DRAFT 8/21/96
As filed with the Securities and Exchange Commission on August 27, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
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)
----------------------
DELAWARE
(State or other jurisdiction of
incorporation or organization)
51-0349276
(I.R.S. Employer Identification
Number)
9999
(Primary Standard Industrial
Classification Code 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
Title of Each Proposed Proposed
Class of Offering Price Aggregate Offering Amount of
Securities to Amount to be Maximum Maximum Registration
be Registered Registered Per Note(1) Price(1) Fee
- -------------------------------------------------------------------------------
12.5%
Series B Notes.. $30,000,000 100% $30,000,000 $10,344.83
(1) Estimated in accordance with Rule 457 solely for the purpose of calculating
the registration fee.
----------------------
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> <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
Charges and Other Information........................... Summary; Summary Historical Financial and
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
14. Information with Respect to Registrants other
than S-3 or S-2 Registrants............................ Outside Front Cover Page; Summary; Risk
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
Authorizations are not to be Solicited or in an
Exchange Offer......................................... Management; Executive Compensation; Certain
Relationships and Related Transactions; Principal
Stockholders
</TABLE>
SUBJECT TO COMPLETION, DATED AUGUST , 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 May 30, 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"), which also governs the Old Notes. 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 20 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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT 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 BUT 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.
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.
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.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1996.
- 2 -
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION...............................................5
SUMMARY.............................................................6
The Companies....................................................6
The Offering....................................................10
The Exchange Offer .............................................10
New Notes ......................................................13
Certain Structural Features.....................................18
Use of Proceeds.................................................18
Risk Factors....................................................18
SUMMARY HISTORICAL FINANCIAL DATA
OF SRPC.........................................................19
RISK FACTORS.......................................................20
The Notes and the Collateral Certificates.......................20
Limited Recourse Provisions of the Notes;
Non-Petition Obligation......................................20
Subordination; Possible Collateral
Impairment...................................................20
Limited Foreclosure Rights......................................20
Payments and Maturity...........................................20
Interest Rate Risk..............................................21
Control.........................................................21
Ability to Issue New Series of Notes............................21
Master Trust Considerations.....................................21
Lack of Public Market...........................................22
Transfer of the Receivables; Insolvency
Risk Considerations..........................................22
Possible Changes to the Terms of the
Accounts.....................................................23
Consumer and Debtor Protection Laws.............................23
Equalization Account............................................23
Ratings.........................................................24
Possible Impact of SRI and Palais
Guarantees...................................................24
Business of SRI.................................................24
Social, Legal and Economic Factors and
Seasonality..................................................24
Forms of Payment in SRI Stores..................................24
Dependence on SRI and Palais....................................25
Competition.....................................................25
USE OF PROCEEDS....................................................26
CAPITALIZATION OF SRPC.............................................27
SELECTED HISTORICAL FINANCIAL DATA
OF SRPC.........................................................28
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................29
General.........................................................29
Results of Operations...........................................30
Liquidity and Capital Resources.................................31
BUSINESS OF SRPC...................................................33
BUSINESS OF SRI....................................................34
General.........................................................34
Retail Concept and Operating Strategy...........................34
Growth Strategy.................................................36
Company Operations..............................................37
Competition.....................................................39
Employees.......................................................39
Properties......................................................39
Litigation......................................................40
SRI'S CREDIT CARD BUSINESS.........................................41
General.........................................................41
New Account Underwriting........................................41
Creation of Account Balances....................................42
Account Balances and Yield Experience...........................43
Loss and Delinquency Experience.................................43
Plan for Credit Card Bank.......................................45
THE ACCOUNTS.......................................................47
Billing And Payments............................................50
MANAGEMENT.........................................................52
EXECUTIVE COMPENSATION.............................................53
Management Agreements...........................................54
Stock Option Plan...............................................56
SRI Retirement Plan.............................................57
Company Deferred Compensation Plan..............................58
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS....................................................59
PRINCIPAL STOCKHOLDERS.............................................60
DESCRIPTION OF CERTAIN
INDEBTEDNESS OF STAGE STORES
AND ITS AFFILIATES..............................................62
Revolving Note..................................................62
Bank of Boston Facility.........................................62
SRI Debt........................................................62
Other Debt......................................................63
THE EXCHANGE OFFER ................................................65
Purpose and Effect of the Exchange Offer........................65
Terms of the Exchange Offer ....................................66
Expiration Date; Extensions; Amendments.........................66
Interest on the New Notes ......................................67
Procedures for Tendering........................................67
Terms and Conditions of the Letter of
Transmittal .................................................68
Withdrawal of Tenders ..........................................69
Conditions to the Exchange Offer ...............................69
Exchange Agent .................................................70
Fees and Expenses ..............................................70
Accounting Treatment ...........................................71
Other ..........................................................71
DESCRIPTION OF THE NOTES...........................................72
Principal, Maturity and Interest................................72
Optional Redemption.............................................72
Cash Flows Allocable to the Holders.............................73
- 3 -
Accounts........................................................74
Deposits into the Interest Reserve Account......................74
Deposits into the Principal Reserve
Account......................................................76
Transfers to the Payment Account;
Payment of Principal and Interest............................76
Final Payments..................................................77
Statements to Holders of the Notes..............................77
Events of Default and Remedies..................................77
Collateral Security.............................................79
No Personal Liability of Directors,
Officers, Employees and Shareholders.........................79
Legal Defeasance................................................79
Amendment, Supplement and Waiver................................80
Transfer and Exchange...........................................80
Book-Entry, Delivery and Form...................................81
Certificated Securities.........................................82
Same-Day Settlement and Payment.................................82
Registration Rights.............................................82
Concerning the Indenture Trustee................................83
Additional Information..........................................83
DESCRIPTION OF THE COLLATERAL......................................84
Overview of Trust Allocations...................................84
The Outstanding Certificates....................................84
Principal Terms.................................................85
Trust Assets....................................................87
Receivables.....................................................88
Amortization Period.............................................88
Shared Principal Collections....................................88
Transferor Percentage Cash Flows................................89
Transferor Shared Principal Collection
Cash Flows...................................................89
Transferor Excess Finance Charge Cash
Flows........................................................90
Transferor/Class D Cash Flows...................................90
Class D Daily Cash Flows........................................90
Eligible Accounts; Eligible Receivables ........................90
Automatic Addition of Accounts ................................91
Removal of Accounts.............................................92
Collection and Other Servicing Procedures...................... 92
Discount Option ...............................................93
Trust Accounts ................................................93
Equalization Account ..........................................94
Allocation Percentages..........................................95
Application of Collections......................................95
Reallocation of Cash Flows.....................................103
Interest Rate Caps.............................................104
Defaulted Receivables; Rebates and
Fraudulent Charges; Portfolio
Reassignment................................................104
Recourse Arrangements..........................................105
Investor Charge-Offs...........................................105
Final Payment of Principal on Senior
Certificates; Termination .................................106
Pay Out Events ...............................................107
Servicing Compensation and Payment of
Expenses ..................................................109
Certain Matters Regarding SRPC and SRI.........................109
Servicer Default .............................................110
The Receivables Trustee........................................111
Definitions....................................................112
HYPOTHETICAL MODEL SCENARIOS......................................121
Overview.......................................................121
The Model......................................................121
Model Assumptions..............................................122
Hypothetical Inputs............................................123
Basic Monthly Outputs..........................................128
Stress Factors.................................................129
Simplified Priorities..........................................129
Model Results..................................................130
Certain Definitions............................................131
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES....................................................133
Transfer of Receivables........................................133
Certain Matters Relating to Bankruptcy.........................133
Consumer and Debtor Protection Laws............................134
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES...................................................134
Debt Characterization and Interest Income......................135
Exchange of Old Notes for New Notes............................135
Disposition of Notes...........................................136
Information Reporting and Backup
Withholding ................................................136
Tax Consequences to Foreign Holders ...........................136
ERISA CONSIDERATIONS..............................................137
PLAN OF DISTRIBUTION .............................................137
LEGAL MATTERS.....................................................138
INDEPENDENT ACCOUNTANTS...........................................138
INDEX OF DEFINED TERMS............................................139
INDEX TO FINANCIAL STATEMENTS.....................................F-1
-4-
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 75 Park Place, New York, New York 10007 and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
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.
