARED PRINCIPAL COLLECTION CASH FLOWS
SRPC is entitled to receive Principal Collections and Finance Charge
Collections that are treated as Shared Principal Collections, EXCEPT to the
extent that such Shared Principal Collections are applied (i) to a Principal
Shortfall for any Series, (ii) to repayment of principal of any Variable Funding
Certificate, or (iii) in the event that a Minimum Transferor Interest Deficiency
exists, to increase the amount in the Equalization Account to the extent
necessary to eliminate such deficiency.
TRANSFEROR EXCESS FINANCE CHARGE CASH FLOWS
On each business day other than during an Early Amortization Period for
any Designated Series, SRPC will receive an amount equal to the Excess Finance
Charge Collections for such Series less (i) the amount needed for other Series
to cover any shortfalls in Required Amounts or other uses of Finance Charge
Collections, as further described in "--Application of Collections--Payment of
Fees, Interest and Other Items--Designated Series," (ii) any amounts paid to a
successor Servicer in respect of unpaid commercially reasonable costs and
expenses, and (iii) the unpaid amount, if any, of Required Adjustment Payments,
which unpaid amount will be deposited in the Equalization Account. During an
Early Amortization Period for any Designated Series, SRPC will receive such
amount only on the last business day of each Fiscal Month. On each business day
during an Early Amortization Period other than the last business day of the
Fiscal Month, Excess Finance Charge Collections are deposited in the Interest
Funding Account for such Series and are reapplied as Available Designated Series
Finance Charge Collections or Available Variable Funding Series Finance Charge
Collections, as applicable, on the next business day, as described in
"--Application of Collections--Payment of Fees, Interest, and Other Items."
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TRANSFEROR/CLASS D CASH FLOWS
On each business day during a Revolving Period for a Designated Series,
SRPC will receive an amount equal to the applicable Class D Floating Allocation
Percentage of Principal Collections for such day less the amount of any Minimum
Transferor Interest Deficiency. During an Amortization Period for a Designated
Series, before the Class Invested Amounts for each Senior Class of such
Designated Series have been deposited in the Principal Account for such
Designated Series, SRPC will receive the Class D Fixed Allocation Percentage of
Principal Collections allocated to such Designated Series less the amount of any
Minimum Transferor Interest Deficiency.
CLASS D DAILY CASH FLOWS
The holders of the Class D Certificates (the "CLASS D
CERTIFICATEHOLDERS") are entitled to the Class D Daily Cash Flows, as described
in "Description of the Notes--Deposits into the Principal Reserve Account." The
Class D Daily Cash Flows consist of the following:
On each business day during an Amortization Period for a Designated
Series, on and after an amount equal to the Class Invested Amount for each
Senior Class of such Designated Series has been deposited in the Principal
Account for such Series, the Class D Certificateholders for such Designated
Series will be allocated and paid an amount equal to the sum of (A) the product
of (i) the Class D Fixed Allocation Percentage for such Designated Series,
multiplied by (ii) Principal Collections, (B) the amount on deposit in the
Negative Carry Account for such Designated Series, (C) the amount of Shared
Principal Collections allocated to such Designated Series, (D) the amount
allocated to make principal payments on the Class D Certificates in respect of
the Investor Default Amount for such Designated Series, (E) an amount of
Available Designated Series Finance Charge Collections equal to the unreimbursed
Class D Investor Charge-Offs and (F) funds contained in the Equalization
Account. See "--Equalization Account."
ELIGIBLE ACCOUNTS; ELIGIBLE RECEIVABLES
An "ELIGIBLE ACCOUNT" means, as of the Original Closing Date for Series
1993-1 (or with respect to Supplemental Accounts, as of each date on which
Receivables under Supplemental Accounts are included in the Trust as Accounts or
with respect to Automatic Additional Accounts, as of the date the Receivables
arising in such Accounts are designated for inclusion in the Trust) each Account
owned by Palais (a) which is payable in United States dollars, (b) in which
Palais or SRI has not confirmed any record of any fraud-related activity by the
obligor on such account, (c) which has not been sold or pledged to any other
party and which does not have Receivables which have been sold or pledged to any
other party, (d) which was created in accordance with the credit and collection
policies of Palais at the time of creation of such Account or the Receivables of
which each of S&P and DCR (each, a "RATING AGENCY") permits to be added
automatically to the Trust, (e) the Receivables in which Palais has not charged
off in its customary and usual manner for charging off Receivables in such
Accounts as of the date the Receivables of such Accounts are first designated
for inclusion in the Trust unless such Account is subsequently reinstated, and
(f) is not an Automatic Additional Account designated by SRPC to be included as
an Account after the occurrence of certain events or in excess of certain
limitations specified below (unless the Rating Agencies shall have consented to
the inclusion of such Automatic Additional Account as an Eligible Account).
An "ELIGIBLE RECEIVABLE" means each Receivable that satisfies the
following criteria: (a) it arises under an Eligible Account, (b) it constitutes
an "account," a "general intangible" or "chattel paper," as defined in Article 9
of the Uniform Commercial Code as then in effect, (c) it is at the time of its
transfer to the Trust the legal, valid and binding obligation of a person who
(i) is living, (ii) is not a minor under the laws of his/her state of residence
and (iii) is competent to enter into a contract and incur debt (or, with respect
to obligations from persons who do not qualify under clauses (ii) or (iii), is
so guaranteed by a person who qualifies under clauses (i), (ii) and (iii));
EXCEPT that (1) no more than 10% of all Eligible Receivables shall be from
obligors which are (x) non-U.S. persons or (y) the United States, a state or any
instrumentality thereof and (2) no such Receivables shall be obligations of
affiliates (other than directors, officers and employees) of SRPC; and EXCEPT
that no more than 6% of all Eligible Receivables shall be from obligors which
are non-U.S. persons, unless the Rating Agency provides its written consent to
an increase in such percentage, (d) it and the underlying charge account
agreement do not contravene in any material respect any laws, rules, or
regulations applicable thereto (including rules and regulations relating to
truth in lending, fair credit billing, fair credit
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reporting, equal credit opportunity, fair debt collection practices, and
privacy) that could reasonably be expected to have an adverse impact on the
amount of collections thereunder, and Palais is not in violation of any such
laws, rules, or regulations in any respect material to such charge account
agreement, (e) all material consents, licenses, or authorizations of, or
registrations with, any governmental authority required to be obtained or given
in connection with the creation of such Receivable or the execution, delivery,
creation, and performance of the underlying charge account agreement have been
duly obtained or given and are in full force and effect as of the date of the
creation of such Receivables, (f) at the time of its transfer to the Trust, SRPC
or the Trust has good and marketable title free and clear of all liens and
security interests arising under or through SRPC (other than permitted liens),
(g) it is not, at the time of its transfer to the Trust, a Receivable in a
defaulted account, or a Receivable the obligor of which is bankrupt on the date
such Receivable arose, and (h) it arises under a charge account agreement that
has been duly authorized by Palais and which, together with such Receivable, is
in full force and effect and constitutes the legal, valid, and binding
obligation of the obligor enforceable against the obligor in accordance with its
terms and is not subject to any dispute, offset, counterclaim, or defense
whatsoever (except the discharge in bankruptcy of the obligor).
AUTOMATIC ADDITION OF ACCOUNTS
All Accounts created by Palais that meet the definition of "Automatic
Additional Accounts" are included as Accounts from and after the date upon which
such Automatic Additional Accounts are created and all Receivables in such
Automatic Additional Accounts, whether such Receivables are then existing or
thereafter created are transferred automatically to the Trust upon purchase by
SRPC, subject to the limitations described below.
Automatic Additional Accounts also consist of any other consumer credit
card accounts, the Receivables from which the Rating Agencies permit to be added
automatically to the Trust; EXCEPT that the Rating Agencies must also reconfirm
the original ratings of the Existing Series when so consenting. SRPC may also
designate from time to time additional accounts purchased by Palais or generated
by persons that have become additional Originators in accordance with the terms
of the Pooling and Servicing Agreement to be included as Automatic Additional
Accounts if SRPC has notified the Rating Agencies of such proposed designation
and has received confirmation that such designation will not result in a
downgrading of the then current rating of any outstanding Series; EXCEPT that
the Rating Agencies must also reconfirm the original ratings of the Designated
Series when so consenting.
The limitations referred to in clause (f) of the definition of Eligible
Account are designed, in general, to limit the number of Automatic Additional
Accounts to be added as Eligible Accounts on any day without Rating Agency
consent to a number that does not exceed the lesser of (i) 20% of the sum of (a)
the number of Active Accounts as of the later of the Latest Rating Agency
Approval and the last day of the twelfth preceding Fiscal Month, (b) the number
of Automatic Additional Accounts that were thereafter added with Rating Agency
consent, and (c) the number of Supplemental Accounts that were thereafter added,
minus the number of Removed Accounts that were thereafter removed, and (ii) 15%
of the sum of (a) the number of Active Accounts as of the later of the Latest
Rating Agency Approval and the last day of the third preceding Fiscal Month, (b)
the number of Automatic Additional Accounts that were thereafter added with
Rating Agency consent, and (c) the number of Supplemental Accounts that were
thereafter added, minus the number of Removed Accounts that were thereafter
removed.
SRPC, at its option, may terminate or suspend the inclusion of
Automatic Additional Accounts at any time. If SRPC has terminated or suspended
the inclusion of Automatic Additional Accounts, SRPC may, and in certain
circumstances will be required to, add additional accounts ("SUPPLEMENTAL
ACCOUNTS"), the Receivables of which will be designated for transfer to the
Trust. For purposes of the Pooling and Servicing Agreement, all Receivables
arising under such Automatic Additional Accounts are treated as Receivables upon
their creation. In connection with the sale of any such Receivables to SRPC,
Palais will satisfy all applicable requirements of the Receivables Purchase
Agreement.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth in the next sentence, on each
Determination Date on which the Transferor Interest exceeds 5% of aggregate
principal Receivables with respect to such Determination Date, SRPC may, but is
not obligated to, (i) cause the Receivables in certain Accounts designated by
SRPC to no longer be transferred to the Trust
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and (ii) accept the transfer from the Trust of all Receivables and proceeds
thereof from certain Accounts (the "REMOVED ACCOUNTS"), subject in each case to
the maintenance of at least the amount of aggregate principal Receivables
required to be maintained pursuant to the Pooling and Servicing Agreement and
any Supplement. There may be no more than one such removal with respect to any
Fiscal Month.
SRPC is permitted to designate and require reassignment to it of the
Receivables from Removed Accounts only if: (i) the Receivables Trustee shall
have executed and delivered to SRPC a written reassignment and SRPC shall have
delivered a computer file or microfiche list containing a true and complete list
of all Accounts the Receivables under which will continue to be transferred to
the Trust after such removal, (ii) SRPC shall represent and warrant that no
selection procedure used by SRPC which is materially adverse to the interests of
the Certificateholders was utilized in selecting the Removed Accounts, (iii) the
removal of any Receivables of any Removed Accounts shall not, in the reasonable
belief of SRPC, cause, immediately or with the passage of time, a Pay Out Event
to occur, (iv) SRPC shall have delivered twenty days' prior written notice of
the removal to each Rating Agency which has rated any outstanding Series and,
prior to the date on which such Receivables are to be removed, shall have
received confirmation from any Rating Agency of its original ratings of any
rated Class of any Series as a result of such removal, and (v) SRPC shall have
delivered to the Receivables Trustee an officer's certificate confirming the
items set forth in clauses (i) through (iv) above.
Notwithstanding the foregoing (but subject to having no more than one
removal per Fiscal Month and maintaining at least the amount of aggregate
principal Receivables required pursuant to the Pooling and Servicing Agreement),
SRPC is permitted to designate Removed Accounts in connection with the sale by
SRI or any affiliate of SRI of all or substantially all of the capital stock or
assets of Palais if the conditions in clauses (i), (iii), and (iv) above shall
have been met and SRPC shall have delivered to the Receivables Trustee an
officer's certificate confirming such items. Under these circumstances, subject
to the terms and conditions of the Pooling and Servicing Agreement, SRPC has the
option to accept the transfer from the Trust of all Receivables and proceeds
thereof in such Removed Accounts or to leave such Receivables and the proceeds
thereof in the Trust.
COLLECTION AND OTHER SERVICING PROCEDURES
SRI, in its capacity as servicer of the Receivables pursuant to the
Pooling and Servicing Agreement (the "SERVICER"), is responsible for servicing,
enforcing, and administering the Receivables and collecting payment due
thereunder in accordance with its usual and customary servicing procedures and
credit and collection policies. Servicing functions performed by SRI with
respect to the Receivables include statement processing and mailing, collecting
and recording payments, investigating payment delinquencies, and communicating
with cardholders. Managerial functions performed by SRI on behalf of the Trust
include maintaining books and records with respect to the foregoing and other
matters pertinent to the Receivables, assisting the Receivables Trustee with any
inspections of such books and records by the Receivables Trustee pursuant to the
Pooling and Servicing Agreement, preparing and delivering monthly and annual
statements to Certificateholders and causing a firm of independent public
accountants to prepare and deliver annual reports.
DISCOUNT OPTION
The Pooling and Servicing Agreement provides that SRPC may at any time
designate a fixed percentage from 2% to 4% (the "DISCOUNTED PERCENTAGE") of the
amount of Receivables arising in the Accounts on and after the date such option
is exercised that otherwise would be treated as principal Receivables to be
treated as finance charge Receivables (the "DISCOUNT OPTION RECEIVABLES"). SRPC
must provide 30 days' prior written notice to SRI, the Receivables Trustee, any
provider of credit enhancement and the Rating Agencies of any such designation,
and such designation will become effective on the date specified therein (i)
unless in the reasonable belief of SRPC, such designation would cause a Pay Out
Event of any Series or an event which, with notice or the lapse of time or both,
would constitute a Pay Out Event of any Series and (ii) only if the Rating
Agencies confirm in writing their then original ratings on any rated Class of
any outstanding Series. On the date of processing of any collections, the
product of the Discount Percentage and collections of Receivables that arise in
the Accounts on such day on or after the date such option is exercised that
otherwise would be principal Receivables will be deemed "DISCOUNT OPTION
RECEIVABLE COLLECTIONS." The exercise of the discount option would reduce
Principal Collections and increase Finance Charge
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Collections, which could extend the time of payment of principal on the
Certificates. The exercise of the Discount Option will reduce Principal
Collections and increase Finance Charge Collections which will increase the
Portfolio Yield over what it would otherwise be. As a result, such designation
should decrease the likelihood of the occurrence of a Pay Out Event based upon
the reduction of the average Portfolio Yield for any consecutive three Fiscal
Months to a rate below the average Base Rate. The former amount deposited into
the Collection Account will be applied as provided below in "--Application of
Collections" regarding payments with respect to finance charge Receivables.
TRUST ACCOUNTS
The Receivables Trustee has established and maintains in the name of
the Trust for each Series, four separate accounts, each in a segregated trust
account (which need not be a deposit account), consisting of an "INTEREST
FUNDING ACCOUNT," a "PRINCIPAL ACCOUNT," a "CAP PROCEEDS ACCOUNT" and a
"NEGATIVE CARRY ACCOUNT" for the benefit of the Certificateholders of such
Series. The Receivables Trustee has also established a "DISTRIBUTION ACCOUNT"
for the benefit of the Certificateholders of each Series which is a non-interest
bearing segregated demand deposit account established with a "Qualified
Institution." SRI has established and maintains, in the name of the Trust, for
the benefit of Certificateholders of all Series, a "COLLECTION ACCOUNT" and an
"EQUALIZATION ACCOUNT" which are each non-interest bearing segregated accounts.
Funds in the Principal Account for each Series, the Interest Funding
Account for each Series, the Cap Proceeds Account for each Series and the
Negative Carry Account for each Series are invested, at the direction of SRPC,
in (i) obligations fully guaranteed by the United States of America, (ii) time
deposits, promissory notes, or certificates of deposit of depository
institutions or trust companies, the certificates of deposit of which are rated
at least A-1+ by S&P, (iii) commercial paper having, at the time of the Trust's
investment, a rating of at least A-1+ by S&P, (iv) bankers' acceptances issued
by any depository institution or trust company described in clause (ii) above,
(v) money market funds which have the highest rating from, or have otherwise
been approved in writing by, S&P, (vi) certain open end diversified investment
companies, (vii) Eurodollar time deposits that have been rated at least A-1+ by
S&P, and (viii) any other investment that the Rating Agencies confirm in writing
will not adversely affect their then current ratings of any outstanding Series
of Certificates (such investments, "CASH EQUIVALENTS"). Any earnings (net of
losses and investment expenses) on funds in each Interest Funding Account are
paid to SRPC and any earnings (net of losses and investment expenses) on funds
in each Principal Account are treated and applied as Finance Charge Collections
for such Series. SRI has the revocable power to withdraw funds from the
Collection Account and the Equalization Account, and to instruct the Receivables
Trustee to make withdrawals and payments from each Interest Funding Account and
each Principal Account, in each case for the purpose of making deposits and
distributions required under the Pooling and Servicing Agreement, including the
deposits and distributions described in "--Application of Collections." The
paying agent has the revocable power to withdraw funds from the Distribution
Account for the purpose of making distributions to Certificateholders.
EQUALIZATION ACCOUNT
At any time during which a Series is not in an Amortization Period, or
during an Amortization Period, prior to the business day on which an amount
equal to the Class Invested Amount for the Class C Certificates has been
deposited in the Principal Account for such Series to be applied to the payment
of Class C Principal, and the Transferor Interest, after giving effect to the
inclusion in the Trust of all Receivables on or prior to such date and the
application of all prior payments to SRPC, is less than the Minimum Transferor
Interest (the existence of such a shortfall being a "MINIMUM TRANSFEROR INTEREST
DEFICIENCY"), then funds (to the extent available therefor as described herein)
otherwise payable to SRPC are deposited in the Equalization Account on any
business day until the Transferor Interest is at least equal to the Minimum
Transferor Interest. If, on any business day, the Transferor Interest exceeds
the Minimum Transferor Interest, funds on deposit in the Equalization Account
may, at the option of SRPC, be withdrawn and paid to SRPC to the extent of such
excess and will constitute Released Equalization Account Cash Flows. Such
deposits into and withdrawals from the Equalization Account may be made on a
daily basis.
Any funds on deposit in the Equalization Account at the beginning of
the Amortization Period for any Series will be deposited in the applicable
Negative Carry Account or the applicable Principal Account to the extent of the
lesser of (x) the Aggregate Invested Amount of such Series and (y) the product
of (i) the product of (A) 100% minus
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the Transferor Percentage minus the Fixed Allocation Percentage for such Series
represented by any Transferor Retained Class of Certificates and (B) the amount
on deposit in the Equalization Account at the beginning of the Amortization
Period and (ii) the Senior Equalization Account Percentage for such Series.
Any funds in the Equalization Account on any subsequent day will be
allocated to Certificates of such Series other than any Transferor Retained
Class to the extent that default amounts allocated to the Transferor Interest or
credit adjustments would cause a Minimum Transferor Interest Deficiency and,
with respect to any credit adjustment, SRPC has not made a Required Adjustment
Payment to the Collection Account in an amount equal to the least of (i) the
product of (A) such Minimum Transferor Interest Deficiency and (B) the Senior
Equalization Account Percentage for such Series, (ii) the product of (A) the
amount of funds available in the Equalization Account and (B) the Senior
Equalization Percentage and (iii) the aggregate Adjusted Invested Amount of the
Senior Classes of such Series. Remaining funds in the Equalization Account will
be allocated to the Invested Amount of any Series in an Amortization Period
(other than the Invested Amount of any Transferor Retained Class) to the extent
of the least of (i) such Investor Charge-Offs allocated to a Transferor Retained
Class, (ii) the product of (A) the amount of funds available in the Equalization
Account and (B) the Senior Equalization Account Percentage for such Series and
(iii) the aggregate Adjusted Invested Amount of the Certificates of such Series
other than any Transferor Retained Class. Such amounts will be allocated to the
Class Invested Amount of the Class A, B and C Certificates (the "SENIOR
CERTIFICATES") of such Series in amounts not to exceed the Class Invested Amount
of any such Class after subtracting any amounts to be deposited in the Principal
Account for such Series with respect thereto. On and after the day on which
principal payments are being allocated for payment to any Transferor Retained
Class of Certificates of a Series, any amounts remaining on deposit in the
Equalization Account will be deposited in the Principal Account for such Series
in an amount not to exceed the Invested Amount of such Transferor Retained Class
of such Series.
Any application of funds described in the preceding paragraph or in
"--Transferor Excess Finance Charge Cash Flows" resulting from the Transferor's
failure to make a Required Adjustment Payment shall not discharge SRPC from its
obligation (as described in "--Recourse Arrangements") to make such Required
Adjustment Payment.
Funds on deposit in the Equalization Account are invested by the
Receivables Trustee at the direction of SRPC in Cash Equivalents. On each
Distribution Date, all net investment income earned on amounts in the
Equalization Account since the preceding Distribution Date are withdrawn from
the Equalization Account and treated as Finance Charge Collections.
ALLOCATION PERCENTAGES
Pursuant to the Pooling and Servicing Agreement, during each Fiscal
Month SRI allocates among the interests of the Class A, B, C and D
Certificateholders for each Designated Series, the interest of the holders of
the Variable Funding Certificates and the Transferor Interest all Finance Charge
Collections and all Principal Collections and the amount of all Receivables in
defaulted Accounts. Finance Charge Collections and the amount of Receivables in
defaulted Accounts are allocated at all times to the interest of the Class A, B,
C and D Certificateholders of a Designated Series based on the applicable Class
Floating Allocation Percentage or the Class D Floating Allocation Percentage and
to the interest of holders of the Variable Funding Certificates based on the
Class Variable Funding Floating Allocation Percentage. During the Revolving
Period for a Series, all Principal Collections allocable to the Certificates are
allocated and paid to SRPC (except for collections applied as Shared Principal
Collections paid to the holders of Certificates of another Series, if any, and
except for funds deposited in the Equalization Account to remedy a Minimum
Transferor Interest Deficiency).
On any business day on or after the Amortization Period Commencement
Date for a Series, Principal Collections will be allocated to the interest of
the Certificateholders for such Designated Series based on the Class Fixed
Allocation Percentage or the Class D Fixed Allocation Percentage for such
Designated Series and for Certificateholders of a Variable Funding Series, based
on the Class Variable Funding Fixed Allocation Percentage. On any business day
when Principal Collections are being allocated for payment to the Senior
Certificates for a Designated Series, Principal Collections will be allocated to
the interest of holders of the Senior Certificates for such Designated Series
based on the Class Fixed Allocation Percentage for such Class of Certificates,
as applicable.
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As a result of the Floating Allocation Percentage, Finance Charge
Collections and the portion of defaulted Receivables allocated to the
Certificateholders of a Series change each business day based on the
relationship of the Aggregate Invested Amounts for a Series to the total amount
of principal Receivables and amounts on deposit in the Equalization Account on
the preceding business day, whether or not such Series is in its Amortization
Period. The percentages of Principal Collections allocable to the
Certificateholders for a Series, however, will remain fixed during the
Amortization Period for such Series.
APPLICATION OF COLLECTIONS
ALLOCATIONS. Obligors make payments on the Receivables (i) to SRI, who
deposits all such payments in the Collection Account no later than the first
business day following the date of receipt, or (ii) to a cashier or other
employee of an SRI store by delivery of cash, check, money order or other form
of payment (an "IN-STORE PAYMENT"). The majority of payments are made pursuant
to clause (i) of the preceding sentence. In-Store Payments are deposited in the
Collection Account as promptly as possible after the date of receipt of such
collections, but in no event later than the second business day following such
date of receipt. On the day on which any deposit to the Collection Account is
available, SRI makes the deposits and payments to the accounts and parties as
indicated below.
SRI withdraws the following amounts from the Collection Account for
application on each business day as indicated:
(i) an amount equal to (A) the product of (x) the Transferor
Percentage and (y) the aggregate amount of Principal
Collections for such day less (B) any amounts deposited in the
Equalization Account from Principal Collections if any Minimum
Transferor Interest Deficiency exists, is paid to the holder
of the Transferor Certificate, which amount shall be deemed a
portion of Transferor Percentage Principal Cash Flows;
(ii) an amount equal to (A) the product of (x) prior to the Class D
Principal Payment Commencement Date for a Designated Series,
the Class D Floating Allocation Percentage or the Class D
Fixed Allocation Percentage, as applicable, of such Designated
Series and (y) the aggregate amount of Principal Collections
for such day less (B) any amounts deposited in the
Equalization Account from Principal Collections if any Minimum
Transferor Interest Deficiency exists, is paid to the holder
of the Transferor Certificate, which amount shall be deemed a
portion of Transferor/Class D Cash Flows;
(iii) an amount equal to (A) the product of (x) prior to the date of
the commencement of the payment of principal to a Transferor
Retained Class of a Variable Funding Series, the Class
Variable Funding Floating Allocation Percentage or the Class
Variable Funding Fixed Allocation Percentage for such
Transferor Retained Class, as applicable, of a Variable
Funding Series and (y) the aggregate amount of Principal
Collections for such day less (B) any amounts deposited in the
Equalization Account from Principal Collections if any Minimum
Transferor Interest Deficiency exists, is paid to the holder
of the Transferor Certificate;
(iv) an amount equal to the Transferor Percentage of the aggregate
amount of Finance Charge Collections is paid to the holder of
the Transferor Certificate to the extent such funds are not
allocated to (a) the Negative Carry Account for such Series or
(b) the Equalization Account if a Minimum Transferor Interest
Deficiency exists, which amount shall be deemed a portion of
Transferor Percentage Finance Charge Cash Flows;
(v) an amount equal to the sum of (1) the Floating Allocation
Percentage of the aggregate amount of Finance Charge
Collections allocable to a Series, (2) any Transferor Finance
Charge Collections allocable to the Certificates and (3)
Excess Finance Charge Collections of other Series allocable to
such Series, is allocated and paid as set forth herein into an
Account or to the Transferor as described below in "--Payment
of Fees, Interest and Other Items";
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(vi) an amount equal to the sum of (A) during a Revolving Period
for a Designated Series, the sum of the Class Floating
Allocation Percentages for all Senior Classes of such
Designated Series and (B) during a Revolving Period for a
Variable Funding Series, the Class Variable Funding Floating
Allocation Percentage for such Senior Classes of such Variable
Funding Series of Principal Collections is applied as Shared
Principal Collections;
(vii) during the Amortization Period for a Designated Series and
prior to the Class B Principal Payment Commencement Date for
such Designated Series, an amount equal to the Class Fixed
Allocation Percentage of Principal Collections for the Class A
Certificates of such Designated Series, any amount on deposit
in the Equalization Account allocated to such Designated
Series, any amounts to be paid in respect of Investor Default
Amounts, Class A Investor Charge-Offs, Class B Investor
Charge-Offs and Class C Investor Charge-Offs for such
Designated Series and any amount of Shared Principal
Collections allocated to such Designated Series on such
business day, up to the Class Invested Amount for such Class A
Certificates, is deposited in the Principal Account for such
Designated Series;
(viii) during the Amortization Period for a Variable Funding Series
and prior to the day on which an amount equal to the Variable
Funding Class Invested Amount for the Senior Classes of such
Variable Funding Series has been deposited in the Principal
Account for such Variable Funding Series, an amount equal to
the Class Variable Funding Fixed Allocation Percentage for the
Senior Class of such Variable Funding Series of Principal
Collections and any amounts on deposit in the Equalization
Account allocated to such Variable Funding Series, any amounts
to be paid in respect of Investor Default Amounts, Senior
Class Investor Charge-Offs and Transferor Retained Class
Investor Charge- Offs for such Variable Funding Series and any
amount of Shared Principal Collections allocated to such
Variable Funding Series on such business day, up to the
Variable Funding Class Invested Amount for such Senior Classes
of a Variable Funding Series, is deposited in the Principal
Account for such Variable Funding Series;
(ix) during the Amortization Period for a Designated Series on or
after the Class B Principal Payment Commencement Date for such
Designated Series, an amount equal to the Class Fixed
Allocation Percentage for the Class B Certificates of such
Designated Series of such Principal Collections, any amount on
deposit in the Equalization Account allocated to such
Designated Series, any amounts to be paid in respect of the
Investor Default Amount, Class B Investor Charge-Offs and
Class C Investor Charge-Offs and any amount of Shared
Principal Collections allocated to such Designated Series on
such business day, up to the Class Invested Amount for such
Class B Certificates, is deposited into the Principal Account
for such Designated Series;
(x) during the Amortization Period for a Variable Funding Series
and after the day on which an amount equal to the Variable
Funding Class Invested Amount for the Senior Classes of such
Variable Funding Series has been deposited in the Principal
Account for such Variable Funding Series, an amount equal to
the Class Variable Funding Fixed Allocation Percentage for the
Transferor Retained Class of such Variable Funding Series of
Principal Collections, any amount on deposit in the
Equalization Account allocated to such Variable Funding
Series, any amounts to be paid in respect of the Investor
Default Amount, Transferor Retained Class Investor Charge-Offs
and any amount of Shared Principal Collections allocated to
such Variable Funding Series on such business day, up to the
Variable Funding Class Invested Amount for such Transferor
Retained Class, is deposited in the Principal Account for such
Variable Funding Series;
(xi) during the Amortization Period for a Designated Series on or
after the Class C Principal Payment Commencement Date for such
Designated Series, an amount equal to the Class Fixed
Allocation Percentage for the Class C Certificates of such
Designated Series of such Principal Collections, any amount on
deposit in the Equalization Account allocated to such
Designated Series, any amounts to be paid in respect of the
Investor Default Amount, and Class C Investor Charge-Offs and
any amount of Shared Principal Collections allocated to such
Designated Series on such business day, up to the
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Class Invested Amount for such Class C Certificates, is
deposited into the Principal Account for such Designated
Series;
(xii) Shared Principal Collections are allocated to each outstanding
Series pro rata based on any Principal Shortfall with respect
to any Series which is in its Amortization Period, and then,
at the option of SRPC, are used to make payments of principal
with respect to the Variable Funding Certificates. SRI pays
any remaining Shared Principal Collections on such business
day to the holder of the Transferor Certificate, which amount
constitutes Transferor Shared Principal Collection Cash Flows;
and
(xiii) Excess Finance Charge Collections are allocated as set forth
below in "--Payment of Fees, Interest, and Other Items."
Any Shared Principal Collections and other amounts not paid to SRPC on
any date because a Minimum Transferor Interest Deficiency exists, together with
any Required Adjustment Payments made by SRPC, as described below, are deposited
into and held in the Equalization Account, and on the Amortization Period
Commencement Date with respect to any Series, such amounts will be deposited in
the Negative Carry Account of such Series until the Required Amount has been
deposited therein and then in the Principal Account of such Series until the
applicable Principal Account of such Series has been funded in full or the
holders of Certificates of such Series have been paid in full. See
"--Equalization Account."
PAYMENT OF FEES, INTEREST, AND OTHER ITEMS.
DESIGNATED SERIES. On each business day for each Designated Series, SRI
determines (x) the sum of (i) the Floating Allocation Percentage of Finance
Charge Collections and (ii) investment earnings on amounts on deposit in the
Principal Account for each Designated Series (the "AVAILABLE DESIGNATED SERIES
FINANCE CHARGE COLLECTIONS") and (y) the Daily Cap Proceeds Amount of each
Designated Series, if any, and distributes such amount in the following priority
for each Designated Series:
1) first from the Cap Proceeds Account for such Designated
Series, to the extent of the Daily Cap Proceeds Amount for
such Designated Series for such business day and then from the
Collection Account, an amount equal to the lesser of (A) the
Available Designated Series Finance Charge Collections and (B)
the excess of (a) the sum of (1) the Senior Certificate
Monthly Interest for such Designated Series, (2) the amount of
any Senior Certificate Monthly Interest previously due for
such Designated Series but not deposited in the Interest
Funding Account for such Designated Series in prior Fiscal
Months, and (3) the aggregate amount of any additional
interest at the Certificate Rate for each Class of Senior
Certificates with respect to interest amounts that were due
for such Class but not paid in a prior Fiscal Month over (b)
the amount which has already been deposited in the Interest
Funding Account for such Designated Series with respect
thereto in the current Fiscal Month, are deposited in the
Interest Funding Account for such Designated Series for
distribution on the next succeeding Distribution Date to
holders of the Senior Certificates of such Designated Series;
2) if SRI or an affiliate of SRI is not the Servicer, an amount
equal to the lesser of (A) any Available Designated Series
Finance Charge Collections remaining and (B) the portion of
the Monthly Servicing Fee for the current Fiscal Month that
has not been previously paid to the Servicer plus any prior
Monthly Servicing Fee allocated to such Designated Series that
was due but not previously paid to the Servicer is distributed
to the Servicer;
3) an amount equal to the lesser of (A) any Available Designated
Series Finance Charge Collections remaining and (B) the sum of
(1) the aggregate Investor Default Amount for such Designated
Series for such business day and (2) the unpaid Investor
Default Amount for such Designated Series for any prior
business day during the then-current Fiscal Month, are (x)
during the Revolving Period for such Designated Series,
treated as Shared Principal Collections, (y) on and after the
Class A Principal Payment Commencement Date for such
Designated Series, deposited in the Principal Account for such
Designated Series for payment to holders of the Senior
Certificates of such Designated Series
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and (z) on and after the Senior Certificate Principal
Repayment Date, paid to the Class D Certificateholders of such
Designated Series, which amount shall be deemed a portion of
Class D Daily Cash Flows;
4) an amount equal to the lesser of (A) any Available Designated
Series Finance Charge Collections remaining and (B)
unreimbursed Class A Investor Charge-Offs for such Designated
Series, if any, are (y) during the Revolving Period for such
Designated Series, treated as Shared Principal Collections,
and (z) during the Amortization Period but on and prior to the
Class B Principal Payment Commencement Date for such
Designated Series, deposited in the Principal Account for such
Designated Series for payment to the Class A
Certificateholders of such Designated Series;
5) an amount equal to the lesser of (A) any Available Designated
Series Finance Charge Collections remaining and (B) the sum of
(1) the amount of interest, if any, which has accrued with
respect to the outstanding aggregate principal amount of the
Class B and the Class C Certificates at the applicable
Certificate Rate for such Designated Series but has not been
deposited in the Interest Funding Account for such Designated
Series are paid to the Class B or Class C Certificateholders
of such Designated Series, as applicable, either on such
business day or on a prior business day, and (2) any
additional interest at the applicable Certificate Rate with
respect to such interest amounts that were due but not paid to
Class B or Class C Certificateholders of such Designated
Series, as applicable, in any previous Fiscal Month, are
deposited in the Interest Funding Account for such Designated
Series for distribution on the next succeeding Distribution
Date to the Class B or Class C Certificateholders of such
Designated Series, as applicable;
6) an amount equal to the lesser of (A) any Available Designated
Series Finance Charge Collections remaining and (B)
unreimbursed Class B Investor Charge-Offs and the Class C
Investor Charge-Offs for such Designated Series, if any, are
(x) during the Revolving Period for such Designated Series,
treated as Shared Principal Collections, and (y) during the
Amortization Period for such Designated Series but on and
prior to the Senior Certificate Principal Repayment Date for
such Designated Series, deposited in the Principal Account for
such Designated Series for payment to the Senior
Certificateholders of such Designated Series;
7) an amount equal to the lesser of (A) any Available Designated
Series Finance Charge Collections remaining and (B)
unreimbursed Class D Investor Charge-Offs for such Designated
Series, if any, are (w) during the Revolving Period for such
Designated Series, treated as Shared Principal Collections,
(x) during the Amortization Period for such Designated Series
but on and prior to the Senior Certificate Principal Repayment
Date for such Designated Series, deposited in the Principal
Account for such Designated Series for payment to the Senior
Certificateholders of such Designated Series, and (y) on and
after the Senior Certificate Principal Repayment Date for such
Designated Series, deposited in the Principal Account for such
Designated Series for payment to the Class D
Certificateholders of such Designated Series;
8) if SRI or an affiliate of SRI is the Servicer, an amount equal
to the lesser of (A) any Available Designated Series Finance
Charge Collections remaining and (B) the portion of the
Monthly Servicing Fee for the current Fiscal Month that has
not been previously paid to SRI plus any prior Monthly
Servicing Fee allocated to such Designated Series that was due
but not previously paid to SRI is be distributed to SRI;
9) an amount equal to the lesser of (A) any Available Designated
Series Finance Charge Collections remaining and (B) the unpaid
early termination amount on the Senior Certificates for such
Series, if applicable, is deposited in the Interest Funding
Account for such Designated Series for distribution on the
next succeeding Distribution Date to holders of the Senior
Certificates of such Designated Series; and
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10) any Available Designated Series Finance Charge Collections
remaining after making the above described distributions will
constitute "EXCESS FINANCE CHARGE COLLECTIONS" which will be
available (x) to cover shortfalls, if any, in amounts payable
from Finance Charge Collections to Certificateholders of other
Series, (y) to pay any unpaid commercially reasonable costs
and expenses of a successor Servicer, if any, and then (z) to
make any unpaid Required Adjustment Payment. Excess Finance
Charge Collections which are not so used are paid to SRPC and
will constitute Transferor Excess Finance Charge Cash Flows,
EXCEPT that on any business day during any Early Amortization
Period for such Designated Series, the Receivables Trustee
will deposit any such Excess Finance Charge Collections into
the Interest Funding Account for such Designated Series and
will add such funds to the Available Designated Series Finance
Charge Collections on each subsequent business day in such
Fiscal Month until the last business day of the related Fiscal
Month, when the aggregate amount of such remaining Available
Designated Series Finance Charge Collections will be
distributed as Excess Finance Charge Collections as set forth
in this clause (10) (without giving effect to this exception).
Amounts specified above to be paid to the holders of Senior
Certificates will be paid in priority first to the Class A Certificateholders,
second to the Class B Certificateholders and then to the Class C
Certificateholders.
VARIABLE FUNDING SERIES. On each business day, for a Variable Funding
Series, SRI determines (x) the sum of (i) the Floating Allocation Percentage of
Finance Charge Collections for each Variable Funding Series and (ii) investment
earnings on amounts on deposit in the Principal Account for such Variable
Funding Series (the "AVAILABLE VARIABLE FUNDING SERIES FINANCE CHARGE
COLLECTIONS") plus (y) the Daily Cap Proceeds Amount for such Variable Funding
Series, if any, and distributes such amount in the following priority:
A) first from the Cap Proceeds Account for such Variable Funding
Series, to the extent of the Daily Cap Proceeds Amount for
such Variable Funding Series for such business day and then
from the Collection Account, an amount equal to (A) the
Available Variable Funding Series Finance Charge Collections
for such Variable Funding Series and (B) the sum of (1) the
Senior Class Interest accrued since the preceding business
day, (2) the amount of Senior Class Interest previously due
but not deposited in the Interest Funding Account for such
Variable Funding Series in prior Fiscal Months, and (3) any
additional interest at the Senior Class Certificate Rate for
interest that has accrued on interest that was due but not
previously deposited in the Interest Funding Account for such
Variable Funding Series are (y) during the Revolving Period
for such Series, paid to the Class A-R Certificateholders and
(z) during an Amortization Period for such Series, deposited
in the Interest Funding Account for such Variable Funding
Series;
B) if SRI or an affiliate of SRI is not the Servicer, an amount
equal to the lesser of (A) any Available Variable Funding
Series Finance Charge Collections remaining and (B) the
portion of the Monthly Servicing Fee for the current Fiscal
Month that has not been previously paid to the Servicer plus
any prior Monthly Servicing Fee allocated to such Variable
Funding Series that was due but not previously paid to the
Servicer is distributed to the Servicer;
C) an amount equal to the lesser of (A) any Available Variable
Funding Series Finance Charge Collections remaining and (B)
the sum of (1) the Investor Default Amount for such Variable
Funding Series for such business day and (2) the unpaid
Investor Default Amount for such Variable Funding Series for
any prior business day during the then-current Fiscal Month,
are (x) during a Revolving Period for such Variable Funding
Series treated as Shared Principal Collections for such
Variable Funding Series, (y) on each business day prior to the
last day of each Fiscal Month during an Amortization Period
for such Variable Funding Series, deposited in the Principal
Account for such Variable Funding Series and (z) on the last
business day of a Fiscal Month during an Amortization Period,
allocated to the Certificateholders;
D) an amount equal to the lesser of (A) any Available Variable
Funding Series Finance Charge Collections remaining and (B)
unreimbursed Senior Class Investor Charge-Offs for such
Variable
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Funding Series, if any are (x) during a Revolving Period for
such Variable Funding Series, treated as Shared Principal
Collections for such Variable Funding Series, (y) on each
business day prior to the last day of each Fiscal Month during
an Amortization Period for such Variable Funding Series,
deposited in the Principal Account for such Variable Funding
Series and (z) on the last business day of a Fiscal Month
during an Amortization Period, allocated to the
Certificateholders;
E) an amount equal to the lesser of (A) any Available Variable
Funding Series Finance Charge Collections remaining and (B)
the portion of the Facilities Costs constituting the
Commitment Fees, accrued since the preceding business day and
any such Facilities Costs due with respect to any prior
business day but not previously deposited in the Interest
Funding Account for such Variable Funding Series are (x)
during a Revolving Period for such Variable Funding Series,
deposited in the Interest Funding Account for such Variable
Funding Series, (y) on each business day prior to the last day
of each Fiscal Month during an Amortization Period for such
Variable Funding Series, deposited in the Principal Account
for such Variable Funding Series and (z) on the last business
day of each Fiscal Month during an Amortization Period,
deposited in the Interest Funding Account for such Variable
Funding Series;
F) an amount equal to the lesser of (A) any Available Variable
Funding Series Finance Charge Collections remaining and (B)
unreimbursed Transferor Retained Class Investor Charge-Offs,
if any, are (x) during a Revolving Period for such Variable
Funding Series, treated as Shared Principal Collections for
such Variable Funding Series, (y) on each business day prior
to the last day of each Fiscal Month during an Amortization
Period for such Variable Funding Series, deposited in the
Principal Account for such Variable Funding Series and (z) on
the last day of a Fiscal Month during an Amortization Period,
allocated to the Certificateholders;
G) an amount equal to the lesser of (A) any Available Variable
Funding Series Finance Charge Collections remaining and (B)
the sum of all Facilities Costs not paid which have arisen
prior to such business day are (y) during a Revolving Period
for such Variable Funding Series, paid to holders of the
Senior Certificates and (z) during an Amortization Period for
such Variable Funding Series, deposited in the Interest
Funding Account for such Variable Funding Series;
H) if SRI or an affiliate of SRI is the Servicer, an amount equal
to the lesser of (A) any Available Variable Funding Series
Finance Charge Collections remaining and (B) the portion of
the Monthly Servicing Fee for the current Fiscal Month that
has not been previously paid to SRI plus any prior Monthly
Servicing Fee allocated to such Variable Funding Series that
was due but not previously paid to SRI is distributed to SRI;
and
I) any Available Variable Funding Series Finance Charge
Collections remaining after making the above described
distributions are treated as Excess Finance Charge Collections
and will be distributed in accordance with clause (10) of
"--Designated Series" above.
"SENIOR CLASS CERTIFICATE RATE" shall mean, for a Variable Funding
Series, for any day, the weighted average of the tranche rates with
respect to each portion of the Variable Funding Class Invested Amount
for such Senior Class of Certificates outstanding at such time (taking
into account whether such rate is calculated on a 360 or 365/6 day
basis).
"SENIOR CLASS INTEREST" shall mean, for a Variable Funding Series, with
respect to any period, an amount equal to the amount of interest that
would accrue over such period at the applicable Senior Class
Certificate Rate on the outstanding principal balance of such Senior
Certificates.
"COMMITMENT FEES" shall mean the non-usage fees set forth in the
certificate purchase agreement for any such Certificate.
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"FACILITIES COSTS" shall mean the amounts payable with respect to
increased costs and other expenses, Commitment Fees, other fees
(including the facility agent fee, if any), breakage costs, interest on
overdue amounts and any indemnity payments to the Class A-R
Certificateholders.
PAYMENTS OF PRINCIPAL. For each Designated Series, on each business day
during the Revolving Period for such Series, the Receivables Trustee, acting in
accordance with instructions from SRI, treats the amount described in clause
(vi) of "--Allocations" as Shared Principal Collections which are applied as
described in clause (xii) of "--Allocations." On each Transfer Date during the
Amortization Period for any such Designated Series, the Receivables Trustee,
acting in accordance with instructions from SRI, withdraws the amount on deposit
in the Principal Account for such Designated Series and, to the extent of Class
A Principal for such Designated Series, deposits such amounts in the
Distribution Account for distribution to the Class A Certificateholders of such
Designated Series on the next succeeding Distribution Date. The Class A
Certificateholders of such Designated Series will be entitled to receive
principal payments to the extent of Class A Principal until the Class Invested
Amount for the Class A Certificates of such Designated Series is paid in full.
The Class B Certificateholders of such Designated Series are entitled to receive
principal payments only after the Class Invested Amount for the Class A
Certificates of such Designated Series has been paid in full. The Class C
Certificateholders of such Designated Series are entitled to receive principal
payments only after the Class Invested Amount of the Class A Certificates and
the Class Invested Amount of the Class B Certificates of such Series have been
paid in full. The Class D Certificateholders of such Designated Series are
entitled to receive principal payments only after the Senior Certificate
Invested Amount of such Designated Series are paid in full.
On the Transfer Date preceding the Class B Principal Payment
Commencement Date for any such Designated Series, and on each Transfer Date
thereafter until the Trust is terminated or until the Class Invested Amount for
the Class B Certificates of such Designated Series is paid in full, the
Receivables Trustee, acting in accordance with instructions from SRI, withdraws
amounts deposited into the Principal Account for such Designated Series to the
extent that such amount is equal to or greater than the Class Invested Amount
for the Class B Certificates of such Designated Series and deposits such amounts
in the Distribution Account for distribution to the Class B Certificateholders
of such Designated Series on the next succeeding Distribution Date. The Class B
Certificateholders of such Designated Series are entitled to receive principal
payments only to the extent of Class B Principal until the Class Invested Amount
for the Class B Certificates of such Designated Series is paid in full.
On the Transfer Date preceding the Class C Principal Payment
Commencement Date for any Designated Series, and on each Transfer Date
thereafter until the Trust is terminated or until the Class Invested Amount for
the Class C Certificates for such Designated Series is paid in full, the
Receivables Trustee, acting in accordance with instructions from SRI, withdraws
amounts deposited into the Principal Account for such Designated Series and, to
the extent of the Class C Principal for such Designated Series, deposits such
amounts in the Distribution Account for distribution to the Class C
Certificateholders of such Designated Series on the next succeeding Distribution
Date. The Class C Certificateholders are entitled to receive principal payments
to the extent of Class C Principal until the Class Invested Amount for the Class
C Certificates of such Designated Series is paid in full.
On the Transfer Date preceding the Class D Principal Payment
Commencement Date for any Designated Series, and on each Transfer Date
thereafter until the Trust is terminated or until the Class D Invested Amount
for such Designated Series is paid in full, the Receivables Trustee, acting in
accordance with instructions from SRI, withdraws amounts deposited into the
Principal Account for such Designated Series in respect of collections processed
during the related Fiscal Month and, to the extent of Class D Principal for such
Designated Series, deposits such amounts in the Distribution Account for
distribution to the Class D Certificateholders of such Designated Series on the
next succeeding Distribution Date (the "CLASS D MONTHLY PRINCIPAL"). The Class D
Certificateholders of such Designated Series are entitled to receive principal
payments to the extent of Class D Principal until the Class D Invested Amount of
such Designated Series is paid in full.
On each Distribution Date with respect to the Revolving Period of the
Designated Series and the scheduled Amortization Period of the Designated
Series, SRI pays to SRPC any investment earnings (net of losses and investment
expenses) with respect to the Collection Account.
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For as long as SRI or any affiliate of SRI remains the Servicer under
the Pooling and Servicing Agreement, and (a)(i) SRI provides to the Receivables
Trustee a letter of credit or other form of credit enhancement rated in the
highest rating category by the Rating Agencies covering the risk of collection
of SRI and (ii) SRPC shall not have received notices from the Rating Agencies
that such letter of credit or other form of credit enhancement would result in
the lowering of such Rating Agency's then-existing rating of any Class of any
Series then outstanding or (b) SRI has and maintains a short-term credit rating
of at least A-1 by S&P, then (x) SRI may make such deposits and payments on the
business day immediately prior to the Distribution Date (the "TRANSFER DATE") in
an aggregate amount equal to the net amount of such deposits and payments which
would have otherwise been made and (y) certain payments and allocations
described herein may be made on a monthly, rather than a daily, basis.
If any of the criteria set forth in the immediately preceding paragraph
are satisfied, payments on the Receivables collected by SRI are not segregated
from the assets of SRI. Until such payments on the Receivables collected by SRI
are deposited into the Collection Account, such funds could be used by SRI for
its own benefit, and the proceeds of any short-term investment of such funds
would accrue to SRI. During such times as SRI holds funds representing payments
on the Receivables collected by SRI and is permitted to use such funds for its
own benefit, the Certificateholders are subject to risk of loss, including risk
resulting from the bankruptcy or insolvency of SRI. SRI pays no fee to the Trust
or any Certificateholder for any use by SRI of funds representing collections on
the Receivables.
For each Variable Funding Series, on each business day during a
Revolving Period for such Variable Funding Series, the Receivables Trustee,
acting in accordance with instructions from SRI, as Servicer, treats the amount
described in clause (vi) of "--Allocations" as Shared Principal Collections
which are applied as described in clause (xii) of "--Allocations." On each
Transfer Date preceding each Distribution Date with respect to the Revolving
Period, the Receivables Trustee, acting in accordance with instructions from
SRI, as Servicer, may, at its option, apply such amount from the Principal
Account and deposit such amount in the Distribution Account for such Variable
Funding Series for distribution to holders of the Senior Certificates on the
next Distribution Date. The holders of the Senior Certificates of such Variable
Funding Series will be entitled to receive, at such times as the Transferor
determines to pay principal with respect thereto, principal payments to the
extent of the Senior Class Invested Amount for such Variable Funding Series
outstanding from time to time. The 1993-2 Class B-R Certificateholders of such
Variable Funding Series are entitled to receive principal payments only after
the Senior Class Invested Amount for such Variable Funding Series has been paid
in full.
On each business day during an Amortization Period for such Variable
Funding Series, the Receivables Trustee, acting in accordance with instructions
from SRI, shall withdraw from the Principal Account and deposit in the
Distribution Account for such Variable Funding Series an amount equal to the
lesser of the Senior Class Invested Amount and the amount on deposit in the
Principal Account allocable to such Variable Funding Series. On each
Distribution Date during an Amortization Period, an amount equal to the amount
on deposit in the Distribution Account on the related Transfer Date shall be
paid to holders of the Senior Certificates.
On the Transfer Date preceding the Transferor Retained Class Principal
Payment Commencement Date for such Variable Funding Series and each Distribution
Date thereafter, the Receivables Trustee, acting in accordance with instructions
from SRI, as Servicer, shall withdraw from the Principal Account and deposit in
the Principal Account for such Variable Funding Series, an amount equal to the
lesser of the Transferor Retained Class Invested Amount and the amount on
deposit in the Principal Account allocable to such Variable Funding Series. On
the Transferor Retained Class Principal Payment Commencement Date for such
Variable Funding Series, after the payment of any principal amounts to the
Senior Certificates on such date, and on each Distribution Date thereafter until
the Transferor Retained Class Invested Amount is paid in full, an amount equal
to the amount on deposit in the Distribution Account on such related Transfer
Date shall be paid to the Transferor Retained Class Certificateholders.
Any amounts remaining in the Principal Account and allocable to such
Variable Funding Series, after the Variable Funding Class Invested Amount of the
Transferor Retained Class has been paid in full, will be treated as Shared
Principal Collections and applied in accordance with clause (xii) of
"--Allocations."
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REALLOCATION OF CASH FLOWS
On each business day, SRI determines the Required Amount for each
Existing Series. To the extent that any amounts are on deposit in the
Equalization Account or the Principal Account on any business day, SRI
determines the Negative Carry Amount for such Series. For each Series, SRI
applies an amount equal to the least of (i) the Required Amount, (ii) the
Floating Allocation Percentage for such Series of the Transferor Finance Charge
Collections on such business day, and (iii) the Negative Carry Amount for such
Series for such business day in the manner specified for application of Finance
Charge Collections.
For each Designated Series, on each business day on and after the date
on which $87,000, in the case of Series 1995-1, and $486,000, in the case of
Series 1993-1, have been deposited in the Negative Carry Account for such
Designated Series (the "NEGATIVE CARRY FILL-UP DATE") but prior to the day on
which an amount equal to the Class Invested Amount for the Class C Certificates
has been deposited in the Principal Account for such Designated Series to be
applied to payment of Class C Principal for such Designated Series, to the
extent of any Negative Carry Amount remaining after application of Transferor
Finance Charge Collections, SRI applies all or a portion of the amount on
deposit in the Negative Carry Account for such Designated Series to the extent
of such remaining Negative Carry Amount in the manner specified for application
of Finance Charge Collections for such Series. The Class D Invested Amount may
be reduced by the Negative Carry Amount. After the Class Invested Amount for the
Class C Certificates has been deposited in the Principal Account, the Class D
Certificateholders will receive funds on deposit in the Negative Carry Account
on the preceding business day.
To the extent of any remaining Required Amount for each Series, SRI
applies all or a portion of the Excess Finance Charge Collections of other
Series with respect to such business day allocable to the Series in an amount
equal to the remaining Required Amount. Excess Finance Charge Collections
allocated to any Series for any business day is equal to the product of (x)
Excess Finance Charge Collections available from all other Series for such
business day and (y) a fraction, the numerator of which is the Required Amount
for such Series for such business day (as reduced by amounts applied pursuant to
the two preceding paragraphs) and the denominator of which is the aggregate
amount of shortfalls in required amounts or other amounts to be paid from
Finance Charge Collections for all Series for such business day.
INTEREST RATE CAPS
For each Existing Series, SRI entered into an interest rate cap
agreement (the "INTEREST RATE CAP") with an interest rate cap provider. Pursuant
to the Interest Rate Cap for each Series, the interest rate cap provider makes a
payment to the Trust on each cap payment date with respect to such date on which
LIBOR, as of the related calculation date, exceeds a given percentage. Such
payment, if any, is in an amount equal to the product of (i) the difference
between LIBOR and the cap rate, (ii) the "Notional Amount" under the Interest
Rate Cap and (iii) the actual number of days from, and including, the preceding
cap payment date to, but excluding, such cap payment date divided by 360.
Payments received by the Receivables Trustee pursuant to the Interest Rate Cap
are deposited in the Cap Proceeds Account for such Series. Following any such
payment, so long as any amounts are on deposit in the Cap Proceeds Account for
such Series the Daily Cap Proceeds Amount for such Series are applied to make
interest payments, as described in "Application of
Collections--Allocations--Payment of Fees, Interest and Other Items."
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES; PORTFOLIO REASSIGNMENT
Receivables in any Account are charged off as uncollectible in
accordance with SRI's customary and usual policies and credit and collection
policies. See "SRI's Credit Card Business--Loss and Delinquency Experience." On
each business day, SRI calculates the Investor Default Amount for such Series
for such business day. Until recently, Palais was required, pursuant to the
Receivables Purchase Agreement, to repurchase from SRPC Receivables in defaulted
Accounts under certain circumstances and subject to certain limitations. The
Receivables Purchase Agreement has been amended to give Palais the option, but
not the obligation, to make such repurchases.
If the Servicer adjusts downward the amount of any Receivable because
of a Receivables Dilution, and such adjustment causes a Minimum Transferor
Interest Deficiency, SRPC shall be obligated to pay to the Servicer (for
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deposit into the Collection Account) the amount of such Minimum Transferor
Interest Deficiency (a "REQUIRED ADJUSTMENT PAYMENT"). Palais is required to pay
SRPC the amount of any such Receivables Dilution made by the Servicer, whether
or not a Required Adjustment Payment is due.
In the event that SRPC has breached its representations in the Pooling
and Servicing Agreement regarding the Receivables Trustee's holding a first
priority security interest in the Receivables, certain basic corporate matters,
and the enforceability of the Pooling and Servicing Agreement and the
Receivables Purchase Agreement, then (upon the direction of the Receivables
Trustee or a majority of the investors in Certificates) SRPC is obligated to
accept reassignment of the Trust's portfolio of Receivables in exchange for a
deposit with the Receivables Trustee of an amount sufficient to repay the
Invested Amount and accrued interest of all Investor Certificates (such
reassignment being a "PORTFOLIO REASSIGNMENT"). Under the Receivables Purchase
Agreement, Palais has a similar obligation to accept a reassignment from SRPC in
the event of a breach of similar representations by Palais. See "--Recourse
Arrangements."
RECOURSE ARRANGEMENTS
The Collateral Certificates have the benefit of Required Adjustment
Payments and of the payments required to be made by SRPC to the Trust for the
benefit of Certificateholders with respect to breaches of certain
representations and warranties as described in "Defaulted Receivables; Rebates
and Fraudulent Charges; Portfolio Reassignment." Such payment obligations of
SRPC are supported by corresponding obligations imposed on Palais pursuant to
the Receivables Purchase Agreement. In the event of a breach of any
representation or warranty made by Palais with respect to a Receivable sold by
Palais or in the event that a Receivable sold by Palais is not an Eligible
Receivable, Palais is obligated to pay SRPC the outstanding balance of such
Receivable. In addition, SRPC may direct Palais to repurchase an amount of
Receivables designated by SRPC, which designation may include all of the
Receivables, in the event of a breach of certain representations and warranties
made by Palais.
As described in "--Equalization Account" and "--Transferor Excess
Finance Charge Cash Flows," certain funds may be deposited into or withdrawn
from the Equalization Account as a result of SRPC's failure to make any Required
Adjustment Payment. Any such deposit or withdrawal shall not discharge SRPC from
its obligation to make such adjustment payment.
In addition, subject to certain limitations, SRI will indemnify SRPC
from liabilities incurred as a result of actions of SRI as Servicer.
INVESTOR CHARGE-OFFS
The Class D Invested Amount for a Designated Series is increased (but
not in excess of the unpaid principal balance of the Class D Certificates of
such Series) on any business day by the amounts allocated and available for that
purpose as described under clause (7) of "--Application of Collections--Payment
of Fees, Interest, and Other Items-- Designated Series."
If, on the second business day preceding a Distribution Date (the
"DETERMINATION DATE"), the aggregate Investor Default Amount for a Series, if
any, for all business days in the preceding Fiscal Month exceeded the aggregate
amount of Finance Charge Collections, Transferor Finance Charge Collections,
amounts available from the Negative Carry Account, and Excess Finance Charge
Collections allocated with respect to Investor Default Amounts during such
Fiscal Month, then the Class D Invested Amount for such Series will be reduced
by the aggregate amount of such excess, but not more than the aggregate Investor
Default Amount for such Series for such Fiscal Month (such reduction being a
"CLASS D INVESTOR CHARGE-OFF").
In the event that any such reduction of the Class D Invested Amount for
a Designated Series would cause the Class D Invested Amount for such Designated
Series to be a negative number, the Class D Invested Amount for such Designated
Series is reduced to zero, and the Class Invested Amount for the Class C
Certificates for such Designated Series is reduced by the aggregate amount of
such excess, but not more than the aggregate Investor Default Amount for such
Fiscal Month (a "CLASS C INVESTOR CHARGE-OFF"). The Class Invested Amount for
the Class C Certificates of
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such Designated Series is thereafter increased (but not in excess of the unpaid
principal balance of the Class C Certificates of such Designated Series) in any
Fiscal Month by the amounts allocated and available for that purpose as
described under clause (6) of "--Application of Collections--Payment of Fees,
Interest, and Other Items-- Designated Series."
In the event that any such reduction of the Class Invested Amount for
the Class C Certificates of such Designated Series would cause the Class
Invested Amount for the Class C Certificates of a Designated Series to be a
negative number, the Class Invested Amount for the Class C Certificates of such
Designated Series is reduced to zero, and the Class Invested Amount for the
Class B Certificates of such Designated Series is reduced by the aggregate
amount of such excess, but not more than the aggregate Investor Default Amount
for such Fiscal Month (a "CLASS B INVESTOR CHARGE-OFF"). The Class Invested
Amount for the Class B Certificates of such Designated Series is thereafter
increased (but not in excess of the unpaid principal balance of the Class B
Certificates of such Designated Series) in any Fiscal Month by the amounts
allocated and available for that purpose as described under clause (6) of "--
Application of Collections--Payment of Fees, Interest, and Other
Items--Designated Series."
In the event that any such reduction of the Class Invested Amount for
the Class B Certificates of a Designated Series would cause the Class Invested
Amount for the Class B Certificates of a Designated Series to be a negative
number, the Class Invested Amount for the Class B Certificates is reduced to
zero, and the Class Invested Amount for the Class A Certificates of such
Designated Series is reduced by the amount by which the Class Invested Amount
for the Class B Certificates would have been reduced below zero, but not more
than the aggregate Investor Default Amount for such Fiscal Month (a "CLASS A
INVESTOR CHARGE-OFF"). If the Class Invested Amount for the Class A Certificates
has been reduced by the amount of any Class A Investor Charge-Offs, it is
increased on any business day (but not by an amount in excess of the aggregate
Class A Investor Charge-Offs) by the amounts allocated and available for such
purpose as described under clause (4) of "--Application of Collections--Payment
of Fees, Interest, and Other Items-- Designated Series." The Class A Investor
Charge-Off, the Class B Investor Charge-Off, the Class C Investor Charge- Off
and the Class D Investor Charge-Off are collectively referred to as "INVESTOR
CHARGE-OFFS."
If, on any Determination Date, the aggregate Investor Default Amount
for a Variable Funding Series, if any, for each business day in the preceding
Fiscal Month exceeds the aggregate amount of Finance Charge Collections applied
to the payment thereof during an Amortization Period for such Variable Funding
Series and the Transferor Finance Charge Collections and Excess Finance Charge
Collections, the Transferor Retained Class Invested Amount will be reduced by
the aggregate Investor Default Amount for such Variable Funding Series by the
amount by which such aggregate Investor Default Amount exceeds the amount
applied with respect thereto during such preceding Fiscal Month (a "TRANSFEROR
RETAINED CLASS INVESTOR CHARGE-OFF").
In the event that any such reduction of the Transferor Retained Class
Invested Amount for such Variable Funding Series would cause the Transferor
Retained Class Invested Amount to be a negative number, the Transferor Retained
Class Invested Amount will be reduced by the amount by which the Transferor
Retained Class Invested Amount for such Variable Funding Series would have been
reduced below zero, but not more than the aggregate Investor Default Amount for
such Variable Funding Series for such Fiscal Month (a "SENIOR CLASS INVESTOR
CHARGE- OFF").
FINAL PAYMENT OF PRINCIPAL ON SENIOR CERTIFICATES; TERMINATION
The Senior Certificates of a Designated Series are each subject to
optional repurchase by SRPC on any Distribution Date after the Aggregate
Invested Amount of that Series has been reduced to an amount less than or equal
to 10% of the initial outstanding principal amount of the Senior Certificates
for such Designated Series, if certain conditions set forth in the Pooling and
Servicing Agreement are satisfied. The repurchase price is equal, for each
Designated Series, to (i) the Class Invested Amount for the Class A Certificates
plus accrued and unpaid interest on the Class A Certificates, (ii) the Class
Invested Amount for the Class B Certificates plus accrued and unpaid interest on
the Class B Certificates and (iii) the Class Invested Amount for the Class C
Certificates plus accrued and unpaid interest on the Class C Certificates. In
each case interest will accrue through the day preceding the Distribution Date
on which the repurchase occurs.
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The Certificates are retired on the day following the Distribution Date
for such Series on which the final payment of principal is scheduled to be made
to the Certificateholders of such Series, whether as a result of optional
reassignment to SRPC or otherwise. In the event that the Aggregate Invested
Amount of such Series is greater than zero on the termination date, the
Receivables Trustee will sell or cause to be sold (and apply the proceeds first
to the Class A Certificates of such Series until paid in full, then to the Class
B Certificates of such Series until paid in full, then to the Class C
Certificates of such Series until paid in full, and finally to the Class D
Certificates of such Series to the extent necessary to pay such remaining
amounts to all Certificateholders of such Series pro rata within each Class as
final payment of the Certificates) interests in the Receivables or certain
Receivables, as specified in the Pooling and Servicing Agreement and any
applicable Supplement, in an amount up to 110% of the Invested Amount of such
Series at the close of business on such date (but not more than the total amount
of Receivables allocable to the Certificates). If the sale contemplated by the
preceding sentence has not occurred by the applicable Termination Date for such
Series, the affected Certificateholders of such Series shall remain entitled to
receive proceeds of such sale when it occurs. The net proceeds of such sale and
any collections on the Receivables, up to an amount equal to the Aggregate
Invested Amount of such Series plus accrued interest due on the Certificates,
will be paid on the Termination Date first to Class A Certificateholders of such
Series until the Class Invested Amount for the Class A Certificates of such
Series is paid in full, then to the Class B Certificateholders of such Series
until the Class Invested Amount for the Class B Certificates of such Series is
paid in full, then to the Class C Certificateholders of such Series until the
Class Invested Amount for the Class C Certificates is paid in full, and then to
the Class D Certificateholders of such Series until the Class D Invested Amount
is paid in full.
Unless SRI and the holder of the Transferor Certificate instruct the
Receivables Trustee otherwise, the Trust terminates on the earlier of (a) the
day after the Distribution Date following the date on which funds shall have
been deposited in the Distribution Account for the payment to certificateholders
outstanding sufficient to pay in full the aggregate investor interest of all
Series outstanding plus interest thereon at the applicable certificate rates
through the end of the day prior to the next Distribution Date and (b) a date
which shall not be later than the expiration of 21 years from the death of the
last survivor of the descendants of a specified person living on the date of the
Pooling and Servicing Agreement. Upon the termination of the Trust and the
surrender of the Transferor Certificate, the Receivables Trustee will convey to
the holder of the Transferor Certificate all right, title and interest of the
Trust in and to the Receivables and other funds of the Trust (other than funds
on deposit in the Distribution Account and other similar bank accounts of the
Trust with respect to any Series).
PAY OUT EVENTS
As described in "--Final Payment of Principal on Senior Certificates;
Termination," the Revolving Period for each Designated Series will continue
unless a Pay Out Event occurs prior to such date. A "PAY OUT EVENT" for a
Designated Series refers to any of the following events:
(i) failure on the part of SRPC (a) to make any payment or
deposit on the date required under the Pooling and Servicing Agreement
(or within the applicable grace period which will not exceed five
business days) or (b) to observe or perform in any material respect any
other covenants or agreements of SRPC set forth in the Pooling and
Servicing Agreement, the Receivables Purchase Agreement or any
applicable Supplement, which failure has a material adverse effect on
the Certificateholders and which continues unremedied for a period of
60 days after written notice of such failure, requiring the same to be
remedied, shall have been given to SRPC by the Receivables Trustee, or
to SRPC and the Receivables Trustee by the holders of 50% of the
Aggregate Invested Amount of any Series and continues to materially and
adversely affect the interests of the Certificateholders for such
period;
(ii) any representation or warranty made by SRPC in the
Pooling and Servicing Agreement or any information required to be given
by SRPC to the Receivables Trustee to identify the Accounts proves to
have been incorrect in any material respect when made and which
continues to be incorrect in any material respect for a period of 60
days after written notice to SRPC from the Receivables Trustee, or to
SRPC and the Receivables Trustee by Certificateholders representing
more than 50% of the Aggregate Invested Amount of any class of any
Series outstanding, and as a result of which the interests of the
Certificateholders are materially and adversely affected and continue
to be materially and adversely affected for such period; EXCEPT
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that a Pay Out Event pursuant to this subparagraph (ii) will not be
deemed to occur thereunder if SRPC has accepted reassignment of the
related Receivable or all such Receivables, if applicable, during such
period (or such longer period as the Receivables Trustee may specify)
in accordance with the provisions thereof;
(iii) certain events of insolvency or receivership relating to
SRPC or SRI;
(iv) any reduction of the average of the Portfolio Yields for
any three consecutive Fiscal Months to a rate which is less than the
weighted average of the Base Rates for three consecutive Fiscal Months;
(v) the Trust shall become subject to regulation by the
Commission as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(vi) for any Series, (a) a Minimum Transferor Interest
Deficiency exists, (b) the Transferor Interest is less than the Minimum
Transferor Interest or (c) the total amount of principal Receivables
and the amount on deposit in the Equalization Account is less than the
Minimum Aggregate Principal Receivables, in each case for 15
consecutive days;
(vii) any Servicer Default (as defined below) shall occur
which would have a material adverse effect on the Certificateholders;
or
(viii) SRI or any of its affiliates shall fail to own or
control 100% of the issued and outstanding stock of SRPC.
In the case of any event described in clause (i), (ii), or (vii) above,
a Pay Out Event will be deemed to have occurred only if, after any applicable
grace period, holders of more than 50% of the Aggregate Invested Amount of any
Designated Series, by written notice to SRPC and SRI, declare that a Pay Out
Event has occurred with respect to the Certificates as of the date of such
notice. The Class D Certificateholders are not entitled to vote on any matter.
In the case of any event described in clause (iii), (v) or (viii) above, a Pay
Out Event with respect to all Series then outstanding (a "TRUST PAY OUT EVENT"),
and in the case of any event described in clause (iv) or (vi), a Pay Out Event
with respect only to such Series, will be deemed to have occurred without any
notice or other action on the part of the Receivables Trustee or the
Certificateholders immediately upon the occurrence of such event. On the date on
which either a Pay Out Event or a Trust Pay Out Event is deemed to have occurred
(the "PAY OUT COMMENCEMENT DATE"), the Early Amortization Period will commence
for all Series, in the case of a Trust Pay Out Event or for the applicable
Series in the case of a Pay Out Event. In such event, distributions of principal
to the Certificateholders will begin on the first Distribution Date following
the Fiscal Month in which such Pay Out Event occurred. Furthermore, if a Pay Out
Event shall be deemed to have occurred in regards to any event described in
clause (i) above and such event shall have been willful on the part of SRPC or
if an event described in clause (viii) shall have occurred (either such event,
an "EARLY TERMINATION EVENT") on or before the one year anniversary of the
Original Closing Date for such Designated Series, then the holders of the Senior
Certificates shall receive the early termination amount for such Series, in
addition to payments of principal and accrued interest otherwise payable to
holders of the Senior Certificates.
In addition to the consequences of a Pay Out Event discussed above, if,
(i) pursuant to certain provisions of federal law, SRPC voluntarily enters
liquidation or a receiver is appointed for SRPC, or (ii) the Transferor Retained
Percentage is equal to or less than 1% on the day of such event (an "INSOLVENCY
EVENT"), SRPC will immediately cease to transfer principal Receivables to the
Trust and promptly give notice to the Receivables Trustee of such event. Within
15 days, the Receivables Trustee will publish a notice of the liquidation or the
appointment stating that the Receivables Trustee intends to sell, dispose of, or
otherwise liquidate the Receivables in a commercially reasonable manner. Unless
otherwise instructed within a specified period by holders of more than 50% of
the Aggregate Invested Amount of each Series outstanding at such time, the
Receivables Trustee will sell, dispose of, or otherwise liquidate the portion of
the Receivables allocable to the Series that did not vote to continue the Trust
in accordance with the Pooling and Servicing Agreement in a commercially
reasonable manner and on commercially reasonable terms. The proceeds from the
sale, disposition, or liquidation of the Receivables will be treated as
collections on the Receivables and applied as provided above in "--Application
of Collections."
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If the only Pay Out Event to occur is either the bankruptcy or
insolvency of SRPC or the appointment of a bankruptcy trustee or receiver for
SRPC, the bankruptcy trustee or receiver may have the power to prevent the early
sale, liquidation, or disposition of the Receivables and the commencement of the
Early Amortization Period. In addition, a bankruptcy trustee or receiver may
have the power to cause the early sale of the Receivables and the early
retirement of the Certificates.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
SRI's compensation for its servicing activities and reimbursement for
its expenses is the payment to it of a servicing fee in an amount for any Fiscal
Month equal to the product of (i) a fraction, the numerator of which is the
actual number of days in the measuring period specified in the applicable
supplement and the denominator of which is the actual number of days in the
year, (ii) the weighted average of the Series servicing fee percentage and (iii)
the daily average aggregate outstanding balance of all principal Receivables
over the term of the measuring period. The monthly servicing fee will be
allocated between the Transferor Interest and the interest of the
Certificateholders of each Series. The portion of the servicing fee allocable to
the interest of the Certificateholders during each Fiscal Month (the "MONTHLY
SERVICING FEE") will be equal to one-twelfth of the product of 2.00% per annum
and an adjusted Invested Amount on the preceding record date. The Monthly
Servicing Fee is funded from collections of finance charge Receivables allocated
to the interest of the Certificateholders for each Series, and will be paid each
Fiscal Month from the amount so allocated and on deposit in the Collection
Account. See "--Application of Collections--Payment of Fees, Interest, and Other
Items" above. The remainder of the servicing fee is allocable to the Transferor
Interest. Neither the Trust nor the Certificateholders have any obligation to
pay such portion of the servicing fee.
SRI pays from its servicing compensation certain expenses incurred in
connection with servicing the Receivables, including payment of the fees and
disbursements of the Receivables Trustee and independent certified public
accountants and other fees which are not expressly stated in the Pooling and
Servicing Agreement to be payable by the Trust or the Certificateholders other
than federal, state, and local income and franchise taxes, if any, of the Trust.
CERTAIN MATTERS REGARDING SRPC AND SRI
SRI may not resign from its obligations and duties under the Pooling
and Servicing Agreement, EXCEPT upon determination that performance of its
duties is no longer permissible under applicable law. No such resignation will
become effective until the Receivables Trustee or a successor to SRI has assumed
SRI's responsibilities and obligations under the Pooling and Servicing
Agreement. SRI may delegate some or all of its servicing duties; EXCEPT that
such delegation will not relieve SRI of its obligation to perform such duties in
accordance with the Pooling and Servicing Agreement. In addition, any affiliate
of SRI may be substituted in all respects for SRI as Servicer, if such affiliate
expressly assumes the performance of every covenant and obligation of SRI under
the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that SRI indemnify the
Trust and the Receivables Trustee from and against any reasonable loss,
liability, expense, damage, or injury suffered or sustained by reason of any
acts or omissions or alleged acts or omissions of SRI with respect to the
activities of the Trust or the Receivables Trustee; EXCEPT that SRI will not
indemnify (a) the Receivables Trustee for liabilities imposed by reason of
fraud, negligence, or willful misconduct by the Receivables Trustee in the
performance of its duties under the Pooling and Servicing Agreement, (b) the
Trust or the Certificateholders for liabilities arising from actions taken by
the Receivables Trustee at the request of Certificateholders, (c) the Trust or
the Certificateholders for any losses, claims, damages, or liabilities incurred
by any of them in their capacities as investors, including losses incurred as a
result of defaulted Receivables or Receivables which are written off as
uncollectible, or (d) the Trust or the Certificateholders for any liabilities,
costs, or expenses of the Trust or the Certificateholders arising under any tax
law, including any federal, state, or local income or franchise tax or any other
tax imposed on or measured by income (or any interest or penalties with respect
thereto or arising from a failure to comply therewith) required to be paid by
the Trust or the Certificateholders in connection with the Pooling and Servicing
Agreement to any taxing authority.
In addition, the Pooling and Servicing Agreement provides that, subject
to certain exceptions, SRPC indemnify the Trust and the Receivables Trustee from
and against any reasonable loss, liability, expense, damage, or injury (other
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than to the extent that any of the foregoing relate to any tax law or any
failure to comply therewith) suffered or sustained by reason of any acts or
omissions or alleged acts or omissions arising out of or based upon the
arrangement created by the Pooling and Servicing Agreement as though the Pooling
and Servicing Agreement created a partnership under the New York Uniform
Partnership Law in which SRPC is a general partner.
The Pooling and Servicing Agreement provides that, except for
obligations specifically undertaken by SRPC and SRI pursuant to the Pooling and
Servicing Agreement, neither SRPC nor SRI nor any of their respective directors,
officers, employees, or agents are under any liability to the Trust, the
Certificateholders, or any other person for any action taken, or for refraining
from taking any action pursuant to the Pooling and Servicing Agreement if
neither SRPC nor SRI nor any of their respective directors, officers, employees,
or agents will be protected against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith, or negligence of SRPC, SRI,
or any such person in the performance of its duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, the
Pooling and Servicing Agreement provides that SRI is not under any obligation to
appear in, prosecute, or defend any legal action which is not incidental to its
servicing responsibilities under the Pooling and Servicing Agreement and which
in its opinion may expose it to any expense or liability.
Any person into which, in accordance with the Pooling and Servicing
Agreement, SRPC or SRI may be merged or consolidated or any person resulting
from any merger or consolidation to which SRPC or SRI is a party, or any person
succeeding to the business of SRPC or SRI, upon execution of a supplement to the
Pooling and Servicing Agreement and delivery of an opinion of counsel with
respect to the compliance of the transaction with the applicable provisions of
the Pooling and Servicing Agreement, will be the successor to SRPC or SRI, as
the case may be, under the Pooling and Servicing Agreement.
SRI has covenanted that it will maintain, and currently maintains,
disaster recovery systems and other information management systems that, in
SRI's reasonable judgment, are sufficient to enable it to perform its
obligations as Servicer without material interruption or loss of the Receivables
or the collections, in the event of damage to, or loss or destruction of, its
primary computer and information management systems. During the continuance of a
Pay Out Event, prospective Pay Out Event, Servicer Default or event for any
Series, which upon the giving of notice or passage of time, would be a Servicer
Default, the Receivables Trustee may (at the request of the holders of a
majority of the Invested Amount of any Class) request, and SRI shall provide to
the Receivables Trustee, copies of back-up data regarding the Receivables, such
data to be provided with such frequency as designated by the Receivables
Trustee. SRPC and SRI represent and warrant that the Receivables Trustee has
adequate proprietary rights, Receivables software and back-up data to permit
orderly collection of the Receivables without the participation of SRI.
SERVICER DEFAULT
In the event of any Servicer Default, either the Receivables Trustee or
holders of more than 50% of the Aggregate Invested Amount for all outstanding
Series, by written notice to SRI (and to the Receivables Trustee if given by the
Certificateholders), may terminate all of the rights and obligations of SRI as
servicer under the Pooling and Servicing Agreement and in and to the Receivables
and the proceeds thereof and the Receivables Trustee may appoint a new Servicer
(a "SERVICE TRANSFER"). The rights and interest of SRI under the Pooling and
Servicing Agreement and in SRPC are not affected by such termination. Upon such
termination, the Receivables Trustee will as promptly as possible appoint a
successor Servicer. If no such Servicer has been appointed and has accepted such
appointment by the time SRI ceases to act as Servicer, all authority, power, and
obligations of SRI under the Pooling and Servicing Agreement will pass to and be
vested in the Receivables Trustee. If the Receivables Trustee is unable to
obtain any bids from eligible servicers and SRI delivers an officer's
certificate to the effect that it cannot in good faith cure the applicable
Servicer Default, and if the Receivables Trustee is legally unable to act as
successor Servicer, then the Receivables Trustee will give SRPC the right of
first refusal to purchase the Receivables on terms equivalent to the best
purchase offer as determined by the Receivables Trustee.
A "SERVICER DEFAULT" refers to any of the following events:
(i) failure by SRI to make any payment, transfer, or deposit,
or to give instructions to the Receivables Trustee to make certain
payments, transfers, or deposits within two business days after the
date SRI is required
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to do so under the Pooling and Servicing Agreement or any Supplement
(except that, with respect to payments to the Certificateholders of
principal, there shall be no such two business day grace period);
(ii) failure on the part of SRI duly to observe or perform in
any respect any other covenants or agreements of SRI which has a
material adverse effect on the Certificateholders of any Series then
outstanding and which continues unremedied for a period of 60 days
after written notice of such failure, requiring the same to be
remedied, shall have been given to SRI by the Receivables Trustee, or
to SRI and the Receivables Trustee by holders of not less than 50% of
the Aggregate Invested Amount of any Series materially adversely
affected thereby and continues to have a material adverse effect on the
Certificateholders of any Series then outstanding for such period; or
the delegation by SRI of its duties under the Pooling and Servicing
Agreement, except as specifically permitted thereunder;
(iii) any representation, warranty, or certification made by
SRI in the Pooling and Servicing Agreement, or in any certificate
delivered pursuant to the Pooling and Servicing Agreement, proves to
have been incorrect when made which has a material adverse effect on
the Certificateholders of any Series then outstanding, and which
continues to be incorrect in any material respect for a period of 60
days after written notice of such failure, requiring the same to be
remedied, shall have been given to SRI by the Receivables Trustee, or
to SRI and Receivables Trustee by the holders of not less than 50% of
the Aggregate Invested Amount of any Series materially adversely
affected thereby and continues to have a material adverse effect on
such Certificateholders for such period; or
(iv) the occurrence of certain events of bankruptcy,
insolvency, or receivership of SRI.
A delay in or failure of performance, which would otherwise be a
Servicer Default, will not constitute a Servicer Default if the delay or failure
could not be prevented by the exercise of reasonable diligence by SRI and such
delay or failure was caused by an act of God or other similar occurrence. Upon
the occurrence of any such event, SRI will not be relieved from using its best
efforts to perform its obligations in a timely manner in accordance with the
terms of the Pooling and Servicing Agreement, and SRI will provide the
Receivables Trustee, any provider of credit enhancement, SRPC, and the holders
of Certificates of all Series outstanding prompt notice of such failure or delay
by it, together with a description of the cause of such failure or delay and its
efforts to perform its obligations.
In the event of a Servicer Default, if a bankruptcy trustee or receiver
is appointed for SRI and no Servicer Default other than such bankruptcy or
receivership or the insolvency of SRI exists, the bankruptcy trustee or receiver
may have the power to prevent either the Receivables Trustee or the majority of
the Certificateholders from effecting a Service Transfer.
THE RECEIVABLES TRUSTEE
Bankers Trust (Delaware) is the Receivables Trustee under the Pooling
and Servicing Agreement. SRPC, SRI, and their respective affiliates may from
time to time enter into normal banking and trustee relationships with the
Receivables Trustee and its affiliates. The Receivables Trustee, SRPC, SRI, and
any of their respective affiliates may, and currently do, hold Certificates in
their own names. In addition, for purposes of meeting the legal requirements of
certain local jurisdictions, the Receivables Trustee has the power to appoint a
co-Receivables Trustee or separate Receivables Trustees of all or any part of
the Trust. In the event of such appointment, all rights, powers, duties, and
obligations conferred or imposed upon the Receivables Trustee by the Pooling and
Servicing Agreement will be conferred or imposed upon the Receivables Trustee
and such separate Receivables Trustee or co-Receivables Trustee jointly, or, in
any jurisdiction in which the Receivables Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate Receivables
Trustee or co-Receivables Trustee who will exercise and perform such rights,
powers, duties, and obligations solely at the direction of the Receivables
Trustee.
The Receivables Trustee may resign at any time. SRPC may also remove
the Receivables Trustee if the Receivables Trustee ceases to be eligible to
continue as such under the Pooling and Servicing Agreement or if the Receivables
Trustee becomes insolvent. In such circumstances, SRPC is obligated to appoint a
successor Receivables
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Trustee. Any resignation or removal of the Receivables Trustee and appointment
of a successor Receivables Trustee does not become effective until acceptance of
the appointment by the successor Receivables Trustee.
In the event that a person who is, or is an affiliate of, SRI, Bankers
Trust (Delaware), any Certificateholders, any enhancement provider or any other
Person whose affiliation with SRPC or the Trust could violate the condition
contained in Section (4)(i) of Rule 3a-7 under the Investment Company Act of
1940, as amended (a "RELATED PERSON") is the Receivables Trustee and (i) the sum
of cash and Cash Equivalents in the Equalization Account divided by (ii) the sum
of the aggregate principal Receivables and the amount described in clause (i)
above is greater than (x) 15% on six consecutive monthly Determination Dates or
(y) 30% on any monthly Determination Date, each after giving effect to all
payments made or to be made on the Distribution Date next succeeding the
applicable Determination Date, then such Related Person will be replaced as
Receivables Trustee with a successor Receivables Trustee who is not a Related
Person, or a provider of certain types of credit enhancement, and SRI will (with
the approval of the holders of more than 50% of the Aggregate Invested Amount of
all Series) promptly appoint a successor Receivables Trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Receivables Trustee so removed and one copy to the successor Receivables
Trustee.
If the Receivables Trustee fails to perform any of its obligations
under the Pooling and Servicing Agreement, and a Certificateholder delivers
written notice of such failure to the Receivables Trustee, and the Receivables
Trustee shall not have corrected such failure for 60 days thereafter, then the
holders of more than 50% of the Aggregate Invested Amount of all Series
(including related commitments) shall have the right to remove the Receivables
Trustee and (with the consent of SRPC, which consent shall not be unreasonably
withheld) promptly appoint a successor Receivables Trustee by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Receivables Trustee so removed and one copy to the successor Receivables
Trustee.
DEFINITIONS
"ACTIVE ACCOUNT" means, as of any particular day, any Account in which
there has been either purchase or merchandise return activity during
the preceding 12 Fiscal Months.
"AGGREGATE INVESTED AMOUNT" means, for each Designated Series, the sum
of the Class Invested Amounts of each Senior Class and the Class D
Invested Amount.
"ADJUSTED INVESTED AMOUNT" means, with respect to any Series or any
Class, when used with respect to any business day, the Invested Amount
of such Series or Class, as applicable, minus any amounts then on
deposit in any principal account for such Series or Class, as
applicable.
"AGGREGATE INVESTOR PERCENTAGE" means the sum of the Investor
Percentages for each outstanding Class of each Series.
"AMORTIZATION PERIOD" for any Series means, the period commencing on
the Amortization Period Commencement Date and continuing until the
earlier of (x) the Invested Amount of the Certificates for such Series
being paid in full or (y) the applicable termination date for such
Series.
"AMORTIZATION PERIOD COMMENCEMENT DATE" means, with respect to any
Series, the earlier of the first day of the Fiscal Month in which
scheduled amortization begins and the date on which a Pay Out Event is
deemed to have occurred.
"AUTOMATIC ADDITIONAL ACCOUNT" means a consumer revolving credit card
account (i) which is originated by Palais during the normal operation
of the Palais' credit card business and is not acquired by SRPC or
Palais from another credit card issuer, (ii) which was in existence and
owned by Palais and the Receivable of which had been transferred to
SRPC pursuant to the Receivables Purchase Agreement on the date on
which Receivables generated in such account are to be added to the
Trust and is in existence at the close of business on the date that
Receivables generated therein are designated for inclusion in the
Trust, (iii) which is payable
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in United States dollars, and (iv) the Receivables in which have not
been charged off prior to the date of their designation for inclusion
in the Trust.
"BASE RATE" means, for any Designated Series, the sum of (i) the
weighted average of the Class A Certificate Rate for such Designated
Series, the Class B Certificate Rate for such Designated Series, the
Class C Certificate Rate for such Designated Series and the Class D
Certificate Rate for such Designated Series plus (ii) the Series
servicing fee percentage per annum.
"CLASS A CERTIFICATE RATE" means, a per annum rate equal to the sum of
(i) LIBOR prevailing on the related rate determination date and (ii)
for the 1995-1 Class A Certificates, .52% and, for the 1993-1 Class A
Certificates, .82%, calculated on the basis of the actual number of
days elapsed in such subsequent Interest Accrual Period over a year of
360 days.
"CLASS A MONTHLY INTEREST" for any Designated Series and any
Distribution Date means an amount equal to one-twelfth of the product
of (i) the Class A Certificate Rate for such Series and (ii) the
outstanding principal balance of the Class A Certificates of such
Series as of the close of business on the last day of the Fiscal Month
immediately preceding the related Interest Accrual Period.
"CLASS A PRINCIPAL" for any Designated Series with respect to any
Distribution Date during the Amortization Period for such Designated
Series means an amount equal to the sum of (i) an amount equal to the
Class Fixed Allocation Percentage for the Class A Certificates of such
Designated Series of all Principal Collections received during the
three Fiscal Months immediately preceding such Distribution Date (or,
in the case of the first Distribution Date following the Negative Carry
Fill-up Date, the Class Fixed Allocation Percentage for the Class A
Certificates of such Designated Series of Principal Collections
received after the Negative Carry Fill-up Date and the Class Fixed
Allocation Percentage for the Class A Certificates of such Designated
Series of any Principal Collection received on the Negative Carry
Fill-up Date to the extent not needed for deposit in the Negative Carry
Account for such Designated Series), (ii) any amount on deposit in the
Equalization Account allocated to the Class A Certificates of such
Designated Series with respect to the three preceding Fiscal Months,
and (iii) amounts allocated with respect to the aggregate Investor
Default Amount for such Designated Series with respect to the preceding
Fiscal Month as described in clause (3) of "Application of Collections
--Payment of Fees, Interest, and Other Items--Designated Series" and
any reimbursements for such Designated Series of unreimbursed Class A
Investor Charge-Offs, Class B Investor Charge-Offs, Class C Investor
Charge-Offs and Class D Investor Charge-Offs as described in clauses
(4), (6) and (7) of "Application of Collections--Payment of Fees,
Interest and Other Items--Designated Series"; EXCEPT that with respect
to any Distribution Date, Class A Principal will not exceed the Class
Invested Amount for the Class A Certificates of such Designated Series;
EXCEPT that with respect to the termination date for such Series, Class
A Principal is an amount equal to the Class A Invested Amount.
"CLASS A PRINCIPAL PAYMENT COMMENCEMENT DATE" means, for each
Designated Series, the Transfer Date preceding each date of
distribution with respect to the Amortization Period.
"CLASS B CERTIFICATE RATE" means, a per annum rate equal to the sum of
(i) LIBOR prevailing on the related rate determination date and (ii)
for the 1995-1 Class B Certificates, 1.50% and, for the 1993-1 Class B
Certificates, 1.39%, calculated on the basis of the actual number of
days elapsed in such subsequent Interest Accrual Period over a year of
360 days.
"CLASS B MONTHLY INTEREST" for any Designated Series, on any
Distribution Date means an amount equal to one-twelfth of the product
of (i) the Class B Certificate Rate for such Series and (ii) the Class
B Invested Amount for such Series as of the close of business on the
last day of the Fiscal Month immediately preceding the related Interest
Accrual Period.
"CLASS B PRINCIPAL" for any Designated Series with respect to any
Distribution Date on or after the Class B Principal Payment
Commencement Date for such Designated Series means an amount equal to
the sum of (i) an amount equal to the Class Fixed Allocation Percentage
for the Class B Certificates of such Designated
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Series of all Principal Collections received during the Fiscal Months
immediately preceding such Distribution Date (or, in the case of the
first Distribution Date following the date on which an amount equal to
the Class Invested Amount for the Class A Certificates of such
Designated Series is deposited in the Principal Account for such
Designated Series to be applied to the payment of Class A Principal for
such Designated Series, the Class Fixed Allocation Percentage for the
Class B Certificates of such Designated Series of Principal Collections
from the date on which such deposit is made), (ii) any amount on
deposit in the Equalization Account allocated to the Class B
Certificates of such Designated Series with respect to the three
preceding Fiscal Months, and (iii) amounts allocated with respect to
the Investor Default Amount for such Designated Series with respect to
the preceding Fiscal Month as described in clause (3) of "--Application
of Collections-- Payment of Fees, Interest and Other Items--Designated
Series" and any reimbursements for such Series of unreimbursed Class B
Investor Charge-Offs, Class C Investor Charge-Offs and Class D Investor
Charge-Offs as described in clauses (4), (6) and (7) of "--Application
of Collections--Payment of Fees, Interest and Other Items--Designated
Series"; EXCEPT that with respect to the termination date for such
Designated Series, Class B Principal is an amount equal to the Class
Invested Amount for the Class B Certificates.
"CLASS B PRINCIPAL PAYMENT COMMENCEMENT DATE" means, for any Designated
Series, the earlier of (a) the Distribution Date on which the Class
Invested Amount for the Class A Certificates for such Designated Series
is paid in full, or if there are no remaining Principal Collections
allocable to such Series, the Distribution Date following the
Distribution Date on which the Class Invested Amount for the Class A
Certificates for such Series is paid in full and (b) the Repurchase
Distribution Date.
"CLASS C CERTIFICATE RATE" means, a per annum rate equal to the sum of
(i) LIBOR prevailing on the related rate determination date and (ii)
for the 1995-1 Class C Certificates, 1.50% and, for the 1993-1 Class C
Certificates, 3.00%, calculated on the basis of the actual number of
days elapsed in such subsequent Interest Accrual Period over a year of
360 days.
"CLASS C MONTHLY INTEREST" for any Designated Series, on any
Distribution Date means an amount equal to one-twelfth of the product
of (i) the Class C Certificate Rate for such Series and (ii) the Class
C Invested Amount for such Series as of the close of business on the
last day of the Fiscal Month immediately preceding the related Interest
Accrual Period.
"CLASS C PRINCIPAL" for any Designated Series with respect to any
Distribution Date on or after the Class C Principal Payment
Commencement Date for such Designated Series means an amount equal to
the sum of (i) an amount equal to the Class Fixed Allocation Percentage
for the Class C Certificates of such Designated Series of all Principal
Collections received during the three Fiscal Months immediately
preceding such Distribution Date (or, in the case of the first
Distribution Date following the date on which an amount equal to the
Class Invested Amount for the Class B Certificates of such Designated
Series is deposited in the Principal Account for such Designated Series
to be applied to the payment of Class B Principal, the Class Fixed
Allocation Percentage for the Class C Certificates of such Designated
Series of Principal Collections from the date on which such deposit is
made), (ii) any amounts on deposit in the Equalization Account
allocated to the Class C Certificates of such Designated Series with
respect to the three preceding Fiscal Months, and (iii) amounts
allocated with respect to the Investor Default Amount for such
Designated Series with respect to the preceding Fiscal Month as
described in clause (3) of "--Application of Collections-- Payment of
Fees, Interest and Other Items--Designated Series" and any
reimbursements for such Designated Series of unreimbursed Class C
Investor Charge-Offs and Class D Investor Charge-Offs as described in
clauses (6) and (7) of "--Application of Collections--Payment of Fees,
Interest and Other Items--Designated Series"; EXCEPT that with respect
to the termination date for such Designated Series, Class C Principal
is an amount equal to the Class Invested Amount for the Class C
Certificates.
"CLASS C PRINCIPAL PAYMENT COMMENCEMENT DATE" means, for any Designated
Series, the earlier of (a) the Distribution Date on which the Class
Invested Amount for the Class B Certificates of such Designated Series
is paid in full, or if there are no remaining Principal Collections
allocable to such Series, the Distribution Date following the
Distribution Date on which the Class Invested Amount for the Class B
Certificates is paid in full and (b) the Repurchase Distribution Date.