- 5 -
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 313 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 24 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 11 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.
-6-
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 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.
-7-
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 24 stores and has acquired 34 additional stores as
a result of the Uhlmans acquisition. SRI plans to open 11 stores during the
remainder of 1996. See "Business of SRI--Growth Strategy."
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).
- 8 -
Corporate Organization
The table set forth below describes the pro forma (indicated by dashes)
corporate organization reflecting the exchange offer being made hereby.
--------------------------
| Stage Stores, Inc. |
--------------------------
|
|
|
---------------------------
|Specialty Retailers, Inc.|
| (Servicer) |
---------------------------
|
|
--------------------------
| Palais Royal, Inc. |
| (Originator) |
--------------------------
| | /|\
True | | | S and/or
Sale of | | | Revolving
Receivables | | | Note
\|/ | |
-------------------- ------------------
|SRI Receivables | | |
|Purchase Co., Inc.| | |
|(Holder of Class D| Transfer of | |
|Certificates and | Receivables\| SRI Receivables|
Pledge of Class D |Transferor --------------| Master Trust |
-------------------|Certificate) | /| |
| -------------------- ------------------
|Certificates and | /|\ /|\ |
|Certain Rights | | | |
|with Respect to | | | |
|Transferor | | | |
|Certificate for | | | |
|Benefit of | | | |
|Noteholders | | | |
| | | | |
| 12.5% | | 12.5% Trust | | Previously
| Series B | | Certificate- S | | Placed Class A,
| Notes | | Backed | | B and C
\|/ \|/ | Notes | \|/Certificates
- ------------------ --------------------------- --------------------
| Trustee or | | | |Investors in |
|Collateral Agent| | Noteholders | |Series 1993-1 |
| | | | |and Series 1995-1 |
- ------------------ --------------------------- --------------------
- 9 -
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
-10-
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 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
-11-
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 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.
-12-
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 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").
-13-
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:
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, SRI 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
-14-
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 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
-15-
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
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,
-16-
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."
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").
-17-
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."
-18-
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
For The Three Months Ended Fiscal Year (1) Inception to
--------------------------- --------------- January 29,
May 4, 1996 April 29, 1995 1995 1994 1994
----------- -------------- ----- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Service charge income ................................. $ 2,913 $ 2,683 $ 10,523 $ 8,070 $ 4,026
Earnings related to accounts receivable
sold to Trust (2) ................................... 1,476 3,139 3,549 22,361 12,242
Interest income (expense) on balances
with Palais ......................................... 269 80 825 495 (88)
Interest income ....................................... 28 28 228 104 94
General and administrative
expenses ............................................ (44) (36) (154) (156) (65)
Bad debt (expense)
recovery (3) ........................................ (3,233) (619) 8,327 (6,072) (7,235)
-------- -------- -------- -------- --------
Operating income ................................... 1,409 5,275 23,298 24,802 8,974
Income tax expense .................................... (520) (1,958) (8,651) (9,031) (3,194)
-------- -------- -------- -------- --------
Net income ............................................ $ 889 $ 3,317 $ 14,647 $ 15,771 $ 5,780
======== ======== ======== ======== ========
Dividends paid to Palais .............................. $ 1,977 $ 5,636 $ 26,454 $ 5,579 $ --
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Undivided interest in accounts
receivable, net ..................................... $ 47,824 $ 46,929 $ 62,454 $ 60,814 $ 40,193
Total assets .......................................... 64,103 66,067 77,688 74,543 57,048
Receivable from (payable to)
Palais .............................................. (3,361) 5,092 (18,522) (8,928) (233)
Other current liabilities ............................. 4,197 3,835 2,806 1,919 7,549
Stockholder's equity .................................. 56,545 62,232 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.
-19-
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 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
-20-
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 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.
-21-
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 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
-22-
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."
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
-23-
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 are not a
recommendation to purchase, hold, or sell the Notes, inasmuch as such ratings do
not comment as to the market price or suitability for a particular investor.
There can be no assurance that the ratings will remain in effect for any given
period of time or that the ratings will not be lowered or withdrawn 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.
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). 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
-24-
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.
-25-
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."
-26-
CAPITALIZATION OF SRPC
The following table sets forth the capitalization of SRPC as of May 4, 1996
and as adjusted to give effect to the Offering. This presentation should be read
in conjunction with the Financial Statements of SRPC and other information
appearing elsewhere in this Prospectus.
Historical Adjusted
------- -------
(dollars in thousands)
Payable to Palais ............................. $ 3,361 $ --
------- -------
12.5% Trust Certificate-Backed Notes .......... -- 30,000
Stockholder's equity .......................... 56,545 29,906
------- -------
Total capitalization .......................... 56,545 59,906
------- -------
Total capitalization and payable to Palais . $59,906 $59,906
======= =======
-27-
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
For The Three Months Ended Fiscal Year (1) Inception to
-------------------------- ---------------- January 29,
May 4, 1996 April 29, 1995 1995 1994 1994
----------- -------------- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Service charge income .................... $ 2,913 $ 2,683 $ 10,523 $ 8,070 $ 4,026
Earnings related to accounts receivable
sold to Trust (2) ....................... 1,476 3,139 3,549 22,361 12,242
Interest income (expense) on balances with
Palais .................................. 269 80 825 495 (88)
Interest income .......................... 28 28 228 104 94
General and administrative expenses ...... (44) (36) (154) (156) (65)
Bad debt (expense) recovery (3) .......... (3,233) (619) 8,327 (6,072) (7,235)
-------- -------- -------- -------- --------
Operating income ....................... 1,409 5,275 23,298 24,802 8,974
Income tax expense ....................... (520) (1,958) (8,651) (9,031) (3,194)
-------- -------- -------- -------- --------
Net income ............................... $ 889 $ 3,317 $ 14,647 $ 15,771 $ 5,780
======== ======== ======== ======== ========
Dividends paid to Palais ................. $ 1,977 $ 5,636 $ 26,454 $ 5,579 $ --
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Undivided interest in accounts
receivable, net ........................ $ 47,824 $ 46,929 $ 62,454 $ 60,814 $ 40,193
Total assets ............................. 64,103 66,067 77,688 74,543 57,048
Receivable from (payable to) Palais ...... (3,361) 5,092 (18,522) (8,928) (233)
Other current liabilities ................ 4,197 3,835 2,806 1,919 7,549
Stockholder's equity ..................... 56,545 62,232 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.
-28-
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 313
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 May 4, 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 May 4,
1996, the outstanding balance under the revolving certificate was $3.7 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 May 4, 1996 was $48.4 million, which represented
22.3% 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 May
4, 1996, the average rate of return on the term certificates was 6.4%. The
purchase commitment
-29-
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.
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 $4.3 million
and $12.0 million for the first quarter of 1996 and fiscal 1995, respectively.
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
THREE MONTHS ENDED MAY 4, 1996 COMPARED TO THREE MONTHS ENDED APRIL 29, 1995
Service charge income for the first quarter of 1996 increased 7.4% to $2.9
million from $2.7 million in the first quarter 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 quarter of
1996 decreased 51.6% to $1.5 million from $3.1 million for the first quarter of
1995. The majority of such decrease was due to a $4.3 million premium on
accounts receivable purchased during the first quarter of 1996, partially offset
by a $2.8 million increase in service charge income generated by accounts
receivable in the Trust. All accounts receivable were purchased at face value
during the first quarter of 1995.
Pursuant to the Amendment, SRPC sold $3.6 million and $5.6 million in
defaulted accounts receivable during the first quarters of 1996 and 1995,
respectively, to Palais. The decrease in defaulted accounts receivable sold was
primarily due to the sale of $1.9 million of defaulted accounts receivable
during the first quarter 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 23.1% to $3.2
million for the first quarter of 1996 versus $2.6 million for the first quarter
of 1995 as a result of an increase in personal bankruptcies in Texas combined
with a higher level of accounts receivable.
-30-
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.
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% (6.4% at May 4, 1996).
The payable balance to Palais was $3.4 million and $18.5 million at May 4, 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.
-31-
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 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 and, 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 a portion of the 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.
-32-
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 May 4, 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."
-33-
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 313 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
-34-
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.
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.
-35-
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 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:
-36-
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.