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"CLASS D CERTIFICATE RATE" means, for any Designated Series, 0% per
annum.
"CLASS D FIXED ALLOCATION PERCENTAGE" shall mean, during the
Amortization Period with respect to a Designated Series, the percentage
equivalent of a fraction, the numerator of which is the Class D
Invested Amount for such Series as of the end of the preceding business
day and the denominator of which is the greater of (a) the sum of the
amount of principal Receivables in the Trust and the amount on deposit
in the Equalization Account at the end of the preceding business day
and (b) the sum of the numerators with respect to all Classes of all
Series then outstanding on such business day used with respect to
Principal Collections to calculate the applicable allocation
percentage.
"CLASS D FLOATING ALLOCATION PERCENTAGE" means for each Designated
Series, the percentage equivalent of the quotient of (i) the Class D
Invested Amount, at the end of the preceding business day divided by
(ii) the greater of (a) the total amount of principal Receivables and
amounts on deposit in the Equalization Account as of the end of the
preceding business day and (b) with respect to Principal Collections
only, the sum of the numerators for all Classes of all Series then
outstanding used to calculate the applicable allocation percentage.
"CLASS D INITIAL INVESTED AMOUNT" means, for each Designated Series,
the aggregate initial principal amount of the Class D Certificates,
which is $30,000,000 in the case of Series 1993-1 and $5,120,000 in the
case of Series 1995-1.
"CLASS D INVESTED AMOUNT" means, for each Designated Series, an amount
equal to (a) the initial principal balance of the Class D Certificates,
minus (b) the aggregate amount of principal payments made to Class D
Certificateholders of such Designated Series prior to such date, minus
(c) the amount deposited in the Negative Carry Account for such
Designated Series, if any, minus (d) the aggregate amount of Class D
Investor Charge-Offs for such Designated Series for all prior
Distribution Dates, including the amount by which the Class D Invested
Amount has been reduced to fund the Investor Default Amount on all
prior Distribution Dates as described under "--Investor Charge-Offs,"
and plus (e) the aggregate amount of Finance Charge Collections and
Excess Finance Charge Collections applied (as described in clause (10)
of "--Application of Collections--Payment of Fees, Interest and Other
Items--Designated Series") on all prior Distribution Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing
clause (d).
"CLASS D PRINCIPAL" for any Designated Series with respect to any
Distribution Date on or after the Class D Principal Payment
Commencement Date for such Designated Series means an amount equal to
the sum of (i) an amount equal to the product of the Class D Fixed
Allocation Percentage of Principal Collections received during the
three Fiscal Months immediately preceding such Distribution Date (or,
in the case of the first Distribution Date following the date on which
an amount equal to the Class Invested Amount for the Class C
Certificates for such Designated Series is deposited in the Principal
Account to be applied for the payment of Class C Principal, the Class D
Fixed Allocation Percentage of Principal Collections from the date on
which such deposit is made), (ii) any amounts on deposit in the
Equalization Account allocated to the Class D Certificates of such
Designated Series with respect to the three preceding Fiscal Months,
(iii) amounts allocated with respect to the Investor Default Amount for
such Designated Series with respect to the preceding Fiscal Month as
described in clause (3) of "--Application of Collections--Payment of
Fees, Interest and Other Items--Designated Series" and any
reimbursements for such Designated Series of unreimbursed Class D
Investor Charge-Offs as described in subsection (7) of "--Application
of Collections--Payment of Fees, Interest and Other Items--Designated
Series"; and (iv) the amount of Shared Principal Collections allocated
to such Designated Series with respect to the three preceding Fiscal
Months as described in clause (xii) of "-- Application of
Collections--Allocations;" EXCEPT that with respect to the termination
date for such Designated Series, Class D Monthly Principal is an amount
equal to the Class D Invested Amount.
"CLASS D PRINCIPAL PAYMENT COMMENCEMENT DATE" for a Designated Series
means the earlier of (a) the Distribution Date on which the Class
Invested Amount for the Class C Certificates of such Designated Series
is paid in full, or if there are no remaining Principal Collections
allocable to such Series, the Distribution Date following the
Distribution Date on which the Class Invested Amount for the Class C
Certificates is paid in full and (b) the Repurchase Distribution Date.
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"CLASS FIXED ALLOCATION PERCENTAGE" means, for each Class of Senior
Certificates of a Designated Series, the percentage equivalent of the
quotient of (i) the Class Invested Amount of such Senior Class, at the
end of the last day of the Revolving Period for such Series divided by
(ii) the greater of (a) the sum of the aggregate amount of Principal
Receivables and the amount on deposit in the Equalization Account at
the end of the last day of the Revolving Period for such Series and (b)
the sum of the numerators used to calculate the allocation percentages
with respect to Principal Receivables for all Series.
"CLASS FLOATING ALLOCATION PERCENTAGE" means, for each Class of Senior
Certificates of a Designated Series, the percentage equivalent of the
quotient of (i) the Class Invested Amount of such Senior Class less the
amount on deposit in the Principal Account for such Senior Class at the
end of the preceding business day divided by (ii) the greater of (a)
the total amount of Principal Receivables and amounts on deposit in the
Equalization Account at the end of the preceding business day and (b)
with respect to Principal Collections only, the sum of the numerators
for all Classes of all Series then outstanding used to calculate the
applicable allocation percentage.
"CLASS INVESTED AMOUNT" means, for each Class of Senior Certificates of
a Designated Series, an amount equal to (a) the initial principal
balance of such Senior Certificates minus (b) the aggregate amount of
principal payments made to holders of the Senior Certificates of such
Class prior to such date, and minus (c) the aggregate amount of
Investor Charge-Offs for such Class for all prior Distribution Dates,
including the amount by which the Class Invested Amount has been
reduced to fund the Investor Default Amount on all prior Distribution
Dates as described under "--Investor Charge-Offs," and plus (d) the
aggregate amount of Finance Charge Collections and Excess Finance
Charge Collections applied (as described in clause (10) of
"--Application of Collections--Payment of Fees, Interest and Other
Items--Designated Series") on all prior Distribution Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing
clause (c).
"CLASS VARIABLE FUNDING FIXED ALLOCATION PERCENTAGE" means, for each
Class of Variable Funding Certificates, the percentage equivalent of
the quotient of (i) the Variable Funding Class Invested Amount of such
Class, at the end of the last day of the Revolving Period for such
Variable Funding Series divided by (ii) the greater of (a) the sum of
the aggregate amount of Principal Receivables and the amount on deposit
in the Equalization Account at the end of the last day of the Revolving
Period for such Variable Funding Series and (b) the sum of the
numerators used to calculate the allocation percentages with respect to
principal Receivables for all Series.
"CLASS VARIABLE FUNDING FLOATING ALLOCATION PERCENTAGE" means, for each
Class of Variable Funding Certificates, the percentage equivalent of
the quotient of (i) the Variable Funding Class Invested Amount of such
Class of Variable Funding Certificates less the amount on deposit in
the Principal Account for such Class at the end of the preceding
business day divided by (ii) the greater of (a) the total amount of
principal Receivables and amounts on deposit in the Equalization
Account at the end of the preceding business day and (b) with respect
to Principal Collections only, the sum of the numerators for all
Classes of all Series then outstanding used to calculate the applicable
allocation percentage.
"DAILY CAP PROCEEDS AMOUNT" means, for any Series, with respect to any
business day, an amount on deposit in the Cap Proceeds Account for such
Series equal to the lesser of (A) the amount determined to be deposited
in the Interest Funding Account for such Series pursuant to clause
(1)(B) of "--Application of Collections-- Payment of Fees, Interest and
Other Items--Designated Series" above or clause (B) of subsection (A)
of "-- Application of Collections--Payment of Fees, Interest and Other
Items--Variable Funding Series" below and (B) the sum of (a) the
product of (x) the quotient of (I) the amount deposited in the Cap
Proceeds Account for such Series on the immediately preceding payment
date of the Interest Rate Caps for such Series divided by (II) the
number of days from payment date to payment date for such Interest Rate
Caps for such Series, times (y) the number of days elapsed since the
preceding business day and (b) the aggregate amount not transferred
prior to such day during the period since the preceding payment date
pursuant to this subclause (B).
"DISTRIBUTION DATE" means, for a Designated Series, the third Wednesday
of each March, June, September and December, or if such day is not a
business day, the next succeeding business day.
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"EARLY AMORTIZATION PERIOD" means, for any Series, the period beginning
on the day on which a Pay Out Event for such Series is deemed to have
occurred and ending on the earlier of (i) the day after the
Distribution Date on which the Aggregate Invested Amounts have been
paid in full and (ii) the Termination Date for such Series.
"EXISTING SERIES" means a Series issued pursuant to the Series 1993-1
Supplement, the Series 1993-2 Supplement or the Series 1995-1
Supplement.
"FINANCE CHARGE COLLECTIONS" means collections of amounts billed in
respect of the periodic finance charges, overlimit fees, late charges,
returned check fees, annual membership fees, transaction charges, all
other fees and charges and recoveries, plus discount option
receivables, if any, and investment earnings on amounts on deposit in
the Equalization Account and the Principal Accounts, if any, as of the
Determination Date.
"FIXED ALLOCATION PERCENTAGE" for a Designated Series, means the
percentage equivalent of the quotient of (i) the Aggregate Invested
Amount for such Series at the end of the last day of the Revolving
Period divided by (ii) the greater of (a) the sum of the aggregate
amount of Principal Receivables and the amount on deposit in the
Equalization Account at the end of the last day of the Revolving Period
for such Series and (b) the sum of the numerators used to calculate the
allocation percentages with respect to Principal Collections for all
Series.
"FLOATING ALLOCATION PERCENTAGE" for a Designated Series, means the sum
of the Class Floating Allocation Percentages for each Senior Class of
such Designated Series and the Class D Floating Allocation Percentage
and, for a Variable Funding Series, means the sum of the Class Variable
Funding Floating Allocation Percentages for each Class of such Variable
Funding Series.
"INITIAL INVESTED AMOUNT" means, for each Designated Series, the
aggregate initial principal amount of the Senior Certificates.
"INTEREST ACCRUAL PERIOD" means, with respect to a Distribution Date
for each Designated Series, the period from and including the preceding
Distribution Date to and excluding such Distribution Date.
"INVESTOR DEFAULT AMOUNT" means, for each Series, the amount allocated
to the Certificateholders of such Series on each business day in an
amount equal to the product of the Floating Allocation Percentage for
such Series on such day and the amount of principal Receivables in
defaulted Accounts identified since the prior reporting date. Defaulted
Receivables will not be excluded from the Investor Default Amount by
reason of their repurchase by Palais. See "--Defaulted Receivables;
Rebates and Fraudulent Charges; Portfolio Reassignment."
"INVESTOR PERCENTAGE" means, for any business day, for each Class and
Series of Certificates (a) with respect to Finance Charge Collections
and Receivables in defaulted Accounts at any time or Principal
Collections during the Revolving Period, the Floating Allocation
Percentage and (b) with respect to Principal Collections during the
Amortization Period, the Fixed Allocation Percentage.
"LATEST RATING AGENCY APPROVAL" means the most recent date of written
confirmation from the Rating Agency that the addition of accounts to
such date would not result in a downgrading of the rating of any
outstanding Class of any Series.
"MINIMUM AGGREGATE PRINCIPAL RECEIVABLES" means, as of any
Determination Date, an amount equal to the sum of (a) the Initial
Invested Amounts for all outstanding Series on any such date except a
Variable Funding Series, and (b) during a Revolving Period for a
Variable Funding Series, the Invested Amount for such Series on the
date of determination or, during an Amortization Period for a Variable
Funding Series, the Invested Amount of such Series on the last day of
the Revolving Period for such Series.
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"MINIMUM TRANSFEROR INTEREST" means, as of any Determination Date, the
product of (i) the sum of (a) the aggregate principal Receivables and
(b) the amounts on deposit in the Equalization Account and (ii) the
Minimum Transferor Percentage on such Determination Date.
"MINIMUM TRANSFEROR PERCENTAGE" is (i) during November, December and
January, equal to 2% and (ii) at all other times, equal to zero.
"NEGATIVE CARRY AMOUNT" means, for each Series, the excess of (x) the
product of (a) the Base Rate, (b) the amounts on deposit in the
Principal Account for such Series and the Equalization Account and (c)
the number of days elapsed since the previous business day, divided by
the actual number of days in such year over (y) the aggregate amount of
all earnings since the previous business day available from Cash
Equivalents in which funds on deposit in the Equalization Account are
invested.
"ORIGINAL CLOSING DATE" means July 30, 1993, in the case of the 1993-1
Certificates and August 11, 1995, in the case of the 1995-1
Certificates.
"PORTFOLIO YIELD" means, for each Designated Series, with respect to
any Fiscal Month, the annualized percentage equivalent of a fraction,
the numerator of which is an amount equal to the sum of Available
Designated Series Finance Charge Collections and the aggregate Daily
Cap Proceeds Amount for such Fiscal Month, calculated on a cash basis
minus the Investor Default Amount for such Fiscal Month, and the
denominator of which is the average daily Invested Amount during the
preceding Fiscal Month.
"PRINCIPAL COLLECTIONS" means all collections received other than
Finance Charge Collections.
"PRINCIPAL SHORTFALL" means, for any Designated Series, on any business
day the Invested Amount of the Class of such Series then receiving
principal payments reduced by the application of Principal Collections
on such business day.
"PURCHASE TERMINATION EVENT" means an event which causes SRPC to be
foreclosed from purchasing further Receivables under the Receivables
Purchase Agreement.
"RATE DETERMINATION DATE" means, for any Designated Series, with
respect to any Interest Accrual Period, the second business day before
the first day of such Interest Accrual Period.
"RECORD DATE" means, with respect to any date of distribution, the last
business day of the preceding Fiscal Month.
"REPURCHASE DISTRIBUTION DATE" means, for any Designated Series, the
Distribution Date following a sale or repurchase of Receivables in the
event (i) of a Portfolio Reassignment, (ii) a bankruptcy trustee or
receiver or liquidator for the winding-up or liquidation of SRPC's
affairs is appointed, (iii) the sum of the Transferor Interest and the
Invested Amount of any Transferor Retained Class divided by the
aggregate amount of principal Receivables at the end of the day
immediately prior to such day is equal to or less than 1%, (iv) of a
Servicer Default and inability of SRPC to locate a successor servicer,
or (v) the Trust is terminated.
"REQUIRED AMOUNT" means (i) for any Designated Series, on any business
day the amount, if any, by which the full amount to be paid pursuant to
clauses (1)-(8) above in "--Application of Collections--Payments of
Fees, Interest, and Other Items--Designated Series" exceeds the portion
of the Available Designated Series Finance Charge Collections,
Transferor Finance Charge Collections and Daily Cap Proceeds Amount for
such Designated Series, if any, on any business day applied to the
payment of the amounts described in such clauses; and (ii) for the
Variable Funding Certificates, on any business day the amount, if any,
by which the full amount to be paid pursuant to clauses (A)-(H) above
in "--Application of Collections--Payments of Fees, Interest, and Other
Items--Variable Funding Series" exceeds the portion of the Available
Variable Funding Series Finance Charge Collections, Transferor Finance
Charge Collections and Daily Cap Proceeds Amount
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for such Variable Funding Series, if any, on any business day applied
to the payment of the amounts described in such clauses.
"REVOLVING PERIOD" means, for each Series, the period beginning on the
Original Closing Date for such Series and ending on the day preceding
the Amortization Period Commencement Date for such Series.
"SENIOR CERTIFICATE MONTHLY INTEREST" means, for any Designated Series,
the sum of the Class A Monthly Interest, the Class B Monthly Interest
and the Class C Monthly Interest.
"SENIOR CERTIFICATE PRINCIPAL REPAYMENT DATE" means, for any Designated
Series, the date on which an aggregate amount equal to the Senior
Certificate Invested Amount has been deposited in the Principal Account
for such Designated Series.
"SENIOR CLASSES" means, for each Designated Series, the Class A, Class
B and Class C of such Series.
"SENIOR EQUALIZATION ACCOUNT PERCENTAGE" shall mean, with respect to
any Series on any Business Day, the percentage equivalent of a
fraction, the numerator of which is equal to the Adjusted Invested
Amount of such Series minus the Adjusted Invested Amount of any
Transferor Retained Class in such Series and the denominator of which
is equal to the sum of the Adjusted Invested Amounts of all Series in
Amortization Periods minus the Adjusted Invested Amount of any
Transferor Retained Class.
"TRANSFEROR FINANCE CHARGE COLLECTIONS" means, on any business day, the
product of (a) Finance Charge Collections for such business day, (b)
the Transferor Percentage and (c) the Floating Allocation Percentage.
"TRANSFEROR INTEREST" means, on any Determination Date, the aggregate
amount of principal Receivables at the end of the day immediately prior
to such Determination Date plus all amounts on deposit in the
Equalization Account (but not including investment earnings on such
amounts) at the end of such immediately preceding day, minus the
aggregate Adjusted Invested Amounts of all Series at the end of such
immediately preceding day.
"TRANSFEROR PERCENTAGE" means, on any Determination Date, when used
with respect to Principal Collections, Finance Charge Collections and
Receivables in Defaulted Accounts, a percentage equal to 100% minus the
Aggregate Investor Percentage with respect to such categories of
Receivables.
"TRANSFEROR RETAINED CLASS" means, for any Series, any Class of
Investor Certificates which is required to be retained by SRPC. For the
Existing Series, the Class D Certificates and the 1993-2 Class B-R
Certificates are Transferor Retained Classes.
"TRANSFEROR RETAINED CLASS PRINCIPAL PAYMENT COMMENCEMENT DATE" means,
for a Variable Funding Series, the earlier of (a) the Distribution Date
in an Amortization Period for such Variable Funding Series on which the
Senior Class Invested Amount is paid in full or, if there are no
Principal Collections allocable to the Certificates of such Variable
Funding Series remaining after payments have been made to the Senior
Class Certificates on such Distribution Date, the Distribution Date
following the Distribution Date on which the Senior Class Invested
Amount is paid in full and (b) the Repurchase Distribution Date.
"VARIABLE FUNDING CLASS INVESTED AMOUNT" means, for each Class of
Variable Funding Certificates, an amount equal to (a) the initial
principal balance of such Certificates plus the aggregate principal
amount of additional Invested Amounts purchased by the holders of such
Class of Certificates prior to such date minus (b) the aggregate amount
of principal payments made to the Certificateholders of such Class
prior to such date, and minus (c) the aggregate amount of Investor
Charge-Offs for all prior Distribution Dates, including the amount by
which the Variable Funding Class Invested Amount has been reduced to
fund the Investor Default Amount on all prior Distribution Dates as
described under "--Investor Charge-Offs," and plus (d) the aggregate
amount of Finance Charge Collections and Excess Finance Charge
Collections applied (as described in clause (10)
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<PAGE>
of "--Application of Collections--Payment of Fees, Interest and Other
Items--Designated Series") on all prior Distribution Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing
clause (c).
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<PAGE>
HYPOTHETICAL MODEL SCENARIOS
OVERVIEW
The hypothetical model scenarios set forth in the accompanying Table 3
(the "MODEL RESULTS") have been prepared to assist potential investors in
evaluating the impact of certain hypothetical levels of Receivables Charge-offs,
Receivables Dilutions and LIBOR on the Notes. Such hypothetical model scenarios
are based on certain assumed events described herein, any or all of which may
not occur or may not occur to the degree assumed herein. Other events that were
not taken into account may occur, and could significantly affect actual cash
flows and payment on the Notes. Different assumptions, which could be
appropriate, could materially affect the results depicted in the Model Results.
The information set forth below contains forward-looking statements (including,
but not limited to, the Model Results), and actual results could differ
materially from those projected in such forward-looking statements.
The hypothetical model scenarios do not purport to represent the actual
returns that may be achieved by an investor in the Notes. No representation or
warranty is made that such returns will be similar to those set forth herein.
Potential investors should conduct their own economic analysis, using such
assumptions as they deem relevant, prior to making an investment in the Notes.
The assumptions made for purposes of the cash flow model described
below (the "MODEL") are not intended to predict the composition of the SRI
Portfolio; the range, magnitude or timing of Receivables Charge-offs or
Receivables Dilutions; the actual amount and timing of expenses and liabilities
of SRPC, SRI or Palais; the level of interest rates; the likelihood of
prepayment of the Notes; or the timing of realizations on the collateral. The
assumptions employed in preparing the Model may yield results that are
inconsistent with the results that are likely to occur. The assumptions used are
hypothetical and have been provided only to give a general sense of how the cash
flows might behave under varying scenarios. The actual characteristics and
performance of the Receivables will differ, and may differ significantly, from
those presented in the Model Results.
The amount and timing of cash flows available to repay the Notes will
depend on numerous factors, including the rate and timing of payments on the
Accounts and the levels of Receivables Charge-offs and Receivables Dilutions,
general and regional economic conditions, the availability of credit, the
financial condition of obligors on the Accounts and the level of prevailing
interest rates.
THE INFORMATION CONTAINED IN THE MODEL RESULTS AND IN THE CASH FLOW
MODEL DESCRIBED BELOW IS PRESENTED FOR ILLUSTRATIVE PURPOSES ONLY, SHOULD BE
VIEWED AS HYPOTHETICAL, AND DOES NOT PURPORT TO REPRESENT THE ACTUAL RESULTS
THAT WILL BE EXPERIENCED OR THE NET AMOUNTS THAT WILL BE RECEIVED WITH RESPECT
TO THE COLLATERAL CERTIFICATES OR THE TIMING THEREOF.
THE MODEL
The results depicted in the Model Results are the outputs of the Model,
which was developed for the purpose of the Offering. The Model is intended to
demonstrate the impact in a Declining Pool Scenario, as described below, of
certain variables. The key variables used in the model are the levels of
Receivables Charge-offs and Receivables Dilutions that are experienced in the
Receivables pool, and the LIBOR level that is assumed for interest payments on
the Senior Certificates.
The Model operates by taking a set of data inputs (the "HYPOTHETICAL
INPUTS"), generating certain resulting levels of monthly collections, defaults
and dilutions (the "BASIC MONTHLY OUTPUTS"), and then allocating the Basic
Monthly Outputs to a series of priority uses (the "SIMPLIFIED PRIORITIES") which
is intended to approximate the priorities for applications of Collections set
forth in "Description of the Collateral--Application of Collections" and
"Description of the Notes--Cash Flows Allocable to the Holders."
The elements of the Model described in the preceding paragraph have
been established by making certain simplifying assumptions (the "MODEL
ASSUMPTIONS"). The Model Assumptions are necessary in order to allow the
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<PAGE>
Model to operate; however, they have the effect of distorting the results of the
Model to a degree that cannot be known. Even if all of the Hypothetical Inputs
for a given scenario are the same as the actual conditions at the outset of an
Amortization Period, it is certain that the actual performance of the
Receivables and the Trust will differ from the results predicted by the Model
and portrayed in the Model Results.
SRPC and SRI can offer no assurance as to the reasonableness, accuracy
or impact of the Hypothetical Inputs, the Basic Monthly Outputs, the Simplified
Priorities or the Model Assumptions (collectively, the "MODEL FACTORS").
Potential investors should compare the descriptions below of the Model Factors
with the information contained elsewhere in this Prospectus to determine for
themselves whether such Model Factors, and the Model Results, provide meaningful
information.
MODEL ASSUMPTIONS
1. DECLINING POOL SCENARIO
A principal Model Assumption is that the Receivables portfolio will be
liquidated under circumstances where new Receivables are not being transferred
to the Trust following the Amortization Period Commencement Date (such
circumstances being the "DECLINING POOL SCENARIO"). Such an assumption would
most likely be accurate if Palais had become a debtor in a bankruptcy proceeding
in which it was being reorganized, as such an event would result in the
occurrence of the Amortization Period Commencement Date and would terminate
sales of Receivables to the Trust.
Another important Model Assumption is that SRPC will fail to honor its
obligations to make Required Adjustment Payments in respect of Receivables
Dilutions during the Amortization Period and that Palais will also fail to honor
its corresponding obligations under the Receivables Purchase Agreement. The
Model Assumptions also contemplate that the Servicing Fee in the Declining Pool
Scenario will be paid to a third party Servicer. This would result in a
reduction of the amount of Finance Charge Collections that are available to
reimburse Investor Default Amounts and Investor Charge-offs.
The Declining Pool Scenario and the Model Assumptions and Hypothetical
Inputs are consistent with a bankruptcy reorganization of Palais in which the
business of SRI continues to be operated and in which all collections from the
Receivables that arose prior to the date of the bankruptcy proceeding are
allocated to the Trust. The Model assumes that Palais would continue to generate
new Receivables following the date of the bankruptcy proceeding but that such
new Receivables would not be sold to SRPC or transferred to the Trust. Thus, the
Model assumes that the outstanding principal balance of Receivables in the
Accounts remains at $200,120,000 throughout the Amortization Period, although no
new principal Receivables will be transferred to the Trust. Therefore, the
amount of principal Receivables held by the Trust will decline throughout the
Amortization Period.
The Model assumes that in a bankruptcy Collections will continue to be
applied according to Palais' credit and collection policy. Palais would be
required to act in accordance with such credit and collection policy, including,
as required by the Receivables Purchase Agreement, the obligation to apply
payments by SRI credit card holders first to finance charges, then to other
charges or fees, and then to the unpaid principal balance of purchases allocated
first to the longest outstanding Receivable. Potential investors should be aware
that a bankruptcy court has substantial equitable powers and discretion, and
that one result of a bankruptcy proceeding could be to require the Trust to
share collections on all Receivables (those arising both prior to and following
the bankruptcy proceeding) with lenders who are providing debtor-in-possession
financing or other creditors, and that such an arrangement would materially
impact the timing of cash flows to the Trust. In addition, although the Model
Assumptions do not contemplate a liquidation of Palais, Palais might elect to
close certain stores during a reorganization, which could have an adverse impact
on the SRI Portfolio.
Finally, it should be noted that the Hypothetical Inputs described
below have been selected based on the historical performance of the Receivables
during Palais' normal course of business. Because SRI and Palais have no
experience with a bankruptcy proceeding, it is unclear whether, and to what
extent, such historical performance can be expected to be a useful basis for
establishing Hypothetical Inputs that would be reliable in the context of such a
proceeding.
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<PAGE>
2. OTHER MODEL ASSUMPTIONS
The Model also assumes that each Fiscal Month of SRI is the same
length. In fact, each of SRI's Fiscal Months ends on a Saturday (a conventional
practice for retailers), with the result that a given Fiscal Month will be
either exactly four weeks or exactly five weeks long. The Model also contains
the further simplifying assumption that the sales giving rise to Receivables for
each month preceding the Amortization Period Commencement Date were $34,304,000,
which was the average charge sales per Fiscal Month in fiscal 1995. This
assumption is relevant to the treatment of Receivables Dilutions, as shown
below. The Model further assumes that the Amortization Period Commencement Date
occurs on the first day of a month.
The Model assumes that 12% is the per annum interest rate on the Notes.
The actual rate applicable to the Notes is 12.5%. The Model also assumes that
funds in the Equalization Account and the Principal Account are reinvested at a
rate equal to LIBOR minus 1.0%.
HYPOTHETICAL INPUTS
The Model utilizes the Hypothetical Inputs described below in order to
generate the Basic Monthly Outputs. The Hypothetical Inputs and Basic Monthly
Outputs are based on SRI's current operations, and the Model therefore assumes
that SRI will continue to operate its business in substantially the same manner
as it is currently operated. Thus, the Model assumes that SRI will not effect
material changes in its merchandise, customer base, organizational structure
(i.e., no credit card bank) or credit and collections policies.
1. PURCHASE RATE
One Hypothetical Input is a 0% assumed purchase rate of Receivables,
which (as described above under "-- Declining Pool Scenario") means that no
additional Receivables are being transferred to the Trust following the
Amortization Period Commencement Date, even though Palais is continuing to
generate Receivables at a rate that maintains the level of the overall principal
Receivables balance at $200,120,000 throughout the Amortization Period.
2. PAYMENT RATE
Another Hypothetical Input in the Model is the monthly payment rate on
the Receivables, which is the rate at which outstanding Receivables are repaid
during each month of the Amortization Period. The Model contains a series of
payment rates, expressed as a percentage of the outstanding principal
Receivables as of the Amortization Period Commencement Date, which decline
throughout the Amortization Period.
The Model's assumed payment rate is 17.69% in the first month, which
was selected because it equals the average monthly collections in fiscal year
1995 divided by the average principal Receivables outstanding in fiscal year
1995. (It should be noted that data included elsewhere in this Prospectus
presents an average monthly payment rate of 17.0%, which is based on average
monthly collections, including recoveries, divided by average total Receivables
outstanding in fiscal year 1995).
The Model assumes a payment rate of 15.09% in the second month and
12.49% in the third month. The decline in the payment rates in the second and
third months are based upon the assumption that the "convenience users" (those
customers who pay their statements in full each month, and whose payments SRI
believes represent, on average, approximately 5.2% out of the assumed payment
rate of 17.69% in the first month) will repay their balances in full within 30
days after receiving their monthly statements. The Model assumes that these
convenience users will have received monthly statements relating to half of
their Receivables prior to the Amortization Period Commencement Date (so that
those Receivables will be paid in the first month of the Amortization Period)
and that they will receive their monthly statements relating to the other half
of such Receivables during the month following the Amortization Period
Commencement Date (which Receivables would then be expected to be paid during
the second month following the Amortization Period Commencement Date).
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In months four and five, the Model assumes that the same 12.49% payment
rate applies. Thereafter, the Model assumes that there will be a gradual decline
in the payment rate to 12.00% in month twelve. This decline was judgmentally
selected by SRI, which has no way to test this general decline in payment rate
for accuracy. SRI does not have historical data that it believes would be useful
in predicting the behavior of customers in a Declining Pool Scenario.
3. YIELD ON RECEIVABLE POOL
The amount of Finance Charge Collections received on a monthly basis
with respect to the Receivables is another Hypothetical Input. The Model assumes
a per annum yield on the Receivables during the Amortization Period of 20.2%.
This percentage was selected because it was the annual yield on the SRI
Portfolio for fiscal year 1995, calculated as the net finance charges and fees
billed in fiscal year 1995 by the average Receivables outstanding in fiscal year
1995.
4. DEFAULT RATE
The Model uses a monthly default rate of 8.30%, which equals the net
charge-offs for fiscal year 1995 divided by the average principal Receivables
outstanding in fiscal year 1995. It should be noted that the default rate shown
elsewhere in this Prospectus of 7.92% equals the net charge-offs for fiscal year
1995 divided by the average total Receivables outstanding in fiscal year 1995.
In addition, Investor Default Amounts are calculated on the basis of gross
charge-offs, but recoveries received in respect of Receivables balances
previously charged-off are treated as Finance Charge Collections which, after
application to payments of interest and servicing fees, would be available to
cover Investor Default Amounts. The Model multiplies this assumed default rate
by the principal Receivables balance at the beginning of each month during the
Amortization Period. The resulting number reduces the Receivables balance at the
end of that month, thereby reducing the amount of monthly collections on the
Receivables in later months.
5. PRINCIPAL RECEIVABLES
The Model assumes that the initial level of principal Receivables in
the Trust on the Amortization Period Commencement Date is $200,120,000. For the
Trust to hold this amount of principal Receivables means that the Transferor
Interest would be 0.0%, which is the minimum level for all Fiscal Months other
than November, December and January. Thus, the Model is assuming that the
Amortization Period will not occur during the fourth quarter of the fiscal year.
The Model also assumes that (i) the outstanding Invested Amount of Investor
Certificates at such time was $200,120,000, which is the current Invested Amount
of the Series 1993-1 Certificates and Series 1995-1 Certificates, (ii) no amount
was outstanding under the Series 1993-2 Revolving Certificates, and (iii) there
were no funds then held in the Equalization Account.
6. RECEIVABLES DILUTIONS
In order to model the impact of Receivables Dilutions, it is necessary
to estimate both the amount of unrealized Receivables Dilutions that are
"embedded" in the Receivables pool at the Amortization Period Commencement Date
and the rate at which those embedded Receivables Dilutions will be realized.
EMBEDDED RECEIVABLES DILUTIONS. The first step in the Receivables
Dilutions process is to attempt to estimate the amount of Receivables Dilutions
that are embedded the Receivables pool on the Amortization Period Commencement
Date. In other words, the question is how many returns, fraudulent charges,
misbillings and other Receivables Dilutions will occur after the Amortization
Period Commencement Date that will relate to the pre-existing Receivables and
will thereby reduce the balance of principal Receivables. The assumed amount of
embedded Receivables Dilutions has been established based on the following
methodology.
First, the Model establishes an assumed level of charge sales for each
Fiscal Month preceding the Amortization Period Commencement Date. That amount is
assumed to be $34,304,000 (which was chosen because it represents the average
charge sales per Fiscal Month for fiscal year 1995). Second, the Model
establishes the percentage of these charge sales expected to become Receivables
Dilutions in each such Fiscal Month. The Model uses 11.13%, which is
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the average monthly amount of returns and fraudulent charges that occurred in
fiscal year 1995. Finally, the Model assumes that these Receivables Dilutions
are realized by SRI over the Receivables Dilutions horizon described below.
Notwithstanding the foregoing Hypothetical Inputs, the actual amount of
returned merchandise experienced by SRI is not level throughout the fiscal year.
Rather, SRI's experience is that the highest level of returns as a percent of
current month's sales occurs during the fourth quarter of its fiscal year (and
particularly in January, when the ratio of returns to sales equaled 17.93%,
principally due to returns of merchandise sold during the Christmas season). If
the Amortization Period were to commence during the fourth quarter, the
methodology described above might understate the amount of Receivables Dilutions
embedded in the Receivables pool. However, the Pooling and Servicing Agreement
requires SRPC to maintain a 2.0% Minimum Transferor Interest during the fourth
quarter, compared to a 0.0% Minimum Transferor Interest otherwise, in order to
provide an extra cushion for these additional potential Receivables Dilutions.
DILUTION HORIZON PERCENTAGES. Once the level of Receivables Dilutions
embedded in the Receivables pool has been established, the next step is to
estimate the portion of such Receivables Dilutions that will be "realized" in
each Fiscal Month during the Amortization Period. The following discussion
describes the process used to estimate the "Dilution Horizon Percentages" that
will be multiplied by the assumed amount of embedded Receivables Dilutions in
order to establish a base level of expected Receivables Dilutions during each
such Fiscal Month.
Table 1 below presents a sampling of historical data that has been used
to assist in the development of an assumption regarding the rate at which
embedded Receivables Dilutions will be realized. The analysis of the amount of
Receivables Dilutions expected in a liquidating pool of Receivables depends upon
the amount of time that is expected to elapse between the charge sale that
generates a Receivable and the date on which the Receivables Dilution with
respect to such Receivable occurs (E.G., the date on which the merchandise is
returned or the fraudulent charge is discovered). As shown in Table 1, SRI has
sampled three months of returns in its Receivables portfolio in 1992, one month
in 1995 and two months in 1996 in order to estimate the amount of time that
elapses between a charge sale and a Receivables Dilution. (No comparable
analysis has been prepared regarding fraudulent charges, misbillings or any
other component of Receivables Dilutions. SRI believes that over 90% of all
Receivables Dilutions arise from returns.)
SRI did not utilize the January 1996 data shown on Table 1 in
establishing the Receivables Dilution horizon. As is evident from Table 1,
returns in January 1996 related to earlier sales periods than did returns in any
other month to a significant degree. SRI believes that this distortion results
from returns in January of merchandise purchased during the Christmas season,
and that such results are not found in any other month of the year. Accordingly,
and because the Model assumes that the Amortization Period does not commence in
the fourth fiscal quarter, SRI has not utilized the January 1996 data for this
purpose.
The historical data shown in Table 1 for returns by number of
occurrences and dollar volume (for months other than January) have been used to
create the Dilution Horizon Assumptions shown in Table 1. First, the average
results for the historical data have been judgmentally rounded to produce the
Rounded Average Returns that are depicted. As presented in Table 1,
approximately 71% of returns of merchandise occur within 14 days of the related
sales (the 0-14 day interval), 13% occur within the next 16 days (the 15-30 day
interval), 6% occur within the next thirty days (the 31- 60 day interval), 2%
occur within the next thirty days (the 61-90 day interval), 1.5% cannot be
matched up to sales and 6.5% occur over a long "tail" period. Next, the
Interpolated Average Returns have been established as follows. For the 16-45 day
interval, the 16.0% interpolated average returns is the sum of the 13.0% rounded
average returns for the 15-30 day period and one-half (3.0%) of the rounded
average returns of 6.0% for the 31-60 day period. For the 46-75 day interval,
the 4.0% interpolated average returns equals the sum of the "remaining" 3.0%
from the 31-60 day period and one-half (1.0%) of the rounded average returns for
the 61-90 day period. The 9.0% interpolated average returns for the over 75 day
period is the remainder of the returns; this portion of the returns is assumed
to occur 2.0% in each of the following four 30-day periods (76-105, 106-135,
136-165 and 166-195) and 1.0% in the 195-225 day period. Finally, the Cumulative
Base Assumptions shows, for any assumed sales month, the percentage of embedded
Receivables Dilutions that the Model estimates will have occurred by the end of
any specified interval.
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TABLE 1
HISTORICAL ANALYSIS OF RETURNS
<TABLE>
<CAPTION>
DAYS ELAPSED (BY INTERVALS) BETWEEN DATE OF SALE AND DATE OF RETURN
-------------------------------------------------------------------------------------------
0-14 15-30 16-45 31-60 46-75 61-90 OVER 75 UNABLE OVER
DAYS DAYS DAYS (1) DAYS DAYS(1) DAYS DAYS (1) TO MATCH 90 DAYS
------ ------ -------- ------ ------- ------ -------- -------- -------
RETURNS BY NUMBER OF OCCURRENCES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 1992............. 71.76% 10.99% -- 6.74% -- 2.07% -- 1.44% 7.00%
September 1992........ 69.57% 12.45% -- 8.01% -- 2.10% -- 1.66% 6.21%
December 1992......... 71.37% 13.37% -- 5.26% -- 1.70% -- 1.40% 6.90%
Average............... 70.90% 12.27% -- 6.67% -- 1.96% -- 1.50% 6.70%
Cumulative............ 70.90% 83.17% -- 89.84% -- 91.80% -- 93.30% 100.00%
RETURNS BY DOLLAR VOLUME
- --------------------------------------------------------------------------------------------------------------------
November 1995......... 71.28% 11.51% -- 6.70% -- 2.02% -- 1.58% 6.91%
January 1996.......... 54.47% 17.45% -- 12.90% -- 2.89% -- 2.54% 9.75%
April 1996............ 71.08% 12.37% -- 6.57% -- 1.60% -- 1.78% 6.60%
Average(2)............ 71.18% 11.94% -- 6.64% -- 1.81% -- 1.68% 6.75%
Cumulative(2)......... 71.18% 83.12% -- 89.76% -- 91.57% -- 93.25% 100.00%
DILUTION HORIZON ASSUMPTIONS USED IN THE MODEL
- --------------------------------------------------------------------------------------------------------------------
Rounded average
returns............... 71.00% 13.00% -- 6.00% -- 2.00% -- -- 8.00%
Interpolated average
returns(3)............ -- -- 16.00% -- 4.00% -- 9.00% -- --
Base assumptions by
interval.............. 71.00% -- 16.00% -- 4.00% -- 9.00%(4) -- --
Cumulative base
assumptions........... 71.00% -- 87.00% -- 91.00% -- 100.00% -- --
</TABLE>
- ------------------------------
(1) Historical data is not available for these intervals.
(2) January 1996 returns are excluded from calculations.
(3) Calculated as described in the preceding text.
(4) Assumed to occur 2% in each of the 76-105, 106-135, 136-165, and 166-195
day intervals and 1% in the 196-225 day interval.
The results shown in Table 1 have been utilized to create a set of
Dilution Horizon Percentages for use in the Model. First, two simplifying
assumptions have been made: that all sales in a sales month occur on the 15th
day of that month and that each year consists of twelve thirty-day months. Then,
the Model uses the Base Assumptions by Interval shown in Table 1 to establish
the percentage of embedded Receivables Dilutions arising in a sales month that
will occur in the first 15 days following the assumed date on which all sales
occurred in such month (the 15th of such month) and in each 30-day interval
thereafter. For each Fiscal Month during the Amortization Period (which are the
column headings across the top of Table 2 below), Table 2 shows the percentage
of Receivables Dilutions that are assumed to arise out of sales in each of the
months comprising the row headings.
- 129 -
<PAGE>
An example of the use of the Dilution Horizon Percentages is as
follows. If the first day of the Amortization Period occurs in April, then
Receivables Dilutions arising in April will relate to sales that occurred in
March, February, January, December and earlier. The preceding data showed that
71% of returns occurred within two weeks of the related sale. If it is assumed
for the sake of simplicity that all sales occurred on approximately the 15th of
a month, then approximately 71% of the returns for such sales month would occur
before the end of such sales month and only 29% would occur in later months.
This 29% is divided up among the later months as shown in Table 2. For the first
month of the Amortization Period, it is assumed that 16% (which is 87% minus
71%) of the Receivables Dilutions embedded in the charge sales from the
immediately preceding month would occur in the first month of the Amortization
Period, that 4% of the Receivables Dilutions embedded in the charge sales from
the second preceding month would occur in the first month of the Amortization
Period, that 2% of the Receivables Dilutions embedded in the charge sales for
each of the next preceding four months would occur in the applicable 30-day
intervals, and that the final 1% would occur in the seventh preceding month.
The Model thus is using an eight-month Receivables Dilutions
"horizon," because it is assuming that any Receivables Dilutions that are going
to arise out of a given month's charge sales will be realized over an
eight-month period: 71% will occur in the Fiscal Month in which the charge sale
occurred (and therefore will have occurred before the Amortization Period
commences), 16% will occur in the first following Fiscal Month, 4% in the second
following Fiscal Month, 2% in each of the next four following Fiscal Months and
1% in the seventh following Fiscal Month.
TABLE 2
RECEIVABLES DILUTION HORIZON PERCENTAGES
<TABLE>
<CAPTION>
Fiscal Month During Amortization Period
--------------------------------------------------------------------------------
Sales Month Prior (1) Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7
----------- --------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First preceding month...... 71% 16% 4% 2% 2% 2% 2% 1%
Second preceding month..... 87% 4 2 2 2 2 1 --
Third preceding month...... 91% 2 2 2 2 1 -- --
Fourth preceding month..... 93% 2 2 2 1 -- -- --
Fifth preceding month...... 95% 2 2 1 -- -- -- --
Sixth preceding month...... 97% 2 1 -- -- -- -- --
Seventh preceding month.... 99% 1 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
29% 13% 9% 7% 5% 3% 1%
</TABLE>
- ------------------------------
(1) Percentage of embedded receivables dilutions for such sales month occurring
prior to the commencement of the Amortization Period.
BASIC MONTHLY OUTPUTS
The Model generates certain Basic Monthly Outputs from the
Hypothetical Monthly Inputs. The first Basic Monthly Output that is generated is
the level of Collections for a Fiscal Month. This number is generated by
multiplying the assumed payment rate on the Receivables pool for the particular
month by the ending principal Receivables balance on the last day of the
preceding Fiscal Month. The Model then splits this amount of Collections into
Finance Charge Collections and Principal Collections. The portion of the
Collections that constitute Finance Charge Collections is established by
utilizing the Hypothetical Monthly Input for per annum yield on the Receivables
pool of 20.2%. The Model multiplies the monthly equivalent of this per annum
rate by the assumed ongoing overall Receivables pool balance of $200,120,000,
which results in the assumed level of Finance Charge Collections for the
applicable Fiscal Month.
The level of Principal Collections for a Fiscal Month during the
Amortization Period is another Basic Monthly Output. This result equals the
Collections for the Fiscal Month minus the Finance Charge Collections derived as
described above.
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<PAGE>
Another Basic Monthly Output is the level of Receivables Charge-offs.
This amount is derived by multiplying the assumed Hypothetical Monthly Input
variable for Receivables Charge-offs (8.30%) by the amount of Principal
Collections for the applicable Fiscal Month.
The level of Receivables Dilutions is another Basic Monthly Output. As
described above in "--Hypothetical Inputs--Receivables Dilutions--Dilution
Horizon Percentages," the amount of Receivables Dilutions in, for example, the
first Fiscal Month during the Amortization Period is calculated as the sum of
the embedded Receivables Dilutions for each of the seven Fiscal Months preceding
the Amortization Period Commencement Date (11.13% of $34,304,000, or
approximately $3,818,000) multiplied by the applicable Dilution Horizon
Percentage for such sales month. Thus, for example, in the first month of the
Amortization Period, the calculation would be $3,818,000 multiplied by 13%, the
calculation for the next preceding sales month would be $3,818,000 multiplied by
4%, the calculation for the next four preceding sales months would be $3,818,000
multiplied by 2%, and the calculation for the next preceding sales month would
be $3,818,000 multiplied by 1%. All such amounts are then totaled to determine
the total Receivables Dilutions to occur in such first month of the Amortization
Period.
The final Basic Monthly Output in the Model is the balance of principal
Receivables at the end of the Fiscal Month. This amount is calculated as the
result of the following formula: the principal Receivables balance at the
beginning of the Fiscal Month MINUS Principal Collections MINUS Receivables
Charge-offs MINUS Receivables Dilutions, in each case for such Fiscal Month.
STRESS FACTORS
The Hypothetical Inputs that are presented at different levels in the
"stress analysis" are the level of Receivables Charge-offs, the amount of
embedded Receivables Dilutions and the level of LIBOR. The Model presents (i)
the level of Receivables Charge-offs and the embedded Receivables Dilutions
percentage at 1.0, 1.25 and 1.5 times the base case Hypothetical Input and (ii)
LIBOR at assumed levels of 5.50%, 7.50% and 9.50% (which levels are assumed to
be constant throughout the entire Amortization Period).
SIMPLIFIED PRIORITIES
The Model contains certain simplifications of the priorities and
requirements for allocations that are set forth in the documents governing the
Trust and the Notes. One such simplification is that the Model assumes that
principal payments are made to each Class of Certificateholders quarterly in an
amount equal to all collected principal. However, this assumption ignores the
"controlled amortization" features of certain classes of the Series 1993-1 and
Series 1995-1 Certificates. For Series 1995-1, distributions in respect of
principal must be made in an amount equal to a minimum of $2,500,000 with
respect to the Class A Certificates and $100,000 with respect to the Class B
Certificates, and integral multiples thereof. At such time as the distribution
will reduce the Class Invested Amount of such Class to zero, the dis tribution
must be equal to $1,700,000 and integral multiples of $2,500,000 with respect to
the Class A Certificates and $300,000 and integral multiples of $100,000 with
respect to the Class B Certificates. Similarly, any distribution with respect to
principal on the Series 1993-1 Class A Certificates must be made in an amount
equal to $6,295,336.80 and multiples of $1,259,067.40. As a result of such
limitations on the amount of distributions in respect of principal on the Series
1995-1 Class A Certificates, the Series 1995-1 Class B Certificates and the
Series 1993-1 Class A Certificates, actual distributions in respect of principal
on such Certificates would not be made in the amounts contained in the Model.
The Model assumes the total amount of Basic Monthly Outputs are
received on one day during each month. In actuality, the Trust receives
collections on each business day during a month. In addition, on each business
day, Finance Charge Collections are allocated among various priorities and uses.