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%
-37-
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.
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
Furs and Coats ...... 1 1
---- ----
Total ............... 100% 100%
==== ====
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."
-38-
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 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.
-39-
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 ............................ 1
Texas.................................... 165
Wyoming.................................. 1
-----
Total................................. 313
-----
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.
-40-
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.
-41-
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
-42-
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
-43-
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 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>
-44-
(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.
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)
Fiscal Year
--------------------------------
1995 1994 1993
---------- ------- -------
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)
- ---------------------
(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.
-45-
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, affiliate transaction prohibitions and
general banking safety and soundness requirements. There can be no assurance
that the Bank will be established.
-46-
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.
-47-
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.
- 48 -
COMPOSITION OF ACCOUNTS BY AGE
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
------- ------- ---------- ------
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.
-49-
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.
-50-
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 ...................... 17.0 16.5 17.3
- --------------------
(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.
-51-
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 34 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.
- 52 -
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.
Year ($) ($) ($) SARs(#) ($)(1)
- ------------------------------ ------ ------- ------ ----------- ------------ ---------
<S> <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) 197,000 1,260
Carl Tooker, 1995 538,416 43,305 67,600(5) -- 87
President and 1994 468,750 56,128 67,600(5) 50,000 174
Chief Executive Officer 1993 247,916 75,000 132,116(6) 200,000 --
James Marcum, 1995 183,333 55,000 184,722(7) 100,000 173
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 $17,255 paid to Mr. Tooker during 1993.
(7) Amount shown reflects moving expenses paid to Mr. Marcum during 1995.
- 53 -
Option/SAR Grants in Last Fiscal Year
The following discloses options granted during 1995 for SRPC's executive
officers.
<TABLE>
<CAPTION>
Potential-Realizable-Value
Assumed Annual Rates of
Stock Price Appreciation For
Individual Grants Option Term
------------------------------------------------------------ --------------------------
Number of % of Total
Securities Options/
Underlying SARs 10%
Options/ Granted to 5% Annual Annual
SARs Employees in Exercise or Growth-Rate Growth
Name Granted(#) Fiscal Year Base Price ($) Expiration Date ($) Rate ($)
- ------------ ------------ ------------ -------------- --------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
James Marcum 100,000 23.2 2.88 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 (#) FY-End (#)
------------- --------------------
Shares
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Unexercisable Unexercisable
- -------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bernard Fuchs 82,930 153,750 46,900/65,700 210,540/264,120
Carl Tooker -- -- 90,000/160,000 420,000/702,000
James Marcum -- -- -/100,000 -/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.
Management 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
- 54 -
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, 288,635 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 the next three fiscal years 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 150,000 shares of SRI's common
stock at an original purchase price of $5.00 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 $0.10 per share and the
right to receive payments equaling $0.95 per option share ratably over the
vesting schedule.
TOOKER MANAGEMENT AGREEMENT
On July 1, 1993, SRI and Carl Tooker entered into an employment
agreement (the "Tooker Management Agreement") providing for Mr. Tooker's
employment as Director, President and Chief Operating Officer. As discussed
above, Mr. Tooker was appointed Chief Executive Officer effective July 1, 1994.
The Tooker Management Agreement provides for an initial base salary of $425,000
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 Tooker Management Agreement also provided for an initial grant of
options to purchase 200,000 shares of SRI's common stock at $5.00 per share,
subsequently converted into options to acquire shares of Common Stock as
described above for Mr. Fuchs. Pursuant to Mr. Tooker's appointment to CEO, he
was awarded additional options to purchase 50,000 shares of Common Stock with an
exercise price of $2.15 per share and his annual salary was adjusted to
$500,000. Such options and the related Common Stock are subject to vesting and
repurchase restrictions. Mr. Tooker's current salary is $600,000.
MARCUM EMPLOYMENT AGREEMENT
On June 1, 1995, SRI and James Marcum entered into an employment
agreement (the "Marcum Employment Agreement") providing for Mr. Marcum's
employment as Executive Vice President and Chief Financial Officer. The Marcum
Employment Agreement provides for an initial base salary of $275,000 plus an
annual incentive bonus based on SRI's actual versus planned pretax income. The
Marcum Employment Agreement also provides for an initial grant of options to
purchase 100,000 shares of Common Stock with an exercise price of $2.88 per
share. Such options and the related Common Stock are subject to vesting and
repurchase requirements.
- 55 -
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 1989, SRI adopted the 1989 Stock Option Plan of Specialty Retailers,
Inc. designed to provide incentives to present and future executive, managerial,
marketing, technical other key employees, and consultants and advisors of SRI
and its subsidiaries ("Participants") as selected in the sole discretion of the
Board of Directors. Since 1989, SRI has amended and restated the 1989 Stock
Option Plan to increase the number of shares subject thereto and is referred to
herein as the "Stock Option Plan." Options to purchase shares of Common Stock
may be granted to any Participant at any time, at such price and on such terms
and subject to such conditions established by the Board under the Stock Option
Plan. Options granted under the Stock Option Plan may be incentive stock options
within the meaning of Code Section 422, or in such other form, consistent with
the Stock Option Plan, as the Board of Directors may determine. The Compensation
Committee elected by the Board of Directors has full power and authority to
authorize the issuance of options and sale of shares under the Stock Option
Plan.
Options granted under the Stock Option Plan are subject to such terms
and conditions as evidenced by agreements as determined by the Board of
Directors from time to time. The Board of Directors has the power and authority
to prescribe, amend and rescind rules and procedures governing the
administration of the Stock Option Plan. The number of shares of Common Stock
with respect to which options may be granted under the Stock Option Plan and
which may be issued upon the exercise of options or payment thereof cannot
exceed 2,000,000 shares. Options are exercisable at any time on or after the
date of grant. Stock purchased upon exercise of options is subject to the same
vesting provisions, restrictions on transfer and repurchase option (except that
only SRI has such repurchase option) as Executive Stock purchased pursuant to
the management agreements described above.
The Stock Option Plan also provides that SRI may sell directly to any
Participant at any time prior to the termination of the plan, shares of Common
Stock in such quantity, at such price, on such terms and subject to such
conditions that are consistent with the plan and established by the Board of
Directors. Common Stock sold under the Stock Option Plan is subject to such
terms and conditions as evidenced by agreements as determined by the Board of
Directors from time to time. Shares sold pursuant to the plan are subject to the
same vesting provisions, restrictions on transfer and repurchase options as
Executive Stock purchased pursuant to the management agreements described above.
- 56 -
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.
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.
- 57 -
As of February 3, 1996, the estimated annual benefits payable upon
retirement 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-$42,205; and Mr.
Marcum-$61,320. 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.
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.
- 58 -
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% (6.4% at May 4, 1996). Interest income on
intercompany balances was $0.8 million during 1995.
- 59 -
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 July 23, 1996,
1,468,750 shares of Class B Common Stock were outstanding, 1,320,198 of which is
owned by Court Square Capital Limited (see note (5) to ownership table below).
Except as described in note (5) below, the percentage of shares of Common Stock
is calculated assuming no Class B Common Stock is converted.
The table below sets forth certain information regarding ownership of
Common Stock as of July 23, 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).................... 5,363,131 45.2%
Adam Kirsch (1).......................... 5,340,644 45.1%
Bain and the Tyler Entities (2).......... 5,291,910 44.6%
Acadia Partners, L.P. (3)................ 3,515,466 29.7%
Bernard Fuchs (4)........................ 1,126,950 9.5%
Court Square Capital Limited (5)......... 390,667 2.9%
Carl Tooker.............................. 149,800 1.3%
Mark Shulman............................. 43,000 *
Jerry Ivie............................... 34,122 *
Lasker Meyer............................. 13,513 *
Stephen Lovell........................... 15,000 *
James Marcum............................. 20,000 *
Peter Mulvihill (6)...................... -- --
All executive officers and directors as a group
(10 Persons) (7)................. 6,814,260 57.5%
- --------------
* 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.
- 60 -
(3) Amounts shown represent shares held by the nominee of Acadia and shares
held by FWHY-Coinvestment I Partner L.P. ("FCP") and Oak Hill, both
affiliates of Acadia. The address of Acadia and FCP is 201 Main Street,
Fort Worth, Texas 76102. The address of Oak Hill is 65 East 55th Street,
New York, New York 10022.