The Model allocates such funds on a monthly rather than daily basis. The Model
also determines the Floating Allocation Percentage for each Series of
Certificates on a monthly basis. As the components of the Floating Allocation
Percentage fluctuate on a daily basis, the Floating Allocation Percentage will
also fluctuate daily. As a result, Finance Charge Collections allocated to each
Series pursuant to the Floating Allocation Percentage in the Model will differ
from the amount of Finance Charge Collections actually allocated to such Series.
See "Description of the Collateral--Allocation Percentages."
- 131 -
<PAGE>
On each business day during an Amortization Period, if a Negative Carry
Amount for a Series exists, such amount will be deducted from Finance Charge
Collections or Principal Collections and deposited in the Negative Carry Account
for such Series. The Negative Carry Amount represents the amount by which the
amount of interest accrued on the Certificates on a business day exceeds the
amount of earnings available on such business day from investments on amounts on
deposit in the Equalization Account. The Model does not provide for the
application of funds to be deposited in the Negative Carry Account. As a result,
the amount of Finance Charge Collections and Principal Collections available for
other uses in the Model may be larger than such amounts actually are by reason
of the failure to deduct amounts which are required to be deposited in the
Negative Carry Amount.
The Trust may redeem any Series of Certificates if the sum of the
Invested Amounts of all Classes in a Series (other than any Transferror Retained
Class) is less than or equal to 10% of the sum of the Initial Invested Amount of
all such Classes in such Series. However, the Model assumes the Trust will not
exercise its right to redeem such Certificates. As a result, holders of Investor
Certificates and Holders of Notes may not receive distributions in respect of
principal in the same amounts or on the same date as reflected in the Model.
A portion of funds will be deposited in the Interest Reserve Account
each month according to a given percentage. If the required amount of funds has
not been reserved during the prior month, the percentage of funds deposited will
increase. Such reservation of funds in respect of interest is designed to ensure
funds equal to the amount of the semi-annual interest payment will be available.
The Model does not contain a mechanism for reserving interest or increasing the
amount of such funds reserved if there has been a failure to reserve the
appropriate amount of funds in a prior period. See "Description of the
Notes--Deposits in the Reserve Account."
The Pooling and Servicing Agreement provides that the Trust may issue
additional Series of Certificates under certain circumstances. The Model assumes
that only the 1995-1 Certificates and the 1993-1 Certificates are outstanding.
The issuance of additional Series of Certificates or the existence of a positive
Variable Funding Class Invested Amount would reduce the percentage of
Collections allocated to the 1995-1 Certificates and the 1993-1 Certificates,
although the dollar amount of funds available will remain relatively unchanged
unless a paired series has been issued. In addition, as Excess Finance Charge
Collections from other Series are available to the extent of any shortfall, the
issuance of an additional Series of Certificates may increase the amount of
funds allocable to the 1995-1 Certificates and the 1993-1 Certificates.
MODEL RESULTS
Table 3 sets forth certain results of the Model under the Stress
Factors identified above. The Model Results are presented as of the end of the
last Fiscal Month (the "PRESENTATION DATE") following the Amortization Period
Commencement Date in which, under the Model, Collections are set aside either to
repay the Notes in full or to reduce the Note principal balance to its lowest
level (because thereafter interest accrues on, and is added to, the remaining
Note principal balance at a rate faster than funds become available to repay
principal). As of the Presentation Date, the Model Results consist of the
amounts, if any, of Unpaid Original Principal, Capitalized Unpaid Interest,
Total Unpaid Principal and Dilution Recourse.
For purposes of the presentation of Model Results in Table 3, funds
available to repay amounts due on the Notes are assumed to be applied first to
accrued and unpaid current interest on the Notes, then to repayment of the
original $30,000,000 principal balance of the Notes and finally to unpaid
interest from prior periods that has been capitalized. It should be noted that
such assumption is not fully consistent with the application of funds as
required under the Indenture, pursuant to which, upon the occurrence of a
Purchase Termination Event of Default, all available Transferor Daily Cash Flows
are applied first to interest payments (including overdue interest, none of
which is capitalized) and second to the repayment of principal. See "Description
of the Notes--Deposits into the Interest Reserve Account--Event of Default" and
"Description of the Notes--Deposits into the Principal Reserve Account-- Event
of Default." The amounts shown for Unpaid Original Principal and Capitalized
Unpaid Interest are presented as of the Presentation Date on this basis, and the
Total Unpaid Principal is the sum of such amounts.
The amounts shown for Dilution Recourse represent the aggregate amounts
owing by Palais to SRPC in respect of Receivables Dilutions as of the
Presentation Date, under the Model Assumption that Palais has not honored its
- 132 -
<PAGE>
obligations to SRPC in respect of Receivables Dilutions. In such event, SRPC
will not have funds available to make Required Adjustment Payments to the Trust,
which may result in shortfalls in amounts needed to pay timely interest and
principal to Holders of Notes. Although there will be unpaid obligations of
Palais under all sets of Model Results, no numbers have been shown in those
Model Results in which the Holders of Notes are paid in full.
As the level of LIBOR increases, the amount paid in respect of interest
on the Senior Certificates will increase, thereby reducing the amount available
to make distributions in respect of principal. Similarly, as Receivables
Dilutions increase, the amount of Principal Collections and Finance Charge
Collections will decrease. As a result, funds may not be available to cover all
Receivables Charge-offs, resulting in an increasing of amount of shortfalls.
Although not shown in the presentation of the Model Results, if
Dilution Recourse payments are not made by Palais to SRPC, funds will not be
available in any month during the Amortization Period (even in those Model
Results in which all amounts owing to Holders of Notes are ultimately repaid) to
make timely distributions in respect of interest on the Notes until such time as
the Senior Certificates have been repaid. Such unpaid interest, together with
the principal balance, will continue to accrue interest.
CERTAIN DEFINITIONS
"LIBOR" means the reserve adjusted per annum equivalent of the
three-month London interbank offered rate for U.S. dollar deposits described on
the Dow Jones Telerate System, page 3750.
"RECEIVABLES CHARGE-OFFS" means the amount of principal Receivables
that are charged off by SRI as uncollectible in accordance with its customary
and usual servicing procedures. As used in the Model, Receivables Charge-offs
during a Fiscal Month are net of recoveries during that Fiscal Month.
"RECEIVABLES DILUTIONS" means any adjustment in the principal balance
of a Receivable because of transactions occurring in respect of a rebate or
refund to a cardholder, or because such principal Receivable was created in
respect of merchandise which was refused or returned by a cardholder, or because
the transaction which gave rise to such principal Receivable was discovered as
having been created through a fraudulent or counterfeit charge or because the
Servicer otherwise adjusts downward the amount of any Receivable without
receiving collections therefor or without charging off such amount as
uncollectible.
- 133 -
<PAGE>
TABLE 3
MODEL RESULTS
<TABLE>
<CAPTION>
Unpaid Capitalized Total Unpaid Capitalized
original unpaid unpaid Dilution original unpaid Total unpaid Dilution
LIBOR principal(1) interest(1) principal(1) recourse(2) LIBOR principal(1) interest(1) principal(1) recourse(2)
- ---------- ----------- ---------- ----------- ----------- ------- ----------- ---------- ----------- ----------
CASE I (3)
CHARGE OFFS 1x Actual (8.30%)
DILUTION 1X DILUTION 1.25x
- ------------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.50% - - - N/R 5.50% - - - N/R
7.50% - - - N/R 7.50% - - - N/R
9.50% - - - N/R 9.50% - 729,498 729,498 3,197,604
CASE II (3)
CHARGE OFFS 1.25x Actual (10.38%)
DILUTION 1X DILUTION 1.25x
- ------------------------------------------------------------- -----------------------------------------------------------
5.50% - - - N/R 5.50% - 588,718 588,718 3,197,604
7.50% - 727,123 727,123 2,558,084 7.50% - 1,496,842 1,496,642 3,197,604
9.50% - 1,652,624 1,652,624 2,558,084 9.50% 340,121 2,083,445 2,423,566 3,197,604
CASE III (3)
CHARGE OFFS 1.50x Actual (12.45%)
DILUTION 1X DILUTION 1.25x
- ------------------------------------------------------------- -----------------------------------------------------------
5.50% - 1,489,829 1,489,829 2,558,084 5.50% 125,728 2,125,295 2,251,023 3,197,604
7.50% 275,040 2,125,833 2,400,873 2,558,084 7.50% 1,025,887 2,137,394 3,163,281 3,197,604
9.50% 1,187,770 2,141,167 3,328,937 2,558,084 9.50% 1,939,842 2,152,718 4,092,560 3,197,604
</TABLE>
Unpaid Capitalized
original unpaid Total unpaid Dilution
LIBOR principal(1) interest(1) principal(1) recourse(2)
- --------- ----------- ----------- ----------- -----------
CASE I (3)
CHARGE OFFS 1x Actual (8.30%)
DILUTION 1.50x
- ------------------------------------------------------------
5.50% - - - N/R
7.50% - 579,684 579,684 3,837,125
9.50% - 1,505,212 1,505,212 3,837,125
CASE II (3)
CHARGE OFFS 1.25x Actual (10.38%)
DILUTION 1.50x
- ------------------------------------------------------------
5.50% - 1,355,637 1,355,637 3,837,125
7.50% 185,763 2,080,799 2,266,562 3,837,125
9.50% 1,098,377 2,096,131 3,194,508 3,837,125
CASE III (3)
CHARGE OFFS 1.50x Actual (12.45%)
DILUTION 1.50x
- ------------------------------------------------------------
5.50% 875,351 2,136,866 3,012,217 3,837,125
7.50% 1,776,734 2,148,955 3,925,689 3,837,125
9.50% 2,693,700 2,164,061 4,857,761 3,837,125
- ---------------------------
(1) The amounts, if any, of Unpaid Original Principal, Capitalized Unpaid
Interest and Total Unpaid Principal are presented as of the end of the last
Fiscal Month following the Amortization Period Commencement Date in which,
under the Model, Collections are set aside either to repay the Notes in
full or to reduce the Note principal balance to its lowest level (because
thereafter interest accrues on, and is added to, the remaining Note
principal balance at a rate faster than funds become available to repay
principal).
(2) The amounts shown for Dilution Recourse represent the aggregate amounts
owing by Palais to SRPC in respect of Receivables Dilutions as of the
Presentation Date, under the Model Assumption that Palais has not honored
its obligations to SRPC in respect of Receivables Dilutions.
(3) In each case, the amounts shown assume a Presentation Date in the ninth
month of the Amortization Period and a payment date in the tenth month of
the Amortization Period.
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<PAGE>
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
SRPC represents and warrants in the Pooling and Servicing Agreement
that the transfer of Receivables by it to the Trust constitutes either a valid
transfer and assignment to the Trust of all right, title, and interest of SRPC
in and to the Receivables, except for the interest of SRPC as holder of the
Transferor Certificate and any Investor Certificate of any Series then held by
it, or the grant to the Trust of a security interest in the Receivables. SRPC
also represents and warrants in the Pooling and Servicing Agreement that, in the
event the transfer of Receivables by SRPC to the Trust is deemed to create a
security interest under the Uniform Commercial Code, there exists a valid,
subsisting, and enforceable first priority perfected security interest in such
Receivables created thereafter in favor of the Trust on and after their
creation, subject only to permitted liens.
SRPC represents that the Receivables are "accounts," "general
intangibles" or "chattel paper" for purposes of the UCC. Both the transfer and
assignment of accounts, general intangibles, and chattel paper and the transfer
of accounts, general intangibles, and chattel paper as security for an
obligation are treated under Article 9 of the UCC as creating a security
interest therein and are subject to its provisions, and an appropriate financing
statement perfects the security interest of the Trust. In order to protect the
interests of the Trust in the Receivables, financing statements covering the
Receivables have been filed with the appropriate governmental authorities and
the charge slip pursuant to which each Receivable that constitutes "chattel
paper" for purposes of the UCC was generated has been marked with a legend
stating that such Receivable has been conveyed to the Trust.
There are certain limited circumstances under the UCC in which a prior
or subsequent transferee of Receivables coming into existence after each
Original Closing Date could have an interest in such Receivables with priority
over the Trust's interest. Under the Pooling and Servicing Agreement, however,
SRPC represents and warrants that it transferred the Receivables to the Trust
free and clear of the lien of any third party. In addition, SRPC covenants that
it will not sell, pledge, assign, transfer, or grant any lien on any Receivable
(or any interest therein) other than to the Trust. A tax or other government
lien on property of SRPC arising prior to the time a Receivable comes into
existence may also have priority over the interest of the Trust in such
Receivable.
In the event that the Bank is chartered and becomes the originator of
new Receivables, it is currently expected that the Bank would enter into
appropriate agreements with the Trust and make representations, warranties and
covenants similar to those described above.
CERTAIN MATTERS RELATING TO BANKRUPTCY
SRPC will not, and does not, engage in any activities except purchasing
accounts receivable from Palais, forming trusts, transferring such accounts
receivable to such trusts and engaging in activities incident to, or necessary
or convenient to accomplish, the foregoing. SRPC has no intention of filing a
voluntary petition under the United States Bankruptcy Code or any similar
applicable state law so long as SRPC is solvent and does not reasonably foresee
becoming insolvent.
The voluntary or involuntary application for relief under the United
States Bankruptcy Code or any similar applicable state law with respect to SRI
or Palais should not necessarily result in a similar voluntary application with
respect to SRPC so long as SRPC is solvent and does not reasonably foresee
becoming insolvent either by reason of SRI's or Palais's insolvency or
otherwise. Counsel has advised SRI, Palais, and SRPC that (i) the assets and
liabilities of SRPC will not be substantively consolidated with the assets and
liabilities of SRI or Palais in the event of an application for relief under the
United States Bankruptcy Code with respect to SRI or Palais and (ii) the sale of
Receivables by Palais constitutes a valid sale and, therefore, such Receivables
would not be property of Palais in the event of the filing of an application for
relief by or against Palais under the United States Bankruptcy Code. The
foregoing conclusions are reasoned conclusions, based upon various assumptions
regarding factual matters and future events, as to which there necessarily can
be no assurance. If a bankruptcy trustee for SRI or Palais, SRI or Palais as
debtor in possession, or a creditor of SRI or Palais were to take the view that
SRI or Palais and SRPC should be substantively consolidated or that the transfer
of the Receivables from Palais to SRPC should be recharacterized as a
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<PAGE>
pledge of such Receivables, then delays in payments on the Class D Certificates
and the Transferor Certificate, and therefore on the Notes, or (should the
bankruptcy court rule in favor of any such trustee, debtor in possession or
creditor) reductions in such payments on such Certificates and Notes, could
result.
The Pooling and Servicing Agreement provides that, upon the bankruptcy
or appointment of a receiver for SRPC, SRPC will promptly give notice thereof to
the Receivables Trustee, and a Pay Out Event with respect to all Series will
occur. Under the Pooling and Servicing Agreement, no new principal Receivables
are transferred to the Trust and, unless otherwise instructed within a specified
period by the Certificateholders representing undivided interests aggregating
more than 50% of the Aggregate Invested Amount of each Series, the Receivables
Trustee will proceed to sell, dispose of, or otherwise liquidate the Receivables
in a commercially reasonable manner and on commercially reasonable terms. The
proceeds from the sale of the Receivables are then to be treated by the
Receivables Trustee as collections on the Receivables. If the only Pay Out Event
to occur is either the insolvency of SRPC or the appointment of a bankruptcy
trustee or receiver for SRPC, the receiver or bankruptcy trustee for SRPC may
have the power to continue to require SRPC to transfer new Principal Receivables
to the Trust and to prevent the early sale, liquidation, or disposition of the
Receivables and the commencement of the Early Amortization Period. See
"Description of the Collateral--Pay Out Events."
CONSUMER AND DEBTOR PROTECTION LAWS
The relationship of the cardholder and credit card issuer is
extensively regulated by federal and state consumer protection laws. With
respect to credit cards issued by Palais, the most significant of these laws
include the federal Truth-in-Lending Act and Equal Credit Act and comparable
statutes in the states in which cardholders reside. These statutes impose
disclosure requirements when a credit card account is advertised, when it is
opened, at the end of monthly billing cycles, upon account renewal for accounts
on which annual fees are assessed, and at year-end. In addition, these statutes
limit cardholder liability for unauthorized use, prohibit certain discriminatory
practices in extending credit, and impose certain limitations on the type of
account-related charges that may be assessed. Federal legislation requires
credit card issuers to disclose to consumers the interest rates, annual
cardholder fees, grace periods, and balance calculation methods associated with
their credit card accounts. Cardholders are entitled under current law to have
payments and credits applied to the credit card account promptly, to receive
prescribed notices, and to have billing errors resolved promptly.
The Trust may be liable for certain violations of consumer protection
laws that apply to the Receivables, either as assignee of SRPC with respect to
obligations arising before transfer of the Receivables to the Trust or as a
party directly responsible for obligations arising after such transfer. In
addition, a cardholder may be entitled to assert such violations by way of
set-off against his obligation to pay the amount of Receivables owing. SRPC
covenants in the Pooling and Servicing Agreement to accept the transfer of all
Receivables in an Account if any Receivable in such Account has not been created
in compliance with the requirements of such laws. SRPC also agrees in the
Pooling and Servicing Agreement to indemnify the Trust for, among other things,
any liability arising from such violations.
Application of federal and state bankruptcy and debtor relief laws to
the obligations represented by the Receivables could adversely affect the
interests of the Certificateholders, which could affect the Collateral
Certificates, if such laws result in any Receivables being written off as
uncollectible. See "Description of the Collateral--Defaulted Receivables;
Rebates and Fraudulent Charges; Portfolio Reassignment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of material generally applicable federal
income tax consequences of the acquisition, ownership and disposition of the New
Notes is based on the advice of Federal Tax Counsel. This discussion is based
upon provisions of the Code, applicable Treasury Department regulations,
judicial authority and current administrative rulings and practice, all of which
are subject to change at any legislative, judicial or administrative action. Any
such changes may be applied retroactively in a manner that could adversely
affect a Holder of the Notes. Further, there can be no assurance that the
Internal Revenue Service (the "IRS") will not take a contrary view, and no
rulings from the IRS have been or will be sought as to any of the matters
discussed below.
- 136 -
<PAGE>
This discussion is generally limited to those persons who are original
owners of the Notes and who hold such Notes as capital assets. This discussion
does not purport to address specific tax consequences that may be relevant to
particular persons (including, for example, foreign persons, financial
institutions, broker-dealers, insurance companies, tax-exempt organizations, and
persons in special situations such as those who hold Notes as part of a straddle
or a hedging transaction). In addition, this discussion does not address any
aspect of state, local or foreign taxation.
PROSPECTIVE HOLDERS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF
ACQUIRING, OWNING AND DISPOSING OF THE NEW NOTES AS WELL AS THE APPLICATION OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS. THIS SUMMARY APPLIES ONLY TO
A HOLDER OF OLD NOTES THAT ACQUIRED SUCH OLD NOTES FROM SRPC PURSUANT TO THEIR
ORIGINAL ISSUANCE AND THAT WILL BE AN INITIAL HOLDER OF THE NEW NOTES PURSUANT
TO THE EXCHANGE OF THE OLD NOTES FOR THE NEW NOTES HEREUNDER.
DEBT CHARACTERIZATION AND INTEREST INCOME
In the opinion of Federal Tax Counsel, for federal income tax purposes
the Notes will be characterized as debt and the issuance of the Notes will not
cause the Trust to be characterized as an association (or publicly traded
partnership) taxable as a corporation. SRPC and each Holder, by acceptance of a
Note, will agree to treat the Notes as indebtedness.
If the Notes were not treated as debt, they might be treated as
ownership interests in SRPC or in the Trust. If the Notes were classified as
interests in the Trust, the Trust might be classified as an association or
publicly traded partnership taxable as a corporation. In that event, the deemed
corporation would be subject to taxation on the income it derives from the
Receivables, without any deduction for interest payable on the Notes or on any
class of Certificates issued by the Trust that is not classified as debt for
federal income tax purposes, including the Transferor Certificate and the Class
D Certificates. As a result, the amount available to make payments to such
classes of Certificates and the Notes would be reduced.
Based on the foregoing, interest on the Notes will be taxable as
ordinary income for federal income tax purposes when received or accrued by a
Holder in accordance with such Holder's method of tax accounting. Interest
received on the Notes may constitute "investment income" for purposes of certain
limitations of the Code concerning the deductibility of investment interest
expense.
It is not anticipated that the Notes will be issued with "original
issue discount" within the meaning of Section 1273 of the Code ("OID"). A Holder
who purchases a Note after the initial distribution thereof at a discount that
exceeds a statutorily defined DE MINIMIS amount will be subject to the "market
discount" rules of the Code, and a Holder who purchases a Note at a premium will
be subject to the bond premium amortization rules of the Code.
EXCHANGE OF OLD NOTES FOR NEW NOTES
In the opinion of Federal Tax Counsel, a Holder will not recognize gain
for federal income tax purposes in respect of the exchange of Old Notes for New
Notes. Each New Note will have the same adjusted tax basis as the Old Note for
which it was exchanged. The holding period of each New Note will include the
holding period of the Old Note for which it is exchanged if such Old Note was
held as a capital asset.
DISPOSITION OF NOTES
If a Holder sells a Note, the Holder will recognize gain or loss in an
amount equal to the difference between the amount realized on the sale and the
Holder's adjusted tax basis in the Note. The adjusted tax basis of the Note to a
particular Holder will equal the Holder's cost for the Note, increased by any
OID, market discount and gain previously included by such Holder in income with
respect to the Note and decreased by any bond premium previously amortized and
any principal payments previously received by such Holder with respect to such
Note. Subject to the market discount rules of the Code, any such gain or loss
will be capital gain or loss if the Note was held as a capital asset.
- 137 -
<PAGE>
Capital gain or loss will be long-term if the Note was held by the Holder for
more than one year and otherwise will be short-term. Any capital losses realized
generally may be used by a corporate taxpayer only to offset capital gains, and
by an individual taxpayer only to the extent of capital gains plus $3,000 of
other income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
SRPC will be required to report annually to the IRS, and to each Holder
of record, the amount of interest paid on the Notes (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as to
exempt Holders (generally, corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status). Each Holder
(other than Holders who are not subject to the reporting requirements) will be
required to provide to SRPC, under penalties of perjury, a certificate
containing the Holder's name, address, correct federal taxpayer identification
number and a statement that the Holder is not subject to backup withholding.
Should a nonexempt Holder fail to provide the required certification, SRPC will
be required to withhold, from interest otherwise payable to the Holder, 31% of
such interest and remit the withheld amount to the IRS as a credit against the
Holder's federal income tax liability.
TAX CONSEQUENCES TO FOREIGN HOLDERS
If interest paid (or accrued) to a Holder who is a nonresident alien,
foreign corporation or other non-United States person (a "FOREIGN PERSON") is
not effectively connected with the conduct of a trade or business within the
United States by the foreign person, the interest generally will be considered
"portfolio interest," and generally will not be subject to United States federal
income tax and withholding tax, as long as the foreign person (i) is not
actually or constructively a "10 percent shareholder" of any of SRPC, ARI, SRI
and Palais or a "controlled foreign corporation" with respect to which SRPC is a
"related person" within the meaning of the Code, and (ii) provides an
appropriate statement, signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing that foreign
person's name and address. If the information provided in this statement
changes, the foreign person must so inform SRPC within 30 days of such change.
The statement generally must be provided in the year a payment occurs or in
either of the two preceding years. If such interest were not portfolio interest,
then it would be subject to United States federal income and withholding tax at
a rate of 30 percent unless reduced or eliminated pursuant to an applicable tax
treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person, and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person, the Holder (although exempt from the withholding
tax previously discussed if an appropriate statement is furnished) generally
will be subject to United States federal income tax on the interest, gain or
income at regular federal income tax rates. In addition, if the foreign person
is a foreign corporation, it may be subject to a branch profits tax equal to 30
percent of its "effectively connected earnings and profits" within the meaning
of the Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable tax treaty.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans (each, a "BENEFIT PLAN"), from
engaging in certain transactions with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to such
Benefit Plan. A violation of these "prohibited transaction" rules may result in
an excise tax or other penalties and liabilities under ERISA and the Code for
such persons.
- 138 -
<PAGE>
The acquisition or holding of the Notes by or on behalf of a Benefit
Plan could be considered to give rise to a prohibited transaction if SRPC, SRI,
the Indenture Trustee, the Receivables Trustee or any of their respective
affiliates is or becomes a party in interest or a disqualified person with
respect to such Benefit Plan. Certain exemptions from the prohibited transaction
rules could be applicable to the purchase and holding of Notes by a Benefit Plan
depending on the type and circumstances of the plan fiduciary making the
decision to acquire such Notes. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38, regarding investments by bank
collective investment funds; and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers."
Employee benefit plans that are governmental plans (as defined in
Section 3(3) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Notes should consult its
tax and/or legal advisors regarding the possibility of exemptive relief from the
prohibited transaction rules and other issues and their potential consequences.
PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
Exchange Offer in connection with a distribution of the New Notes, such
broker-dealer would be deemed an underwriter in connection with such
distribution, and such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may, however,
receive New Notes for its own account pursuant to the Exchange Offer in exchange
for Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from SRPC). Each such broker-dealer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer (other than an "affiliate" of SRPC) in connection with resales of
such New Notes. SRPC has agreed that, for a period of six months from the date
on which the Registration Statement is declared effective, it will make this
Prospectus available to any such broker-dealer for use in connection with any
such resale. In addition, until ___, 1996, all dealers effecting transactions in
the New Notes may be required to deliver a prospectus.
SRPC will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of six months from the date on which the Registration
Statement is declared effective, SRPC will promptly send additional copies of
this Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal.
Prior to the Exchange Offer, there has been no active market for the
Old Notes. Although application has been made to have the Old Notes designated
for trading in the PORTAL market, there can be no assurance that an active
market for the New Notes will develop.
- 139 -
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the New Notes offered in exchange
hereby will be passed upon for SRPC by Kirkland & Ellis, Chicago, Illinois. Mr.
Karl E. Lutz, whose professional corporation is a partner of Kirkland & Ellis,
as of the date hereof holds 29,372 shares of Common Stock and 8,116 shares of
Class B Common Stock.
INDEPENDENT ACCOUNTANTS
The financial statements of SRPC as of February 3, 1996 and January 28,
1995 and for each of the two years ended February 3, 1996 and for the period
from inception to January 29, 1994 included in this Prospectus have been audited
by Price Waterhouse LLP, independent accountants, as stated in their report
appearing herein.
- 140 -
<PAGE>
INDEX OF DEFINED TERMS
PAGE
----
1993-1 Certificates...........................................................90
1993-1 Class A Certificates...................................................90
1993-1 Class B Certificates...................................................90
1993-1 Class C Certificates...................................................90
1993-1 Class D Certificate....................................................90
1993-2 Certificates...........................................................90
1993-2 Class A-R Certificates.................................................16
1993-2 Class B-R Certificates.................................................16
1995-1 Certificates...........................................................90
1995-1 Class A Certificates...................................................90
1995-1 Class B Certificates...................................................90
1995-1 Class C Certificates...................................................90
1995-1 Class D Certificate....................................................90
Accounts......................................................................92
Accounts Receivable Program....................................................8
Active Account...............................................................116
Adjusted Invested Amount.....................................................116
Administrative Agent...........................................................1
Aggregate Invested Amount....................................................116
Aggregate Investor Percentage................................................116
AMC...........................................................................37
Amendment.....................................................................32
Amortization Period..........................................................116
Amortization Period Commencement Date........................................116
AMT...........................................................................60
ARI............................................................................1
ARI Senior Discount Debentures................................................69
Automatic Additional Account.................................................116
Available Designated Series Finance Charge Collections.......................102
Available Variable Funding Series Finance Charge
Collections........................................................104
Bain..........................................................................57
Bank..........................................................................47
Base Rate....................................................................117
Basic Monthly Outputs........................................................125
Bealls Holding................................................................68
Bealls Holding Junior Subordinated Debentures.................................68
Bealls Holding Subordinated Debentures........................................68
Benefit Plan.................................................................139
Cap Proceeds Account..........................................................98
Cash Equivalents..............................................................98
Certificated Security.........................................................85
Certificateholder ............................................................89
Certificates..................................................................89
Class A Certificate Rate.....................................................117
Class A Investor Charge-Off..................................................110
Class A Monthly Interest.....................................................117
Class A Principal............................................................117
Class A Principal Payment Commencement Date..................................117
Class A Principal Payment Commencment Date...................................121
Class B Certificate Rate.....................................................117
Class B Investor Charge-Off..................................................110
Class B Monthly Interest.....................................................117
Class B Principal............................................................117
Class B Principal Payment Commencement Date..................................118
Class C Certificate Rate.....................................................118
Class C Investor Charge-Off..................................................109
Class C Monthly Interest.....................................................118
Class C Principal............................................................118
Class C Principal Payment Commencement Date..................................118
Class D Certificate Rate.....................................................119
Class D Certificateholders....................................................95
Class D Certificates..........................................................16
Class D Daily Cash Flows......................................................78
Class D Fixed Allocation Percentage..........................................119
Class D Floating Allocation Percentage.......................................119
Class D Initial Invested Amount..............................................119
Class D Invested Amount......................................................119
Class D Investor Charge-Off..................................................109
Class D Monthly Principal....................................................106
Class D Principal............................................................119
Class D Principal Payment Commencement Date..................................119
Class Fixed Allocation Percentage............................................120
Class Floating Allocation Percentage.........................................120
Class Invested Amount........................................................120
Class Variable Funding Fixed Allocation Percentage...........................120
Class Variable Funding Floating Allocation Percentage........................120
Closing Date..................................................................85
Code..........................................................................60
Collateral Agent...............................................................1
Collateral Certificates.......................................................16
Collection Account............................................................98
Commission.....................................................................2
Commitment Fees..............................................................105
Committee.....................................................................61
Common Stock..................................................................57
Common Stock Offering.........................................................22
Court Square..................................................................66
Credit Agreement..............................................................67
CVC...........................................................................57
Daily Cap Proceeds Amount....................................................120
DCR...........................................................................19
Declining Pool Scenario......................................................126
Default.......................................................................82
Deferred Compensation Plan....................................................63
Depositary participants.......................................................86
Designated Series.............................................................77
Determination Date...........................................................109
Discount Option Receivable Collections........................................97
Discount Option Receivables...................................................97
Discounted Percentage.........................................................97
disqualifying disposition.....................................................60
Distribution Account..........................................................98
Distribution Date............................................................120
DTC...........................................................................70
Early Amortization Period....................................................121
Early Termination Event......................................................112
Eligible Account..............................................................95
Eligible Institution..........................................................72
Eligible Receivable...........................................................95
Equalization Account..........................................................98
Equalization Plan.............................................................62
ERISA........................................................................139
Event of Default..............................................................83
- 141 -
<PAGE>
INDEX OF DEFINED TERMS (CONTINUED)
PAGE
----
Excess Cash...................................................................67
Excess Finance Charge Collections............................................104
Excess Transferor Daily Cash Flows............................................80
Exchange Act...................................................................7
Exchange Agent................................................................14
Exchange Offer.................................................................1
Executive Stock...............................................................58
Existing Series..............................................................121
Expected Final Payment Date...................................................15
Expected Maturity Date........................................................15
Expiration Date................................................................2
Facilities Costs.............................................................106
FB Holdings...................................................................68
FB Holdings Subordinated Notes................................................68
FCP...........................................................................65
FDIC..........................................................................47
Federal Tax Counsel...........................................................19
Finance Charge Collections...................................................121
Fiscal Month..................................................................80
Fixed Allocation Percentage..................................................121
Floating Allocation Percentage...............................................121
foreign person...............................................................139
Fuchs Management Agreement....................................................57
Global Note...................................................................85
Holder........................................................................70
Hypothetical Inputs..........................................................125
In-Store Payment.............................................................100
Incentive Plan................................................................58
Indenture......................................................................1
Indenture Trustee..............................................................1
indirect participants.........................................................87
Initial Invested Amount......................................................121
Initial Purchaser..............................................................2
Insider.......................................................................61
Insolvency Event.............................................................112
Interest Accrual Period......................................................121
Interest Funding Account......................................................98
Interest Payment Date.........................................................77
Interest Rate Cap............................................................108
Interest Reserve Account......................................................79
Investor Certificates.........................................................16
Investor Charge-Offs.........................................................110
Investor Default Amount......................................................121
Investor Percentage..........................................................121
IRS..........................................................................137
Latest Rating Agency Approval................................................121
Legal Defeasance..............................................................84
Legal Maturity Date...........................................................82
Letter of Transmittal..........................................................1
LIBOR........................................................................134
Marcum Employment Agreement...................................................57
Minimum Aggregate Principal Receivables......................................121
Minimum Transferor Interest..................................................122
Minimum Transferor Interest Deficiency........................................98
Minimum Transferor Percentage................................................122
Model........................................................................125
Model Assumptions............................................................125
Model Factors................................................................126
Model Results................................................................125
Monthly Interest Payment Amount...............................................80
Monthly Interest Period.......................................................80
Monthly Interest Reserve Amount...............................................79
Monthly Payment Date..........................................................77
Monthly Servicing Fee........................................................113
Negative Carry Account........................................................98
Negative Carry Amount........................................................122
Negative Carry Fill-up Date..................................................108
New Notes......................................................................1
Non-Global Purchasers.........................................................85
Note Allocation Percentage....................................................78
Notes..........................................................................1
OCC...........................................................................47
Offering......................................................................12
OID..........................................................................138
Old Notes......................................................................1
Original Closing Date........................................................122
Palais.........................................................................1
Participants..................................................................59
Pay Out Commencement Date....................................................112
Pay Out Event................................................................111
Payment Account...............................................................79
Payment Date..................................................................77
Payment Default...............................................................82
Plan Administrator............................................................59
Pooling and Servicing Agreement...............................................16
Port Arthur IDRB..............................................................68
PORTAL.........................................................................2
Portfolio Reassignment.......................................................109
Portfolio Yield..............................................................122
POS...........................................................................41
Presentation Date............................................................133
Principal Account.............................................................98
Principal Collections........................................................122
Principal Reserve Account.....................................................79
Principal Shortfall..........................................................122
Proposed SERP.................................................................62
Prospectus.....................................................................1
PTCE.........................................................................140
Purchase Agreement............................................................12
Purchase Termination Event...................................................122
Purchase Termination Event of Default.........................................80
Rapid Reserve Period..........................................................80
Rate Determination Date......................................................122
Rating Agency.................................................................95
Receivables...................................................................93
Receivables Charge-offs......................................................134
Receivables Dilutions........................................................134
Receivables Purchase Agreement................................................18
Receivables Trustee...........................................................89
Record Date..................................................................122
Refinancing...................................................................36
Registration Rights Agreement.................................................12
Registration Statement.........................................................7
Related Person...............................................................116
- 142 -
<PAGE>
INDEX OF DEFINED TERMS (CONTINUED)
PAGE
----
Released Equalization Account Cash Flows......................................78
Removed Accounts..............................................................97
Repurchase Distribution Date.................................................122
Required Adjustment Payment..................................................109
Required Amount..............................................................122
Revolving Credit Agreement....................................................67
Revolving Note................................................................67
Revolving Period.............................................................123
Rosecliff.....................................................................65
S&P...........................................................................19
SARs..........................................................................59
Scheduled Deposit Month.......................................................79
Seasonal Credit Agreement.....................................................67
Seasonal Period...............................................................67
Section 83(b) election........................................................60
Securities Act.................................................................1
Semi-Annual Interest Payment Amount...........................................80
Semi-Annual Interest Payment Date.............................................77
Semi-Annual Interest Period...................................................80
Senior Certificate Monthly Interest..........................................123
Senior Certificate Principal Repayment Date..................................123
Senior Certificates...........................................................99
Senior Class Certificate Rate................................................105
Senior Class Interest........................................................105
Senior Class Investor Charge-Off.............................................110
Senior Classes...............................................................123
Senior Equalization Account Percentage.......................................123
Senior Notes..................................................................67
Senior Subordinated Notes.....................................................68
Series........................................................................89
Series 1993-1 Supplement......................................................90
Series 1993-2 Supplement......................................................90
Series 1995-1 Supplement......................................................90
Series B Senior Subordinated Notes............................................67
Series D Senior Subordinated Notes............................................68
Service Transfer.............................................................114
Servicer......................................................................97
Servicer Default.............................................................114
SFAS 125......................................................................33
Shared Principal Collections..................................................93
Simplified Priorities........................................................125
SRI............................................................................1
SRI Cards.....................................................................43
SRI Portfolio.................................................................45
SRI Retirement Plan...........................................................61
SRPC...........................................................................1
Stage Stores...................................................................1
Statutory Holding Periods.....................................................60
Stock Option Plan.............................................................58
Supplement....................................................................89
Supplemental Accounts.........................................................96
Tendering Holder..............................................................73
Tooker Employment Agreement...................................................57
Transfer Date................................................................107
Transferor....................................................................78
Transferor /Class D Cash Flows................................................78
Transferor Certificate........................................................17
Transferor Daily Cash Flows...................................................78
Transferor Excess Finance Charge Cash Flows...................................78
Transferor Finance Charge Collections........................................123
Transferor Interest..........................................................123
Transferor Percentage........................................................123
Transferor Percentage Finance Charge Cash Flows...............................78
Transferor Percentage Principal Cash Flows....................................78
Transferor Retained Class....................................................123
Transferor Retained Class Investor Charge-Off................................110
Transferor Retained Class Principal Payment
Commencement Date...................................................123
Transferor Shared Principal Collection Cash Flows.............................78
Transferor/Class D Cash Flows.................................................78
Trust..........................................................................8
Trust Pay Out Event..........................................................112
Tyler Entities................................................................65
Uhlmans........................................................................8
Variable Funding Certificates.................................................90
Variable Funding Class Invested Amount.......................................123
Variable Funding Series.......................................................90
Year of Credited Service......................................................62
Year of Service...............................................................62
- 143 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Number
SRI RECEIVABLES PURCHASE CO., INC. ------
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheet at August 3, 1996 and February 3, 1996........ F-2
Condensed Statement of Income for the six months ended
August 3, 1996 and July 29, 1995.................................... F-3
Condensed Statement of Cash Flows for the six months ended
August 3, 1996 and July 29, 1995.................................... F-4
Condensed Statement of Stockholder's Equity for the six
months ended August 3, 1996......................................... F-5
Notes to Unaudited Condensed Financial Statements..................... F-6
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants..................................... F-7
Balance Sheet at February 3, 1996 and January 28, 1995................ F-8
Statement of Income for the fiscal years 1995 and 1994 and from
inception to January 29, 1994................................ F-9
Statement of Cash Flows for the fiscal years 1995 and 1994 and from
inception to January 29, 1994................................ F-10
Statement of Stockholder's Equity for the fiscal years 1995 and
1994 and from inception to January 29, 1994.................. F-12
Notes to Financial Statements......................................... F-13
F-1
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED BALANCE SHEET
(dollars in thousands, except par value)
<TABLE>
<CAPTION>
August 3, 1996 February 3, 1996
-------------- ----------------
(unaudited)
ASSETS
<S> <C> <C>
Undivided interest in accounts receivable, net . $55,343 $62,454
Restricted cash ................................ 5,398 4,411
Receivable from Trust .......................... 5,571 4,896
------- -------
Total current assets ....................... 66,312 71,761
Debt issue costs ............................... 2,445 --
Trust organization costs ....................... 5,503 5,927
------- -------
$74,260 $77,688
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued expenses and other accrued liabilities . $ 2,335 $ 573
State income taxes payable ..................... 1,369 1,170
Payable to Palais .............................. 8,908 18,522
Deferred income taxes .......................... 1,042 1,063
------- -------
Total current liabilities .................. 13,654 21,328
Long-term debt ................................. 30,000 --
------- -------
Total liabilities .......................... 43,654 21,328
------- -------
Common stock, par value $0.01, 1,000 shares
authorized, issued and outstanding ......... -- --
Additional paid-in capital ..................... 26,844 52,195
Retained earnings .............................. 3,762 4,165
------- -------
Stockholder's equity ....................... 30,606 56,360
------- -------
Commitments and contingencies .................. -- --
------- -------
$74,260 $77,688
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF INCOME
(in thousands)
(unaudited)
Six Months Ended
------------------------------
August 3, 1996 July 29, 1995
-------------- -------------
Service charge income ................. $ 5,770 $ 5,124
Earnings related to accounts receivable
sold to Trust ....................... 1,277 6,210
Interest income on balances with Palais 1,090 316
Interest income ....................... 49 67
Interest expense ...................... (668) --
Amortization of debt issue costs ...... (92) --
General and administrative expenses ... (58) (74)
Bad debt (expense) recovery ........... (4,834) 3,026
------- --------
Operating income .................. 2,534 14,669
Income tax expense .................... (960) (5,447)
------- --------
Net income ............................ $ 1,574 $ 9,222
======= ========
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
August 3, 1996 July 29, 1995
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 1,574 $ 9,222
--------- ---------
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization of trust organization and debt
issue costs ................................. 604 380
Deferred income taxes ......................... (21) (66)
Change in operating assets and liabilities:
Decrease in payable to Palais ................. (9,614) (4,831)
Decrease in prepaid expenses and other
current assets .............................. -- (50)
Increase in state franchise taxes payable ..... 199 401
Increase in accrued expenses and other
accrued liabilities ......................... 1,762 10
Increase (decrease) in allowance for
doubtful accounts ........................... (363) 1,942
Increase (decrease) in receivable from Trust .. (675) 45
--------- ---------
Total adjustments ................................. (8,108) (2,169)
--------- ---------
Net cash provided by (used in) operating activities (6,534) 7,053
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash ....................... (987) (156)
Purchases of accounts receivable .................. (147,368) (137,956)
Proceeds from the sale of accounts receivable ..... 149,238 131,059
Proceeds from the sale of defaulted receivables ... 7,665 13,181
--------- ---------
Net cash provided by investing activities ..... 8,548 6,128
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt .......... 30,000 --
Additions to debt issue costs ..................... (2,537) --
Dividends paid to Palais .......................... (29,477) (13,181)
--------- ---------
Net cash used in financing activities ......... (2,014) (13,181)
--------- ---------
Net change in cash and cash equivalents ....... -- --
CASH AND CASH EQUIVALENTS:
Beginning of period ............................... -- --
--------- ---------
End of period ..................................... $ -- $ --
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Contribution of ineligible accounts receivable .... $ 2,062 $ 1,868
========= =========
Contribution of trust organization costs .......... $ 87 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands except number of shares)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
---------------------
Additional
Shares Paid-in Retained
Outstanding Amount Capital Earnings Total
----------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, February 3, 1996 .............. 1,000 $-- $ 52,195 $ 4,165 $ 56,360
Net income ............................. -- -- -- 1,574 1,574
Dividends .............................. -- -- (27,500) (1,977) (29,477)
Contribution of ineligible accounts
receivable .......................... -- -- 2,062 -- 2,062
Contribution of trust organization costs -- -- 87 -- 87
----- ---- -------- ------- --------
Balance, August 3, 1996 ................ 1,000 $-- $ 26,844 $ 3,762 $ 30,606
===== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements of SRI
Receivables Purchase Co., Inc. ("SRPC") have been prepared in accordance with
Rule 10-01 of Regulation S-X and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Those adjustments, which include only normal recurring
adjustments, that are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods have been made. The results
of operations for such interim periods are not necessarily indicative of results
of operations for a full year. The unaudited condensed financial statements
should be read in conjunction with the audited financial statements and notes
thereto contained elsewhere herein. SRPC is an indirect, wholly owned subsidiary
of Specialty Retailers, Inc. ("SRI"). SRPC's ultimate parent is Stage Stores,
Inc. ("Stage Stores," formerly Apparel Retailers, Inc.). The fiscal years
discussed herein end on the Saturday nearest to January 31 in the following
calendar year. For example, references to "1996" mean the fiscal year ended
February 1, 1997.
2. Under the accounts receivable securitization program implemented in
1993 (the "Accounts Receivable Program"), SRPC purchases the accounts receivable
generated under the private label credit card program. Such accounts receivable
are in turn transferred to a master trust (the "Trust") which has issued certain
certificates representing undivided interests in the Trust. SRPC owns an
undivided interest in the accounts receivable not supporting the certificates
issued by the Trust (the "Retained Interest"). SRPC is a separate corporate
entity from Stage Stores and SRPC's creditors have a claim on its assets prior
to those assets becoming available to any creditor of Stage Stores or any of its
subsidiaries.
3. During May 1996, SRPC issued $30.0 million in aggregate principal
amount of 12.5% Trust Certificate- Backed Notes Due 2000 (the "SRPC Notes"). The
proceeds of such issuance were transferred to Palais Royal, Inc. and ultimately
used by Stage Stores to acquire Uhlmans Inc. ("Uhlmans"). Interest on the SRPC
Notes is payable semi-annually on June 15 and December 15 of each year,
commencing December 15, 1996 from amounts otherwise received by SRPC from its
Retained Interest. Principal repayments are anticipated to commence in December
1999.
The purchase price of Uhlmans was $28.7 million, including the
repayment of certain debt of Uhlmans. Uhlmans, which operated thirty-four family
apparel stores located in Ohio, Michigan and Indiana, had sales of $59.7 million
and net income of $0.6 million for the year ended February 3, 1996. Stage Stores
plans to operate the majority of the acquired locations under the "Stage" banner
following a brief conversion period. Stage Stores filed a Current Report on Form
8-K on May 9, 1996 related to this transaction.
4. During June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities ("SFAS
125").The statement provides standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. A transfer
will be considered a sale to the extent consideration other than beneficial
interests in the assets transferred are recieved in exchange and control over
the assets is surrendered. SRPC is currently evaluating the accounting
implications of the standards set forth in this statement. Although SRPC has not
completed its evaluation of this statement and is unable to determine the exact
impact of the adoption of the statement, SRPC believes the adoption of SFAS 125
will not have a material impact on its financial position or results of
operations.
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
SRI Receivables Purchase Co., Inc.
In our opinion, the accompanying financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of SRI
Receivables Purchase Co., Inc., an indirect, wholly owned subsidiary of Stage
Stores, Inc. (formerly Apparel Retailers, Inc.), at February 3, 1996 and January
28, 1995, and the results of its operations and its cash flows for each of the
two years in the period ended February 3, 1996 and for the period from inception
to January 29, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Houston, Texas
April 19, 1996
F-7
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
BALANCE SHEET
(dollars in thousands, except par value)
February 3, January 28,
1996 1995
------- -------
ASSETS
Undivided interest in accounts receivable, net .. $62,454 $60,814
Restricted cash ................................. 4,411 3,454
Receivable from Trust ........................... 4,896 3,879
------- -------
Total current assets ....................... 71,761 68,147
Trust organization costs ........................ 5,927 6,396
------- -------
$77,688 $74,543
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued expenses and other accrued liabilities .. $ 573 $ 28
State franchise taxes payable ................... 1,170 533
Payable to Palais ............................... 18,522 8,928
Deferred income taxes ........................... 1,063 1,358
------- -------
Total current liabilities .................. 21,328 10,847
------- -------
Common stock, par value $0.01, 1,000 shares
authorized, issued and outstanding ......... -- --
Additional paid-in capital ...................... 52,195 47,724
Retained earnings ............................... 4,165 15,972
------- -------
Stockholder's equity ....................... 56,360 63,696
------- -------
Commitments and contingencies ................... -- --
------- -------
$77,688 $74,543
======= =======
The accompanying notes are an integral part of this statement.