(4) Amount shown for Mr. Fuchs includes 470,000 shares held by The Fuchs
Family Limited Partnership for which Mr. Fuchs may be deemed to possess
beneficial ownership.
(5) 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 do not
include 1,320,198 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 substantial restrictions, into one share of
Common Stock. Assuming full conversion of all shares of non-voting Class
B Common Stock, Court Square would hold 12.8% of the outstanding Common
Stock. The address of Court Square is 399 Park Avenue, 6th Floor, New
York, New York 10043.
(6) 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.
(7) Amount shown includes 11,515 shares of Common Stock that such persons or
group could acquire upon the exercise of options exercisable within 60
days.
- 61 -
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
February 3, 1996, $8.4 million of the total commitment was used to collateralize
letters of credit resulting in available funds of $16.6 million. 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.
- 62 -
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 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
- 63 -
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 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.
- 64 -
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.
- 65 -
This Prospectus, together with the Letter of Transmittal, is being sent
to all registered Holders as of , 1996.
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.
- 66 -
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.
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,
- 67 -
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 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,
- 68 -
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."
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 sole 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
- 69 -
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 sole 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.
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 BY:OVERNIGHT COURIER OR BY HAND:
(registered or certified 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 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 Old 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.
- 70 -
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.
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."
- 71 -
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%
- 72 -
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 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.
- 73 -
(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.
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
-74-
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.
"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.
- 75 -
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 deposits will be made into the Principal Reserve
Account.
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.:
(b)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.
(c)On the Expected Maturity Date, from the Principal Reserve Account, an
amount equal to the principal amount of the Notes.
(d)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.
(e)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.
-76-
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.
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
- 77 -
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 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.
- 78 -
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 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
- 79 -
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.
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.
- 80 -
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 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.
- 81 -
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 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.
- 82 -
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.
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.
- 83 -
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
-84-
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."
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 + 0.82%
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
Scheduled Series Termination Date...............................January 1, 2003
Series Servicing Fee Percentage..............................................2%
Issuance Date.....................................................July 30, 1993
Ratings.....................................................................A/A
- 85 -
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
- 86 -
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
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.
- 87 -
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 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
-88-
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, 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.
- 89 -
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."
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
- 90 -
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 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
-91-
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 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,
- 92 -
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 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
- 93 -
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 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
- 94 -
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.
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;
- 95 -
(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";
(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 ChargeOffs for such Variable Funding Series
and any amount of Shared Principal
- 96 -
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 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."
- 97 -
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 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
- 98 -
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
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.
- 99 -
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 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;
- 100 -
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.
"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
- 101 -
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.
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
- 102 -
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."
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
- 103 -
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 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
- 104 -
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 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
- 105 -
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 ChargeOff 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
CHARGEOFF").
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.
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
- 106 -
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 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;
- 107 -
(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."
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
- 108 -
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
than to the extent that any of the foregoing relate to any tax law or any
failure to comply therewith)
- 109 -
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:
- 110 -
(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 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.
- 111 -
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 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
- 112 -
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 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
- 113 -
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 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.
- 114 -
"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.
"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.
- 115 -
"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.
"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.
- 116 -
"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.
"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."
- 117 -
"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.
"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.
- 118 -
"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 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.
- 119 -
"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) 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).
- 120 -
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."
- 121 -
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 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.
- 122 -
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.
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
- 123 -
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).
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
- 124 -
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 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
- 125 -
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.
- 126 -
<PAGE>
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 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 head ings 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.
- 127 -
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.
- 128 -
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
- 129 -
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."
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--
- 130 -
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
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.
- 131 -
TABLE 3
MODEL RESULTS
<TABLE>
<CAPTION>
Unpaid Capitalized Total Unpaid Capitalized
original unpaid unpaid Dilution original unpaid Total unpaid Dilution
LIBOR principal(1) interest principal 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
- ------------------------------------------------------ ----------------------------------------------------------
<C> <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 9.90% 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.
- 132 -
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
- 133 -
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 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 is a discussion of the principal United States federal
income tax consequences of the acquisition, ownership and disposition of the New
Notes. This discussion is based upon provisions of the Internal Revenue Code of
1986, as amended (the "CODE"), applicable Treasury Department regulations,
judicial authority and current
- 134 -
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.
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
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.
- 135 -
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. 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.
- 136 -
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.
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
- 137 -
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.
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.
- 138 -
INDEX OF DEFINED TERMS
PAGE
----
1993-1 Certificates.........................................................85
1993-1 Class A Certificates.................................................85
1993-1 Class B Certificates.................................................85
1993-1 Class C Certificates.................................................85
1993-1 Class D Certificate..................................................85
1993-2 Certificates.........................................................85
1993-2 Class A-R Certificates...............................................15
1993-2 Class B-R Certificates...............................................15
1995-1 Certificates.........................................................85
1995-1 Class A Certificates.................................................85
1995-1 Class B Certificates.................................................85
1995-1 Class C Certificates.................................................85
1995-1 Class D Certificate..................................................85
Accounts....................................................................87
Accounts Receivable Program..................................................6
Active Account.............................................................112
Adjusted Invested Amount...................................................112
Administrative Agent.........................................................1
Aggregate Invested Amount..................................................112
Aggregate Investor Percentage..............................................112
AMC.........................................................................35
Amendment...................................................................30
Amortization Period........................................................112
Amortization Period Commencement Date......................................112
ARI..........................................................................1
ARI Senior Discount Debentures..............................................64
Automatic Additional Account...............................................112
Available Designated Series Finance Charge Collections......................98
Available Variable Funding Series Finance Charge Collections...............100
Bain........................................................................54
Bank........................................................................45
Base Rate..................................................................113
Basic Monthly Outputs......................................................121
Bealls Holding..............................................................63
Bealls Holding Junior Subordinated Debentures...............................63
Bealls Holding Subordinated Debentures......................................63
Benefit Plan...............................................................137
Cap Proceeds Account........................................................93
Cash Equivalents............................................................93
Certificated Security.......................................................81
Certificateholder...........................................................85
Certificates................................................................84
Class A Certificate Rate...................................................113
Class A Investor Charge-Off................................................106
Class A Monthly Interest...................................................113
Class A Principal..........................................................113
Class A Principal Payment Commencement Date................................113
Class A Principal Payment Commencment Date.................................118
Class B Certificate Rate...................................................113
Class B Investor Charge-Off................................................106
Class B Monthly Interest...................................................113
Class B Principal..........................................................114
Class B Principal Payment Commencement Date................................114
Class C Certificate Rate...................................................114
Class C Investor Charge-Off................................................105
Class C Monthly Interest...................................................114
Class C Principal..........................................................114
Class C Principal Payment Commencement Date................................115
Class D Certificate Rate...................................................115
Class D Certificateholders..................................................90
Class D Certificates........................................................14
Class D Daily Cash Flows....................................................73
Class D Fixed Allocation Percentage........................................115
Class D Floating Allocation Percentage.....................................115
Class D Initial Invested Amount............................................115
Class D Invested Amount....................................................115
Class D Investor Charge-Off................................................105
Class D Monthly Principal..................................................102
Class D Principal..........................................................115
Class D Principal Payment Commencement Date................................116
Class Fixed Allocation Percentage..........................................116
Class Floating Allocation Percentage.......................................116
Class Invested Amount......................................................116
Class Variable Funding Fixed Allocation Percentage.........................116
Class Variable Funding Floating Allocation Percentage......................116
Closing Date................................................................81
Code.......................................................................134
Collateral Agent.............................................................1
Collateral Certificates.....................................................14
Collection Account..........................................................93
Commission...................................................................2
Commitment Fees............................................................101
Committee...................................................................57
Common Stock................................................................55
Court Square................................................................61
Credit Agreement............................................................62
CVC.........................................................................54
Daily Cap Proceeds Amount..................................................117
DCR.........................................................................17
Declining Pool Scenario....................................................122
Default.....................................................................77
Deferred Compensation Plan..................................................58
Depositary participants.....................................................81
Designated Series...........................................................72
Determination Date.........................................................105
Discount Option Receivable Collections......................................93
Discount Option Receivables.................................................93
Discounted Percentage.......................................................93
Distribution Account........................................................93
Distribution Date..........................................................117
DTC.........................................................................65
Early Amortization Period..................................................117
Early Termination Event....................................................108
Eligible Account............................................................90
Eligible Institution........................................................67
Eligible Receivable.........................................................91
Equalization Account........................................................93
ERISA......................................................................137
Event of Default............................................................78
Excess Cash.................................................................62
Excess Finance Charge Collections...........................................99
- 139 -
Excess Transferor Daily Cash Flows..........................................75
Exchange Act.................................................................5
Exchange Agent..............................................................12
Exchange Offer...............................................................1
Executive Stock.............................................................56
Existing Series............................................................117
Expected Final Payment Date.................................................13
Expected Maturity Date......................................................13
Expiration Date..............................................................2
Facilities Costs...........................................................101
FB Holdings.................................................................63
FB Holdings Subordinated Notes..............................................63
FCP.........................................................................61
FDIC........................................................................46
Federal Tax Counsel.........................................................17
Finance Charge Collections.................................................117
Fiscal Month................................................................75
Fixed Allocation Percentage................................................117
Floating Allocation Percentage.............................................117
foreign person.............................................................136
Fuchs Management Agreement..................................................54
Global Note.................................................................81
Holder......................................................................65
Hypothetical Inputs........................................................121
In-Store Payment............................................................95
Indenture....................................................................1
Indenture Trustee............................................................1
indirect participants.......................................................82
Initial Invested Amount....................................................117
Initial Purchaser............................................................2
Insolvency Event...........................................................108
Interest Accrual Period....................................................117
Interest Funding Account....................................................93
Interest Payment Date.......................................................72
Interest Rate Cap..........................................................104
Interest Reserve Account....................................................74
Investor Certificates.......................................................15
Investor Charge-Offs.......................................................106
Investor Default Amount....................................................117
Investor Percentage........................................................118
IRS........................................................................135
Latest Rating Agency Approval..............................................118
Legal Defeasance............................................................79
Legal Maturity Date.........................................................77
Letter of Transmittal........................................................1
LIBOR......................................................................131
Marcum Employment Agreement.................................................55
Minimum Aggregate Principal Receivables....................................118
Minimum Transferor Interest................................................118
Minimum Transferor Interest Deficiency......................................94
Minimum Transferor Percentage..............................................118
Model......................................................................121
Model Assumptions..........................................................122
Model Factors..............................................................122
Model Results..............................................................121
Monthly Interest Payment Amount.............................................75
Monthly Interest Period.....................................................75
Monthly Interest Reserve Amount.............................................74
Monthly Payment Date........................................................72
Monthly Servicing Fee......................................................109
Negative Carry Account......................................................93
Negative Carry Amount......................................................118
Negative Carry Fill-up Date................................................103
New Notes....................................................................1
Non-Global Purchasers.......................................................81
Note Allocation Percentage..................................................73
Notes........................................................................1
OCC.........................................................................46
Offering....................................................................10
OID........................................................................135
Old Notes....................................................................1
Original Closing Date......................................................118
Palais.......................................................................1
Participants................................................................56
Pay Out Commencement Date..................................................108
Pay Out Event..............................................................107
Payment Account.............................................................74
Payment Date................................................................72
Payment Default.............................................................78
Pooling and Servicing Agreement.............................................14
Port Arthur IDRB............................................................64
PORTAL.......................................................................2
Portfolio Reassignment.....................................................104
Portfolio Yield............................................................118
POS.........................................................................39
Presentation Date..........................................................130
Principal Account...........................................................93
Principal Collections......................................................118
Principal Reserve Account...................................................74
Principal Shortfall........................................................118
Prospectus...................................................................1
PTCE.......................................................................137
Purchase Agreement..........................................................10
Purchase Termination Event.................................................118
Purchase Termination Event of Default.......................................75
Rapid Reserve Period........................................................75
Rate Determination Date....................................................118
Rating Agency...............................................................90
Receivables.................................................................88
Receivables Charge-offs....................................................131
Receivables Dilutions......................................................131
Receivables Purchase Agreement..............................................16
Receivables Trustee.........................................................84
Record Date................................................................119
Refinancing.................................................................34
Registration Rights Agreement...............................................10
Registration Statement.......................................................5
Related Person.............................................................112
Released Equalization Account Cash Flows....................................73
Removed Accounts............................................................92
Repurchase Distribution Date...............................................119
Required Adjustment Payment................................................104
- 140 -
Required Amount............................................................119
Revolving Credit Agreement..................................................62
Revolving Note..............................................................62
Revolving Period...........................................................119
S&P.........................................................................17
Scheduled Deposit Month.....................................................74
Seasonal Credit Agreement...................................................62
Seasonal Period.............................................................62
Securities Act...............................................................1
Semi-Annual Interest Payment Amount.........................................75
Semi-Annual Interest Payment Date...........................................72
Semi-Annual Interest Period.................................................75
Senior Certificate Monthly Interest........................................119
Senior Certificate Principal Repayment Date................................119
Senior Certificates.........................................................94
Senior Class Certificate Rate..............................................101
Senior Class Interest......................................................101
Senior Class Investor Charge-Off...........................................106
Senior Classes.............................................................119
Senior Equalization Account Percentage.....................................119
Senior Notes................................................................62
Senior Subordinated Notes...................................................63
Series......................................................................84
Series 1993-1 Supplement....................................................85
Series 1993-2 Supplement....................................................85
Series 1995-1 Supplement....................................................85
Series B Senior Subordinated Notes..........................................63
Series D Senior Subordinated Notes..........................................63
Service Transfer...........................................................110
Servicer....................................................................92
Servicer Default...........................................................110
Shared Principal Collections................................................88
Simplified Priorities......................................................121
SRI..........................................................................1
SRI Cards...................................................................41
SRI Portfolio...............................................................43
SRI Retirement Plan.........................................................57
SRPC.........................................................................1
Stage Stores.................................................................1
Stock Option Plan...........................................................56
Supplement..................................................................84
Supplemental Accounts.......................................................92
Tendering Holder............................................................68
Tooker Management Agreement.................................................55
Transfer Date..............................................................102
Transferor /Class D Cash Flows..............................................73
Transferor Certificate......................................................15
Transferor Daily Cash Flows.................................................73
Transferor Excess Finance Charge Cash Flows.................................73
Transferor Finance Charge Collections......................................119
Transferor Interest........................................................119
Transferor Percentage......................................................119
Transferor Percentage Finance Charge Cash Flows.............................73
Transferor Percentage Principal Cash Flows..................................73
Transferor Retained Class..................................................120
Transferor Retained Class Investor Charge-Off..............................106
Transferor Retained Class Principal Payment
Commencement Date.......................................................120
Transferor Shared Principal Collection Cash Flows...........................74
Transferor/Class D Cash Flows...............................................73
Trust........................................................................6
Trust Pay Out Event........................................................108
Tyler Entities..............................................................60
Uhlmans......................................................................6
Variable Funding Certificates...............................................85
Variable Funding Class Invested Amount.....................................120
Variable Funding Series.....................................................85
Year of Credited Service....................................................57
Year of Service.............................................................57
- 141 -
INDEX TO FINANCIAL STATEMENTS
Page
NUMBER
SRI RECEIVABLES PURCHASE CO., INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheet at May 4, 1996 and February 3, 1996.............. F-2
Condensed Statement of Income for the three months ended
May 4, 1996 and April 29, 1995..................................... F-3
Condensed Statement of Cash Flows for the three months ended
May 4, 1996 and April 29, 1995..................................... F-4
Condensed Statement of Stockholder's Equity for the three
months ended May 4, 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
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED BALANCE SHEET
(dollars in thousands, except par value)
May 4, February 3,
1996 1996
------- -------
(unaudited)
ASSETS
Undivided interest in accounts receivable, net ......... $47,824 $62,454
Restricted cash ........................................ 4,615 4,411
Receivable from Trust .................................. 5,721 4,896
Prepaid expenses and other current assets .............. 184 --
------- -------
Total current assets ................................. 58,344 71,761
Trust organization costs ............................... 5,759 5,927
------- -------
$64,103 $77,688
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued expenses and other accrued liabilities ......... $ 2,144 $ 573
State franchise taxes payable .......................... 1,102 1,170
Payable to Palais ...................................... 3,361 18,522
Deferred income taxes .................................. 951 1,063
------- -------
Total current liabilities ............................ 7,558 21,329
------- -------
Common stock, par value $0.01, 1,000 shares
authorized, issued and outstanding ................... -- --
Additional paid-in capital ............................. 53,468 52,195
Retained earnings ...................................... 3,077 4,165
------- -------
Stockholder's equity ................................. 56,545 56,360
------- -------
Commitments and contingencies .......................... -- --
------- -------
$64,103 $77,688
======= =======
The accompanying notes are an integral part of this statement.