F-8
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
STATEMENT OF INCOME
(in thousands)
From
Fiscal Year Inception to
----------------------- January 29,
1995 1994 1994
-------- -------- ------------
Service charge income ............. $ 10,523 $ 8,070 $ 4,026
Earnings related to accounts
receivable sold to Trust ........ 3,549 22,361 12,242
Interest income (expense) on
balances with Palais ............ 825 495 (88)
Interest income ................... 228 104 94
General and administrative expenses (154) (156) (65)
Bad debt (expense) recovery ....... 8,327 (6,072) (7,235)
-------- -------- --------
Operating income .................. 23,298 24,802 8,974
Income tax expense ................ (8,651) (9,031) (3,194)
-------- -------- --------
Net income ........................ $ 14,647 $ 15,771 $ 5,780
======== ======== ========
The accompanying notes are an integral part of this statement.
F-9
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
From
Fiscal Year Inception to
--------------------------- January 29,
1995 1994 1994
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income ............................................... $ 14,647 $ 15,771 $ 5,780
--------- --------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of Trust organization costs ............. 1,101 778 327
Deferred income taxes ................................ (295) 2,798 1,108
Change in operating assets and liabilities:
Increase in payable to Palais ........................ 9,594 8,695 233
Increase in state taxes payable ...................... 637 533 --
Increase in Trust organization costs ................. (632) -- (3,596)
Increase (decrease) in accrued expenses and other
accrued liabilities ............................... 545 (7,503) 7,549
Increase (decrease) in allowance for doubtful accounts 902 (1,944) 1,944
Decrease (increase) in receivable from Trust ......... (1,017) 827 (4,706)
--------- --------- ---------
Total adjustments ................................. 10,835 4,184 2,859
--------- --------- ---------
Net cash provided by operating activities ............ 25,482 19,955 8,639
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted cash ................... (957) 181 (3,635)
Purchases of accounts receivable ......................... (331,267) (298,696) (290,096)
Proceeds from the sale of accounts receivable ............ 306,826 278,560 285,092
Proceeds from the sale of defaulted receivables .......... 26,370 5,579 --
--------- --------- ---------
Net cash provided by (used in) investing activities ...... 972 14,376 8,639
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to Palais ................................. (26,454) (5,579) --
--------- --------- ---------
Net cash used in investing activities ................ (26,454) (5,579) --
--------- --------- ---------
Net change in cash and cash equivalents .............. -- -- --
CASH AND CASH EQUIVALENTS:
Beginning of period ...................................... -- -- --
--------- --------- ---------
End of period ............................................ $ -- $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
From
Fiscal Year Inception to
---------------------------- January 29,
1995 1994 1994
---------- ---------- -------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid ...................................... $ 111 $ 233 $ --
========== ========== =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of common stock in exchange for
accounts receivable ................................ $ -- $ -- $35,177
========== ========== =======
Contribution of ineligible accounts receivable ......... $ 4,471 $ 4,120 $ 1,956
========== ========== =======
Contribution of Trust organization costs ............... $ -- $ 118 $ 3,805
========== ========== =======
Contribution of deferred tax benefit associated with bad
debt reserve ....................................... $ -- $ -- $ 2,548
========== ========== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-11
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands, except numbers of shares)
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional
Shares Paid-In Retained
Outstanding Amount Capital Earnings Total
----------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, July 27, 1993 inception date .................... -- $-- $ -- $ -- $ --
Issuance of stock ........................................ 1,000 -- 35,177 -- 35,177
Net income ............................................... -- -- -- 5,780 5,780
Contribution of ineligible accounts receivable ........... -- -- 1,956 -- 1,956
Contribution of trust organization costs ................. -- -- 3,805 -- 3,805
Contribution of deferred tax benefit associated with bad
debt reserve ............................................. -- -- 2,548 -- 2,548
----- ---- ------- -------- --------
Balance, January 29, 1994 ................................ 1,000 -- 43,486 5,780 49,266
Net income ............................................... -- -- -- 15,771 15,771
Dividend ................................................. -- -- -- (5,579) (5,579)
Contribution of ineligible accounts receivable ........... -- -- 4,120 -- 4,120
Contribution of trust organization costs ................. -- -- 118 -- 118
----- ---- ------- -------- --------
Balance, January 28, 1995 ................................ 1,000 -- 47,724 15,972 63,696
Net income ............................................... -- -- -- 14,647 14,647
Dividend ................................................. -- -- -- (26,454) (26,454)
Contribution of ineligible accounts receivable ........... -- -- 4,471 -- 4,471
----- ---- ------- -------- --------
Balance, February 3, 1996 ................................ 1,000 $-- $52,195 $ 4,165 $ 56,360
===== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-12
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS:
SRI Receivables Purchase Co., Inc. ("SRPC") is an indirect wholly
owned, special-purpose subsidiary of Specialty Retailers, Inc. ("SRI"). SRPC's
ultimate parent is Stage Stores, Inc., formerly Apparel Retailers, Inc. ("Stage
Stores"). SRPC was incorporated on July 27, 1993 ("Inception") and was
established to (i) acquire substantially all of the accounts receivable from
Palais Royal, Inc. ("Palais," parent of SRPC and another subsidiary of SRI) and
(ii) sell those accounts receivable to SRI Receivables Master Trust (the
"Trust") under the terms of a pooling and servicing agreement.
SRPC is a separate and distinct entity from Stage Stores and its other
subsidiaries. SRPC was established with the intent that in the event of a
liquidation, its creditors would be entitled to satisfy their claims from SRPC's
assets prior to any distribution to Stage Stores or any of its subsidiaries.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR: The fiscal years discussed herein end on the Saturday
nearest to January 31 in the following calendar year. For example, references to
"1995" mean the fiscal year ended February 3, 1996. All fiscal years consist of
fifty-two weeks except for 1995 which consists of fifty-three weeks.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
INTERESTS IN THE TRUST: SRPC's interests in the Trust are represented by
the Class D Certificates and the Transferor Certificate, as defined, which
collectively, represent an undivided interest in the assets of the Trust not
represented by the Term or Revolving Certificates. The transfer of the portion
of the accounts receivable that collateralize the Class D and Transferor
Certificates represent an undivided interest in all of the assets in the Trust,
rather than a sale of such accounts recievable in the Trust, under Statement of
Financial Accounting Standards No. 77, Reporting by Transferors for Transfers of
Receivables with Recourse. Accordingly, SRPC has recorded its undivided interest
in each asset held by the Trust in the accompanying balance sheet.
The cash balances of the Trust are restricted to specific uses as set
forth in the Pooling and Servicing Agreement. These uses are primarily the
purchase of new receivables from SRPC, the payment of a servicing fee to SRI and
the payment of a return to certificate holders of the Trust. Any remaining cash
is paid to SRPC as a return on its Transferor Certificate. As the cash balances
of the Trust are not available for SRPC's general use, SRPC's interest in such
cash has been reflected as restricted cash in the accompanying balance sheet.
SERVICE CHARGE INCOME AND ALLOWANCE FOR DOUBTFUL ACCOUNTS: Reported
service charge income reflects the amount of service charge and late fee income
attributable to accounts receivable held by the Trust which support the Class D
Certificates and the Transferor Certificate. As discussed in Note 3, the
Purchase Agreement allows for the repurchase of defaulted accounts receivable by
Palais. Accordingly, the accompanying balance sheet includes an allowance for
doubtful accounts which represents management's estimate of the amount of
defaulted accounts receivable which will not be repurchased by Palais.
ACCOUNTING FOR SALE OF ACCOUNTS RECEIVABLE: SRPC accounts for the
transfer of accounts receivable to the Trust as a sale to the extent such
accounts receivable support the undivided interest of the Term and Revolving
Certificates outstanding. Accordingly, SRPC recognizes a gain on such sale at
the time of the transfer of the accounts receivable to the Trust. The gain
recognized by SRPC is calculated based upon actual and projected: (a) service
charge and late fee income attributable to accounts receivable sold to the Trust
on an undiscounted basis less (b)(i) payments of returns
F-13
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
to the holders of the Term and Revolving Certificates, (ii) premium payments due
to Palais for the purchase of accounts receivable in excess of face value and
(iii) payments of servicing fees to SRI.
TRUST ORGANIZATION COSTS: Trust organization costs are amortized on a
straight-line basis over the expected life of the Trust (nine years). Trust
organization costs are net of accumulated amortization of $2,206,000 and
$1,105,000 at February 3, 1996 and January 28, 1995, respectively.
STATEMENT OF CASH FLOWS: SRPC considers highly liquid investments with
initial maturities of less than three months to be cash equivalents in its
statement of cash flows.
FINANCIAL INSTRUMENTS AND DERIVATIVES: SRPC records all financial
instruments, including undivided interest in accounts receivable at cost. The
fair values of these financial instruments approximate cost. SRPC has entered
into two interest rate cap agreements in order to hedge its interest rate risk.
The cost of entering into the agreements was not material and there are no
future costs related to the exercise of these agreements. If future interest
rates increase above specified amounts, reimbursements to SRPC under the
agreements will reduce interest expense.
INCOME TAXES: Although SRPC is included in the consolidated federal tax
return of Stage Stores, the provisions for federal income taxes has been
computed as if SRPC had filed a separate federal income tax return. The asset
and liability approach is used to recognize deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
RECLASSIFICATION: The accompanying financial statements include
reclassifications from financial statements issued in previous years.
NOTE 3 - RECEIVABLES PURCHASE AGREEMENT:
SRPC has entered into a Receivables Purchase Agreement (the "Purchase
Agreement") with Palais. The Purchase Agreement requires SRPC to purchase
eligible accounts receivable at a price which may be greater or less than the
face amount of such receivables.
The purchase price is based on (i) the expected yield on the
Receivables, reduced by certain costs to SRPC (ii) the expected losses on the
Receivables, net of certain expected benefits to SRPC from Palais and (iii) a
reasonable rate of return on capital from SRPC's purchase of the Receivables.
All accounts receivable were purchased at face value during 1994 and 1993. In
1995, all accounts receivable were purchased at face value plus a $12.0 million
premium intended to compensate SRI for the cost of servicing the accounts
receivable not offset by the fee SRI charged the Trust described in Note 4. The
Purchase Agreement allows for the repurchase of defaulted accounts receivable by
Palais. The Purchase Agreement does not allow for the repurchase of any other
receivables by Palais. The Purchase Agreement terminates upon the occurrence of
certain events specified therein.
NOTE 4 - POOLING AND SERVICING AGREEMENT:
On July 30, 1993, SRPC entered into a Pooling and Servicing Agreement,
amended and restated as of August 11, 1995 (the "Agreement"), with the Trust,
SRI and Bankers Trust (Delaware), as the trustee. Under the terms of the
Agreement, as supplemented by the Series 1993-1 Supplement, the Series 1993-2
Supplement and the Series 1995-1 Supplement, the Trust issued to third parties
$165.0 million of long-term Class A, B and C certificates (the "Term
Certificates") and a $40.0 million revolving certificate (the "Revolving
Certificate") in exchange for substantially all of the credit card accounts
receivable of SRPC. The Trust also issued a $35.1 million Class D Term
Certificate to SRPC, which does not receive a return, and a transferor
certificate (the "Transferor Certificate") which represents an undivided
interest in the assets of the Trust which do not support the Term, Revolving or
Class D Term Certificates outstanding. The amount of the Transferor Certificate
will vary depending on the level of assets in the Trust. The holder of the
Revolving Certificate has agreed to purchase interests in the Trust equal to the
amount of accounts receivable in the Trust above the level required to support
the Term Certificates and the transferor's retained interest (currently $204.1
million), up to a maximum of $40.0 million. If receivable balances in the Trust
fall below the level required to support the term
F-14
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
certificates and revolving certificates, certain principal collections may be
retained in the Trust until such time as the receivable balances exceed the
certificates then outstanding and the required transferor's interest. SRI
continues to service all of the accounts receivable in the Trust. The Trust may
issue additional series of certificates from time to time. Terms of any future
series will be determined at the time of issuance. The outstanding balances of
the Term Certificates totaled $165.0 and $140.0 million February 3, 1996 and
January 28, 1995, respectively. There was no portion of the Revolving
Certificate outstanding at February 3, 1996 and January 28, 1995.
The repayment of the Class D Term Certificates are contingent upon
full repayment of the Class A, B and C Term Certificates. The repayment of the
Class C Term Certificates are contingent upon full repayment of the Class A and
B Term Certificates. The repayment of the Class B Certificates are contingent
upon full repayment of the Class A Term Certificates.
Total accounts receivable sold to the Trust during 1995, 1994 and 1993 were
$306.8 million, $278.6 million and $285.1 million, respectively. The cash flows
generated from the accounts receivable in the Trust are dedicated to (i) the
purchase of new accounts receivable generated by Palais, (ii) payment of a
return on the certificates and (iii) the payment of a servicing fee to SRI. Any
remaining cash flows are remitted to Palais. The Term Certificates entitle the
holders to receive a return, based upon the London Interbank Offered Rate
("LIBOR"), plus a specified margin paid on a quarterly basis. Principal payments
commence on December 31, 1999 but can be accelerated upon occurrence of certain
events. The revolving certificate entitles the holder to receive a return based
upon a floating LIBOR rate, plus a specified margin, paid on a monthly basis.
SRPC has entered into two interest rate protection agreements with a bank with
notional amounts of $165.0 million and $40.0 million, respectively, which expire
in 2002 and 2003, respectively. These agreements are designed to protect SRPC
from increases in the floating rates on the Term and Revolving Certificates.
Under these agreements, SRPC will receive payments from the bank if the floating
LIBOR rate, as specified in the agreements, exceeds 12%. Currently, SRPC is not
receiving any payments under the agreements. If the bank does not perform under
the interest rate protection agreements, SRPC's exposure is limited to not
receiving such payments. SRPC is exposed to loss in the event of non-performance
by the bank. However, SRPC does not anticipate non-performance by the bank. At
February 3, 1996, the average rate of return on the Term Certificates was 6.8%.
The purchase commitment for the Revolving Certificate is five years, subject to
renewal at the option of the parties. The Revolving Certificate holders are
entitled to repayment in the event the accounts receivable decrease below that
required to support such certificates.
SRI acts as agent to service the accounts receivable but this
appointment may be revoked under certain circumstances. Under the Agreement, SRI
receives a servicing fee equal to 2% of all Term and Revolving Certificates
outstanding. SRI received $3.8 million, $3.4 million and $1.7 million during
1995, 1994 and 1993, respectively, as compensation for servicing the accounts
receivable.
NOTE 5 - UNDIVIDED INTEREST IN ACCOUNTS RECEIVABLE:
SRPC's undivided interest in accounts receivable was as follows (in
thousands):
February 3, January 28,
1996 1995
--------- ---------
Gross customer accounts receivable ....... $ 228,356 $ 200,814
Accounts receivable sold ................. (165,000) (140,000)
--------- ---------
63,356 60,814
Less - allowance for doubtful accounts ... (902) --
--------- ---------
$ 62,454 $ 60,814
========= =========
F-15
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
Effective October 7, 1994, the Purchase Agreement and the Agreement
were amended to allow SRPC to sell defaulted accounts receivable to Palais,
subject to certain limitations (the "Amendment"). Sales of defaulted accounts
receivable are limited to 95% of the immediately preceding fiscal year's default
ratio, as defined in the Amendment, applied to eligible accounts receivable
transferred from Palais during any fiscal period. As SRPC intends to sell all
defaulted receivables to Palais, up to the maximum allowed, the allowance for
doubtful accounts and the obligation under recourse provisions which existed on
the date of the Amendment were reversed into income in 1994. During 1995, SRPC
sold $26.4 million in defaulted accounts receivable that had been expensed for
financial reporting purposes by SRPC. Such amount is included in bad debt
(expense) recovery in the statement of income. The allowance for doubtful
accounts and the obligation under recourse provisions which existed at February
3, 1996 represent SRPC's estimate of defaulted accounts receivable which exceed
the maximum allowed to be purchased by Palais.
F-16
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES:
All SRPC operations are domestic. Income tax expense charged to
operations consisted of the following (in thousands):
From
Fiscal Year Inception to
------------------- January 29,
1995 1994 1994
------- ------ ------
Federal income tax expense (benefit):
Current .................. $ 8,309 $6,054 $2,004
Deferred ................. (420) 2,438 966
------- ------ ------
7,889 8,492 2,970
------- ------ ------
State income tax expenses:
Current .................. 637 179 82
Deferred ................. 125 360 142
------- ------ ------
762 539 224
------- ------ ------
$ 8,651 $9,031 $3,194
======= ====== ======
A reconciliation between the federal income tax expense charged to
operations computed at statutory tax rates and the actual income tax expense
recorded follows (in thousands):
From
Fiscal Year Inception to
-------------------- January 29,
1995 1994 1994
------ ------ ------
Federal income tax expense at the
statutory rate ................... $8,154 $8,681 $3,141
State income taxes, net ............ 497 350 53
------ ------ ------
$8,651 $9,031 $3,194
====== ====== ======
F-17
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
Deferred tax liabilities (assets) consist of the following (in
thousands):
February 3, 1996 January 28, 1995
---------------- ----------------
Gross deferred tax liabilities:
Gain on sale of accounts receivable .. $ 1,714 $1,358
State income taxes ................... 125 --
------- ------
1,839 1,358
------- ------
Gross deferred tax assets:
Allowance for doubtful accounts ...... (496) --
Other ................................ (280) --
------- ------
(776) --
------- ------
Deferred tax assets valuation allowance ... -- --
------- ------
$ 1,063 $1,358
======= ======
Income taxes payable to Stage Stores were $9.3 million and $8.1 million at
February 3, 1996 and January 28, 1995, respectively, and are included in the
payable to Palais.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
LITIGATION: SRPC is subject to claims and litigation arising in the normal
course of its business. SRPC does not believe that any of these proceedings will
have a material adverse effect on its financial position, results of operations
or cash flows.
CONCENTRATION OF CREDIT RISK: Financial instruments which potentially
subject SRPC to concentrations of credit risk are primarily cash and accounts
receivable. The credit risk associated with SRPC's accounts receivable is
limited by the large number of customers in SRI's customer base. Substantially
all of SRI's customers reside in the central United States.
NOTE 8 - RELATED PARTY TRANSACTIONS:
In connection with the transactions discussed in Note 3 and Note 4, SRPC
will record a payable to or a receivable from Palais. Intercompany interest is
charged at LIBOR plus 1.0% (6.8% at February 3, 1996).
NOTE 9 - SUBSEQUENT EVENT (UNAUDITED):
During May 1996, SRPC issued $30.0 million in aggregate principal amount
of 12.5% Trust Certificate-Backed Notes Due 2000 (the "SRPC Notes"). The
proceeds of such issuance were transferred to Palais Royal, Inc. and ultimately
used by Stage Stores to acquire Uhlmans Inc. Interest on the SRPC Notes is
payable semi-annually on June 15 and December 15 of each year commencing
December 15, 1996 from amounts otherwise received by SRPC from its undivided
interest in the accounts receivable not supporting the certificates issued by
the Trust.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that any person made a party to any action by reason of the fact that
he is or was a director, officer, employee or agent of the Company may and, in
certain cases, must be indemnified by the Company against, in the case of a
non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorney's fees) incurred by him as a result of
such action. In the case of a derivative action, such person must be indemnified
against expenses (including attorney's fees). In either type of action the
person must have acted in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of the Company. This indemnification
does not apply, in a derivative action, to matters as to which it is adjudged
that the director, officer, employee or agent is liable to the Company, unless
upon court order it is determined that, despite such adjudication of liability,
but in view of all the circumstances of the case, such director, officer,
employee or agent is fairly and reasonably entitled to indemnity for expenses.
In a non-derivative action this indemnification does not apply to any criminal
proceeding in which such person had reasonable cause to believe his conduct was
unlawful.
Article Eleventh of the Company's Certificate of Incorporation provides
that to the fullest extent permitted by the DGCL, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
a breach of fiduciary duty as a director.
Article V of the Company's bylaws provides that the Company shall indemnify
each person who is or was an officer or director of the Company to the fullest
extent authorized by the DGCL as currently in effect or as the same may be
amended (but only to provide broader indemnification rights) in the future.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
3.1 CERTIFICATE OF INCORPORATION OF SRI RECEIVABLES PURCHASE CO., INC.
3.2 BY-LAWS OF SRI RECEIVABLES PURCHASE CO., INC.
4.1 FORM OF INDENTURE AMONG SRI RECEIVABLES PURCHASE CO., INC., SPECIALTY
RETAILERS, INC., AS ADMINISTRATIVE AGENT, AND BANKERS TRUST COMPANY, AS
TRUSTEE AND COLLATERAL AGENT, RELATING TO THE 12.5% SERIES B NOTES OF
SRI RECEIVABLES PURCHASE CO., INC. (INCLUDING FORM OF NOTE).
4.2 AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT BY AND AMONG SRI
RECEIVABLES PURCHASE CO., INC., SPECIALTY RETAILERS, INC. AND BANKERS
TRUST (DELAWARE) DATED AS OF AUGUST 11, 1995 (INCORPORATED BY REFERENCE
TO EXHIBIT 4.6 ON FORM 10-Q OF APPAREL RETAILERS, INC., DATED OCTOBER
28, 1995).
4.3 FIRST AMENDMENT TO AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
BY AND AMONG SRI RECEIVABLES PURCHASE CO., INC., SPECIALTY RETAILERS,
INC. AND BANKERS TRUST (DELAWARE) DATED AS OF MAY 30, 1996
(INCORPORATED BY REFERENCE TO EXHIBIT 4.2 ON FORM 10-Q OF APPAREL
RETAILERS, INC., DATED MAY 4, 1996).
4.4 AMENDED AND RESTATED SERIES 1993-1 SUPPLEMENT AMONG SRI RECEIVABLES
PURCHASE CO., INC., SPECIALTY RETAILERS, INC. AND BANKERS TRUST
(DELAWARE) DATED AS OF MAY 30, 1996 (INCORPORATED BY REFERENCE TO
EXHIBIT 4.3 ON FORM 10-Q OF APPAREL RETAILERS, INC., DATED MAY 4,
1996).
II-1
<PAGE>
4.5 AMENDED AND RESTATED SERIES 1993-2 SUPPLEMENT AMONG SRI RECEIVABLES
PURCHASE CO., INC., SPECIALTY RETAILERS, INC. AND BANKERS TRUST
(DELAWARE) DATED AS OF MAY 30, 1996 (INCORPORATED BY REFERENCE TO
EXHIBIT 4.4 ON FORM 10-Q OF APPAREL RETAILERS, INC., DATED MAY 4,
1996).
4.6 FIRST AMENDMENT TO THE SERIES 1993-2 SUPPLEMENT AND REVOLVING
CERTIFICATE PURCHASE AGREEMENT BY AND AMONG SPECIALTY RETAILERS, INC.,
SRI RECEIVABLES PURCHASE CO., INC., BANKERS TRUST (DELAWARE) AS TRUSTEE
FOR THE SRI RECEIVABLES MASTER TRUST, THE FINANCIAL INSTITUTIONS
PARTIES THERETO AND NATIONAL WESTMINSTER BANK PLC, NEW YORK BRANCH,
DATED AS OF AUGUST 11, 1995 (INCORPORATED BY REFERENCE TO EXHIBIT 4.5
ON FORM 10-Q OF APPAREL RETAILERS, INC., DATED MAY 4, 1996).
4.7 AMENDED AND RESTATED SERIES 1995-1 SUPPLEMENT BY AND AMONG SRI
RECEIVABLES PURCHASE CO., INC., SPECIALTY RETAILERS, INC. AND BANKERS
TRUST (DELAWARE) ON BEHALF OF THE SERIES 1995-1 CERTIFICATEHOLDERS
DATED AS OF MAY 30, 1996 (INCORPORATED BY REFERENCE TO EXHIBIT 4.6 ON
FORM 10-Q OF APPAREL RETAILERS, INC., DATED MAY 4, 1996).
4.8 AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT AMONG SRI
RECEIVABLES PURCHASE CO., INC. AND THE ORIGINATORS DATED AS OF MAY 30,
1996 (INCORPORATED BY REFERENCE TO EXHIBIT 4.7 ON FORM 10- Q OF APPAREL
RETAILERS, INC., DATED MAY 4, 1996).
4.9 CERTIFICATE PURCHASE AGREEMENTS BETWEEN SRI RECEIVABLES PURCHASE CO.,
INC. AND THE PURCHASERS OF THE SERIES 1993-1 OFFERED CERTIFICATES
(INCORPORATED BY REFERENCE TO EXHIBIT 4.10 OF REGISTRATION NO. 33-68258
ON FORM S-4 OF SPECIALTY RETAILERS, INC.).
4.10 REVOLVING CERTIFICATE PURCHASE AGREEMENT BETWEEN SRI RECEIVABLES
PURCHASE CO., INC., THE FACILITY AGENT AND THE REVOLVING PURCHASERS
WITH RESPECT TO THE CLASS A-R CERTIFICATES (INCORPORATED BY REFERENCE
TO EXHIBIT 4.11 OF REGISTRATION NO. 33-68258 ON FORM S-4 OF SPECIALTY
RETAILERS, INC.).
4.11 CERTIFICATE PURCHASE AGREEMENT AMONG SRI RECEIVABLES PURCHASE CO.,
INC., SPECIALTY RETAILERS, INC. AND THE CERTIFICATE PURCHASER DATED AS
OF AUGUST 11, 1995 (INCORPORATED BY REFERENCE TO EXHIBIT 4.9 ON FORM
10-Q OF APPAREL RETAILERS, INC., DATED OCTOBER 28, 1995).
5.1 OPINION OF KIRKLAND & ELLIS.
8.1 TAX OPINION OF KIRKLAND & ELLIS.
10.1 REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 30, 1996 BY AND AMONG SRI
RECEIVABLES PURCHASE CO., INC. AND BT SECURITIES CORPORATION RELATING
TO THE SALE OF SRI RECEIVABLES PURCHASE CO., INC. 12.5% TRUST
CERTIFICATE-BACKED NOTES.
10.2 EMPLOYMENT AGREEMENT BETWEEN SPECIALTY RETAILERS, INC. AND CARL E.
TOOKER DATED JUNE 9, 1993 (INCORPORATED BY REFERENCE TO EXHIBIT 10.17
TO REGISTRATION NO. 33-68258 ON FORM S-4 OF SPECIALTY RETAILERS, INC.).
10.3 STOCK OPTION AGREEMENT BETWEEN SPECIALTY RETAILERS, INC. AND CARL E.
TOOKER DATED JUNE 9, 1993 (INCORPORATED BY REFERENCE TO EXHIBIT 10.18
TO REGISTRATION NO. 33-68258 ON FORM S-4 OF SPECIALTY RETAILERS, INC).
10.4 EMPLOYMENT AGREEMENT BETWEEN MARK SHULMAN AND SPECIALTY RETAILERS,
INC., DATED AS OF JANUARY 8, 1994 (INCORPORATED BY REFERENCE TO EXHIBIT
10.1 ON FORM 10-Q OF APPAREL RETAILERS, INC., DATED APRIL 29, 1995).
II-2
<PAGE>
10.5 STOCK OPTION AGREEMENT BETWEEN APPAREL RETAILERS, INC. AND MARK SHULMAN
DATED AS OF JANUARY 31, 1994 (INCORPORATED BY REFERENCE TO EXHIBIT 10.2
ON FORM 10-Q OF APPAREL RETAILERS, INC., DATED APRIL 29, 1995).
10.6 EMPLOYMENT AGREEMENT BETWEEN JAMES MARCUM AND SPECIALTY RETAILERS, INC.
DATED AS OF MAY 15, 1995 (INCORPORATED BY REFERENCE TO EXHIBIT 10.3 ON
FORM 10-Q OF APPAREL RETAILERS, INC., DATED APRIL 29, 1995).
10.7 EMPLOYMENT AGREEMENT BETWEEN STEPHEN LOVELL AND SPECIALTY RETAILERS,
INC. DATED AS OF MAY 19, 1995 (INCORPORATED BY REFERENCE TO EXHIBIT
10.4 ON FORM 10-Q OF APPAREL RETAILERS, INC., DATED APRIL 29, 1995).
12.1 STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES.
23.1 CONSENT OF PRICE WATERHOUSE LLP.
23.2 CONSENT OF KIRKLAND & ELLIS (INCLUDED IN EXHIBITS 5 AND 8).
24.1 POWERS OF ATTORNEY (INCLUDED IN THE SIGNATURE PAGE INCLUDED IN THIS
PART II).
25.1 STATEMENT OF ELIGIBILITY OF TRUSTEE.
99.1 FORM OF LETTER OF TRANSMITTAL.
99.2 FORM OF NOTICE OF GUARANTEE DELIVERY.
99.3 FORM OF INSTRUCTIONS TO REGISTERED HOLDER.
(b) FINANCIAL STATEMENT SCHEDULES
Not Applicable.
ITEM 22. 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
II-3
<PAGE>
represent no more than a 20% 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.
(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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to 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 foregoing provisions described under Item 20, 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 of 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF
TEXAS ON October 30, 1996.
SRI RECEIVABLES PURCHASE CO., INC.
By: /s/ JAMES MARCUM
James Marcum
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON BELOW WHOSE SIGNATURE IS
PRECEDED BY AN ASTERISK (*) HEREBY CONSTITUTES AND APPOINTS JAMES MARCUM AND
MARK HESS, AND EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS,
WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME,
PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS
(INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO
FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS,
AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT
AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY
TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR
THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY
VIRTUE HEREOF.
SIGNATURE TITLE DATE
--------- ----- ----
*/s/ CARL TOOKER PRESIDENT AND CHIEF EXECUTIVE OFFICER AUGUST 27, 1996
CARL TOOKER
*/s/ JAMES MARCUM EXECUTIVE VICE PRESIDENT AND CHIEF AUGUST 27, 1996
JAMES MARCUM FINANCIAL OFFICER (PRINCIPAL
ACCOUNTING OFFICER)
*/s/ JOSHUA BEKENSTEIN DIRECTOR AUGUST 27, 1996
JOSHUA BEKENSTEIN
*/s/ ADAM KIRSCH DIRECTOR AUGUST 27, 1996
ADAM KIRSCH
*/s/ ANDREW STIDD
ANDREW STIDD DIRECTOR AUGUST 27, 1996
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
<S> <C> <C>
3.1 Certificate of Incorporation of SRI Receivables Purchase Co., Inc. ***
3.2 By-laws of SRI Receivables Purchase Co., Inc. ***
4.1 Form of Indenture among SRI Receivables Purchase Co., Inc., Specialty *
Retailers, Inc., as Administrative Agent, and Bankers Trust Company, as
Trustee and Collateral Agent, relating to the 12.5% Series B Notes of
SRI Receivables Purchase Co., Inc. (including form of note).
4.2 Amended and Restated Pooling and Servicing Agreement by and among SRI **
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and Bankers
Trust (Delaware) dated as of August 11, 1995 (incorporated by reference
to Exhibit 4.6 on Form 10-Q of Apparel Retailers, Inc. dated October
28, 1995)
4.3 First Amendment to Amended and Restated Pooling and Servicing Agreement **
by and among SRI Receivables Purchase Co., Inc., Specialty Retailers,
Inc. and Bankers Trust (Delaware) dated as of May 30, 1996
(incorporated by reference to Exhibit 4.2 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996)
4.4 Amended and Restated Series 1993-1 Supplement among SRI Receivables **
Purchase Co., Inc., Specialty Retailers, Inc. and Bankers Trust
(Delaware) dated as of May 30, 1996 (incorporated by reference to
Exhibit 4.3 on Form 10-Q of Apparel Retailers, Inc., dated May 4,
1996).
4.5 Amended and Restated Series 1993-2 Supplement among SRI Receivables **
Purchase Co., Inc., Specialty Retailers, Inc. and Bankers Trust
(Delaware) dated as of May 30, 1996 (incorporated by reference to
Exhibit 4.4 on Form 10-Q of Apparel Retailers, Inc., dated May 4,
1996).
4.6 First amendment to the Series 1993-2 Supplement and Revolving **
Certificate Purchase Agreement by and among Specialty Retailers, Inc.,
SRI Receivables Purchase Co., Inc., Bankers Trust (Delaware) as Trustee
for the SRI Receivables Maser Trust, the financial institutions parties
thereto and National Westminster Bank Plc, New York branch, dated as of
August 11, 1995 (incorporated by reference to Exhibit 4.5 on Form 10-Q
of Apparel Retailers, Inc., dated May 4, 1996).
4.7 Amended and Retailed Series 1995-1 Supplement by and among SRI **
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and Bankers
Trust (Delaware) on behalf of the Series 1995-1 Certificateholders
dated as of May 30, 1996 (incorporated by reference to Exhibit 4.6 on
Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
4.8 Amended and Restated Receivables Purchase Agreement among SRI **
Receivables Purchase Co., Inc. and the Originators dated as of May 30,
1996 (incorporated by reference to Exhibit 4.7 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
II-6
<PAGE>
4.9 Certificate Purchase Agreements between SRI Receivables Purchase Co., **
Inc. an the Purchasers of the Series 1993-1 Offered Certificates
(incorporated by reference to Exhibit 4.10 of Registration No. 33-68258
on Form S-4 of Specialty Retailers, Inc.)
4.10 Revolving Certificate Purchase Agreement between SRI Receivables **
Purchase Co., ** Inc., the Facility Agent and the Revolving Purchasers
with respect to the Class a-R Certificates (incorporated by reference
to Exhibit 4.11 of Registration No. 33-68258 on Form S-4 of Specialty
Retailers, Inc.)
4.11 Certificate Purchase Agreement among SRI Receivables Purchase Co., **
Inc., Specialty ** Retailers, Inc. and the Certificate Purchaser dated
as of August 11, 1995 (incorporated by reference to Exhibit 4.9 on Form
10-Q of Apparel Retailers, Inc., dated October 28, 1995.
5.1 Opinion of Kirkland & Ellis. *
8.1 Tax Opinion of Kirkland & Ellis. *
10.1 Registration Rights Agreement dated as of May 30, 1996 by and among SRI ***
Receivables Purchase Co., Inc. and BT Securities Corporation relating
to the sale of SRI Receivables Purchase Co., Inc. 12.5% Trust
Certificate-Backed Notes.
10.2 Employment Agreement between Specialty Retailers, Inc. and Carl E. **
Tooker dated June 9, 1993 (incorporated by reference to Exhibit 10.17
to Registration No. 33-68258 on Form S-4 of Specialty Retailers, Inc.).
10.3 Stock Option Agreement between Specialty Retailers, Inc. and Carl E. **
Tooker dated June 9, 1993 (incorporated by reference to Exhibit 10.18
to Registration No. 33-68258 on Form S-4 of Specialty Retailers, Inc.).
10.4 Employment Agreement between Mark Shulman and Specialty Retailers, **
Inc., dated as of January 8, 1994 (incorporated by reference to Exhibit
10.1 on Form 10-Q of Apparel Retailers, Inc., dated April 29, 1995).
10.5 Stock Option Agreement between Apparel Retailers, Inc. and Mark Shulman **
dated as of January 31, 1994 (incorporated by reference to Exhibit 10.2
on Form 10-Q of Apparel Retailers, Inc., dated April 29, 1995).
10.6 Employment Agreement between James Marcum and Specialty Retailers, **
Inc., dated as of May 15, 1995 (incorporated by reference to Exhibit
10.3 on Form 10-Q of Apparel Retailers, Inc., dated April 29, 1995).
10.7 Employment Agreement between Stephen Lovell and Specialty Retailers, **
Inc., dated as of May 19, 1995 (incorporated by reference to Exhibit
10.4 on Form 10-Q of Apparel Retailers, Inc., dated April 29, 1995).
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges. *
II-7
<PAGE>
23.1 Consent of Price Waterhouse LLP. *
23.2 Consent of Kirkland & Ellis (included in opinions filed as Exhibits 5.1 *
and 8.1).
24.1 Powers of Attorney (included in signature page included in this *
PartII).
25.1 Statement of Eligibility of Trustee *
99.1 Form of Letter of Transmittal. *
99.2 Form of Notice of Guaranteed Delivery. *
99.3 Form of Instructions to Registered Holder. *
</TABLE>
- -----------------
* Filed herewith.
** Incorporated by reference.
*** Previously filed.
II-8
EXHIBIT 4.1
================================================================================
----------------------------------------
SRI RECEIVABLES PURCHASE CO., INC.,
an indirect wholly-owned subsidiary
of
SPECIALTY RETAILERS, INC.,
the Administrative Agent
$30,000,000
12.5% Series B Notes
----------------------------------------
----------------------
INDENTURE
Dated as of ________, 1996
----------------------
-----------------------------------------------
BANKERS TRUST COMPANY,
as Trustee and as Collateral Agent
-----------------------------------------------
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
310 (a)(1)....................................................... 11.10
(a)(2)....................................................... 11.10
(a)(3) ...................................................... N.A.
(a)(4)....................................................... N.A.
(a)(5)....................................................... 11.10
(b) ......................................................... 11.10
(c) ......................................................... N.A.
311 (a) ......................................................... 11.11
(b) ......................................................... 11.11
(c) ......................................................... N.A.
312 (a).......................................................... 3.5
(b).......................................................... 14.3
(c) ......................................................... 14.3
313 (a) ......................................................... 11.6
(b)(1) ...................................................... N.A.
(b)(2) ...................................................... 11.6
(c) ......................................................... 11.6;14.2
(d).......................................................... 11.6
314 (a) ......................................................... 7.3;14.2
(b) ......................................................... N.A.
(c)(1) ...................................................... 14.6
(c)(2) ...................................................... 14.6
(c)(3) ...................................................... N.A.
(d).......................................................... N.A.
(e) ........................................................ 14.7
(f).......................................................... N.A.
315 (a).......................................................... 11.1
(b).......................................................... 11.5;14.2
(c) ........................................................ 11.1
(d).......................................................... 11.1
(e).......................................................... 9.10
316 (a)(last sentence) .......................................... N.A.
(a)(1)(A).................................................... 9.5
(a)(1)(B) ................................................... 9.4
(a)(2) ...................................................... N.A.
(b) ......................................................... 9.8
(c) ......................................................... 13.1;13.2
317 (a)(1) ...................................................... 9.11
(a)(2)....................................................... 9.12
(b) ......................................................... 3.4
318 (a).......................................................... 14.1
(b).......................................................... N.A.
(c).......................................................... 14.1
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE..................................................................2
Section 1.1 Definitions............................................................2
Section 1.2 Other Definitions.....................................................11
Section 1.3 Incorporation by Reference of Trust Indenture Act.....................11
Section 1.4 Rules of Construction.................................................11
ARTICLE 2
CONFIRMATION OF GRANTS OF SECURITY INTEREST;
CONFIRMATION OF APPOINTMENT OF COLLATERAL AGENT..............................12
Section 2.1 Confirmation Of Grants Of Security Interest.........................12
Section 2.2 Confirmation Of Appointment Of Collateral Agent.....................13
ARTICLE 3
THE NEW NOTES................................................................13
Section 3.1 Form and Dating.....................................................13
Section 3.2 Execution and Authentication........................................13
Section 3.3 Registrar and Paying Agent..........................................14
Section 3.4 Paying Agent to Hold Money in Trust.................................14
Section 3.5 Holder Lists........................................................15
Section 3.6 Book-Entry Provisions for Global Notes..............................15
Section 3.7 Transfer And Exchange Provisions....................................16
Section 3.8 Replacement Notes...................................................16
Section 3.9 Outstanding Notes...................................................16
Section 3.10 Temporary Notes.....................................................17
Section 3.11 Cancellation........................................................17
Section 3.12 Defaulted Interest..................................................17
ARTICLE 4
PAYMENTS; STATEMENTS TO
CERTIFICATEHOLDERS...........................................................17
Section 4.1 Establishment of Accounts...........................................17
Section 4.2 Deposits Into The Interest Reserve Account..........................18
Section 4.3 Deposits Into The Principal Reserve Account..........................19
Section 4.4 Transfers to the Payment Account....................................20
Section 4.5 Payments of Principal and Interest..................................20
Section 4.6 Statements to Noteholders...........................................21
Section 4.7 Daily Report and Settlement Statement...............................21
Section 4.8 Final Distributions.................................................21
ARTICLE 5
CONDITIONS PRECEDENT........................................................21
Section 5.1 General Provisions..................................................21
Section 5.2 Security For Notes..................................................22
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ARTICLE 6
REDEMPTION...................................................................22
Section 6.1 Optional Redemption.................................................22
Section 6.2 Notices to Trustee..................................................23
Section 6.3 Selection of Notes to Be Redeemed...................................23
Section 6.4 Notice of Redemption................................................23
Section 6.5 Effect of Notice of Redemption......................................24
Section 6.6 Deposit of Redemption Price.........................................24
Section 6.7 Notes Redeemed in Part..............................................24
ARTICLE 7
COVENANTS....................................................................25
Section 7.1 Payment of Notes....................................................25
Section 7.2 Maintenance of Office or Agency.....................................25
Section 7.3 Additional Reports..................................................25
Section 7.4 Compliance Certificate..............................................25
Section 7.5 Taxes...............................................................26
Section 7.6 Stay, Extension and Usury Laws......................................26
Section 7.7 Liens...............................................................26
Section 7.8 Corporate Existence.................................................26
Section 7.9 Senior Debt.........................................................27
Section 7.10 Amendment of Receivables, Master Trust Documents....................27
Section 7.11 Conditions Precedent to Issuance of Future Notes....................27
Section 7.12 Charge Account Agreements and Credit and Collection Policies..........27
ARTICLE 8
SUCCESSORS...................................................................28
Section 8.1 Merger, Consolidation, or Sale of Assets............................28
Section 8.2 Successor Corporation Substituted...................................28
ARTICLE 9
DEFAULTS AND REMEDIES........................................................29
Section 9.1 Defaults and Events of Default......................................29
Section 9.2 Acceleration........................................................30
Section 9.3 Other Remedies......................................................30
Section 9.4 Waiver of Past Defaults.............................................31
Section 9.5 Control by Majority.................................................31
Section 9.6 Limitation on Suits.................................................31
Section 9.7 No Bankruptcy Petition..............................................31
Section 9.8 Rights of Holders of Notes to Receive Payment.......................32
Section 9.9 Limited Recourse....................................................32
Section 9.10 Undertaking for Costs...............................................32
Section 9.11 Collection Suit by Trustee..........................................33
Section 9.12 Trustee May File Proofs of Claim....................................33
ARTICLE 10
ADMINISTRATIVE AGENT.........................................................33
Section 10.1 Appointment and Authority of Administrative Agent...................33
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Section 10.2 Administrative Agent's Services and Duties..........................33
Section 10.3 Standard of Care....................................................35
Section 10.4 Compensation of the Administrative Agent............................35
Section 10.5 Indemnification.....................................................35
ARTICLE 11
TRUSTEE AND COLLATERAL AGENT.................................................35
Section 11.1 Duties of Trustee...................................................35
Section 11.2 Rights of Trustee...................................................36
Section 11.3 Individual Rights of Trustee and Collateral Agent...................37
Section 11.4 Trustee's and Collateral Agent's Disclaimer.........................37
Section 11.5 Notice of Defaults..................................................37
Section 11.6 Reports by Trustee to Holders of the Notes..........................37
Section 11.7 Compensation and Indemnity..........................................38
Section 11.8 Replacement of Trustee..............................................38
Section 11.9 Successor Trustee by Merger, etc....................................39
Section 11.10 Eligibility; Disqualification.......................................39
Section 11.11 Preferential Collection of Claims Against Company...................40
ARTICLE 12
LEGAL DEFEASANCE.............................................................40
Section 12.1 Option to Effect Legal Defeasance...................................40
Section 12.2 Legal Defeasance and Discharge......................................40
Section 12.3 Conditions to Legal Defeasance......................................40
Section 12.4 Deposited Money and Government Securities to be Held in Trust; Other
Miscellaneous Provisions..............................................41
Section 12.5 Repayment to Company................................................42
Section 12.6 Reinstatement.......................................................42
ARTICLE 13
AMENDMENT, SUPPLEMENT AND WAIVER.............................................42
Section 13.1 Without Consent of Holders of Notes.................................42
Section 13.2 With Consent of Holders of Notes....................................43
Section 13.3 Compliance with Trust Indenture Act.................................44
Section 13.4 Revocation and Effect of Consents...................................44
Section 13.5 Notation on or Exchange of Notes....................................44
Section 13.6 Trustee and Administrative Agent to Sign Amendments, etc............44
Section 13.7 Termination of original indenture...................................45
ARTICLE 14
MISCELLANEOUS................................................................45
Section 14.1 Trust Indenture Act Controls........................................45
Section 14.2 Notices.............................................................45
Section 14.3 Communication by Holders of Notes with Other Holders of Notes.......47
Section 14.4 Certificate and Opinion as to Conditions Precedent..................47
Section 14.5 Statements Required in Certificate or Opinion.......................47
Section 14.6 Rules by Trustee and Agents.........................................48
Section 14.7 No Personal Liability of Directors, Officers, Employees and Stockholders48
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Section 14.8 Governing Law.......................................................48
Section 14.9 No Adverse Interpretation of Other Agreements.......................48
Section 14.10 Successors..........................................................48
Section 14.11 Severability........................................................48
Section 14.12 Counterpart Originals...............................................48
Section 14.13 Table of Contents, Headings, etc....................................49
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EXHIBITS
Exhibit A Form of New Notes
Exhibit B Form of Legend for Book-Entry Notes
Exhibit C Amended and Restated Pooling and Servicing Agreement
Exhibit D Amended and Restated Series 1993-1 Supplement
Exhibit E Amended and Restated Series 1995-1 Supplement
Exhibit F Amended and Restated Receivables Purchase Agreement
Exhibit G Form of Daily Report
Exhibit H Form of Settlement Statement
Exhibit I Form of Statement to Noteholders
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INDENTURE dated as of _______, 1996 by and among SRI RECEIVABLES
PURCHASE CO., INC., a Delaware special purpose corporation (the "Company"),
SPECIALTY RETAILERS, INC., as administrative agent (the "Administrative Agent"),
and BANKERS TRUST COMPANY, as trustee (the "Trustee") and as collateral agent
(the "Collateral Agent").
The Company, the Administrative Agent, the Trustee and the
Collateral Agent agree as follows for the benefit of each other and for the
equal and ratable benefit of the Holders of the 12.5% Series B Notes (the "New
Notes"):
PRELIMINARY STATEMENTS
The Company sold the Original Notes in a private transaction on
May 30, 1996. In connection with such sale, the Company agreed to register the
New Notes under the Securities Act on Form S-4 (the "Registration Statement")
and to offer the holders of all outstanding Original Notes the opportunity to
exchange all such Original Notes held by such holders for the New Notes. In
connection with the filing of the Registration Statement and such exchange, the
Company has agreed to cause this Indenture to be qualified under the TIA and to
cooperate with the Trustee and the Noteholders in order that this Indenture may
be so qualified. Upon the effectiveness of the Registration Statement, a
Noteholder will have the right, but will not be obligated, to exchange Original
Notes for the New Notes being issued pursuant hereto. Except as otherwise
provided herein, the terms of the Original Indenture shall govern the Original
Notes, and the terms of this Indenture shall govern the New Notes.
The Company is duly authorized to execute and deliver this
Indenture to provide for the New Notes issuable as provided in this Indenture.
All covenants and agreements made by the Company herein are for the benefit and
security of the Noteholders, the Trustee and the Collateral Agent. The Company
is entering into this Indenture, and the Trustee is accepting the trusts created
hereby, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged.
All things necessary to make the New Notes, when duly executed by
the Company, and authenticated and delivered hereunder, the valid obligations of
the Company and to make this Indenture a valid and binding agreement of the
Company have been done.