F-2
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF INCOME
(in thousands)
(unaudited)
For the three months ended
-------------------------
May 4, April 29,
1996 1995
------- -------
Service charge income ................................ $ 2,913 $ 2,683
Earnings related to accounts receivable sold to Trust 1,476 3,139
Interest income on balances with Palais .............. 269 80
Interest income ...................................... 28 28
General and administrative expenses .................. (44) (36)
Bad debt expense ..................................... (3,233) (619)
------- -------
Operating income ................................... 1,409 5,275
Income tax expense ................................... (520) (1,958)
------- -------
Net income ........................................... $ 889 $ 3,317
======= =======
The accompanying notes are an integral part of this statement.
F-3
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
--------------------
May 4, April 29,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 889 $ 3,317
-------- --------
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization of trust organization costs ...................... 249 169
Deferred income taxes ......................................... (112) (24)
Change in operating assets and liabilities:
Decrease in payable to Palais ................................. (15,161) (14,020)
Decrease in prepaid expenses and other
current assets ................................................ 4 --
Increase (decrease) in state franchise
taxes payable ................................................. (68) 144
Increase in accrued expenses and other
accrued liabilities ........................................... 1,578 1,804
Increase (decrease) in allowance for
doubtful accounts ............................................. (314) 555
Increase in receivable from Trust ............................. (825) (60)
-------- --------
Total adjustments ................................................ (14,649) (11,432)
-------- --------
Net cash used in operating activities ............................ (13,760) (8,115)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash ...................................... (204) (434)
Purchases of accounts receivable ................................. (62,074) (53,421)
Proceeds from the sale of accounts receivable .................... 74,380 61,971
Proceeds from the sale of defaulted receivables .................. 3,635 5,635
-------- --------
Net cash provided by investing activities ..................... 15,737 13,751
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to Palais ......................................... (1,977) (5,636)
-------- --------
Net cash used in investing activities ......................... (1,977) (5,636)
-------- --------
Net change in cash and cash equivalents ....................... -- --
CASH AND CASH EQUIVALENTS:
Beginning of period .............................................. -- --
-------- --------
End of period .................................................... $ -- --
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid ................................................ $ -- $ --
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Contribution of ineligible accounts receivable ................... $ 997 $ 855
======== ========
Contribution of trust organization costs ......................... $ 88 $ --
======== ========
Contribution of debt issue costs ................................. $ 188 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
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 ............................. -- -- -- 889 889
Dividends .............................. -- -- -- (1,977) (1,977)
Contribution of ineligible accounts
receivable .......................... -- -- 997 -- 997
Contribution of trust organization costs -- -- 88 -- 88
Contribution of debt issue costs ....... -- -- 188 -- 188
----- ----- -------- ------- --------
Balance, May 4, 1996 ................... 1,000 $-- $53,468 $ 3,077 $ 56,545
===== ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
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 CertificateBacked 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.
F-6
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
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
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
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
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
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 franchise 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
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
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
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.
RESTRICTED CASH: SRPC records its undivided interest in the cash balances
of the Trust as restricted cash.
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: SRPC records all financial instruments, including
undivided interest in accounts receivable at cost. The fair values of these
financial instruments approximate cost.
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.
INCOME TAXES: The provision for income taxes is computed based on the
pretax income included in the statement of income. 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. SRPC is included in the
consolidated federal tax return of Stage Stores. As a result, federal income tax
amounts for 1995, 1994 and 1993 have been determined for the entities in the
consolidated group, including SRPC, based upon the impact of each entity's tax
attributes on Stage Stores' consolidated federal tax provision.
RECLASSIFICATION: The accompanying financial statements include
reclassifications from financial statements issued in previous years.
F-13
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
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. Any premium or discount is reflected in
earnings related to accounts receivable sold to Trust in the statement of
income.
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 uncollected accounts receivable by
Palais. The Purchase Agreement terminates upon the occurrence of certain events
specified in the agreement.
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. 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 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. SRPC owns an undivided interest in the
accounts receivable in the Trust not represented by the Term or Revolving
Certificates and 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 is currently protected against increases above 12% under an
F-14
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
agreement entered into with a bank. 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 account .......... (902) --
--------- ---------
$ 62,454 $ 60,814
========= =========
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-15
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-16
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, January 28,
1996 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-17
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 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% TRUST
CERTIFICATE-BACKED 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).
II-1
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 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.
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).
II-2
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).
23.1 CONSENT OF PRICE WATERHOUSE LLP.
*23.2 CONSENT OF KIRKLAND & ELLIS (INCLUDED IN EXHIBIT 5).
24.1 POWERS OF ATTORNEY (INCLUDED IN THE SIGNATURE PAGE INCLUDED IN THIS
PART II).
*99.1 FORM OF LETTER OF TRANSMITTAL.
*99.2 FORM OF NOTICE OF GUARANTEE DELIVERY.
*99.3 FORM OF INSTRUCTIONS TO REGISTERED HOLDER.
- ------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Not Applicable.
ITEM 22. UNDERTAKINGS
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
II-3
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
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS
ON AUGUST 27, 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
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
- --------- ----- ----
Chairman August 27, 1996
Bernard Fuchs
/s/ CARL TOOKER President and Chief August 27, 1996
Carl Tooker Chief Executive Officer
/s/ JAMES MARCUM Executive Vice President August 27, 1996
James Marcum and Chief Financial Officer
/s/ JOSHUA BEKENSTEIN Director August 27, 1996
Joshua Bekenstein
/s/ ADAM KIRSCH Director August 27, 1996
Adam Kirsch
/s/ ANDREW STIDD Director August 27, 1996
Andrew Stidd
II-5
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- ----------- -------------
3.1 CERTIFICATE OF INCORPORATION OF SRI RECEIVABLES ***
PURCHASE CO., INC.
3.2 BY-LAWS OF SRI RECEIVABLES PURCHASE CO., INC. ***
4.1 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% TRUST CERTIFICATE-BACKED 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 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).
II-6
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. *
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).
23.1 CONSENT OF PRICE WATERHOUSE LLP. ***
*23.2 CONSENT OF KIRKLAND & ELLIS (INCLUDED IN EXHIBIT 5). *
II-7
24.1 POWERS OF ATTORNEY (INCLUDED IN THE SIGNATURE PAGE ***
INCLUDED IN THIS PART II).
*99.1 FORM OF LETTER OF TRANSMITTAL. *
*99.2 FORM OF NOTICE OF GUARANTEE DELIVERY. *
*99.3 FORM OF INSTRUCTIONS TO REGISTERED HOLDER. *
- ------------
* To be filed by amendment.
** Incorporated by reference.
*** Filed herewith.
II-8
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SRI RECEIVABLES PURCHASE CO., INC.
ARTICLE FIRST
The name of the corporation is SRI Receivables Purchase Co.,
Inc. (hereinafter referred to as the "Corporation").
ARTICLE SECOND
The address of the Corporation's registered office in the State
of Delaware is Corporation Service Company located at 1013 Centre Road,
Wilmington, Delaware 19805, in the County of New Castle. The name of its
registered agent at such address is Corporation Service Company.