All payments on the New Notes will be made from distributions on
the Collateral Securities, which were issued pursuant to the Pooling and
Servicing Agreement, as supplemented by the Series 1993-1 Supplement and the
Series 1995-1 Supplement, copies of which are attached hereto as Exhibits C, D
and E, respectively. Payment with respect to the Collateral Securities are made
from collections of payments on the Receivables sold by Palais Royal, Inc., a
Texas corporation ("Palais"), to the Company pursuant to the Receivables
Purchase Agreement attached hereto as Exhibit F, and further transferred by the
Company to the SRI Receivables Master Trust pursuant to the Pooling and
Servicing Agreement.
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ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1 DEFINITIONS.
Capitalized but undefined terms have the meanings set forth in the Master Trust
Documents.
"1993-1 CERTIFICATES" means the Series issued pursuant to the
Series 1993-1 Supplement.
"1993-2 CERTIFICATES" means the Series issued pursuant to the
Series 1993-2 Supplement.
"1995-1 CERTIFICATES" means the Series issued pursuant to the
Series 1995-1 Supplement.
"ACCOUNTS" has the meaning set forth in Section 1.01 of the
Receivables Purchase Agreement.
"ADMINISTRATIVE AGENT" means SRI or any successor thereto
consented to by the Trustee in accordance with the applicable provisions of this
Indenture.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
PROVIDED, HOWEVER, that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"AMORTIZATION PERIOD" has the meaning set forth in Section 1.1 of
the Pooling and Servicing Agreement.
"BANKERS TRUST" means Bankers Trust (Delaware).
"BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
"BOARD OF DIRECTORS" means the Board of Directors of the Company,
or any authorized committee of such Board of Directors.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL STOCK" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock, including, without limitation, partnership interests.
"CASH EQUIVALENTS" has the meaning set forth in Section 1.1 of
the Pooling and Servicing Agreement.
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"CHARGE ACCOUNT AGREEMENTS" has the meaning set forth in Section
1.1 of the Pooling and Servicing Agreement.
"CLASS D CERTIFICATEHOLDER" has the collective meanings set forth
in Section 2 of the Series 1995-1 Supplement and Section 2 of the Series 1993-1
Supplement.
"CLASS D CERTIFICATES" means the Series 1993-1 Class D
Certificates and the Series 1995-1 Class D Certificates.
"CLASS D DAILY CASH FLOWS" means on any Business Day the
principal payments made to the Class D Certificateholder on such Business Day.
"CLASS D FLOATING ALLOCATION PERCENTAGE" has the collective
meanings set forth in Section 2 of the Series 1995-1 Supplement and Section 2 of
the Series 1993-1 Supplement.
"CLASS D INITIAL INVESTED AMOUNT" has the collective meanings set
forth in Section 2 of the Series 1995-1 Supplement and Section 2 of the Series
1993-1 Supplement.
"CLOSING DATE" means _______, 1996.
"COLLATERAL AGENT" means the party named as such above until a
successor replaces it or it is terminated in accordance with the applicable
provisions of this Indenture and thereafter means any successor serving in
accordance with this Indenture.
"COLLATERAL SECURITIES" means the Class D Certificates and the
Transferor Certificate.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address
of the Trustee specified in Section 14.2 hereof or such other address as to
which the Trustee may give notice to the Company.
"CREDIT AND COLLECTION POLICY" has the meaning set forth in
Section 1.1 of the Pooling and Servicing Agreement.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"DAILY REPORT" means a report substantially in the form of
Exhibit G hereto as may be amended or modified from time to time in accordance
with Section 4.7.
"DCR" means Duff & Phelps Credit Rating Co.
"DEPOSITORY" means, with respect to the New Notes issuable or
issued in whole or in part in global form, the Person specified in Section 3.3
hereof as the Depository with respect to the New Notes, until a successor shall
have been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"DESIGNATED SERIES" means Series 1993-1 and Series 1995-1.
"DETERMINATION DATE" means the second Business Day prior to the
Initial Interest Payment Date, each Semi-Annual Interest Payment Date, any
Monthly Payment Date and the Expected Maturity Date.
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"EQUALIZATION ACCOUNT" has the meaning set forth in Section 1.1
of the Pooling and Servicing Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCESS FINANCE CHARGE COLLECTIONS" has the meaning set forth in
Section 1.1 of the Series 1995-1 Supplement.
"EXCESS TRANSFEROR DAILY CASH FLOWS" means the amount by which
Transferor Daily Cash Flows exceeds the amount paid to the holder of the Class D
Certificates as Class D Daily Cash Flows.
"EXPECTED MATURITY DATE" means November 15, 2000.
"FINAL INTEREST PAYMENT AMOUNT" means for the Expected Maturity
Date, if no Event of Default has occurred, the sum of (a) the Semi-Annual
Payment Amount plus (b) one additional day's interest, calculated by the
Administrative Agent as an amount equal to the product of (i) one divided by
360, (ii) 12.5% and (iii) the principal amount of the New Notes.
"FINANCE CHARGE COLLECTIONS" has the meaning set forth in Section
1.01 of the Receivables Purchase Agreement.
"FISCAL MONTH" means the monthly period ending on the Saturday of
the last week in any month, based on a standard retail 4/5/4-week calendar
quarter, with March, June, September and December always containing 5 weeks. All
other months are 4-week periods, except for the January Fiscal Month, which ends
on the Saturday closest to January 31.
"FUTURE INDENTURE" means an indenture under which any Future
Notes are issued.
"FUTURE NOTES" means a series of notes issued by the Company
after the date hereof, which are secured in whole or in part by the Transferor
Certificate.
"FUTURE NOTEHOLDERS" means any Person in whose name a Future Note
is registered.
"GAAP" means United States generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on the
date of this Indenture.
"GLOBAL NOTE" means a New Note that is in the form of Exhibit A
and bears the legend set forth in Exhibit B.
"GOVERNMENT SECURITIES" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
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"HOLDER" or "NOTEHOLDER" means a Person in whose name a New Note
or Original Note is registered.
"INDEBTEDNESS" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases).
"INDENTURE" means this Indenture, as amended or supplemented from
time to time.
"INITIAL INTEREST PAYMENT DATE" means December 16, 1996.
"INITIAL INVESTED AMOUNTS" has the meaning set forth in Section
1.1 of the Pooling and Servicing Agreement.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is
an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"INTEREST PAYMENT DATE" means the Initial Interest Payment Date,
a Monthly Payment Date, a Semi-Annual Interest Payment Date or Expected Maturity
Date, as applicable.
"INTEREST RATE" means 12.5% per annum.
"INVESTOR CERTIFICATES" has the meaning set forth in Section 1.1
of the Pooling and Servicing Agreement.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
"LEGAL MATURITY DATE" means January 15, 2003.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"MASTER TRUST" means SRI Receivables Master Trust.
"MASTER TRUST CERTIFICATES" means any series of Investor
Certificates.
"MASTER TRUST DOCUMENTS" means the Receivables Purchase
Agreement, the Pooling and Servicing Agreement, the Series 1993-1 Supplement and
the Series 1995-1 Series Supplement. The "Master Trust Documents" do not include
the Series 1993-2 Supplement or any supplement in respect of any future series.
5
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"MINIMUM TRANSFEROR INTEREST" has the meaning set forth in
Section 1.1 of the Pooling and Servicing Agreement.
"MONTHLY INTEREST PAYMENT AMOUNT" means with respect to any
Monthly Interest Period one-twelfth of the product of the Interest Rate and the
Principal Balance of the New Notes as of the close of business on the first day
of such Monthly Interest Period.
"MONTHLY INTEREST PERIOD" means for a Monthly Payment Date each
period from and including the previous Monthly Payment Date (or in the case of
the first Monthly Interest Period, the previous Semi-Annual Interest Payment
Date) to and including the day preceding such Monthly Payment Date.
"MONTHLY INTEREST RESERVE AMOUNT" means, with respect to each
Semi-Annual Period Deposit Month, an amount equal to 25% of the Semi-Annual
Interest Payment Amount for the then current Semi-Annual Interest Payment
Period.
"MONTHLY PAYMENT DATE" means, following the occurrence of an
Event of Default, the fifteenth day of each month beginning with the month
following the month in which the Event of Default occurs, or if any such
fifteenth day is not a Business Day, the next succeeding Business Day.
"NON-U.S. PERSON" means any Person which is not a "U.S. Person"
as defined in Rule 902 under the Securities Act.
"NOTE ALLOCATION PERCENTAGE" means on any date of determination
(i) the sum of the Class D Initial Invested Amounts of the Designated Series
divided by (ii) the sum of the Class D Initial Invested Amounts of the
Designated Series plus Initial Invested Amounts of the Certificates of each
Transferor Retained Certificate that have been pledged for the benefit of any
additional issuances of notes by the Company.
"NOTE CUSTODIAN" means the Trustee, as custodian with respect to
the New Notes in global form, or any successor entity thereto.
"NEW NOTES" means the SRI Receivables Purchase Co., Inc. 12.5%
Series B Notes, substantially in the form of Exhibit A hereto.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERING CIRCULAR" means the offering circular dated May 24,
1996 relating to the offering of the Original Notes.
"OFFICER" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of
the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 14.4 hereof.
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"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Trustee and that meets the requirements of Section
14.4 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"ORIGINAL INDENTURE" means the Indenture dated as of May 30, 1996
by and among the Company, SRI, as administrative agent, and Bankers Trust
Company, as trustee and as collateral agent, as amended and supplemented from
time to time.
"ORIGINAL NOTES" means the SRI Receivables Purchase Co., Inc.
12.5% Trust Certificate- Backed Notes issued pursuant to the Original Indenture.
"ORIGINATOR" has the meaning set forth in Section 1.1 of the
Pooling and Servicing Agreement.
"PAYMENT ACCOUNT" shall have the meaning set forth in Section
4.1.
"PAYMENT DATE" means the Initial Interest Payment Date, each
Semi-Annual Interest Payment Date, any Monthly Payment Date and the Expected
Maturity Date.
"PAY OUT EVENT" shall have the meaning set forth in Section 1.1
of the Pooling and Servicing Agreement.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust or unincorporated organization
(including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"POOLING AND SERVICING AGREEMENT" means the Amended and Restated
Pooling and Servicing Agreement dated as of August 11, 1995 among the Company,
as Transferor, SRI, as Servicer and Bankers Trust (Delaware), as trustee of the
Master Trust, as amended and supplemented from time to time.
"PRINCIPAL BALANCE" means as of any date of determination,
$30,000,000 reduced by the aggregate amount of principal payments made on the
New Notes pursuant to Subsection 4.5 (b) as of such date.
"PRINCIPAL COLLECTIONS" has the meaning set forth in Section 1.01
of the Receivables Purchase Agreement.
"PRINCIPAL RESERVE ACCOUNT" shall have the meaning set forth in
Section 4.1.
"PRINCIPAL SHORTFALLS" has the meaning set forth in Section 1.1
of the Pooling and Servicing Agreement.
"PURCHASE TERMINATION EVENT" shall have the meaning set forth in
Section 1.01 of the Receivables Purchase Agreement.
"PURCHASE TERMINATION EVENT OF DEFAULT" means an Event of Default
occurring as a result of a Purchase Termination Event under and as defined in
the Receivables Purchase Agreement (without regard to whether any Default or
other Event of Default has theretofore occurred).
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"RAPID RESERVE PERIOD" means the period beginning on the first
day of the December 1999 Fiscal Month and continuing through the Expected
Maturity date and for so long as an Event of Default has not occurred.
"RATING AGENCIES" means S&P and DCR.
"RECEIVABLES PURCHASE AGREEMENT" means the Amended and Restated
Receivables Purchase Agreement dated as of May 30, 1996 between Palais Royal,
Inc. and the Company, as amended from time to time.
"RECORD DATE" means the last day of the calendar month prior to
any of the Expected Maturity Date, the Initial Interest Payment Date, a
Semi-Annual Payment Date or a Monthly Payment Date.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of May 30, 1996, by and among the Company and the other
parties named on the signature pages thereof, relating to the Original Notes, as
such agreement may be amended or supplemented from time to time.
"RELEASED EQUALIZATION ACCOUNT CASH FLOWS" means on any Business
Day the amounts released from the Equalization Account and distributed to the
Transferor by reason of the Transferor Interest exceeding the Minimum Transferor
Interest.
"REQUIRED AMOUNT" has the collective meanings set forth in
Section 2 of the Series 1995-1 Supplement and Section 2 of the Series 1993-1
Supplement.
"REQUIRED DEPOSIT RATING" means a rating which is acceptable to
each of the Rating Agencies; and any requirement that deposits have the
"Required Deposit Rating" shall mean that such deposits have the foregoing
ratings from each of such rating agencies or such other rating which is
acceptable to the Rating Agencies.
"RESPONSIBLE OFFICER" means, when used with respect to the
Trustee or the Collateral Agent, any officer within the Corporate Trust Office
(or any successor group of the Trustee) including any managing director, vice
president, assistant vice president, assistant secretary, assistant treasurer,
or any other officer of the Trustee customarily performing functions similar to
those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of his
knowledge of and familiarity with the particular subject.
"REVOLVING PERIOD" has the meaning set forth in Section 1.1 of
the Pooling and Servicing Agreement.
"S&P" means Standard & Poor's, a Division of The McGraw-Hill
Companies, Inc.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SEMI-ANNUAL INTEREST PAYMENT AMOUNT" means, for any Semi-Annual
Interest Payment Date, one-half of the product of (i) the Interest Rate and (ii)
the Principal Balance of the New Notes (plus, for the initial Semi-Annual
Interest Payment Date 16 days interest calculated on the basis of a 365 day
year).
8
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"SEMI-ANNUAL INTEREST PAYMENT DATE" means, prior to an Event of
Default, June 15 and December 15 of each year (or if any such day is not a
Business Day, the next succeeding Business Day).
"SEMI-ANNUAL INTEREST PERIOD" means, with respect to any
Semi-Annual Interest Payment Date, the period from and including the preceding
Semi-Annual Interest Payment Date (or, with respect to the initial Semi-Annual
Interest Period, the Closing Date) to and including the day preceding such
SemiAnnual Interest Payment Date.
"SEMI-ANNUAL PERIOD DEPOSIT MONTH" means, with respect to any
Semi-Annual Interest Period, each of the four successive Fiscal Months beginning
with the Fiscal Month during which such Semi-Annual Interest Period commences.
"SENIOR NOTES" means the SRI 10% Senior Notes Due 2000.
"SENIOR SUBORDINATED NOTES" means collectively the SRI 11% Series
B Senior Subordinated Notes and the SRI 11% Series D Senior Subordinated Notes
Due 2003.
"SERIES" means any series of certificates issued pursuant to a
series supplement to the Pooling and Servicing Agreement, whether now or
hereafter outstanding.
"SERIES 1993-1 CLASS D CERTIFICATES" means the Class D
Certificates issued pursuant to the Series 1993-1 Supplement.
"SERIES 1995-1 CLASS D CERTIFICATES" means the Class D
Certificates issued pursuant to the Series 1995-1 Supplement.
"SERIES 1993-1 SUPPLEMENT" means the Amended and Restated Series
1993-1 Supplement to the Pooling and Servicing Agreement dated as of May 30,
1996 by and among the Company, as Transferor, SRI, as Servicer and Bankers Trust
(Delaware), as trustee of the Master Trust, as amended and supplemented from
time to time.
"SERIES 1993-2 SUPPLEMENT" means the Series 1993-2 Supplement to
the Pooling and Servicing Agreement dated as of July 30, 1993 among the Company,
as Transferor, SRI, as Servicer, and Bankers Trust (Delaware), as trustee of the
Master Trust, as amended and supplemented from time to time.
"SERIES 1995-1 SUPPLEMENT" means the Amended and Restated Series
1995-1 Supplement to the Pooling and Servicing Agreement dated as of May 30,
1996 by and among the Company, as Transferor, SRI, as Servicer, and Bankers
Trust (Delaware), as trustee of the Master Trust, as amended and supplemented
from time to time.
"SETTLEMENT STATEMENT" means a report substantially in the form
of Exhibit H hereto as may be amended or modified from time to time in
accordance with Section 4.7.
"SHARED PRINCIPAL COLLECTIONS" has the meaning set forth in
Section 1.1 of the Pooling and Servicing Agreement.
"SRI" means Specialty Retailers, Inc., a Delaware corporation.
"SRI RECEIVABLES MASTER TRUST" means the trust created by the
Pooling and Servicing Agreement.
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"STATEMENT TO NOTEHOLDERS" means the statement to Noteholders,
substantially in the forms of Exhibit I hereto.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof other than Unrestricted Subsidiaries (except as used in the definition
thereof).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"TRANSFEROR" means SRI Receivables Purchase Co., Inc.
"TRANSFEROR CERTIFICATE" shall mean "Exchangeable Transferor
Certificate" as defined on page 11 of the Pooling and Servicing Agreement.
"TRANSFEROR/CLASS D CASH FLOWS" means, on any date of
determination (x) during the Revolving Period, the sum for all Designated Series
of the Class D Floating Allocation Percentage of Principal Collections for such
Designated Series for such day and (y) during the Amortization Period, the sum
for all Designated Series of the Class D Fixed Allocation Percentage of
Principal Collections for such Designated Series, which are paid to the
Transferor.
"TRANSFEROR DAILY CASH FLOWS" means on any date of determination
(x) the sum of (i) Transferor Percentage Principal Cash Flows, (ii) Transferor
Percentage Finance Charge Cash Flows, (iii) Released Equalization Account Cash
Flows, (iv) Transferor Shared Principal Collection Cash Flows, (v) Transferor
Excess Finance Charge Cash Flows, and (vi) Transferor/Class D Cash Flows minus
(y) funds deposited into the Equalization Account to maintain the Transferor
Interest at least equal to the Minimum Transferor Interest.
"TRANSFEROR EXCESS FINANCE CHARGE CASH FLOWS" means Excess
Finance Charge Collections for all outstanding Series that would be paid to the
Transferor.
"TRANSFEROR INTEREST" has the meaning set forth in Section 1.1 of
the Pooling and Servicing Agreement.
"TRANSFEROR PERCENTAGE" has the meaning set forth in Section 1.1
of the Pooling and Servicing Agreement.
"TRANSFEROR PERCENTAGE CASH FLOWS" means on any date of
determination the sum of (i) Transferor Percentage Principal Cash Flows, (ii)
Transferor Percentage Finance Charge Cash Flows, and (iii) Released Equalization
Account Cash Flows.
"TRANSFEROR PERCENTAGE FINANCE CHARGE CASH FLOWS" means on any
date of determination (i) the product of (a) the Transferor Percentage on such
day and (b) Finance Charge Collections on such day minus (ii) the sum of (a) any
amounts of such portion of Finance Charge Collections paid into the Equalization
Account to maintain the Transferor Interest at least equal to the Minimum
Transferor Interest and (b) any amount of such portion of Finance Charge
Collections applied to satisfy the Required Amount of any Series.
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"TRANSFEROR PERCENTAGE PRINCIPAL CASH FLOWS" means on any date of
determination (i) the product of (a) the Transferor Percentage on such day and
(b) Principal Collections on such day.
"TRANSFEROR RETAINED CERTIFICATE" has the meaning set forth in
Section 1.1 of the Pooling and Servicing Agreement.
"TRANSFEROR SHARED PRINCIPAL COLLECTION CASH FLOWS" means on any
date of determination Principal Collections or Finance Charge Collections that
are treated as Shared Principal Collections, EXCEPT to the extent that such
Shared Principal Collections are applied to (i) Principal Shortfalls on any
Series or (ii) repayment of principal of any Variable Funding Certificates.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"VARIABLE FUNDING CERTIFICATES" means a Series of Certificates
with fluctuating principal amounts, including the 1993-2 Certificates.
SECTION 1.2 OTHER DEFINITIONS.
DEFINED IN
TERM SECTION
"AGENT MEMBERS"..................................... 3.6
"DEFAULT"........................................... 8.1
"EVENT OF DEFAULT".................................. 8.2
"GLOBAL NOTES"...................................... 3.1
"INTEREST RESERVE ACCOUNT".......................... 4.1
"LEGAL DEFEASANCE" ................................. 10.2
"OFFSHORE PHYSICAL NOTES"........................... 3.1
"PAYING AGENT"...................................... 3.3
"PAYMENT ACCOUNT"................................... 4.1
"PAYMENT DEFAULT" .................................. 8.1
"PHYSICAL NOTES".................................... 3.1
"PRINCIPAL RESERVE ACCOUNT"......................... 4.1
"REGISTRAR"......................................... 3.3
"U.S. PHYSICAL NOTES"............................... 3.1
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
This Indenture shall be subject to the provisions of the TIA that are
required to be a part of this Indenture and shall, to the extent applicable, be
governed by such provisions. Whenever this Indenture refers to a provision of
the TIA, the provision is incorporated by reference in and made a part of this
Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITY HOLDER" means a Holder of a New Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
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"OBLIGOR" on the New Notes means the Company, any successor obligor
upon the New Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION.
(a) Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) words in the singular include the plural, and in the plural
include the singular;
(4) provisions apply to successive events and transactions; and
(5) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement or successor sections or
rules adopted by the SEC from time to time.
(b) The Fiscal Months "in" or "related to" a Semi-Annual Interest
Period or a Monthly Interest Period during which collections are reserved to
make payments on the New Notes are those Fiscal Months which begin approximately
two weeks before the commencement of the Semi-Annual Interest Period or Monthly
Interest Period and which end approximately two weeks before the end of the
Semi-Annual Interest Period or Monthly Interest Period.
ARTICLE 2
CONFIRMATION OF GRANTS OF SECURITY INTEREST;
CONFIRMATION OF APPOINTMENT OF COLLATERAL AGENT
SECTION 2.1 CONFIRMATION OF GRANTS OF SECURITY INTEREST.
(a) The Trustee and Collateral Agent hereby confirm that the Company
has granted, pursuant to the Original Indenture, (i) to the Trustee, for the
benefit and security of the Original Noteholders and the New Noteholders, a
security interest in (x) all of the Company's right, title and interest in, to
and under the Class D Certificates and all payments thereon or with respect
thereto and all proceeds thereof and (y) the Interest Reserve Account and the
Principal Reserve Account and (ii) to the Collateral Agent for the benefit and
security of the Trustee, the Original Noteholders and the New Noteholders and
any Future Trustee and any Future Noteholders, a security interest in all of the
Company's right, title and interest in, to and under the Transferor Certificate
and all payments thereon or with respect thereto and all proceeds thereof. The
grant in clause (i) has been made in trust to secure (a) (1) the Original Notes
equally and ratably without prejudice, priority or distinction between any
Original Note and any other Original Note by reason of difference in time of
issuance or otherwise and (2) the payment of all amounts due on the Original
Notes in accordance with their terms, (3) the payment of all other sums payable
under the Original Indenture, and (4) compliance with the provisions of the
Original Indenture, all as provided in the Original Indenture, and (b) (1) the
New Notes equally and ratably without prejudice, priority or distinction between
any New Note and any other New Note by reason of difference in time of issuance
or otherwise, (2) the payment of all amounts due on the New Notes in accordance
with their terms, (3) the payment of all other sums payable under this
Indenture, and (4) compliance with the
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provisions of this Indenture. The grant in clause (ii) has been made in trust to
secure (a) (1) the Original Notes and the New Notes equally and ratably without
prejudice, priority or distinction between any Original Note or New Note and any
other Original Note or New Note by reason of difference in time of issuance or
otherwise, (2) the payment of all amounts due on the Original Notes and the New
Notes in accordance with their terms, (3) the payment of all other sums payable
under the Original Indenture and this Indenture and (4) compliance with the
provisions of the Original Indenture and this Indenture, all as provided in the
Original Indenture and this Indenture, and (b) (1) the Future Notes equally and
ratably without prejudice, priority or distinction between any Future Note and
any other Future Note by reason of difference in time of issuance or otherwise
and (2) the pay ment of all amounts due on the Future Notes in accordance with
their terms, (3) the payment of all other sums payable under each Future
Indenture, and (4) compliance with the provisions of each Future Indenture.
(b) Each of the Trustee and the Collateral Agent confirms that it has
accepted the trusts hereunder in accordance with the provisions hereof.
(c) In connection with the grant described in Sections 2.1(a)(i) and
2.1(a)(ii), the Company confirms that it has filed, on or prior to May 30, 1996,
in the appropriate office of any applicable state, county or other relevant
jurisdiction, UCC-1 financing statements executed by the Transferor as debtor,
and with respect to the grant described in Section 2(a)(i), naming the Trustee
as secured party and identifying the Class D Certificates as the Collateral and
with respect to the grant described in Section 2(a)(ii), naming the Collateral
Agent as secured party and identifying the Collateral as the Transferor
Certificate. In connection with such filing, the Company shall cause to be filed
all necessary continuation statements thereof and take or cause to be taken such
actions and execute such documents as are necessary to continue the perfection
and protect the Noteholders' interest in such property.
(d) In connection with the grant described in Section 2.1(a)(i), the
Trustee confirms that the Company delivered to, and deposited with, the Trustee,
on or before May 30, 1996, the certificates representing the Class D
Certificates and in connection with the grant described in Section 2(a)(ii), the
Collateral Agent confirms that the Company delivered to the Collateral Agent the
Certificate representing the Transferor Certificate. The Trustee hereby agrees
to maintain the Class D Certificates in its continuous possession. The
Collateral Agent hereby agrees not to transfer possession of the Transferor
Certificate except as directed by Bankers Trust (Delaware) as Trustee under the
Pooling and Servicing Agreement in connection with an Exchange in accordance
with Section 6.9 of the Pooling and Servicing Agreement of the applicable Master
Trust Documents.
SECTION 2.2 CONFIRMATION OF APPOINTMENT OF COLLATERAL AGENT.
The Company has appointed, pursuant to the Original Indenture, the
Collateral Agent as its agent to hold the Transferor Certificate and the
Collateral Agent confirms that it has accepted such appointment. The Collateral
Agent has agreed to hold the Transferor Certificate for the benefit of the
Noteholders and if requested by the Company for the benefit of any Future
Noteholders.
ARTICLE 3
THE NEW NOTES
SECTION 3.1 FORM AND DATING.
The New Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The New Notes may have notations,
legends or endorsements required by law, stock
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exchange rule or usage. Each New Note shall be dated the date of its
authentication. The New Notes shall be in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the New Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
The Original Notes that were offered and sold in reliance on Rule 144A
were issued initially in the form of one or more permanent Global Notes in
registered form, deposited with the Trustee, as custodian for the Depository,
and shall, to the extent not exchanged for New Notes, continue to bear the
legend set forth on Exhibit B. The New Notes are expected to be issued initially
in the form of one or more permanent Global Notes in registered Form,
substantially in the form set forth in Exhibit A ("Global Notes"). The aggregate
principal amount any Global Note may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary, as hereinafter provided.
Any New Notes not issued in the form of Global Notes shall be
certificated New Notes in registered form in substantially the form set forth in
Exhibit A (the "Physical Notes").
SECTION 3.2 EXECUTION AND AUTHENTICATION.
Two Officers shall sign the New Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the New Notes and
may be in facsimile form.
If an Officer whose signature is on a New Note no longer holds that
office at the time a New Note is authenticated, the New Note shall nevertheless
be valid.
A New Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
New Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate New Notes for original issue up to the aggregate
principal amount of $30,000,000 from time to time outstanding, at the direction
of the Company. The Company shall direct the Trustee to authenticate a
particular principal amount of New Notes having a particular designation or
series in such Officers' Certificate.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate New Notes. An authenticating agent may authenticate New
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
The New Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 3.3 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where New Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where New Notes may be presented for payment ("Paying Agent").
The Registrar shall keep a register of the New Notes and of their transfer and
exchange. The Company may appoint one or more co-Registrars and one or more
additional
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paying agents. The term "Registrar" includes any co-Registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company to act as
Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as the Note Custodian with respect to the Global Notes.
SECTION 3.4 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal or interest on the New Notes, and will notify the Trustee of any
default by the Company in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company or an Affiliate) shall have no further liability for
the money. If the Company or an Affiliate acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the Holders all
money held by it as Paying Agent.
SECTION 3.5 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date, and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of New
Notes.
SECTION 3.6 BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES.
(a) The Global Notes initially shall (i) be registered in the name of
the Depository or the nomi nee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) in the case of Original
Notes, bear legends as set forth in Exhibit B.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Note, and the Depository may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of the Global Note
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the Depository, or impair, as between the Depository and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a Holder of any New Note.
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(b) Transfers of Global Notes shall be limited to transfers in whole,
but not in part, to the Depository, its successors or their respective nominees.
Interests of beneficial owners in the Global Notes may be transferred or
exchanged for Physical Notes in accordance with the rules and procedures of the
Depository. In addition, Physical Notes shall be transferred to all beneficial
owners in exchange for their beneficial interests in Global Notes if the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Note and a successor depositary is not appointed by
the Company within 90 days of such notice.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred or exchanged,
and the Company shall execute and the Trustee shall authenticate and deliver,
one or more Physical Notes of like tenor and amount.
(d) In connection with the transfer or exchange of Global Notes as an
entirety to beneficial owners pursuant to paragraph (b), the Global Notes shall
be deemed to be surrendered to the Trustee for cancellation, and the Company
shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Notes, an equal aggregate principal amount of Physical
Notes of authorized denominations.
(e) The Holder of any Global Note may grant proxies and otherwise
authorize any person, in cluding Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the New Notes.
SECTION 3.7 TRANSFER AND EXCHANGE PROVISIONS.
The New Notes are issuable only in registered form. A Holder may
transfer a New Note by written application to the Trustee stating the name of
the proposed transferee and otherwise complying with the terms of this
Indenture. No such transfer shall be effected until, and such transferee shall
succeed to the rights of a Holder only upon, final acceptance and registration
of the transfer by the Trustee in the note register. Prior to the registration
of any transfer by a Holder as provided herein, the Company, the Trustee, the
Collateral Agent and any agent of the Company shall treat the person in whose
name the New Note is registered as the owner thereof for all purposes whether or
not the New Note shall be overdue, and none of the Company, the Trustee, the
Collateral Agent and any such agent shall be affected by notice to the contrary.
When Original Notes or New Notes are presented to the Trustee with a request to
register the transfer or to exchange them for an equal principal amount of New
Notes of other authorized denominations (including an exchange of Original Notes
for New Notes), the Trustee shall register the transfer or make the exchange as
requested if its requirements for such transactions are met, and the Company
shall execute and the Trustee shall authenticate such New Notes. No service
charge shall be made for any registration of transfer or exchange or redemption
of the New Notes, but the Company or the Trustee may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or other similar
governmental charge payable upon transfers, exchanges or redemptions pursuant to
Section 3.10, 6.7 or 13.5).
THE TRUSTEE SHALL NOT BE REQUIRED (I) TO ISSUE, REGISTER THE TRANSFER
OF OR EXCHANGE ANY NEW NOTE DURING A PERIOD BEGINNING AT THE OPENING OF BUSINESS
15 DAYS BEFORE THE DAY OF THE MAILING OF A NOTICE OF REDEMPTION OF NEW NOTES
SELECTED FOR REDEMPTION UNDER SECTION 6.1 AND ENDING AT THE CLOSE OF BUSINESS ON
THE DAY OF SUCH MAILING OR (II) TO REGISTER THE TRANSFER OF OR EXCHANGE ANY NEW
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NOTE SO SELECTED FOR REDEMPTION IN WHOLE OR IN PART, EXCEPT THE UNREDEEMED
PORTION OF ANY NEW NOTE BEING REDEEMED IN PART.
SECTION 3.8 REPLACEMENT NOTES
If any mutilated New Note is surrendered to the Trustee or the Company
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any New Note, the Company shall issue and the Trustee, upon the
written order of the Company signed by two Officers of the Company, shall
authenticate a replacement New Note if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be supplied by
the Holder that is sufficient in the judgment of the Trustee or the Company, as
the case may be, to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a New Note is
replaced. The Company may charge for its expenses in replacing a New Note.
Every replacement New Note is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other New Notes duly issued hereunder.
SECTION 3.9 OUTSTANDING NOTES.
The New Notes outstanding at any time are all the New Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. A New Note does not cease to be
outstanding because the Company or an Affiliate holds the New Note, except for
purposes of granting any consents or waivers of the Holders of the New Notes.
If a New Note is replaced pursuant to Section 3.8 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced New Note is held by a bona fide purchaser.
If the principal amount of any New Note is considered paid under
Section 4.5 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay New Notes payable on that date, then on and after that date
such New Notes shall be deemed to be no longer outstanding and shall cease to
accrue interest.
SECTION 3.10 TEMPORARY NOTES.
Until Definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary securities upon a written order of
the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive New Notes but may have variations that
the Company considers appropriate for Temporary Notes. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate definitive
New Notes in exchange for temporary New Notes.
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Holders of temporary New Notes shall be entitled to all of the benefits
of this Indenture.
SECTION 3.11 CANCELLATION.
The Company at any time may deliver New Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
New Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all New Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall destroy cancelled New Notes. Certification of the destruction of all
cancelled New Notes shall be delivered to the Company. The Company may not issue
additional New Notes to replace New Notes that it has paid or that have been
delivered to the Trustee for cancellation.
SECTION 3.12 DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the New Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the New Notes and in Section 7.1 hereof. The Company shall, with the consent
of the Trustee, fix each such special record date and payment date. At least 30
days before the special record date, the Company (or the Trustee, in the name of
and at the expense of the Company) shall mail to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 4
PAYMENTS; STATEMENTS TO
CERTIFICATEHOLDERS
SECTION 4.1 ESTABLISHMENT OF ACCOUNTS.
The Trustee shall establish and maintain the Interest Reserve Account,
the Principal Reserve Account and the Payment Account in the name of the Trustee
for the benefit of the Holders of the New Notes. Each of the Interest Reserve
Account and the Principal Reserve Account shall be a segregated,
non-interest-bearing trust account initially established with the Trustee and
maintained with the Trustee so long as (i) the deposits of the Trustee have the
Required Deposit Rating or (ii) the Interest Reserve Account and the Principal
Reserve Account is maintained as a fully segregated trust account. All amounts
held in the Interest Reserve Account and the Principal Reserve Account shall be
invested in Cash Equivalents by the Trustee, at the written direction of the
Administrative Agent, in each case such investments must mature not later than
the 15th day of the following month. Such written direction shall certify that
any such invest ment is authorized by this Section 4.1 and complies with the
requirements of Cash Equivalents. On the 15th day of each month any earnings
(net of losses and investment expenses) on funds or deposits in the Interest
Reserve Account or the Principal Reserve Account will be withdrawn from such
accounts by the Trustee as directed by the Administrative Agent and paid to the
Company, or at the option of the Administrative Agent and the Company retained
in the Interest Reserve Account or the Principal Reserve Account, as applicable.
Investment earnings retained in the Interest Reserve Account shall be applied
towards the following Monthly Interest Reserve Amount. The Payment Account shall
be a segregated, non-interest-bearing trust account initially established with
the Trustee and maintained with the Trustee for so long as (x) the deposits of
the Trustee have the Required Deposit Rating or (y) the Payment Account is
maintained as a fully segregated trust account. The amounts in the Payment
Account shall not be invested. Should the deposits of the Trustee no longer have
the Required Deposit Rating and the Payment Account, the Interest Reserve
Account or the Principal Reserve Account, as applicable, shall not be main-
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tained as a fully segregated trust account, then the Administrative Agent shall,
with the Trustee's assistance as necessary, cause the Interest Reserve Account
or the Principal Reserve Account to be moved, within 60 days after the
occurrence of the later of the loss of the Required Deposit Rating or the
cessation of such accounts being maintained as fully segregated trust accounts,
to a bank or trust company organized under the laws of the United States of any
state thereof, the deposits of which shall have the Required Deposit Rating.
SECTION 4.2 DEPOSITS INTO THE INTEREST RESERVE ACCOUNT.
The Company shall make the following deposits into the Interest Reserve
Account, as specified in the applicable Daily Report:
(a) Subject to Section 4.2(b), commencing on the first Business Day of
the June 1996 Fiscal Month and prior to the Rapid Reserve Period and so long as
an Event of Default has not occurred, on each Business Day, during each
Semi-Annual Period Deposit Month, the Company shall deposit in the Interest
Reserve Account an amount equal to 10% of the Note Allocation Percentage of
Transferor Daily Cash Flows, until the Company has deposited an amount equal to
the Monthly Interest Reserve Amount for such Semi-Annual Interest Deposit Month.
(b) If deposits are being made by the Company pursuant to Section
4.2(a) and an amount has not been deposited into the Interest Reserve Account
equal to the Monthly Interest Reserve Amount in any one Semi-Annual Period
Deposit Month, the Company shall, beginning on the first Business Day of the
Semi-Annual Period Deposit Month following a Semi-Annual Period Deposit Month in
which the Monthly Interest Reserve Amount was not deposited into the Interest
Reserve Account, and on each Business Day thereafter, deposit into the Interest
Reserve Account an amount equal to 100% of the Note Allocation Percentage of
Transferor Daily Cash Flows until such time as the Company has deposited in the
Interest Reserve Account an amount equal to (i) the current Semi-Annual Period
Deposit Month's Monthly Interest Reserve Amount, if any, and (ii) any portion of
the Monthly Interest Reserve Amount for any prior SemiAnnual Period Deposit
Month that has not previously been deposited into the Interest Reserve Account.
If the amount on deposit in the Interest Reserve Account does not equal the
Semi-Annual Interest Payment Amount at the close of business on the last
Business Day of the fourth Semi-Annual Period Deposit Month in such Semi-Annual
Interest Period, the Company shall thereafter, on each remaining Business Day of
such Semi-Annual Interest Period, deposit 100% of the Note Allocation Percentage
of Transferor Daily Cash Flows in the Interest Reserve Account until such time
as the Semi-Annual Interest Payment Amount has been deposited into the Interest
Reserve Account.
(c) Subject to Section 4.2(d), during the Rapid Reserve Period and so
long as an Event of Default has not occurred, on each Business Day during each
Monthly Interest Period in a Semi-Annual Interest Period, the Company shall
deposit in the Interest Reserve Account an amount equal to 50% of the Note
Allocation Percentage of Excess Transferor Daily Cash Flows, until the Company
has deposited an amount equal to the Monthly Interest Reserve Amount for such
Monthly Interest Period. The Company shall make the deposits referred to in the
preceding sentence until the amounts on deposit in the Interest Reserve Account
equal the Semi-Annual Interest Payment Amount.
(d) If deposits are being made by the Company pursuant to Section
4.2(c) and an amount has not been deposited into the Interest Reserve Account
equal to the Monthly Interest Reserve Amount in any Semi-Annual Period Deposit
Month, the Company shall, on the first Business Day of the Monthly Interest
Period following the Monthly Interest Period in which the Monthly Interest
Reserve Amount was not deposited into the Interest Reserve Account, and on each
Business Day thereafter, deposit into the Interest Reserve Account an amount
equal to the Note Allocation Percentage of Excess Transferor Daily Cash
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Flows, until such time as the Semi-Annual Interest Payment Amount has been
deposited in the Interest Reserve Account.
(e) Subject to Section 4.2(f), on and after the date on which an Event
of Default other than a Purchase Termination Event of Default is deemed to have
occurred and after the Expected Maturity Date if the New Notes have not been
paid in full, the Company shall deposit in the Interest Reserve Account on each
Business Day of the Fiscal Month (other than the last Business Day of such
Fiscal Month) prior to each Monthly Payment Date an amount equal to the Note
Allocation Percentage of Excess Transferor Daily Cash Flows, until an amount
equal to 125% of the Monthly Interest Payment Amount for such Fiscal Month has
been deposited into the Interest Reserve Account.
(f) On each Business Day beginning on the day on which a Purchase
Termination Event of Default occurs, the Company shall deposit in the Interest
Reserve Account the Note Allocation Percentage of Transferor Daily Cash Flows
for application in accordance with Section 4.4(d).
(g) Subject to Section 4.8, on and after the occurrence of an Event of
Default or on any day after the Expected Maturity Date, the Company shall make
deposits into the Interest Reserve Account pursuant to Sections 4.2(e) and
4.2(f) until the Principal Balance of the New Notes has been reduced to zero.
SECTION 4.3 DEPOSITS INTO THE PRINCIPAL RESERVE ACCOUNT.
The Company shall make the following deposits into the Principal
Reserve Account, as specified in the applicable Daily Report:
(a) Prior to the first day of the June 2000 Fiscal Month, so long as an
Event of Default has not occurred, deposits shall not be made into the Principal
Reserve Account.
(b) Subject to Section 4.8, on and after the earlier of the occurrence
of an Event of Default and the first day of the June 2000 Fiscal Month, so long
as a Purchase Termination Event of Default shall not have occurred, on each
Business Day the Company shall deposit into the Principal Reserve Account the
sum of (i) the Class D Daily Cash Flows and (ii) the excess of the Note
Allocation Percentage of Excess Transferor Daily Cash Flows over the amount
thereof required to be deposited in the Interest Reserve Account pursuant to
Section 4.2 on such day, until such time as an amount equal to the outstanding
Principal Balance of the New Notes has been set aside in the Principal Reserve
Account.
(c) Following the occurrence of a Purchase Termination Event of
Default, the Company shall not make any additional deposits into the Principal
Reserve Account and shall only make the deposits into the Interest Reserve
Account as described in subsection 4.2(g) and shall distribute such amounts in
accordance with subsection 4.4(d).
SECTION 4.4 TRANSFERS TO THE PAYMENT ACCOUNT.
(a) Prior to the occurrence of an Event of Default the Trustee, acting
in accordance with the written instructions of the Administrative Agent in the
Settlement Statement, shall, on each Semi-Annual Interest Payment Date, cause an
amount equal to the Semi-Annual Interest Payment Amount to be withdrawn from the
Interest Reserve Account and deposited into the Payment Account.
(b) On the Expected Maturity Date the Trustee, acting in accordance
with the written instructions of the Administrative Agent in the Settlement
Statement, shall cause an amount equal to (i) the
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Final Interest Payment Amount and (ii) the lesser of (x) Principal Balance of
the New Notes and (y) the amount of funds on deposit in the Principal Reserve
Account on the last day of the preceding Fiscal Month to be withdrawn from the
Interest Reserve Account and Principal Reserve Account, respectively, and
deposited into the Payment Account.
(c) Following the occurrence of an Event of Default other than a
Purchase Termination Event of Default, the Trustee, acting in accordance with
the written instructions of the Administrative Agent in the Settlement
Statement, shall, on each Monthly Payment Date (other than the Expected Maturity
Date), cause the following amounts to be withdrawn and deposited into the
Payment Account:
(i) from the Interest Reserve Account as payment of interest, the
Monthly Interest Payment Amount; and
(ii) from the Principal Reserve Account, the amount on deposit in
the Principal Reserve Account at the close of business on the Business
Day prior to such Monthly Payment Date.
(d) Following a Purchase Termination Event of Default, the Trustee,
acting in accordance with the instructions of the Administrative Agent in the
Settlement Statement, shall on each Monthly Payment Date, cause the amounts
described in clauses (i), (ii) and (iii) below to be withdrawn and deposited
into the Payment Account:
(i) from the Interest Reserve Account, the Monthly Interest Payment
Amount related to such Monthly Payment Date;
(ii) from the Principal Reserve Account, the amount on deposit in
the Principal Reserve Account at the close of business on the Business
Day prior to such Monthly Payment Date;
(iii) from the Interest Reserve Account, an amount equal to the
excess of (x) the amount on deposit in the Interest Reserve Account at
the close of business on the Business Day prior to such Monthly Payment
Date over (y) the amounts described in clause (i) above.
SECTION 4.5 PAYMENTS OF PRINCIPAL AND INTEREST.
(a) On each Payment Date, the Administrative Agent shall cause the
amounts on deposit in the Payment Account to be withdrawn and paid, by the
Trustee in accordance with the Settlement Statement, to each Noteholder that was
a Holder on the related Record Date.
(b) Amounts deposited into the Payment Account pursuant to Sections
4.4(a), 4.4(b)(i), 4.4(c)(i) and 4.4(d)(i) shall be paid by the Trustee to
Noteholders in respect of interest accrued during the related Semi-Annual
Interest Period or Monthly Interest Period, as applicable, and amounts deposited
into the Payment Account pursuant to Sections 4.4(b)(ii), 4.4(c)(ii) and
4.4(d)(ii) and (iii) shall be paid by the Trustee to Noteholders as principal in
reduction of the Principal Balance of the New Notes, in each case in accordance
with the instructions of the Administrative Agent in the Settlement Statement.
To the extent funds are available, payments to Noteholders shall be
made by the Trustee in immediately available funds (or, if Physical Notes have
been issued, by check mailed by the Trustee to each Noteholder's address of
record in the records of the Paying Agent).
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SECTION 4.6 STATEMENTS TO NOTEHOLDERS.
On each Determination Date, the Administrative Agent shall prepare the
Statement to Noteholders, substantially in the form of Exhibit I hereto, and
deliver it to the Trustee on the Initial Interest Payment Date, each Semi-Annual
Interest Payment Date, any Monthly Payment Date and the Expected Maturity Date
and the Trustee shall in turn provide the Holders of the New Notes with such
Statement to Noteholders on each such date. The Administrative Agent shall also
deliver the Statement to Noteholders to the Rating Agencies.
SECTION 4.7 DAILY REPORT AND SETTLEMENT STATEMENT.
On each Business Day the Administrative Agent shall prepare the Daily
Report and on each Determination Date the Administrative Agent shall prepare the
Settlement Statement. The Daily Report and the Settlement Statement shall be in
substantially the forms of Exhibits G and H, respectively, with such changes as
the Administrative Agent may determine to be necessary or desirable; PROVIDED,
HOWEVER, that no such change shall serve to exclude information required by this
Indenture and each such change shall be reasonably acceptable to the Trustee.
The Administrative Agent shall, upon making such determi nation and receiving
the consent of the Trustee to such change, deliver to the Trustee and each
Rating Agency an Officers' Certificate to which shall be annexed the form of the
related Exhibit, as so changed. Upon the delivery of such Officers' Certificate
to the Trustee, the related Exhibit, as so changed, shall for all purposes of
this Indenture constitute such Exhibit. The Trustee may conclusively rely upon
such Officers' Certificate in determining whether the related Exhibit, as
changed, conforms to the requirements of this Indenture. The Administrative
Agent shall also deliver the Settlement Statement to the Rating Agencies.
SECTION 4.8 FINAL DISTRIBUTIONS.
Notwithstanding anything to the contrary contained herein, the Company
shall not be required to make any deposits pursuant to Sections 4.2 or 4.3 after
the last day of the Fiscal Month immediately prior to the Legal Maturity Date.
If after the Legal Maturity Date the Principal Balance of the New Notes has not
been reduced to zero, then payments shall be made to Noteholders from proceeds
of the sale contemplated by Section 9 of the Series 1995-1 Supplement up to an
amount that would reduce the Principal Balance of the New Notes to zero.
ARTICLE 5
CONDITIONS PRECEDENT
SECTION 5.1 GENERAL PROVISIONS.
The New Notes to be issued on the Closing Date shall be executed by the
Company and delivered to the Trustee for authentication and thereupon the same
shall be authenticated and delivered by the Trustee upon request by the Company,
upon compliance with Section 5.2 and upon receipt by the Trustee of the
following:
(1) a certificate of the Secretary of the Company (a) evidencing the
authorization by a resolution of the Board of Directors of the execution
and delivery of this Indenture and the execution, authentica tion and
delivery of the New Notes; and (b) certifying that (i) the attached copy of
the resolutions of the Board of Directors and the organizational documents
of the Company are true and complete copies thereof, (ii) such resolutions
have not been rescinded and such resolutions and organizational
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documents are in full force and effect on and as of the Closing Date and
(iii) the officers authorized to execute and deliver such documents have
the requisite power to do so and hold the offices and have the signatures
indicated thereon;
(2) an Officers' Certificate stating that the Company is not in Default
under the Original Indenture or this Indenture and that no Event of Default
under the Original Indenture or this Indenture has occurred;
(3) written confirmation from each Rating Agency that the exchange of
the Original Notes for the New Notes will not cause a reduction, withdrawal
or downgrade of its then current rating of the Original Notes and each
class of Master Trust Certificates; and
(4) an opinion of Kirkland & Ellis, special counsel to the Company,
satisfactory in form and substance to the Trustee and Collateral Agent,
dated the Closing Date.