ARTICLE THIRD
The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in the following activities:
(a) to acquire for cash, promissory notes or other consideration
from time to time interests in receivables arising out of or relating to
the sale of merchandise and services, monies due thereunder, security
interests in the merchandise and services financed thereby, proceeds
from claims on insurance policies related thereto, any other proceeds
related thereto and any other related rights (collectively, the
"Receivables");
(b) to own, hold, service, sell, transfer, assign, pledge,
finance, refinance and otherwise deal with the Receivables, any related
insurance policies, collateral or agreements securing or relating to the
Receivables and any proceeds or further rights associated with any of
the foregoing;
(c) to transfer Receivables to one or more trusts (the "Trusts")
pursuant to one or more pooling and servicing agreements or other
agreements (the "Agreements") to be entered into by and among, among
others, the Company, the trustee named therein (the "Trustee"), and any
entity acting as servicer of such Receivables;
- 1 -
(d) to authorize and acquire from the Trusts certificates of one
or more classes or series representing undivided interests in the assets
of the Trusts (collectively, the "Certificates") or any notes or
securities otherwise issued by the Trusts pursuant to the Agreements and
to sell and deliver any such Certificates, notes or securities;
(e) to hold and enjoy all of the rights and privileges of a
holder of any class or series of Certificates, including without
limitation any class or series of Certificates that may be subordinate
to any other class or series of Certificates, respectively;
(f) to enter into and perform its obligations under any
agreement providing for the acquisition of Receivables, the Agreements,
any agreement providing for the sale of any Certificates (including any
sale of Certificates through one or more underwriters or dealers), and
any agreement providing for the funding of any amount due under any
Certificates through direct borrowings, letters of credit, insurance, or
otherwise; and
(g) to engage in any activity and to exercise any powers
permitted to corporations under the laws of the State of Delaware that
are related or incidental to the foregoing and necessary, convenient or
advisable to accomplish the foregoing.
ARTICLE FOURTH
(a) Notwithstanding any other provision of the Certificate of
Incorporation and any provision of law that otherwise so empowers the
Corporation, the Corporation shall not, without receiving prior written
confirmation from each nationally recognized rating agency which has
been requested by the Corporation or any of its affiliates to rate any
then outstanding class or series of Certificates (regardless of whether
such Certificates are owned by the Company or by any other persons or
entities) which is then rating such Certificates, that any such action
taken by the Corporation will not have an adverse affect upon the rating
of such Certificates, do any of the following:
(i) engage in any business or activity other than those
set forth in Article Third;
(ii) incur any indebtedness for borrowed money, or
assume or guaranty any indebtedness of any other entity, other
than (A) indebtedness incurred in connection with Certificates,
notes or securities issued by the Trusts pursuant to the
Agreements, (B) indebtedness incurred in connection with the
acquisition of Receivables, which indebtedness will provide that
for so long as the Trust is in existence, such indebtedness will
only be payable to the extent the
- 2 -
Corporation has available cash to pay such indebtedness; (C)
indebtedness where the person to whom the indebtedness is owing
has delivered to the Corporation an undertaking that it will not
institute against, or join any other person in instituting
against, the Corporation any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or look to
property or assets of the Corporation in respect to such
obligations and that such obligations shall not constitute a
claim against the Corporation in the event that the
Corporation's assets are insufficient to pay in full such
obligations or other proceeding under any federal or state
bankruptcy or similar law, for one year after all Certificates
(other than Certificates held by the Corporation) are paid in
full and (D) other indebtedness not exceeding 1% of the
Corporation's total assets at such time, on account of
incidentals or services supplied or furnished to the
Corporation; or
(iii) dissolve or liquidate, in whole or in part,
consolidate or merge with or into any other entity or convey or
transfer its properties and assets substantially as an entirety
to any entity.
(b) Notwithstanding any other provision of this Certificate of
Incorporation without the affirmative vote of 100% of the members of the
Board of Directors of the Corporation, institute proceedings to be
adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it or file a petition
seeking, or consent to, reorganization or relief under any applicable
federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Corporation or a substantial part of
its property, or make any assignment for the benefit of creditors, or
admit in writing its inability to pay its debts generally as they become
due, or take corporate action in furtherance of any such action.
ARTICLE FIFTH
(a) The Board of Directors of the Corporation shall at all times
include one independent Director. When voting on matters subject to the
vote of the Board of Directors, including those matters specified in
Article Fourth, the Independent Director shall take into account the
interests of the creditors of the Corporation as well as the interests
of the Corporation.
(b) DEFINITIONS. The following terms shall have the meanings set
forth below:
(i) An "Independent Director" shall be an individual
who: (A) is not and has not been employed by an SRI Entity as a
director, officer or
- 3 -
employee within the five years immediately prior to such
individual's appointment as an Independent Director; (B) is not
(and is not affiliated with a company or a firm that is) an
advisor or consultant to an SRI Entity within the five years
immediately prior to such individual's appointment as an
Independent Director; (C) is not affiliated with a customer
(other than an individual purchaser of retail items) or Supplier
of an SRI Entity within the five years immediately prior to such
individual's appointment as an Independent Director; (D) is not
affiliated with a company of which an SRI Entity is a customer
or supplier within the five years immediately prior to such
individual's appointment as an Independent Director; (E) does
not have a personal services contracts) with an SRI Entity
within the five years immediately prior to such individual's
appointment as an Independent Director; (F) is not affiliated
with a tax-exempt entity that receives significant contributions
from an SRI Entity within the five years immediately prior to
such individual's appointment as an Independent Director; (G) is
not the beneficial owner at the time of such individual's
appointment as an Independent Director, or at any time
thereafter while serving as an Independent Director, of any
number of shares of any classes of common stock, or partnership
interest, of an SRI Entity and (H) is not a spouse, parent,
sibling or child of any person described by (A) through (G) and
(I) not a major creditor of an SRI Entity within the five years
prior to such appointment as an Independent Director.
(ii) An "affiliate" of a person, or a person "affiliated
with," a specified person, shall mean a person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the specified
person. For the avoidance of doubt, for purposes of this
Certificate of Incorporation, Bain Capital, Tyler Capital Fund,
L.P., Tyler Massachusetts, L.P., Tyler International, L.P. I,
Tyler International, L.P. II and Court Square Capital Limited
are affiliates of SRI.
(iii) The term "control" (including the terms
controlling, controlled by" and "under common control with")
shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by
contract, or otherwise; provided, however, that a person shall
not be deemed to control another person solely because he or she
is a director of such other person.
(iv) The term "Person" shall mean any individual,
partnership, firm, corporation, association, trust,
unincorporated organization or other entity, as well as any
syndicate or group deemed to be a person pursuant to Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, as
in effect on July 22, 1993.
- 4 -
(v) A "subsidiary" of SRI shall mean any corporation a
majority of the voting stock of which is owned, directly or
indirectly through one or more other subsidiaries, by SRI.
(vi) An "SRI Entity" shall be SRI and its subsidiaries
and affiliates.
ARTICLE SIXTH
The total number of shares of stock which the Corporation has
authority to issue is 1,000 shares of Common Stock, with a par value of $0.01
per share.
ARTICLE SEVENTH
The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
Charles B. Fromm c/o Kirkland & Ellis
55 East 52nd Street
New York, New York 10055
ARTICLE EIGHTH
The Corporation is to have perpetual existence.
ARTICLE NINTH
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter or repeal the by-laws of the Corporation; PROVIDED, HOWEVER, that
such by-laws shall not be amended in any fashion that is inconsistent with this
Certificate of Incorporation.
ARTICLE TENTH
Meetings of stockholders may be held within or without the State
of Delaware, as the by-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the by-laws
of the Corporation. Election of directors need not be by written ballot unless
the by-laws of the Corporation so provide.
- 5 -
ARTICLE ELEVENTH
To the fullest extent permitted by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be amended, a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a director.
Any repeal or modification of this Article Eleventh shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE TWELFTH
Neither the Corporation's funds nor any other assets of the
Corporation are to be commingled with those of any other corporate or natural
person.
The Corporation will maintain separate corporate records, books
of account and bank accounts from those of any other corporate or natural
person.
ARTICLE THIRTEENTH
The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of the State of Delaware.
ARTICLE FOURTEENTH
The Corporation shall not, without the prior written consent of
each of the Independent Directors and of each nationally recognized rating
agency that has been requested by the Corporation or any of its affiliates to
rate any then outstanding class or series of Certificates (regardless of whether
such Certificates are owned by the Company or by any other persons or entities)
and that is then rating such certificates, amend, alter, change or repeal
Articles Third, Fourth, Fifth, Ninth Twelfth or this Article Fourteenth of this
Certificate of Incorporation. Subject to the foregoing limitation, the
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed herein and by the laws of the State of Delaware, and all rights
conferred upon stockholders herein are granted subject to this reservation.