SECTION 5.2 SECURITY FOR NOTES.
The Company shall deliver to the Trustee on the Closing Date a
certificate of an Authorized Officer of the Company, dated as of the Closing
Date, to the effect that in the case of the Collateral Securities, immediately
prior to the delivery thereof to the Trustee on the Closing Date:
(1) the Company is the owner of the Collateral Securities free and
clear of any Liens, claims or encumbrances of any nature whatsoever
except for those granted pursuant to this Inden ture or the Original
Indenture;
(2) the Company has acquired its ownership in the Collateral
Securities in good faith without notice of any adverse claim; and
(3) the Company has not assigned, pledged or otherwise encumbered
any interest in the Collateral Securities other than interests granted
pursuant to this Indenture or the Original Indenture.
ARTICLE 6
REDEMPTION
SECTION 6.1 OPTIONAL REDEMPTION.
The Company shall not have the option to redeem the New Notes pursuant
to this Section 6.1 prior to August 15, 1997. Thereafter, the Company shall have
the option to redeem the New Notes, in whole or in part, at the redemption
prices, calculated by the Administrative Agent (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on December 15 of the years indicated below:
YEAR PERCENTAGE
1997....................... The greater of (i) 106.25% or (ii)
100% plus the coupon discounted at
a rate equal to the yield on the
date of the redemption
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notice of the class
of United States
Treasury Notes
maturing closest to
August 15, 1999 plus
100 basis points.
1998....................... 106.25%
1999 and thereafter........ 100.00%
SECTION 6.2 NOTICES TO TRUSTEE.
If the Company elects to redeem New Notes pursuant to the optional
redemption provisions of Section 6.1 hereof, it shall furnish to the Trustee, at
least 30 days (unless a shorter period is acceptable to the Trustee) but not
more than 60 days before a redemption date, an Officers' Certificate setting
forth (i) the section of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of New Notes to be
redeemed and (iv) the redemption price.
SECTION 6.3 SELECTION OF NOTES TO BE REDEEMED.
If less than all of the New Notes are to be redeemed, the Trustee shall
select the New Notes to be redeemed among the Holders of the New Notes on a PRO
RATA basis, by lot or in accordance with any other method the Trustee considers
fair and appropriate (and in such manner as complies with applicable legal and
stock exchange requirements, if any), PROVIDED that no New Notes of $1,000 or
less shall be redeemed in part. In the event of partial redemption by lot, the
particular New Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 25 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding New Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the New
Notes selected for redemption and, in the case of any New Note selected for
partial redemption, the principal amount thereof to be redeemed. New Notes and
portions of New Notes selected shall be in amounts of $1,000 or whole multiples
of $1,000; except that if all of the New Notes of a Holder are to be redeemed,
the entire outstanding amount of New Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to New Notes called for
redemption also apply to portions of New Notes called for redemption.
SECTION 6.4 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose New Notes are to be redeemed at its registered
address.
The notice shall identify the New Notes to be redeemed and shall state:
(a) the redemption date and the amount of accrued and unpaid principal
thereon;
(b) the redemption price;
(c) if any New Note is being redeemed in part, the portion of the
principal amount of such New Note to be redeemed and that, after the redemption
date upon surrender of such New Note, a replacement New Note or Notes in
principal amount equal to the unredeemed portion shall be issued;
(d) the name and address of the Paying Agent;
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(e) that New Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on New Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the New Notes and/or Section of this Indenture
pursuant to which the New Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the New Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; PROVIDED, HOWEVER, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 6.5 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 6.4
hereof, New Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 6.6 DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all New Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all New Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the New
Notes or the portions of New Notes called for redemption. If a New Note is
redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest shall be paid to the
Person in whose name such New Note was registered at the close of business on
such record date. If any New Note called for redemption shall not be so paid
upon surrender for redemption because of the failure of the Company to comply
with the preceding paragraph, interest shall be paid on the unpaid principal,
from the redemption date until such principal is paid, and to the extent lawful
on any interest not paid on such unpaid principal, in each case at the rate
described in Section 7.1.
SECTION 6.7 NOTES REDEEMED IN PART.
Upon surrender of a New Note that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder at the expense of
the Company a replacement New Note equal in principal amount to the unredeemed
portion of the New Note surrendered.
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ARTICLE 7
COVENANTS
SECTION 7.1 PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the New Notes on the dates and in the manner provided in
this Indenture and in the New Notes. Principal, premium, if any, and interest
shall be considered paid on the date due if the Trustee or Paying Agent, holds
in the Payment Account as of 10:00 a.m. New York time on the due date money
deposited by the Company in immediately available funds and designated for and
sufficient to pay all principal, premium, if any, and interest then due.
SECTION 7.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an Affiliate
of the Trustee, Registrar or co-Registrar) where New Notes may be surrendered
for registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the New Notes and this Indenture may be served.
The Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the New Notes may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 3.3.
SECTION 7.3 ADDITIONAL REPORTS.
On each Semi-Annual Interest Payment Date and each Monthly Payment
Date, in addition to the Statement to Noteholders to be provided by the Trustee
pursuant to Section 4.6, the Trustee will cause to be delivered to Noteholders
as provided in Section 4.5, copies of the Monthly and, to the extent requested
in writing by Noteholders, annual statements referenced in Section 5.2 of the
Series 1993-1 Supplement and Section 5.2 of the Series 1995-1 Supplement and the
audited annual financial statements of the Company which relate to such dates.
SECTION 7.4 COMPLIANCE CERTIFICATE.
(a) The Administrative Agent shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company during the preceding fiscal year has
been made under the supervision of the signing Officers (who may be Officers of
the Administrative Agent) with a view to determining whether the Company has
kept, observed,
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performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge, the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action the Company is taking or proposes to take with respect thereto) and
that to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the New Notes is prohibited or if such event has occurred,
a description of the event and what action the Company is taking or proposes to
take with respect thereto. The Administrative Agent shall deliver such Officers'
Certificate to the Rating Agencies.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 7.3 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Articles 4, 7 or 8 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company and the Administrative Agent shall, so long as any of
the New Notes are outstanding, deliver to the Trustee, forthwith upon any
Officer of the Company, or the Administrative Agent, as applicable, becoming
aware of any Default or Event of Default an Officers' Certificate specifying
such Default or Event of Default and what action the Company is taking or
proposes to take with respect thereto. The Administrative Agent shall deliver
such Officers' Certificate to the Rating Agencies.
SECTION 7.5 TAXES.
The Company shall pay, prior to delinquency, all material taxes,
assessments, and governmental levies except such as are contested in good faith
and by appropriate proceedings or where the failure to effect such payment is
not adverse in any material respect to the Holders of the New Notes.
SECTION 7.6 STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 7.7 LIENS.
The Company shall not directly or indirectly create, incur, assume or
suffer to exist any Lien on the Collateral Securities or any income or profits
therefrom or assign or convey any right to receive income therefrom.
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SECTION 7.8 CORPORATE EXISTENCE.
Subject to Article 8 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (char ter and statutory), licenses and franchises
of the Company.
SECTION 7.9 SENIOR DEBT.
The Company shall not incur, create, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Indebtedness
that is senior in any respect in right of payment to the New Notes.
SECTION 7.10 AMENDMENT OF RECEIVABLES, MASTER TRUST DOCUMENTS.
The Company shall not execute any amendment or supplement to any of the
Master Trust Documents if such amendment would materially adversely affect the
rights of the Noteholders unless the Company shall have first obtained the prior
written consent of the majority of the outstanding principal amount of the New
Notes and Original Notes, if any, taken together.
SECTION 7.11 CONDITIONS PRECEDENT TO ISSUANCE OF FUTURE NOTES.
The Company shall not issue any Future Notes unless (a) the Collateral
Agent and the Trustee shall have received a legal opinion of counsel
satisfactory to it to the effect that after giving effect to such issuance the
Collateral Agent will continue to have a valid and perfected first priority
security interest in the Transferor Certificate for the benefit of the Trustee
and any Future Trustee and (b) the Trustee shall have received written
confirmation from each Rating Agency that such issuance will not cause a
reduction, withdrawal or downgrade of its then current rating of the New Notes
and each class of Master Trust Certificates then outstanding.
SECTION 7.12 CHARGE ACCOUNT AGREEMENTS AND CREDIT AND COLLECTION POLICIES.
The Company shall comply with and perform its obligations and shall
take all actions reasonably within its control to cause the Originators to
comply with and perform their obligations under the Charge Account Agreements
relating to the Accounts and the Credit and Collection Policy except insofar as
any failure to comply or perform would not materially and adversely affect the
rights of the Holders hereunder or under the New Notes. The Company shall also
take all action reasonably within its control to cause the Originators to apply
payments by obligor in the following order: (i) finance charges; (ii) other
charges or fees; and (iii) the unpaid principal balance of purchases allocated
first to the longest outstanding receivable. The Company may change, and permit
the Originators to change, the terms and provisions of the Charge Account
Agreements or the Credit and Collection Policy in any respect (including,
without limitation, the reduction of the required minimum monthly payment, the
calculation of the amount, or the timing, of charge offs and the periodic
finance charges and other fees to be assessed thereon) only if such change
(individually or taken together with all prior changes to the terms and
provisions of the Charge Account Agreements or the Credit and Collection Policy)
(i) would not, in the reasonable belief of the Company, cause, immediately or
with the passage of time, a Pay Out Event to occur and (ii) (A) (if it owns a
comparable segment of charge card accounts) is made applicable to the comparable
segment of the revolving credit card accounts owned by the Company, if any,
which have characteristics the same as, or substantially similar to, the
Accounts that are the subject of such change and (B) (if it does not own such
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a comparable segment) will not be made with the intent to materially benefit the
Company over the Holders or to materially adversely affect the Holders, except
as otherwise restricted by an endorsement, sponsorship, or other agreement
between the Company and an unrelated third party or by the terms of the Charge
Account Agreements.
ARTICLE 8
SUCCESSORS
SECTION 8.1 MERGER, CONSOLIDATION, OR SALE OF ASSETS.
(a) The Company shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person, unless:
(i) the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Company substantially as an
entirety shall be, if the Company is not the surviving entity,
organized and existing under the laws of the United States of America
or any State or the District of Columbia and shall expressly assume, by
an agreement supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the performance of every
covenant and obligation of the Company, as applicable hereunder. To the
extent that any right, covenant or obligation of the Company, as
applicable hereunder, is inapplicable to the successor entity, such
successor entity shall be subject to such covenant or obligation, or
benefit from such right, as would apply, to the extent practicable, to
such successor entity.
(ii)the Company shall have delivered to the Trustee an Officers'
Certificate of the Company stating that such consolidation, merger,
conveyance or transfer and such supplemental agreement comply with this
Section 8.1 and that all conditions precedent herein provided for
relating to such transaction have been complied with and an Opinion of
Counsel that such supplemental agreement is legal, valid and binding
and that the entity surviving such consolidation, conveyance or
transfer is organized and existing under the laws of the United States
of America or any State or the District of Columbia and, subject to
customary limitations and qualifications, such entity will not be
substantively consolidated with any Originator or the Servicer;
(iii)the Company shall have delivered notice to the Rating Agencies
of such consolidation, merger, conveyance or transfer and the Rating
Agency shall have provided written confirmation that such
consolidation, merger, conveyance or transfer will not result in the
Rating Agency reducing or withdrawing its then existing rating on the
New Notes as to which it is a Rating Agency; and
(iv) the successor entity shall be a special purpose bankruptcy
remote entity.
(b) The obligations of the Transferor hereunder shall not be assignable
nor shall any Person succeed to the obligations of the Transferor hereunder
except for mergers, consolidations, assumptions or transfers in accordance with
the provisions of the foregoing paragraph.
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SECTION 8.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 8.1 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the Company shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person has been named
as the Company herein, and the predecessor Company (if not the surviving
corporation) shall be relieved from its obligations under this Indenture and the
New Notes.
ARTICLE 9
DEFAULTS AND REMEDIES
SECTION 9.1 DEFAULTS AND EVENTS OF DEFAULT.
A "Default" occurs if:
(a) the Company defaults in the payment when due of interest on the New
Notes and the default continues for a period of 30 days;
(b) the Company fails to comply with Section 8.1 hereof which failure
remains uncured for 30 days;
(c) the Company fails to observe or perform any other covenant,
warranty or other agreement in this Indenture or the New Notes for 60 days after
notice to the Company by the Trustee or the Holders of at least 25% of the
Principal Balance of the New Notes then outstanding;
(d) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company, whether such Indebtedness now
exists or is created after the date of this Indenture, which default (i) is
caused by a failure to pay at final maturity, principal or interest on such
Indebtedness within the grace period provided in such Indebtedness (a "Payment
Default") or (ii) has resulted in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5 million or more;
(e) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company and
such judgment or judgments remain undischarged for a period (during which
execution shall not be effectively stayed) of 60 days, PROVIDED that the
aggregate of all such undischarged judgments exceeds $1 million;
(f) the Company pursuant to or within the meaning of Bankruptcy Law:
(I) commences a voluntary case;
(II) consents to the entry of an order for relief against it
in an involuntary case;
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(III) consents to the appointment of a Custodian of it or for
all or substantially all of its property; and
(IV) makes a general assignment for the benefit of its
creditors;
(g) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law, which order or decree remains in effect and unstayed for 60
consecutive days, that:
(I) is for relief against the Company in an involuntary case;
(II) appoints a Custodian of the Company or for all or
substantially all of the property of the Company; or
(III) orders the liquidation of the Company.
(h) the occurrence of a Purchase Termination Event or an event which
would constitute a Pay Out Event or a Servicer Default regardless of whether the
Investor Certificateholders have exercised a remedy with respect thereto;
(i) SRI defaults pursuant to its outstanding Senior Notes or Senior
Subordinated Notes or any Indebtedness issued to extend, refinance or replace
the Senior Notes or Senior Subordinated Notes, which default results in the
acceleration of such Indebtedness; or
(j) the Company shall become subject to regulation by the Securities
and Exchange Commission as an "investment company" within the meaning of the
Investment Company Act.
SECTION 9.2 ACCELERATION.
Defaults arising under clauses (a), (b), (g), (h) and (i) above will
constitute an event of default (an "Event of Default") automatically. Defaults
arising under clauses (c), (d), (e), (f) and (j) above will constitute an "Event
of Default" only upon the affirmative vote of the Holders of more than 50% of
the outstanding principal amount of the New Notes and Original Notes, if any,
taken together. If an Event of Default occurs all outstanding New Notes will
become due and payable without further action or notice and Holders of the New
Notes will be repaid on the terms specified in Article 4.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the New Notes pursuant to
Section 6.1 hereof, an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law, anything in this Indenture or in
the New Notes to the contrary notwithstanding. If an Event of Default occurs
prior to August 15, 1997 by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the New Notes prior to such date, then the premium
payable for purposes of this paragraph shall be as specified pursuant to Section
7.1 hereof for the twelve-month period beginning December 15, 1997.
SECTION 9.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the New Notes or to enforce the performance of any provision of the
New Notes or this Indenture. Such remedies may include foreclosure
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on the Class D Certificates, but only (i) in accordance with Section 11(c) of
the Series 1995-1 Supplement and (ii) if the Invested Amounts with respect to
all current or future Investor Certificates that have a higher initial rating by
the Rating Agencies than the New Notes have been paid to the holders thereof.
Such foreclosure shall be in accordance with instructions from the Holders of a
majority of the Principal Balance of the New Notes or, in the absence of such
instructions, in such manner as the Trustee deems appropriate in its absolute
discretion. The proceeds received by the Trustee will be applied by the Trustee
first to pay expenses and fees and other amounts payable to the Trustee and
thereafter to pay all amounts then owing to the Holders. In no event may the
Collateral Agent foreclose on the Transferor Certificate.
The Trustee may maintain a proceeding even if it does not possess any
of the New Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a New Note in exercising any right or
remedy, accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 9.4 WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding New Notes by notice to the Trustee may on behalf of the
Holders of all of the New Notes waive an existing Default or Event of Default
and its consequences, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on, the New Notes
(including in connection with an offer to purchase); PROVIDED, HOWEVER, that the
Holders of a majority in aggregate principal amount of the then outstanding New
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration. Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereof.
SECTION 9.5 CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding New
Notes and Original Notes, if any, taken together, may direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the Trustee or exercising any trust or power conferred on it. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture that the Trustee determines may be unduly prejudicial to the rights of
other Holders of New Notes or that may involve the Trustee in personal
liability.
SECTION 9.6 LIMITATION ON SUITS.
A Holder of a New Note may pursue a remedy with respect to this
Indenture or the New Notes only if:
(a) the Holder of a New Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% of the Principal Balance of the then
outstanding New Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a New Note or Holders of New Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
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(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding New Notes and Original Notes, if any, taken
together, do not give the Trustee a direction inconsistent with the request.
A Holder of a New Note may not use this Indenture to prejudice the rights of
another Holder of a New Note or to obtain a preference or priority over another
Holder of a New Note.
SECTION 9.7 NO BANKRUPTCY PETITION.
Each of the Trustee (and any successor trustee), the Administrative
Agent (and any successor administrative agent) and each Holder of a New Note
covenants and agrees that prior to the date which is one year and one day after
the payment in full of the New Notes and all Master Trust Certificates issued by
the Master Trust and Future Notes issued by the Company in each case if rated by
any nationally recog nized statistical rating organization it will not institute
against, or join any other Person in instituting against, the Company any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any federal or state bankruptcy or similar law.
No Noteholder shall have any right by virtue of any provisions of this
Agreement to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Agreement, unless such Noteholder previously
shall have given written notice to the Trustee, and unless the Holders of New
Notes evidencing more than 50% of the Principal Balance of the New Notes which
may be adversely affected but for the institution of such suit, action or
proceeding, shall have made written request upon the Trustee to institution such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Noteholder with every other Noteholder and the Trustee, that no one or more
Noteholders shall have the right in any manner whatever by virtue or by availing
itself or themselves of any provisions of this Agreement to affect, disturb or
prejudice the rights of the Noteholders of any other of the New Notes, or obtain
or seek to obtain priority over or preference to any other such Noteholder, or
to enforce any right under this Agreement, except in the manner herein provided
and for the equal, ratable and common benefit of all Noteholders. For the protec
tion and enforcement of the provisions of this Section 9.7, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity. The rights of the Noteholders pursuant to this
second paragraph of Section 9.7 shall be subject to and limited by the first
paragraph of this Section 9.7.
SECTION 9.8 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Except as provided in Section 9.7, the right of any Holder of a New
Note to receive payment of principal, premium, if any, and interest on the New
Note, on or after the respective due dates expressed in the New Note (including
in connection with an offer to purchase), or to bring suit for the enforcement
of any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
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SECTION 9.9 LIMITED RECOURSE.
Payments of principal, interest and premium, if any, on the New Notes
will be secured by, and will be paid solely from the distributions on, the
Collateral Certificates. The New Notes are not general recourse obligations of
the Company or any of its Affiliates and Noteholders shall not have recourse to
assets of the Company or any of its Affiliates, except with respect to the Class
D Certificates and the Note Allocation Percentage of Transferor Daily Cash
Flows.
SECTION 9.10 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
New Note pursuant to Section 9.8 hereof, or a suit by Holders of more than 10%
in principal amount of the then outstanding New Notes and Original Notes, if
any, taken together.
SECTION 9.11 COLLECTION SUIT BY TRUSTEE.
Subject to Section 9.7, if an Event of Default specified in Section 9.2
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, and interest remaining unpaid on the
New Notes and interest on overdue principal and, to the extent lawful, interest
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
SECTION 9.12 TRUSTEE MAY FILE PROOFS OF CLAIM.
Subject to Section 9.7, the Trustee is authorized to file such proofs
of claim and other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Holders of the New Notes allowed in any judicial
proceedings relative to the Company (or any other obligor upon the New Notes),
its creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 11.7 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 11.7 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders of the New Notes may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder of any plan of reorganization, arrangement, adjustment or
composition affecting the New Notes or the rights of any Holders, or to
authorize the Trustee to vote in respect of the claim of any Holder, in any such
proceeding.
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ARTICLE 10
ADMINISTRATIVE AGENT
SECTION 10.1 APPOINTMENT AND AUTHORITY OF ADMINISTRATIVE AGENT.
The Company hereby appoints SRI its agent to supervise and manage, on
the Company's behalf, (i) the operations of the Company in connection with or
relating to this Indenture and (ii) the operations of the Company in connection
with or relating to the issuance, sale and payment of the New Notes, and to
perform certain other services on behalf of the Company that are specified
below. SRI, acting in such capacity, is hereinafter referred to as the
"Administrative Agent."
SECTION 10.2 ADMINISTRATIVE AGENT'S SERVICES AND DUTIES.
(a) The Administrative Agent's duties on behalf of the Company in
connection with the Indenture shall be the following, or advising the Company as
to the following:
(i) arranging for the execution of this Indenture by the Company
and arranging for the exe cution of amendments to and waivers under the
Master Trust Documents and any other documents or instruments deliverable
by the Company thereunder or in connection therewith to allow for the
transactions contemplated by this Indenture;
(ii) monitoring the Company's distributions on the Collateral
Securities.
(iii)causing amounts out of such received payments to be deposited
into the Interest Reserve Account and the Principal Reserve Account in the
amounts and manner specified in Sections 4.2 and 4.3, and in accordance
with the Daily Report;
(iv) giving such notices and other communications as the Company
may from time to time be required or permitted to give under this
Indenture;
(v) preparing and delivery to the Trustee the Statement to
Noteholders in accordance with Section 4.6 and the Certificate specified in
Section 7.4 in accordance with such Section;
(vi) delivering to Noteholders the reports required by Section 7.3;
(vii) cooperating with and assisting the outside auditors of the
Company in conducting examinations required by Section 7.4;
(viii) maintenance of general accounting records of the Company,
and preparation for certification of such periodic financial statements as
may be necessary or appropriate;
(ix) taking such other actions as are required to be performed by
the Administrative Agent under this Indenture;
(x) (1) preparation for execution by the Company, and causing to be
filed thereafter, such income, franchise or other tax returns of the
Company as shall be required to be filed by applicable law, and (2) causing
to be paid, but solely from the assets of the Company, any taxes required
to be paid by the Company by applicable law;
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(xi) preparing the Registration Statement and assuring for the
benefit of the Company that no such Registration Statement (A) contains any
untrue statement of a material fact or (B) omits to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(xii) retain, on behalf of and for the account of the Company,
legal counsel necessary to perform for the Company the services necessary
or appropriate to the preparation, execution and delivery of this Indenture
and the related agreements to which the Company is a party and the future
services provided by a general corporate counsel; and
(xiii) use its reasonable efforts to cause the Company to satisfy
its obligations under this Indenture.
(b) The services of the Administrative Agent to the Company under this
Agreement are not to be deemed exclusive, and the Administrative Agent shall be
free to render similar services to others.
(c) The Administrative Agent shall maintain proper books of account and
complete records of all transactions of the Company undertaken or performed by
it hereunder and will render statements or copies thereof from time to time as
reasonably requested by the Company or by the Rating Agencies. The
Administrative Agent will assist in all audits of the Company.
SECTION 10.3 STANDARD OF CARE.
The Administrative Agent shall perform its duties hereunder diligently,
in conformity with the Company's obligations relating thereto and in accordance
with the same standard of care exercised by a prudent person in connection with
the administration of assets or investments similar to the New Notes and, in no
event with less care than it exercises or would exercise in connection with the
administration of assets or investments similar to the New Notes issued in its
own capacity.
SECTION 10.4 COMPENSATION OF THE ADMINISTRATIVE AGENT.
The Company covenants and agrees to pay to the Administrative Agent
from time to time, and the Administrative Agent shall be entitled to receive,
reasonable compensation for all services rendered by the Administrative Agent in
connection with the performance of its duties hereunder.
SECTION 10.5 INDEMNIFICATION.
The Administrative Agent hereby agrees to indemnify and hold harmless
each of the Company, the Collateral Agent and the Trustee and each of its
directors, officers, employees, agents and stockholders from and against any and
all damages, losses, liabilities, costs and expenses incurred by the Company
resulting from the negligence or wilful misconduct of the Administrative Agent
in performing (or failing to perform) its obligations under this Indenture;
excluding, however, damages, losses, liabilities, costs or expenses to the
extent resulting solely from the gross negligence or willful misconduct of the
Company, Collateral Agent or the Trustee, its officers, employees or agents
(other than the Administrative Agent). The Company, Collateral Agent or the
Trustee shall immediately notify the Administrative Agent of any damage, loss,
liability, cost or expense which the Company has determined has given or would
give rise to a right of indemnification hereunder and the Administrative Agent
shall have the exclusive right to compromise or defend any such liability or
claim at its own expense, which decision shall be binding and conclusive upon
the Company, Collateral Agent and the Trustee. Failure to give such notice shall
not relieve the Administrative Agent of its indemnity hereunder; PROVIDED,
HOWEVER, that the Administrative
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Agent shall not be held responsible for any damage, loss, liability, cost or
expense resulting from the failure to give such notice. This indemnity shall
survive the termination of this Indenture and the resignation or removal of the
Trustee.
ARTICLE 11
TRUSTEE AND COLLATERAL AGENT
SECTION 11.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee and the Collateral Agent may not be relieved from
liabilities for its own negligent action, its own negligent failure to act, or
its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee and the Collateral Agent shall not be liable for
any error of judgment made in good faith by a Responsible Officer, unless
it is proved that the Trustee or the Collateral Agent was negligent in
ascertaining the pertinent facts; and
(iii)the Trustee and the Collateral Agent shall not be liable with
respect to any action it takes or omits to take in good faith in accordance
with a written direction received by it pursuant to Section 9.5 hereof.
Whether or not therein expressly so provided, every provision of this Indenture
that in any way relates to the Trustee is subject to paragraphs (a), (b), and
(c) of this Section.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holder, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
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SECTION 11.2 RIGHTS OF TRUSTEE.
(a) The Trustee and the Collateral Agent shall have the duties set
forth in this Indenture and only such duties and no implied duties shall be read
into this Indenture. The Trustee and the Collateral Agent may conclusively rely
upon any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee or the Collateral Agent acts or refrains from
acting, it may require an Officers' Certificate or an Opinion of Counsel or
both. Each of the Trustee and the Collateral Agent shall not be liable for any
action it takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. Each of the Trustee and the Collateral Agent
may consult with counsel and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) Each of the Trustee and the Collateral Agent may act through its
attorneys and agents and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.
(d) Each of the Trustee and the Collateral Agent shall not be liable
for any action it takes or omits to take in good faith that it believes to be
authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) Each of the Trustee and the Collateral Agent shall be under no
obligation to exercise any of the rights or powers vested in it by this
Indenture at the request or direction of any of the Holders unless such Holders
shall have offered to the Trustee or the Collateral Agent reasonable security or
indemnity against the costs, expenses and liabilities that might be incurred by
it in compliance with such request or direction.
SECTION 11.3 INDIVIDUAL RIGHTS OF TRUSTEE AND COLLATERAL AGENT.
Each of the Trustee and the Collateral Agent in its individual or any
other capacity may become the owner or pledgee of New Notes and may otherwise
deal with the Company or any Affiliate of the Company with the same rights it
would have if it were not Trustee or the Collateral Agent. Any Agent may do the
same with like rights and duties. The Trustee is also subject to Sections 11.10
and 11.11 hereof.
SECTION 11.4 TRUSTEE'S AND COLLATERAL AGENT'S DISCLAIMER.
Neither the Trustee nor the Collateral Agent shall be responsible for
and/or make any representation as to the validity or adequacy of this Indenture,
the Master Trust Documents, or the New Notes, and they shall not be accountable
for any money paid to the Company or upon the Company's direction under any
provision of this Indenture, and they shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and they shall not be responsible for any statement or recital herein or any
statement in the New Notes or any other document in connection
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with the issuance of the New Notes or pursuant to this Indenture other than (in
the case of the Trustee) its certificate of authentication.
SECTION 11.5 NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and a
Responsible Officer of the Trustee has received written notice thereof, the
Trustee shall mail to Holders of New Notes a notice of the Default or Event of
Default within 90 days after it occurs. Except in the case of a Default or Event
of Default in payment of principal of, premium, if any, or interest on any New
Note, the Trustee may withhold the notice if and so long as its Responsible
Officers in good faith determine that withholding the notice is in the interests
of the Holders of the New Notes.
SECTION 11.6 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall mail to the Holders of the New
Notes and the Rating Agencies a brief report dated as of such reporting date
that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a)
has occurred within the twelve months preceding the reporting date, no report
need be transmitted). The Trustee also shall comply with TIA ss. 313(b)(2). The
Trustee shall also transmit by mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of New
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the New Notes are listed. The Company shall promptly notify
the Trustee when the New Notes are listed on any stock exchange.
SECTION 11.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee and the Collateral Agent from time
to time reasonable compensation for its acceptance of this Indenture and
performance of its services hereunder. The Trustee's and Collateral Agent's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee and the Collateral Agent
promptly upon request for all reasonable disbursements, advances and expenses
incurred or made by it in addition to the compensation for its services. Such
expenses shall include the reasonable compensation, disbursements and expenses
of the Trustee's and Collateral Agent's agents and counsel.
The Company shall indemnify the Trustee and the Collateral Agent
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture without negligence or bad faith on its part. The Trustee and the
Collateral Agent shall notify the Company promptly of any claim for which it may
seek indemnity. Failure by the Trustee and the Collateral Agent to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee and the Collateral Agent shall cooperate
in the defense. The Trustee and the Collateral Agent may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent, which consent
shall not be unreasonably withheld. This indemnity shall apply to the directors,
officers, employees and agents of the Trustee and the Collateral Agent.
The obligations of the Company under this Section 11.7 shall survive
the satisfaction and discharge of this Indenture, and the resignation and
removal of the Trustee and the Collateral Agent.
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To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the New Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular New Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 9.1(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 11.8 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company and notice of such
resignation shall be delivered by the Trustee to the Rating Agencies. The
Holders of New Notes of a majority in principal amount of the then outstanding
New Notes and Original Notes, if any, taken together, may remove the Trustee by
so notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 11.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding New Notes may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of New Notes of at least 10% in principal amount of the then
outstanding New Notes and Original Notes, if any, taken together, may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a New Note who
has been a Holder of a New Note for at least six months, fails to comply with
Section 11.10, such Holder of a New Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the New Notes and to the Rating Agencies. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor
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Trustee, PROVIDED all sums owing to the Trustee hereunder have been paid and
subject to the Lien provided for in Section 11.7 hereof. Notwithstanding
replacement of the Trustee pursuant to this Section 11.8, the Company's
obligations under Section 11.7 hereof shall continue for the benefit of the
retiring Trustee.
SECTION 11.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 11.10 ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5).
Pursuant to Section 3.10(b) of the TIA, if upon the occurrence of an
Event of Default the Trustee has as "conflicting interest" (as defined in
Section 3.10(b) of the TIA), then, within 90 days after ascertaining that the
Trustee has such conflicting interest, and if the Event of Default has not been
cured or duly waived or otherwise eliminated before the end of such 90-day
period, the Trustee shall either eliminate such conflicting interest or, except
as otherwise provided in Section 3.10(b) of the TIA, resign and the Company
shall take prompt steps to have a successor trustee appointed pursuant to
Section 11.8.
SECTION 11.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 12
LEGAL DEFEASANCE
SECTION 12.1 OPTION TO EFFECT LEGAL DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
Section 12.2 hereof be applied to all outstanding New Notes upon compliance with
the conditions set forth below in this Article 12.
SECTION 12.2 LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 12.1 hereof of the option
applicable to this Section 12.2, the Company shall, subject to the satisfaction
of the conditions set forth in 12.3 hereof, be deemed to have been discharged
from its obligations with respect to all outstanding New Notes on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, Legal
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Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding New Notes, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 12.4
hereof and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all its other obligations under such New Notes and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding New Notes to
receive solely from the trust fund described in Section 12.3 hereof, and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such New Notes when such payments are due, (b)
the Company's obligations with respect to such New Notes under Article 3 and
Section 7.2 hereof, (c) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Company's obligations in connection therewith and (d)
this Article 12.
SECTION 12.3 CONDITIONS TO LEGAL DEFEASANCE.
The following shall be the conditions to the application of Section 12.2
hereof to the outstanding New Notes:
In order to exercise Legal Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the New
Notes on the stated date for payment thereof or on the applicable redemption
date, as the case may be, of such principal or installment of principal of,
premium, if any, or interest on the New Notes;
(b) the Company shall have delivered to the Trustee an Opinion of
Counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of this Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of the New Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred;
(c) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which will be used to defease the New Notes pursuant to this Article 12
concurrently with such incurrence) or insofar as Sections 9.1(f) and 9.1(g)
hereof are concerned, at any time in the period ending on the 91st day after the
date of such deposit;
(d) such Legal Defeasance shall not result in a breach or violation of,
or constitute a default under this Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound;
(e) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company; and
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(f) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance have been complied
with.
SECTION 12.4 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 12.5 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 12.4, the
"Trustee") pursuant to Section 12.3 hereof in respect of the outstanding New
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such New Notes and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company or a Subsidiary acting as
Paying Agent) as the Trustee may determine, to the Holders of such New Notes of
all sums due and to become due thereon in respect of principal, premium, if any,
and interest, but such money need not be segregated from other funds except to
the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 12.3 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding New
Notes.
Anything in this Article 12 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request any money or non-callable Government Securities held by it as provided
in Section 12.3 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
12.3(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance.
SECTION 12.5 REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any New Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its written request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such New Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in THE NEW YORK TIMES and THE
WALL STREET JOURNAL (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 12.6 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 12.2
hereof, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the New Notes shall be
revived and reinstated as though
43
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no deposit had occurred pursuant to Section 12.2 hereof until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 12.2 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Company
makes any payment of principal of, premium, if any, or interest on any New Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such New Notes to receive such payment from the
money held by the Trustee or Paying Agent.
ARTICLE 13
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 13.1 WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 13.2 of this Indenture, the Company, the
Administrative Agent and the Trustee may amend or supplement this Indenture or
the New Notes without the consent of any Holder of a New Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for the assumption of the Company's obligations to the
Holders of the New Notes in the case of a merger or consolidation pursuant to
Article 8 hereof;
(c) to make any change that would provide any additional rights or
benefits to the Holders of the New Notes or that does not adversely affect the
legal rights hereunder of any Holder of the New Note; or
(d) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA once it is registered
thereunder.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
13.6 hereof, the Trustee shall join with the Company and the Administrative
Agent in the execution of any amended or supplemental Indenture authorized or
permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee shall
not be obligated to enter into such amended or supplemental Indenture that
affects its own rights, duties or immunities under this Indenture or otherwise.
The Administrative Agent shall deliver a copy of any such amendment or
supplement to the Rating Agencies.
SECTION 13.2 WITH CONSENT OF HOLDERS OF NOTES.
The Company, the Administrative Agent and the Trustee may amend or
supplement this Indenture and the New Notes with the consent of the Holders of
at least a majority in principal amount of the New Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the New Notes), and any existing Default or Event of Default or compliance
with any provision of this Indenture or the New Notes may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
New Notes (including consents obtained in connection with a tender offer or
exchange offer for the New Notes).
Notwithstanding the foregoing, without the consent of each Holder
affected, an amendment or waiver may not (with respect to any New Notes held by
a non-consenting Holder):
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(a) reduce the principal amount of New Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any New
Note or alter or waive any of the provisions with respect to the redemption of
the New Notes;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any New Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the New Notes (except a rescission of
acceleration of the New Notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding New Notes and a waiver of the payment
default that resulted from such acceleration);
(e) make any New Note payable in money other than that stated in the
New Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of New Notes to receive
payments of principal of or interest on the New Notes;
(g) make any change in Section 9.4 or 9.8 hereof or in the foregoing
amendment and waiver provisions; or
(h) make any change in Article 13 hereof that adversely affects any
Holder.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of New Notes as aforesaid, and upon
receipt by the Trustee of the documents described in Section 13.6 hereof, the
Trustee shall join with the Company and the Administrative Agent in the
execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of New Notes
under this Section 13.2 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 13.2
becomes effective, the Company shall mail to the Holders of New Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver.
Notwithstanding the above, if any amendment, supplement or waiver to
this Indenture or the New Notes disproportionately impacts any particular series
of New Notes exclusively, then the Company shall also be required to obtain the
consent of the applicable percentage of the outstanding principal amount of New
Notes in such series, voting as a separate class, before such amendment,
supplement or waiver becomes effective.
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The Administrative Agent shall deliver written notice to the Rating
Agencies of any amendment or supplement under this Section 13.2 prior to its
execution.
SECTION 13.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the New Notes shall
be set forth in an amended or supplemental Indenture that complies with the TIA
as then in effect.
SECTION 13.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a New Note is a continuing consent by the Holder of a New
Note and every subsequent Holder of a New Note or portion of a New Note that
evidences the same debt as the consenting Holder's New Note, even if notation of
the consent is not made on any New Note. However, any such Holder of a New Note
or subsequent Holder of a New Note may revoke the consent as to its New Note if
the Trustee receives written notice of revocation before the date the waiver,
supplement or amendment becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.
SECTION 13.5 NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any New Note thereafter authenticated. The Company in
exchange for all New Notes may issue and the Trustee shall authenticate
replacement New Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a replacement New
Note shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 13.6 TRUSTEE AND ADMINISTRATIVE AGENT TO SIGN AMENDMENTS, ETC.
The Trustee and the Administrative Agent shall sign any amended or
supplemental Indenture authorized pursuant to this Article 13 if the amendment
or supplement does not adversely affect the rights, duties, liabilities or
immunities of the Trustee or the Administrative Agent, as applicable. The
Company may not sign an amendment or supplemental Indenture until the Board of
Directors approves it.
SECTION 13.7 TERMINATION OF ORIGINAL INDENTURE.
At such time as no Original Note is outstanding, including as a result
of the exchange of all outstanding Original Notes for the New Notes being issued
pursuant hereto, the Original Indenture shall terminate and be of no further
force and effect.
ARTICLE 14
MISCELLANEOUS
SECTION 14.1 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA ss.318(c), the imposed duties shall control.
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SECTION 14.2 NOTICES.
Any notice or communication by the Company or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
SRI Receivables Purchase Co., Inc.
10201 South Main Street
Houston, Texas 77025
Telephone No.: (713) 669-2646
Telecopier No.: (713) 660-3342
Attention: Chief Financial Officer
With a copy to:
Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Telephone No.: (617) 572-2372
Telecopier No.: (617) 572-3274
Attention: Mr. Joshua Bekenstein
and to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Telephone No.: (312) 861-2000
Telecopier No.: (312) 861-2200
Attention: Kenneth P. Morrison, Esq.
If to the Trustee:
Bankers Trust Company
Corporate Trust and Agency Group
4 Albany Street, 10th floor
New York, New York 10006
Telephone No.: (212) 250-5326
Telecopier No.: (212) 250-6439
Attention: Structured Finance
If to the Administrative Agent:
Specialty Retailers, Inc.
10201 South Main Street
Houston, Texas 77025
Telephone No.: (713) 669-2646
Telecopier No.: (713) 660-3342
47
<PAGE>
Attention: Chief Financial Officer
with a copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
Telephone No.: (312) 861-2000
Telecopier No.: (312) 861-2200
Attention: Kenneth P. Morrison, Esq.
If to the Collateral Agent:
Bankers Trust Company
Corporate Trust and Agency Group
4 Albany Street, 10th Floor
New York, New York 10006
Telephone No.: (212) 250-5326
Telecopier No.: (212) 250-6439
Attention: Structured Finance
If to S&P:
Standard & Poor's Ratings Services
25 Broadway
New York, New York 10007
Attention: Ray Galkowski
If to DCR:
Duff & Phelps Ratings Co.
55 East Monroe Street
Chicago, Illinois 60603
Attention: Corporate Surveillance Group
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or regis tered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA ss. 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
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If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 14.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the New Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 14.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 14.5 hereof) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 14.5
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
SECTION 14.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss.
314(e) and shall include:
(a) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(b) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(c) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 14.6 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
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<PAGE>
SECTION 14.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the New Notes or this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder by accepting a
New Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the New Notes.
SECTION 14.8 GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NEW NOTES.
SECTION 14.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 14.10 SUCCESSORS.
All agreements of the Company in this Indenture and the New Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 14.11 SEVERABILITY.
In case any provision in this Indenture or in the New Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 14.12 COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 14.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
50
<PAGE>
SIGNATURES
Dated as of , 1996 SRI RECEIVABLES PURCHASE CO., INC.
--------------
By:
Name:
Title:
Attest:
(SEAL)
Dated as of , 1996 BANKERS TRUST COMPANY
-------------------
as Trustee and as Collateral Agent
By:
Name:
Title:
Attest:
(SEAL)
Dated as of , 1996 SPECIALTY RETAILERS, INC.
---------------
as Administrative Agent
By:
Name:
Title:
Attest:
(SEAL)
51
[FORM OF NOTE]
EXHIBIT A
(Face of Note)
SRI RECEIVABLES PURCHASE CO., INC.
12.5% Series B Note
No. ___________ $________
SRI Receivables Purchase Co., Inc., a Delaware corporation
(hereinafter called the "Company," which term includes any successor entity
under the Indenture herein after referred to), for value received, hereby
promises to pay to _______________ or registered assigns, the principal sum of
_______________ Dollars on a date that is expected to be December 15, 2000 (the
"Expected Matu rity Date") as more fully described in the Indenture, dated
_________, 1996 among the Company, Specialty Retailers, Inc., as Administrative
Agent, and Bankers Trust Company, as Trustee and Collateral Agent, to which this
Note relates.
First Payment Date: December 16, 1996.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
seal to be affixed hereto or imprinted hereon.
SRI RECEIVABLES PURCHASE CO., INC.
By:
By:
[SEAL]
A-1
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within mentioned Indenture.
BANKERS TRUST COMPANY, as Trustee
By:
Authorized Signature
A-2
<PAGE>
(Back of Note)
12.5% Series B Notes
To the extent not defined herein, capitalized terms used herein have the
meanings assigned to such terms in the Indenture dated ________, 1996, among the
Company, Specialty Retailers, Inc., as administrative agent and Bankers Trust
Company as trustee and collateral agent (the "Trustee"). This Note is issued
under and is subject to the terms, provisions and conditions of the Indenture,
as a mended from time to time, to which Indenture, as so amended, the Holders of
the Notes by virtue of the acceptance hereof, and to which any beneficial owner,
by acquiring a beneficial interest herein, assents and by and to which the
Holders of the Notes and any such beneficial owner are bound. Although this Note
summarizes certain provisions of the Indenture, this Note does not purport to
summarize the Indenture; and reference is made to the Indenture for information
with respect to the interests, rights, benefits, obligations and duties
evidenced hereby and the rights, duties and obliga tions of the Trustee. In the
event of any inconsistency or conflict between the terms of this Note and the
terms of the Indenture, the terms of the Indenture shall control.
1. INTEREST. SRI Receivables Purchase Co., Inc., a Delaware corporation
(the "Company"), promises to pay inter est on the principal amount of this Note
at 12.5% per annum from the date this Note is issued until the earlier of the
date on which principal is paid in full and January 15, 2003. Interest on this
Note will accrue at a rate of 12.5% per annum and will be payable semi-annually
on June 15 and December 15 of each year, including the Expected Maturity Date
(or, if any such day is not a Business Day, the first Business Day thereafter)
(each a "Semi-Annual Interest Payment Date"), commencing December 16, 1996,
except that, on and after the occurrence of an Event of Default, or on any day
following the Expected Maturity Date, interest will be payable on the 15th day
(or, if such day is not a busi ness day, then the first business day thereafter)
of each month (each a "Monthly Payment Date" and together with each Semi-Annual
Interest Payment Date, a "Payment Date"). Interest will accrue from each Payment
Date to the day preceding the next succeeding Payment Date. In the case of any
Event of Default occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium that the Company would have had to pay if the Compa ny
then had elected to redeem the Notes pursuant to Section 5.1 of the Indenture,
an equivalent premium shall also become and be immediately due and payable to
the extent permitted by law, anything in the Indenture or in this Note to the
contrary notwithstanding. If an Event of Default occurs prior to August 15, 1997
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of this Note prior to such date, then the premium payable for
purposes of this paragraph shall be as specified pursuant to Section 5.1 of the
Indenture for the twelve-month period beginning December 15, 1997. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes to the
Persons who are registered Holders of Notes at the close of business on the last
day of the month pre ceding each Payment Date. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the closing date of the offering being made hereby. The Notes
will be payable both as to principal and interest by the Trustee in immedi ately
available funds.
3. PAYING AGENT AND REGISTRAR. Initially, Bankers Trust Company, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The Company
may change any Paying Agent or Registrar without notice to any Holder. The Compa
ny or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under the Indenture. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by refer ence to the Trust Indenture Act of 1939, as amended. The
Notes are subject to all such terms, and Holders are re ferred to the Indenture
and such Act for a statement of such terms.
5. LIMITED RECOURSE. Principal, interest and premium, if any, on the
Notes will be secured by, and will be paid solely from distributions on, the
Collateral Securities (including any excess cash flows allocable to the
Collateral Securities). The Notes will not be general recourse obliga tions of
the Company or any of its Affiliates and Holders will not have recourse to other
assets of the Company or any of its Affiliates.
A-3
<PAGE>
6. OPTIONAL REDEMPTION.
The Notes will be subject to redemption, on not less than 30 nor more
than 60 days' notice, at the redemption prices set forth below (expressed as
percentages of princi pal amount) plus accrued and unpaid interest thereon to
the redemption date, if redeemed during the twelve-month period beginning on the
dates indicated below:
YEAR PERCENTAGE
December 15, 1997...........................The greater of (i) 106.25% or (ii)
100% plus the coupon discounted at a
rate equal to the yield on the date
of the redemption notice of the
class of United States Trea sury
Notes maturing closest to August 15,
1999, plus 100 basis points
December 15, 1998...........................106.25%
August 15, 1999 and
thereafter..................................100%
7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be re deemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorse ments and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture.
A-4
<PAGE>
9. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
10. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the then outstanding Notes, and any existing default or compli ance
with any provision of the Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not ad versely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
11. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on the Notes; (ii) breach of certain
restrictions on the Company's ability to consolidate with or merge into another
corporation or convey or transfer its properties and assets substantially as an
entirety; (iii) failure by the Company for 60 days after notice to the Company
by the Trustee or the Holders of at least 25% in aggregate principal amount of
the Notes then outstanding to comply with other agreements in the Indenture or
this Note; (iv) defaults under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company whether such indebtedness now
exists or is created after the date of the Indenture, which default (a) is
caused by a failure to pay when due principal or interest on such indebtedness
within the grace period provided in such indebtedness (a "PAYMENT DEFAULT") or
(b) results in the acceleration of such indebt edness prior to its express
maturity and, in each case the principal amount of such indebtedness, together
with the principal amount of any other such indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $5 million or more; (v)
A-5
<PAGE>
a final judgment or final judgments for the payment of money are entered by a
court or courts of competent jurisdiction against the Company and such judgment
or judgments remain undischarged for a period (during which execution shall not
be effectively stayed) of 60 days, except that the aggregate of all such
undischarged judgments exceeds $1 million; (vi) certain events of bankruptcy or
insolvency with respect to the Company; (vii) the occurrence of a Purchase
Termination Event, Pay Out Event or Servicer Default regardless of whether the
Certificateholders have exercised a remedy with respect thereto; (viii) defaults
of SRI pursuant to its outstanding Senior Notes and Senior Subordinated Notes or
any indebtedness issued to extend, refinance or replace the Senior Notes or
Senior Subordinated Notes, which default results in the acceleration of such
indebtedness; or (ix) the Company shall become subject to regulation by the Com
mission as an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
Defaults arising under clauses (i), (ii), (vi), (vii) and (viii) above
will constitute an automatic event of de fault (an "EVENT OF DEFAULT"). Defaults
arising under clauses (iii), (iv), (v) and (ix) above will constitute an Event
of Default only upon the affirmative vote of the Holders of more than 50% of the
outstanding principal amount of the Notes. If an Event of Default occurs and is
continu ing, all outstanding Notes will become due and payable without further
action or notice. The Holders of the Notes may not enforce the Indenture or the
Notes except as provid ed in the Indenture.
12. NO BANKRUPTCY PETITION. The Holder of this Note covenants and agrees
that prior to the date which is one year and one day after the payment in full
of the Notes and all Master Trust Certificates issued by the Master Trust and
Future Notes issued by the Company in each case if rated by any nationally
recognized statistical rating organization it will not institute against, or
join any other Person in instituting against, the Company any bankruptcy,
reorganiza tion, arrangement, insolvency or liquidation proceedings, or other
proceedings under any federal or state bankruptcy or similar law.
13. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
A-6
<PAGE>
The Company will furnish to any Holder upon writ ten request and
without charge a copy of the Indenture.
Requests may be made to:
SRI Receivables Purchase Co., Inc.
10201 South Main Street
Houston, Texas 77025
Attention: Chief Financial Officer
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or
(we) assign and transfer this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date: _________________________
Your Signature: _____________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.
A-8
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE(1)
The following exchanges of a part of this Global Note for
Definitive Notes have been made:
Principal
Amount of Signature
Amount of de- Amount of this Global of
crease in increase in Note authorized
Principal Principal following officer
Amount of Amount of such of Trustee
Date of Ex- this this decrease (or or Note
change Global Note Global Note increase) Custodian
- ------ ----------- ----------- --------- ---------
- --------
(1) This should be included only if the Note is issued in global form.
A-9
<PAGE>
EXHIBIT B
FORM OF LEGEND FOR BOOK-ENTRY NOTES
Any Global Note authenticated and delivered hereunder shall bear a
legend in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEAN ING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR
BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHO RIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAY MENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS RE QUESTED 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.
B-1
<PAGE>
EXHIBIT G
SRI RECEIVABLES MASTER TRUST
DAILY REPORT
Daily Report Date: _______ 1996
ALLOCATION OF TRANSFEROR DAILY CASH FLOWS
____________, 1996
PRINCIPAL COLLECTIONS
1993-1 Class A
1993-1 Class B
1993-1 Class C
1993-1 Class D __________________
Sub Total
1995-1 Class A
1995-1 Class B
1995-1 Class C
1995-1 Class D __________________
Sub Total
1993-2
Transferor Interest
Total Principal Collections __________________
EXCESS FINANCE CHARGE FLOWS
1993-1
1995-1
1993-2
Transforer Interest __________________
Total Finance Charge
Collections
Total Collections
Equalization Account __________________
(Deposits) Releases
Transferor Daily Cash Flows ==================
INTEREST ON NOTES
Beginning Balance
10% of trans daily __________________
Ending Balance ==================
G-1
<PAGE>
EXHIBIT H
MONTHLY SETTLEMENT STATEMENT
INTEREST RESERVE ACCOUNT
Amount Required to be Deposited during the Period _______
Was the required amount deposited? Yes/No
EVENT OF DEFAULT
Was there an Event of Default
during the Period? Yes/No
PURCHASE TERMINATION EVENT OF DEFAULT
Was there a Purchase Termination Event of
Default during the Period? Yes/No
RAPID RESERVE PERIOD
Is this month part of the Rapid
Reserve Period? Yes/No
PRINCIPAL RESERVE ACCOUNT
Was a deposit required during the Period? Yes/No
H-1
<PAGE>
EXHIBIT I
SRI RECEIVABLES MASTER TRUST
STATEMENTS TO HOLDERS OF THE
12.5% SERIES B NOTES
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
Begining Ending
Outstanding Outstanding
----------- -----------
12.5% Series B Notes $30,000,000
- --------------------------------------------------------------------------------
DISTRIBUTION AMOUNT
Payment Per
Principal Interest Total Thousand
-------------------------------------------------------
12.5% Series B Notes
- --------------------------------------------------------------------------------
INVESTED AMOUNTS
Series 1993-I Class D
Series 1995-I Class D
- --------------------------------------------------------------------------------
Series
------------------------
1995-I 1993-I
------------ -----------
Event of Default NO NO
Purchase Termination Event NO NO
Payout Event NO NO
Servicer Default NO NO
Amount that Portfolio Yield exceeds Base Rate
- --------------------------------------------------------------------------------
I-1
EXHIBIT 5.1
[KIRKLAND & ELLIS LETTERHEAD]
October 29, 1996
SRI Receivables Purchase Co., Inc.
10201 South Main Street
Houston, Texas 77025
Re: 12.5% SERIES B NOTES
Ladies and Gentlemen:
We have acted as special counsel to SRI Receivables Purchase Co.,
Inc., a Delaware Corporation (the "Company"), in connection with the proposed
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of $30,000,000 principal amount of 12.5% Trust Certificate-Backed Notes
(the "New Notes") for the purpose of effecting an exchange offer (the "Exchange
Offer"), as described in the Registration Statement on Form S-4 (Registration
No. 333- 10843) (including all amendments and supplements thereto, the
"Registration Statement"), for the Company's 12.5% Series B Notes (the "Old
Notes").
In connection therewith, we have examined and relied upon the
original, or copies certified or otherwise identified to our satisfaction, of:
(i) the Certificate of Incorporation and Bylaws of the Company; (ii) minutes and
records of the corporate proceedings of the Company with respect to the issuance
and sale of the New Notes; (iii) the Registration Statement and exhibits
thereto; (iv) the Indenture entered into as of May 30, 1996 among the Company,
Specialty Retailers, Inc. and Bankers Trust Company (the "Trustee") relating to
the Old Notes (the "Original Indenture") and the form of Indenture to be entered
into among the Company, Specialty Retailers, Inc. and the Trustee relating to
the New Notes (the "New Indenture" and, together with the Original Indenture,
the "Indentures"); and (v) such other documents, corporate records and other
instruments as we have deemed necessary for the expression of the opinions
contained herein.
For purposes of this opinion, we have assumed the authenticity of
all documents submitted to us as originals, the conformity to the originals of
all documents submitted to us as copies, and the authenticity of the originals
of all documents submitted to us as copies. We have also
<PAGE>
SRI Receivables Purchase Co., Inc.
October 29, 1996
Page 2
assumed the genuineness of the signatures of persons signing all documents in
connection with which this opinion is rendered, the authority of such persons
signing on behalf of the parties thereto other than the Company, and the due
authorization, execution and delivery of all documents by the parties thereto
other than the Company.
Based on the foregoing, we are of the opinion that:
(1) The Company is a corporation validly existing under the laws
of the State of Delaware.
(2) The sale and issuance of the New Notes has been validly
authorized by the Company.
(3) When, as and if (i) the Registration Statement shall have
become effective pursuant to the provisions of the Securities Act, (ii)
the Indenture shall have been qualified pursuant to the provisions of
the Trust Indenture Act of 1939, as amended, (iii) the Old Notes shall
have been validly tendered to the Company and (iv) the New Notes shall
have been issued in the form and containing the terms described in the
Registration Statement, the Indentures, the resolutions of the Company's
Board of Directors authorizing the foregoing and any legally required
consents, approvals, authorizations and other order of the Securities
and Exchange Commission and any other regulatory authorities to be
obtained, the New Notes when issued pursuant to the Exchange Offer will
be legally issued, fully paid and nonassessable and will constitute
binding obligations of the Company.
Our opinions as herein expressed are subject to the following
qualifications:
(a) our opinions are subject to the effect of applicable
bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance or transfer or other laws of general applicability relating
to or affecting the enforcement of creditors' rights from time to time
in effect and to general principles of equity (regardless of whether
enforcement is considered in proceedings at law or in equity);
(b) provisions in the Indentures and the New Notes deemed to
impose the payment of interest on interest may be unenforceable, void or
voidable under applicable law;
<PAGE>
SRI Receivables Purchase Co., Inc.
October 29, 1996
Page 3
(c) requirements in the Indentures and the New Notes specifying
that the provisions thereof may only be waived in writing may not be
valid, binding or enforceable to the extent that an oral or implied
agreement by trade practice or course of conduct has been created
modifying any provision of such documents;
(d) we express no opinion as to the enforceability of the
indemnification provisions of the Indentures and the New Notes insofar
as said provisions might require indemnification with respect to any
litigation against the Company determined adversely to the Trustee, or
any loss, cost or expense arising out of the Trustee's gross negligence
or willful misconduct or any violation by such trustee of statutory
duties, general principles of equity or public policy; and
(e) we express no opinion with respect to indemnification or
contribution obligations which contravene public policy, including,
without limitation, indemnification or contribution obligations which
arise out of failure to comply with applicable state or federal
securities law.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to this firm under the caption
titled "Legal Matters" in the Prospectus which is part of the Registration
Statement.
We do not find it necessary for purposes of this opinion, and
accordingly do not purport to cover herein, the application of the securities or
"Blue Sky" laws of the various states to issuance of the New Notes.
We express no opinions as to matters under or involving any laws
other than the laws of the State of New York, the federal laws of the United
States of America and the General Corporation Law of the State of Delaware.
This opinion is furnished to you in connection with the filing of
the Registration Statement, and is not to be used, circulated, quoted or
otherwise relied upon for any other purposes.
Yours very truly,
/s/ Kirkland & Ellis
Kirkland & Ellis
EXHIBIT 8.1
[KIRKLAND & ELLIS LETTERHEAD]
To Call Writer Direct:
312 861-2000
October 29, 1996
SRI Receivables Purchase Co., Inc.
10201 South Main Street
Houston, Texas 77025
Re: 12.5% SERIES B NOTES
Ladies and Gentlemen:
In connection with the proposed exchange of 12.5% Series B Trust
Certificate-Backed Notes (the "New Notes") of SRI Receivables Purchase Co., Inc.
(the "Company") for the outstanding 12.5% Series B Notes (the "Old Notes") of
the Company pursuant to a registered exchange offer (the "Exchange Offer"), as
described in the Registration Statement on Form S-4 (Registration No. 333-
10843) (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") on August 27, 1996, as amended by Amendment No. 1
to the Registration Statement, filed with the Commission on or after the date
hereof, you have requested our legal opinion concerning certain United States
federal income tax consequences of the exchange of the New Notes for the Old
Notes.
We are familiar with the corporate proceedings to date with respect to
the proposed exchange of New Notes for Old Notes and have examined the form of
the New Notes, the Old Notes and such other records and documents as we
considered necessary.
The opinion set forth herein is based on relevant provisions of the
Internal Revenue Code of 1986, as amended through the date hereof (the "Code"),
Treasury regulations promulgated thereunder (the "Regulations"), and
interpretations thereof by the courts and the Internal Revenue Service, all as
they exist at the date of this letter. No tax rulings will be sought from the
Internal Revenue Service with respect to any of the matters discussed herein.
All such provisions of the Code, Regulations, judicial decisions, and
administrative interpretations are subject to change at any time and, in some
circumstances, with retroactive effect. Any such change could affect any or all
of the conclusions set forth in this opinion.
<PAGE>
October 29, 1996
Page 2
Based on the foregoing and assuming that the documents to be delivered
in connection with the Exchange Offer are, to the extent applicable, executed
and delivered in substantially the form we have examined, we are of the opinion
that the statements in the Registration Statement under the caption "Certain
Federal Income Tax Consequences" fairly describe the material United States
federal tax consequences of the exchange of the New Notes for the Old Notes.
There can be no assurance, however, that such discussion will not be
successfully challenged by the Internal Revenue Service, or significantly
altered by new legislation, changes in Internal Revenue Service positions or
judicial decisions, any of which challenges or alterations may be applied
retroactively with respect to completed transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm and its opinions as the
Company's Federal Tax Counsel under the caption "Certain Federal Income Tax
Consequences" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Kirkland & Ellis
Kirkland & Ellis
STAGE STORES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year
------------------ ---------------------------
August 3, July 29,
1996 1995(1) 1995(1) 1994(1) 1993(1)
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pretax Earnings ............................ $2,534 $ -- $ -- $ -- $ --
------ ------- ------- ------- -------
Fixed charges charged to expense:
Interest expense ...................... 668 -- -- -- --
Amortization of debt issue costs ...... 92 -- -- -- --
------ ------- ------- ------- -------
Total fixed charges charged to expense 760 -- -- -- --
------ ------- ------- ------- -------
Income before income tax
and fixed charges charged to expense .. $3,294 $ -- $ -- $ -- $ --
====== ======= ======= ======= =======
Fixed charges charged to accruals:
Interest expense ...................... -- -- -- -- --
Amortization of debt issue costs ...... -- -- -- -- --
------ ------- ------- ------- -------
Total fixed charges charged to accruals -- -- -- -- --
------ ------- ------- ------- -------
Total fixed charges ........................ $ 760 $ -- $ -- $ -- $ --
====== ======= ======= ======= =======
Ratio of earnings to fixed charges ......... 4.33 -- -- -- --
====== ======= ======= ======= =======
</TABLE>
- -----------------
(1) Prior to the issuance of the SRPC Notes, SRPC had no significant fixed
charges. Accordingly, the ratio of fixed charges is only presented for the
six months ended August 3, 1996.
EXHIBIT 23.1
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-4 of SRI Receivables
Purchase Co., Inc. ("SRPC") of our report dated April 19, 1996 relating to the
financial statements of SRPC, which appears in such Prospectus.
Price Waterhouse LLP
Houston, Texas
October 29, 1996
EXHIBIT 25.1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(b)(2) ___________
------------------------------
BANKERS TRUST COMPANY
(Exact name of trustee as specified in its charter)
NEW YORK 13-4941247
(Jurisdiction of Incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification no.)
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
(Address of principal (Zip Code)
executive offices)
BANKERS TRUST COMPANY
LEGAL DEPARTMENT
130 LIBERTY STREET, 31ST FLOOR
NEW YORK, NEW YORK 10006
(212) 250-2201
(Name, address and telephone number of agent for service)
---------------------------------
SRI RECEIVABLES PURCHASE CO., INC.
(Exact name of obligor as specified in its charter)
DELAWARE 51-0349276
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) Identification no.)
10201 SOUTH MAIN STREET
HOUSTON, TEXAS 77025
(Address of principal executive offices) (Zip Code)
SRI RECEIVABLES PURCHASE CO., INC.
$30,000,000 12.5% Series B Notes
(Title of the indenture securities)
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee.
(a) Name and address of each examining or supervising authority
to which it is subject.
NAME ADDRESS
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New York State Banking Department Albany, NY
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each
such affiliation.
None.
ITEM 3. -15. NOT APPLICABLE
ITEM 16. LIST OF EXHIBITS.
EXHIBIT 1 - Restated Organization Certificate of Bankers
Trust Company dated August 7, 1990 and Certificate
of Admendment of the Organization Certificate of
Bankers Trust Company dated March 21, 1996, copy
attached.
EXHIBIT 2 - Certificate of Authority to commence business -
Incorporated herein by reference to Exhibit 2 filed
with Form T-1 Statement, Registration No. 33-21047.
EXHIBIT 3 - Authorization of the Trustee to exercise
corporate trust powers - Incorporated herein by
reference to Exhibit 2 filed with Form T-1
Statement, Registration No. 33-21047.
EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, dated
as amended on October 19, 1995. - Incorporated
herein by reference to Exhibit 4 filed with Form T-1
Statement, Registration No. 33-65171.
-2-
<PAGE>
EXHIBIT 5 - Not applicable.
EXHIBIT 6 - Consent of Bankers Trust Company required by
Section 321(b) of the Act. - Incorporated herein by
reference to Exhibit 4 filed with Form T-1
Statement, Registration No. 22-18864.
EXHIBIT 7 - A copy of the latest report of condition of
Bankers Trust Company dated as of June 30, 1996.
EXHIBIT 8 - Not Applicable.
EXHIBIT 9 - Not Applicable.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Bankers Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in The City of New York, and State of New York, on the 10th day
of October, 1996.
BANKERS TRUST COMPANY
By: LARA GRAFF
Lara Graff
Assistant Vice President
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 6/30/96 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1
City, State ZIP: New York, NY 10006 11
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS JUNE 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
------------------
-------| C400 |
DOLLAR AMOUNTS IN THOUSANDS | RCFD Bil Mil Thou |
ASSETS | / / / / / / / / / |
1. Cash and balances due from depository institutions (from Schedule RC-A): | / / / / / / / / / |
a. Noninterest-bearing balances and currency and coin(1) ............................ | 0081 1,631,000 |1.a.
b. Interest-bearing balances(2) ............................................................| 0071 2,066,000 |1.b.
2. Securities: | / / / / / / / / / |
a. Held-to-maturity securities (from Schedule RC-B, column A) .................... | 1754 0 |2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)................... | 1773 3,761,000 |2.b.
3 Federal funds sold and securities purchased under agreements to resell
in domestic offices of the bank and of its Edge and Agreement | / / / / / / / / / |
subsidiaries, and in IBFs: | / / / / / / / / / |
a. Federal funds sold .......................................................................| 0276 5,162,000 |3.a.
b. Securities purchased under agreements to resell ..........................................| 0277 4,192,000 |3.b.
4. Loans and lease financing receivables: | / / / / / / / / / |
a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 24,849,000 | / / / / / / / / / |4.a.
b. LESS: Allowance for loan and lease losses.....................RCFD 3123 923,000 | / / / / / / / / / |4.b.
c. LESS: Allocated transfer risk reserve ........................RCFD 3128 0 | / / / / / / / / / |4.c.
d. Loans and leases, net of unearned income, | / / / / / / / / / |
allowance, and reserve (item 4.a minus 4.b and 4.c) ......................................| 2125 23,926,000 |4.d.
5. Assets held in trading accounts .................................................................| 3545 33,052,000 |5.
6. Premises and fixed assets (including capitalized leases) ........................................| 2145 858,000 |6.
7. Other real estate owned (from Schedule RC-M) ....................................................| 2150 216,000 |7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M) | 2130 271,000 |8.
9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 572,000 |9.
10. Intangible assets (from Schedule RC-M) ..........................................................| 2143 18,000 |10.
11. Other assets (from Schedule RC-F) ...............................................................| 2160 7,612,000 |11.
12. Total assets (sum of items 1 through 11) ........................................................| 2170 83,337,000 |12.
</TABLE>
- --------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Legal Title of Bank: Bankers Trust Company Call Date: 6/30/96 ST-BK: 36-4840 FFIEC 031
Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2
City, State ZIP: New York, NY 10006 12
FDIC Certificate No.: | 0 | 0 | 6 | 2 | 3
SCHEDULE RC--CONTINUED ___________________________
DOLLAR AMOUNTS IN THOUSANDS | / / / Bil Mil Thou __ __|
--------------------------- | / / / / / / / / / / / / / |
LIABILITIES | / / / / / / / / / / / / / |
13. Deposits: | / / / / / / / / / / / / / |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) | RCON 2200 9,040,000 |13.a.
(1) Noninterest-bearing(1) ............................RCON 6631 3,569,000.......... | / / / / / / / / / / / / / |13.a.(1)
(2) Interest-bearing ..................................RCON 6636 5,471,000.......... | / / / / / / / / / / / / / |13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs | / / / / / / / / / / / / / |
(from Schedule RC-E part II) | RCFN 2200 19,648,000 |13.b.
(1) Noninterest-bearing ..............................RCFN 6631 494,000 | / / / / / / / / / / / / / |13.b.(1)
(2) Interest-bearing .................................RCFN 6636 19,154,000 | / / / / / / / / / / / / / |13.b.(2)
14. Federal funds purchased and securities sold under agreements to | / / / / / / / / / / / / / |
repurchase in domestic offices of the bank and of its Edge | / / / / / / / / / / / / / |
and Agreement subsidiaries, and in IBFs: | / / / / / / / / / / / / / |
a. Federal funds purchased .........................................................| RCFD 0278 2,564,000 |14.a.
b. Securities sold under agreements to repurchase ..................................| RCFD 0279 790,000 |14.b.
15. a. Demand notes issued to the U.S. Treasury ........................................| RCON 2840 0 |15.a.
b. Trading liabilities .............................................................| RCFD 3548 18,177,000 |15.b.
16. Other borrowed money: | / / / / / / / / / / / / / |
a. With original maturity of one year or less ......................................| RCFD 2332 16,421,000 |16.a.
b. With original maturity of more than one year ....................................| RCFD 2333 3,388,000 |16.b.
17. Mortgage indebtedness and obligations under capitalized leases .........................| RCFD 2910 31,000 |17.
18. Bank's liability on acceptances executed and outstanding ...............................| RCFD 2920 572,000 |18.
19. Subordinated notes and debentures ......................................................| RCFD 3200 1,227,000 |19.
20. Other liabilities (from Schedule RC-G) .................................................| RCFD 2930 6,911,000 |20.
21. Total liabilities (sum of items 13 through 20) .........................................| RCFD 2948 78,769,000 |21.
| / / / / / / / / / / / / / |
22. Limited-life preferred stock and related surplus .......................................| RCFD 3282 0 |22.
EQUITY CAPITAL | / / / / / / / / / / / / / |
23. Perpetual preferred stock and related surplus ..........................................| RCFD 3838 500,000 |23.
24. Common stock ...........................................................................| RCFD 3230 1,002,000 |24.
25. Surplus (exclude all surplus related to preferred stock) ...............................| RCFD 3839 528,000 |25.
26. a. Undivided profits and capital reserves ............................................| RCFD 3632 2,915,000 |26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ............| RCFD 8434 (5,000) |26.b.
27. Cumulative foreign currency translation adjustments ....................................| RCFD 3284 (372,000) |27.
28. Total equity capital (sum of items 23 through 27) ......................................| RCFD 3210 4,568,000 |28.
29. Total liabilities, limited-life preferred stock, and equity capital | / / / / / / / / / / / / / |
(sum of items 21, 22, and 28) ........................................................| RCFD 3300 83,337,000 |29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the NUMBER
most comprehensive level of auditing work performed for the bank by independent external -------------------
auditors as of any date during 1995 .......................................... | RCFD 6724 N/A | M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by
with generally accepted auditing standards by a certified other external auditors (may be required by state
public accounting firm which submits a report on the bank chartering authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements
conducted in accordance with generally accepted auditing by external auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements
submits a report on the consolidated holding company by external auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required
by state chartering authority)
- ----------------------
(1) Including total demand deposits and noninterest-bearing time and savings
deposits.
</TABLE>
<PAGE>
STATE OF NEW YORK,
Banking Department
I, PETER M. PHILBIN, Deputy Superintendent of Bank of the State of New
York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF
AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION
8005 OF THE BANKING LAW," dated March 20, 1996, providing for an increase in
authorized capital stock from $1,351,666,670 consisting of 85,166,667 shares
with a par value of $10 each designated as Common Stock and 500 shares with a
par value of $1,000,000 each designated as Series Preferred Stock to
$1,501,666,670 consisting of 100,166,667 shares with a par value of $10 each
designated as Common Stock and 500 shares with a par value of $1,000,000 each
designated as Series Preferred Stock.
WITNESS, MY HAND AND OFFICIAL SEAL OF THE BANKING DEPARTMENT AT THE CITY OF NEW
YORK, THIS 21ST DAY OF MARCH IN THE YEAR OF OUR LORD ONE THOUSAND NINE HUNDRED
AND NINETY-SIX.
PETER M. PHILBIN
DEPUTY SUPERINTENDENT OF BANKS
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
ORGANIZATION CERTIFICATE
OF BANKERS TRUST
Under Section 8005 of the Banking Law
-----------------------------
We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing
Director and an Assistant Secretary of Bankers Trust Company, do hereby certify:
1. The name of the corporation is Bankers Trust Company.
2. The organization certificate of said corporation was filed by the
Superintendent of Banks on the 5th of March, 1903.
3. The organization certificate as heretofore amended is hereby amended
to increase the aggregate number of shares which the corporation shall have
authority to issue and to increase the amount of its authorized capital stock in
conformity therewith.
4. Article III of the organization certificate with reference to the
authorized capital stock, the number of shares into which the capital stock
shall be divided, the par value of the shares and the capital stock outstanding,
which reads as follows:
"III. The amount of capital stock which the corporation is hereafter
to have is One Billion, Three Hundred Fifty One Million, Six Hundred
Sixty-Six Thousand, Six Hundred Seventy Dollars ($1,351,666,670),
divided into Eighty-Five Million, One Hundred Sixty-Six Thousand, Six
Hundred Sixty-Seven (85,166,667) shares with a par value of $10 each
designated as Common Stock and 500 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
is hereby amended to read as follows:
"III. The amount of capital stock which the corporation is hereafter
to have is One Billion, Five Hundred One Million, Six Hundred
Sixty-Six Thousand, Six Hundred Seventy Dollars ($1,501,666,670),
divided into One Hundred Million, One Hundred Sixty Six Thousand, Six
Hundred Sixty-Seven (100,166,667) shares with a par value of $10 each
designated as Common Stock and 500 shares with a par value of One
Million Dollars ($1,000,000) each designated as Series Preferred
Stock."
<PAGE>
6. The foregoing amendment of the organization certificate was
authorized by unanimous written consent signed by the holder of all outstanding
shares entitled to vote thereon.
IN WITNESS WHEREOF, we have made and subscribed this certificate this
20th day of March , 1996.
JAMES T. BYRNE, JR.
James T. Byrne, Jr.
Managing Director
LEA LAHTINEN
Lea Lahtinen
Assistant Secretary
State of New York )
) ss:
County of New York )
Lea Lahtinen, being fully sworn, deposes and says that she is an Assistant
Secretary of Bankers Trust Company, the corporation described in the foregoing
certificate; that she has read the foregoing certificate and knows the contents
thereof, and that the statements herein contained are true.
LEA LAHTINEN
Lea Lahtinen
Sworn to before me this 20th day of March, 1996.
SANDRA L. WEST
Notary Public
SANDRA L. WEST
Notary Public State of New York Counterpart filed in the
No. 31-4942101 Office of the Superintendent
Qualified in New York County of Banks, State of New York,
Commission Expires September 19, 1996 This 21st day of March, 1996
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
12.5% TRUST CERTIFICATE-BACKED NOTES
OF
SRI RECEIVABLES PURCHASE CO., INC.
Pursuant to the Prospectus Dated ______, 1996
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON _______, 1996 UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal should be
completed, signed, and submitted to the Exchange Agent:
BY MAIL (REGISTERED OR CERTIFIED BY OVERNIGHT COURIER OR BY HAND:
MAIL RECOMMENDED): BT Services Tennessee, Inc.
BT Services Tennessee, Inc. Reorganization Unit
Reorganization Unit Corporate Trust & Agency Group
P.O. Box 292737 648 Grassmere Park Drive
Nashville, TN 37229-2737 Nashville, TN 37230
BY HAND:
Bankers Trust Company
Corporate Trust & Agency Group
123 Washington Street - First Floor Window
New York, NY 10008
BY FACSIMILE: (615) 835-3701 CONFIRM BY TELEPHONE: (800) 735-7777
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (800)
735-7777 OR BY FACSIMILE AT (615) 835-3701, ATTENTION: REORGANIZATION UNIT.
The undersigned hereby acknowledges receipt of the Prospectus dated
________, 1996 (the "Prospectus") of SRI Receivables Purchase Co., Inc., a
Delaware corporation ("SRPC"), and this Letter of Transmittal (the "Letter of
Transmittal"), that together constitute SRPC's offer (the "Exchange Offer") to
exchange its 12.5% Series B Notes (the "New Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement on Form S-4, for a like principal amount of its issued
and outstanding 12.5% Trust Certificate-Backed Notes (the "Old Notes"), of which
an aggregate $30 million in principal amount is outstanding. Capitalized terms
used but not defined herein have the meanings ascribed to them in the
Prospectus.
The undersigned hereby tenders the Old Notes described in Box 1 below (the
"Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes ("Beneficial Owners")
a duly completed and executed form of "INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY
-1-
<PAGE>
TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER" accompanying this Letter of
Transmittal, instructing the undersigned to take the action described in this
Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the
Tendered Notes, the undersigned hereby exchanges, assigns and transfers to, or
upon the order of, SRPC all right, title, and interest in, to and under the
Tendered Notes.
Please issue the New Notes exchanged for Tendered Notes in the name(s) of
the undersigned. Similarly, unless otherwise indicated under "SPECIAL DELIVERY
INSTRUCTIONS" below (Box 3), please send or cause to be sent the certificates
for the New Notes (and accompanying documents, as appropriate) to the
undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney-in-fact of the undersigned with
respect to the Tendered Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(i) deliver the Tendered Notes to SRPC or cause ownership of the Tendered Notes
to be transferred to, or upon the order of, SRPC, on the books of the registrar
for the Old Notes and deliver all accompanying evidences of transfer and
authenticity to, or upon the order of, SRPC upon receipt by the Exchange Agent,
as the undersigned's agent, of the New Notes to which the undersigned is
entitled upon acceptance by SRPC of the Tendered Notes pursuant to the Exchange
Offer, and (ii) receive all benefits and otherwise exercise all rights of
beneficial ownership of the Tendered Notes, all in accordance with the terms of
the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and SRPC upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any Beneficial Owner(s), and
every obligation of the undersigned or any Beneficial Owner(s) hereunder shall
be binding upon the heirs, representatives, successors, and assigns of the
undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that SRPC will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges, encumbrances, and adverse claims when
the Tendered Notes are acquired by SRPC as contemplated herein. The undersigned
and each Beneficial Owner will, upon request, execute and deliver any additional
documents reasonably requested by SRPC or the Exchange Agent as necessary or
desirable to complete and give effect to the transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the New Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, (iii) except as otherwise disclosed in writing
herewith, neither the undersigned nor any Beneficial Owner is an "affiliate," as
defined in Rule 405 under the Securities Act, of SRPC, and (iv) the undersigned
and each Beneficial Owner acknowledge and agree that any person participating in
the Exchange Offer with the intention or for the purpose of distributing the New
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), in connection with a secondary
resale of the New Notes acquired by such person and cannot rely on the position
of the Staff of the Securities and Exchange Commission (the "Commission") set
forth in the no-action letters that are referenced in the section of the
Prospectus entitled "The Exchange Offer--Purpose and Effect of the Exchange
Offer." In addition, by accepting the Exchange Offer, the undersigned hereby (i)
represents and warrants that, if the undersigned or any Beneficial Owner of the
Old Notes is a Participating Broker-Dealer, such Participating Broker-Dealer
acquired the Old Notes for its own account as a result of market-making
activities or other trading activities and has not entered into any arrangement
or understanding with SRPC or any "affiliate" of SRPC (within the meaning of
Rule 405 under the Securities Act) to distribute the New Notes to be received in
the Exchange Offer, and (ii) acknowledges that, by receiving New Notes for its
own account in exchange for Notes, where such Notes were acquired as a result of
market-making activities or other trading activities, such Participating
Broker-Dealer will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes.
-2-
<PAGE>
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE "USE OF GUARANTEED DELIVERY" BELOW (Box 4).
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER" BELOW (Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1
DESCRIPTION OF OLD NOTES TENDERED
(Attach additional signed pages, if necessary)
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name(s) and Address(es) of Registered Old Note Holder(s), Certificate Aggregate Principal
exactly as name(s) appear(s) on Old Note Certificate(s) Number(s) of Old Amount Represented Aggregate Principal
(Please fill in, if blank) Notes* by Certificate(s) Amount Tendered**
- --------------------------------------------------------- ---------------- ------------------- -------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Old
Notes. All other tenders must be in integral multiples of $1,000 of
principal amount. Unless otherwise indicated in this column, the
principal amount of all Old Note Certificates identified in this Box 1
or delivered to the Exchange Agent herewith shall be deemed tendered.
See Instruction 4.
BOX 2
BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES
BENEFICIAL OWNER OF TENDERED NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------
-3-
<PAGE>
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF NEW NOTES EXCHANGED FOR OLD NOTES AND UNTENDERED OLD
NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail New Note(s) and any untendered Old Notes to:
Name(s):
- --------------------------------------------------------------------------------
(please print)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.:
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF OLD NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------
Name of Institution which Guaranteed Delivery:
----------------------------------
Acct. # (if delivered by book-entry transfer):
----------------------------------
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering Institution:
--------------------------------------------------
Account Number:
-----------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
-4-
<PAGE>
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(Signature of Registered Holder(s) or
Authorized Signatory)
Note: The above lines must be signed by the registered holder(s) of Old Notes as
their name(s) appear(s) on the Old Notes or by persons(s) authorized to become
registered holder(s) (evidence of such authorization must be transmitted with
this Letter of Transmittal). If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer, or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below. See Instruction 5.
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Street Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(include Zip Code)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
Tax Identification or Social Security Number:
- --------------------------------------------------------------------------------
Signature Guarantee
(If required by Instruction 5)
Authorized Signature
X
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
(please print)
Title:
- --------------------------------------------------------------------------------
Name of Firm:
- --------------------------------------------------------------------------------
(Must be an Eligible Institution
as defined in Instruction 2)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(include Zip Code)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
BOX 7
BROKER-DEALER STATUS
[ ] Check this box if the Beneficial Owner of the Old Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Old Notes
for its own account as a result of market-making activities or other
trading activities. IF THIS BOX IS CHECKED, A COPY OF THIS LETTER OF
TRANSMITTAL aUST BE RECEIVED WITHIN FIVE BUSINESS DAYS AFTER THE EXPIRATION
DATE BY SRI RECEIVABLES PURCHASE CO., INC., ATTENTION JAMES A. MARCUM,
FACSIMILE (713) 660-3342.
-5-
<PAGE>
PAYOR'S NAME: SRI RECEIVABLES PURCHASE CO., INC.
Name (if joint names, list first and circle the
name of the person or entity whose number you
enter in Part 1 below. See instructions if your
name has changed.)
Address
SUBSTITUTE City, State and ZIP Code
FORM W-9 List account number(s) here (optional)
Department of the Treasury PART 1--PLEASE Social Security Number or
PROVIDE YOUR TIN
Internal Revenue Service TAXPAYER
IDENTIFICATION
NUMBER ("TIN") IN
THE BOX AT RIGHT AND
CERTIFY BY SIGNING
AND DATING BELOW
PART 2--Check the box if you are NOT subject to
backup withholding under the provisions of section
3406(a)(1)(C) of the Internal Revenue Code because
(1) you have not been notified that you are
subject to backup withholding as a result of
failure to report all interest or dividends or (2)
the Internal Revenue Service has notified you that
you are no longer subject to backup withholding.[]
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM
IS TRUE, CORRECT AND COMPLETE.
SIGNATURE _________________ DATE _________________
PART 3--
Awaiting TIN []
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (b)
I intend to mail or deliver an application in the near future. I understand
that, notwithstanding that I have checked the box on Part 3 (and have completed
this Certificate of Awaiting Taxpayer Identification Number), all reportable
payments made to me prior to the time I provide the Exchange Agent with a
properly certified taxpayer identification number will be subject to a 31%
backup withholding tax.
---------------------------------------------------------------
SIGNATURE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
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<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. A properly completed
and duly executed copy of this Letter of Transmittal, including Substitute Form
W-9, and any other documents required by this Letter of Transmittal must be
received by the Exchange Agent at its address set forth herein, and either
certificates for Tendered Notes must be received by the Exchange Agent at its
address set forth herein or such Tendered Notes must be transferred pursuant to
the procedures for book-entry transfer described in the Prospectus under the
caption "EXCHANGE OFFER--PROCEDURES FOR TENDERING" (and a confirmation of such
transfer received by the Exchange Agent), in each case prior to 5:00 p.m., New
York City time, on the Expiration Date. The method of delivery of certificates
for Tendered Notes, this Letter of Transmittal and all other required documents
to the Exchange Agent is at the election and risk of the tendering holder and
the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. Instead of delivery by mail, it is recommended
that the Holder use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure timely delivery. No Letter of
Transmittal or Notes should be sent to SRPC. Neither SRPC nor the registrar is
under any obligation to notify any tendering holder of SRPC's acceptance of
Tendered Notes prior to the closing of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Old
Notes but whose Old Notes are not immediately available, and who cannot deliver
their Old Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent prior to the Expiration Date must tender their Old
Notes according to the guaranteed delivery procedures set forth below, including
completion of Box 4. Pursuant to such procedures: (i) such tender must be made
by or through a firm which is a member of a recognized Medallion Program
approved by the Securities Transfer Association Inc. (an "Eligible Institution")
and the Notice of Guaranteed Delivery must be signed by the holder; (ii) prior
to the Expiration Date, the Exchange Agent must have received from the holder
and the Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by mail, hand delivery or facsimile transmission) setting
forth the name and address of the holder, the certificate number(s) of the
Tendered Notes and the principal amount of Tendered Notes, stating that the
tender is being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, this Letter of Transmittal
together with the certificate(s) representing the Old Notes and any other
required documents will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such properly completed and executed Letter of
Transmittal, as well as all other documents required by this Letter of
Transmittal and the certificate(s) representing all Tendered Notes in proper
form for transfer, must be received by the Exchange Agent within three New York
Stock Exchange trading days after the Expiration Date. Any holder who wishes to
tender Old Notes pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such Notes prior to 5:00 p.m., New York City time, on the Expiration
Date. Failure to complete the guaranteed delivery procedures outlined above will
not, of itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by an Eligible Holder who
attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may execute
and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Notes
who is not the registered holder must arrange promptly with the registered
holder to execute and deliver this Letter of Transmittal on his or her behalf
through the execution and delivery to the registered holder of the INSTRUCTIONS
TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM
BENEFICIAL OWNER form accompanying this Letter of Transmittal.
4. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Old Notes held by the holder is tendered, the tendering holder should
fill in the principal amount tendered in the column labeled "Aggregate Principal
Amount Tendered" of the box entitled "Description of Old Notes Tendered" (Box 1)
above. The entire principal amount of Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Old Notes held by the holder
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<PAGE>
is not tendered, then Old Notes for the principal amount of Old Notes not
tendered and New Notes issued in exchange for any Old Notes tendered and
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal, as soon as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and New Notes issued in exchange therefor are to be issued (and
any untendered principal amount of Old Notes is to be reissued) in the name of
the registered holder(s), then such registered holder(s) need not and should not
endorse any Tendered Notes, nor provide a separate bond power. In any other
case, such registered holder(s) must either properly endorse the Tendered Notes
or transmit a properly completed separate bond power with this Letter of
Transmittal, with the signature(s) on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be endorsed
or accompanied by appropriate bond powers, in each case, signed as the name(s)
of the registered holder(s) appear(s) on the Tendered Notes, with the
signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by
SRPC, evidence satisfactory to SRPC of their authority to so act must be
submitted with this Letter of Transmittal.
Endorsements on Tendered Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a registered holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in
the applicable box (Box 3), the name and address to which the New Notes and/or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the taxpayer identification or social security number of the person named must
also be indicated.
7. TRANSFER TAXES. SRPC will pay all transfer taxes, if any, applicable to
the exchange of Tendered Notes pursuant to the Exchange Offer. If, however, a
transfer tax is imposed for any reason other than the transfer and exchange of
Tendered Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or on any other person)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with this Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter of
Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide
SRPC (as payor) with its correct taxpayer identification number ("TIN"), which,
in the case of a holder who is an individual, is his or her social security
number. If SRPC is not provided with the correct TIN, the Holder may be subject
to backup withholding and a $50 penalty imposed by the Internal Revenue Service.
(If withholding results in an over-payment of taxes, a refund may be obtained.)
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See
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<PAGE>
the enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional instructions.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue Service
has notified the holder that such holder is no longer subject to backup
withholding. If the Tendered Notes are registered in more than one name or are
not in the name of the actual owner, consult the "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for information on
which TIN to report.
SRPC reserves the right in their sole discretion to take whatever steps
are necessary to comply with SRPC's obligation regarding backup withholding.
FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of Tendered
Notes will be determined by SRPC in its sole discretion, which determination
will be final and binding. SRPC reserves the right to reject any and all Old
Notes not validly tendered or any Old Notes SRPC's acceptance of which would, in
the opinion of SRPC or its counsel, be unlawful. SRPC also reserves the right to
waive any conditions of the Exchange Offer or defects or irregularities in
tenders of Old Notes as to any ineligibility of any holder who seeks to tender
Old Notes in the Exchange Offer. The interpretation of the terms and conditions
of the Exchange Offer (including this Letter of Transmittal and the instructions
hereto) by SRPC shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as SRPC shall determine. Neither SRPC, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
10. WAIVER OF CONDITIONS. SRPC reserves the absolute right to amend, waive
or modify, in its reasonable discretion, any of the conditions in the Exchange
Offer in the case of any Tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Old Notes or transmittal of this Letter of Transmittal will
be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF OLD NOTES; RETURN OF OLD
NOTES. Subject to the terms and conditions of the Exchange Offer, SRPC will
accept for exchange all validly tendered Old Notes as soon as practicable after
the Expiration Date and will issue New Notes therefor as soon as practicable
thereafter. For purposes of the Exchange Offer, SRPC shall be deemed to have
accepted tendered Old Notes when, as and if SRPC has given written or oral
notice (immediately followed in writing) thereof to the Exchange Agent. If any
Tendered Notes are not exchanged pursuant to the Exchange Offer for any reason,
such unexchanged Old Notes will be returned, without expense, to the undersigned
at the address shown in Box 1 or at a different address as may be indicated
herein under "Special Delivery Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer Withdrawal of
Tenders."
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EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
12.5% TRUST CERTIFICATE-BACKED NOTES
OF
SRI RECEIVABLES PURCHASE CO., INC.
Pursuant to the Prospectus Dated ________, 1996
This form must be used by a holder of 12.5% Trust Certificate-Backed Notes
(the "Old Notes") of SRI Receivables Purchase Co., Inc., a Delaware corporation
("SRPC"), who wishes to tender Old Notes to the Exchange Agent pursuant to the
guaranteed delivery procedures described in "The Exchange Offer--Procedures for
Tendering" of SRPC's Prospectus, dated ________, 1996 (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Old Notes pursuant to such guaranteed delivery procedures must ensure
that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date of the Exchange Offer. Capitalized terms used but not defined
herein have the meanings ascribed to them in the Prospectus or the Letter of
Transmittal.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ________, 1996 UNLESS EXTENDED (THE "EXPIRATION DATE").
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Bankers Trust Company
(the "Exchange Agent")
BY MAIL (REGISTERED OR CERTIFIED MAIL RECOMMENDED):
BT Services Tennessee, Inc.
Reorganization Unit
P.O. Box 292737
Nashville, TN 37229-2737
BY OVERNIGHT COURIER OR BY HAND:
BT Services Tennessee, Inc.
Reorganization Unit
Corporate Trust & Agency Group
648 Grassmere Park Drive
Nashville, TN 37230
BY HAND:
Bankers Trust Company
Corporate Trust & Agency Group
123 Washington Street - First Floor Window
New York, NY 10008
BY FACSIMILE: (615) 835-3701 CONFIRM BY TELEPHONE: (800) 735-7777
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
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<PAGE>
This form is not to be used to guarantee signatures. If a signature on a Letter
of Transmittal is required to be guaranteed by an Eligible Institution under the
instructions thereto, such signature guarantee must appear in the applicable
space provided in the signature box on the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to SRPC, upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the principal amount of Old Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus and in Instruction 2 of the related Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
<TABLE>
<CAPTION>
<S> <C> <C>
CERTIFICATE NUMBER(S) (IF KNOWN) OF OLD NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
</TABLE>
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<PAGE>
PLEASE SIGN AND COMPLETE
Signatures of Registered Holder(s) or
Authorized Signatory: _________________ Date: ____________________, 1996
_______________________________________ Address:______________________
_______________________________________ ______________________
Name(s) of Registered Holder(s): ______ Area Code and Telephone No.
_______________________________________ ______________________________
_______________________________________
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
Please print name(s) and address(es)
Name(s): _______________________________________________________________________
________________________________________________________________________________
Capacity: ______________________________________________________________________
Address(es): ___________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
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<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Old Notes tendered hereby in proper
form for transfer (or confirmation of the book-entry transfer of such Old Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility described
in the Prospectus under the caption "The Exchange Offer--Procedures for
Tendering" and in the Letter of Transmittal) and any other required documents,
all by 5:00 p.m., New York City time, on the third New York Stock Exchange
trading day following the Expiration Date.
Name of firm: ____________________ __________________________________
(Authorized Signature)
Address: _________________________ Name: ____________________________
(Please Print)
__________________________________ Title: ___________________________
(Include Zip Code)
Area Code and Tel. No. ___________ Dated: ___________________, 1996
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
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<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
related Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name(s) of the registered
holder(s) appear(s) on the Old Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to SRPC of such person's authority to so act.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
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EXHIBIT 99.3
INSTRUCTIONS
TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
SRI RECEIVABLES PURCHASE CO., INC.
12.5% TRUST CERTIFICATE-BACKED NOTES
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
________, 1996 (the "Prospectus") of SRI Receivables Purchase Co., Inc., a
Delaware corporation ("SRPC"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute SRPC's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 12.5% Trust Certificate-Backed Notes (the "Old Notes")
held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (FILL IN AMOUNT):
$ of the 12.5% Trust Certificate-Backed Notes
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Old Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE TENDERED,
IF ANY): $
[ ] NOT TO TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN STATE) , (ii) the
undersigned is acquiring the New Notes in the ordinary course of business of the
undersigned, (iii) the undersigned is not participating, does not participate,
and has no arrangement or understanding with any person to participate in the
distribution of the New Notes, (iv) the undersigned acknowledges that any person
participating in the Exchange Offer for the purpose of distributing the New
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Act"), in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the Staff of the Securities and Exchange Commission set
forth in no-action letters that are referenced in the section of the Prospectus
entitled "The Exchange Offer--Purpose and Effect of the Exchange Offer," and (v)
the undersigned is not an "affiliate," as defined in Rule 405 under the Act, of
SRPC; (b) to agree, on behalf of the undersigned, as set forth in the Letter of
Transmittal; and (c) to take such other action as necessary under the Prospectus
or the Letter of Transmittal to effect the valid tender of such Old Notes.
Check this box if the Beneficial Owner of the Old Notes is a
Participating Broker-Dealer and such Participating Broker-Dealer
[ ] acquired the Old Notes for its own account as a result of
market-making activities or other trading activities. IF THIS BOX IS
CHECKED, A COPY OF THESE INSTRUCTIONS MUST BE RECEIVED WITHIN FIVE
BUSINESS DAYS AFTER THE EXPIRATION DATE BY SRI RECEIVABLES PURCHASE
CO., INC., ATTENTION JAMES A. MARCUM, FACSIMILE (713) 660-3342.
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SIGN HERE
Name of beneficial owner(s): ---------------------------------------------------
Signature(s): ------------------------------------------------------------------
Name (PLEASE PRINT): -----------------------------------------------------------
Address: ----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Telephone number: --------------------------------------------------------------
Taxpayer Identification or Social Security Number: -----------------------------
Date: --------------------------------------------------------------------------
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