* * * * *
- 6 -
I, THE UNDERSIGNED, being the sole incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, as amended, do make this Certificate,
hereby declaring and certifying that this is my act and deed and the facts
stated herein are true, and accordingly have hereunto set my hand on the 27th
day of July, 1993.
/S/ CHARLES B. FROMM
Charles B. Fromm
- 7 -
EXHIBIT 3.2
BY-LAWS
OF
SRI Receivables Purchase Co., Inc.
A Delaware Corporation
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be located at Corporation Service Company, 1013
Centre Road, Wilmington, Delaware, County of New Castle. The name of the
corporation's registered agent at such address shall be Corporation Service
Company. The registered office and/or registered agent of the corporation may be
changed from time to time by action of the board of directors.
SECTION 2. OTHER OFFICES. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE AND TIME OF MEETINGS. An annual meeting of the
stockholders shall be held each year within one hundred twenty (120) days after
the close of the immediately preceding fiscal year of the corporation for the
purpose of electing directors and conducting such other proper business as may
come before the meeting. The date, time and place of the annual meeting shall be
determined by the president of the corporation; provided, that if the president
does not act, the board of directors shall determine the date, time and place of
such meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders may be
called for any purpose and may be held at such time and place, within or without
the State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called at any time by
the president, the stockholders, or by resolution of the board of directors.
- 1 -
SECTION 3. PLACE OF MEETINGS. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
SECTION 4. NOTICE. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the board of directors, the president or the secretary, and if mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 5. STOCKHOLDERS LIST. The officer having charge of the stock
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 6. QUORUM. The holders of a majority of the outstanding shares
of capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place. When a quorum is once present to commence a meeting
of stockholders, it is not broken by the subsequent withdrawal of any
stockholders or their proxies.
SECTION 7. ADJOURNED MEETINGS. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is
- 2 -
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
SECTION 8. VOTE REQUIRED. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question. All elections for directors shall be decided by a
plurality of the vote.
SECTION 9. VOTING RIGHTS. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
SECTION 10. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.
SECTION 11. ACTION BY WRITTEN CONSENT. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the state of Delaware, or the corporation's principal place of business, or an
officer or agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested, provided, however, that no consent or consents
delivered by certified or registered mail shall be deemed delivered until
received at the registered office. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate
- 3 -
action referred to therein unless, within sixty days of the earliest dated
consent delivered to the corporation as required by this section, written
consents signed by the holders of a sufficient number of shares to take such
corporate action are so recorded. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing. Any action taken
pursuant to such written consent or consents of the stockholders shall have the
same force and effect as if taken by the stockholders at a meeting thereof.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 2. NUMBER, ELECTION AND TERM OF OFFICE. The number of directors,
the number of directors shall be established from time to time by resolution of
the board. The directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote in the election of directors. The directors shall be elected in this manner
at the annual meeting of the stockholders, except as provided in Section 4 of
this Article III. Each director elected shall hold office until a successor is
duly elected and qualified or until his or her earlier resignation or removal as
hereinafter provided.
SECTION 3. REMOVAL AND RESIGNATION. Any director or the entire board of
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors. Any
director may resign at any time upon written notice to the corporation. Such
written resignation shall take effect at the time specified therein, and if no
time be specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 4. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director. Each director so chosen shall hold office until a
successor is duly elected and qualified or until his or her earlier resignation
or removal as herein provided.
SECTION 5. ANNUAL MEETINGS. The annual meeting of each newly elected
board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
- 4 -
SECTION 6. OTHER MEETINGS AND NOTICE. Regular meetings, other than the
annual meeting, of the board of directors may be held within or without the
State of Delaware and without notice at such time and at such place as shall
from time to time be determined by resolution of the board. Special meetings of
the board of directors may be called by or at the request of the president or
any director on at least 24 hours notice to each director, either personally, by
telephone, by mail or by telegraph.
SECTION 7. QUORUM, REQUIRED VOTE AND ADJOURNMENT. A majority of the
total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the board of directors. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 8. COMMITTEES. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these by-laws shall have and may
exercise the powers of the board of directors in the management and affairs of
the corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
SECTION 9. COMMITTEE RULES. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
SECTION 10. COMMUNICATIONS EQUIPMENT. Members of the board of directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
- 5 -
SECTION 11. WAIVER OF NOTICE AND PRESUMPTION OF ASSENT. Any member of
the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
SECTION 12. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
the certificate of incorporation, any action required or permitted to be taken
at any meeting of the board of directors, or of any committee thereof, may be
taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
SECTION 13. COMPENSATION. Unless otherwise restricted by the certificate
of incorporation, the board of directors shall have the authority to fix the
compensation of directors by written resolution. Nothing herein shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be elected by
the board of directors and shall consist of a president, one or more
vice-presidents, a secretary, a treasurer, and such other officers and assistant
officers as may be deemed necessary or desirable by the board of directors. Any
number of offices may be held by the same person. In its discretion, the board
of directors may choose not to fill any office for any period as it may deem
advisable, except that the offices of president and secretary shall be filled as
expeditiously as possible.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the board of directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier resignation or removal as
hereinafter provided.
- 6 -
SECTION 3. REMOVAL. Any officer or agent elected by the board of
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. VACANCIES. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
SECTION 5. COMPENSATION. Compensation of all officers shall be fixed by
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
SECTION 6. THE PRESIDENT. The president shall be the chief executive
officer of the corporation; shall preside at all meetings of the stockholders
and board of directors at which he or she is present; subject to the powers of
the board of directors; shall have general charge of the business, affairs and
property of the corporation, and control over its officers, agents and
employees; and shall see that all orders and resolution of the board of
directors are carried into effect. The president shall execute bonds, mortgages
and other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation. The
president shall have such other powers and perform such other duties as may be
prescribed by the board of directors or as may be provided in these by-laws.
SECTION 7. VICE-PRESIDENTS. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the board of
directors shall, in the absence or disability of the president, act with all of
the powers and be subject to all the restrictions of the president. The
vice-presidents shall also perform such other duties and have such other powers
as the board of directors, the president or these by-laws may, from time to
time, prescribe.
SECTION 8. THE SECRETARY AND ASSISTANT SECRETARIES. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these by-laws or by law; shall have such powers
and perform such duties as the board of directors, the president or these
by-laws may, from time to time, prescribe; and shall have custody of the
corporate seal of the corporation. The secretary, or an assistant secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the
- 7 -
corporation and to attest the affixing by his or her signature. The assistant
secretary, or if there be more than one, the assistant secretaries in the order
determined by the board of directors, shall, in the absence or disability of the
secretary, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors,
the president, or secretary may, from time to time, prescribe.
SECTION 9. THE TREASURER AND ASSISTANT TREASURER. The treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the president and the board of directors, at its regular meeting
or when the board of directors so requires, an account of the treasurer's
actions; shall have such powers and perform such duties as the board of
directors, the president or these by-law may, from time to time, prescribe. If
required by the board of directors, the treasurer shall give the corporation a
bond (which shall be rendered every six years) in such sums and with such surety
or sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of the office of treasurer and for the restoration to
the corporation, in case of death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in the possession or under the control of the treasurer belonging to the
corporation. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors, shall in
the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the president or
treasurer may, from time to time, prescribe.
SECTION 10. OTHER OFFICERS, ASSISTANT OFFICERS AND AGENTS. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
SECTION 11. ABSENCE OR DISABILITY OF OFFICERS. In the case of the
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
- 8 -
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
SECTION 1. COVERAGE. Each officer or director who was or is made a party
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she is or was a director or
officer of the corporation (which term shall include any predecessor corporation
of the corporation) or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans ("indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide broader
indemnification rights than said law permitted the corporation to provide prior
to such amendment), against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an indemnitee
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the indemnitee's heirs, executors and administrators; provided
however, that, except as provided in Section 2 of this Article V with respect to
proceedings to enforce rights to indemnification, the corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the board of directors. The right to indemnification conferred in
this Article V shall be a contract right and shall include the right to be paid
by the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such indemnitee, to repay
all amounts so advanced if it ultimately be determined by final judicial
decision from which there is no further right to appeal that such indemnitee is
not entitled to be indemnified for such expenses under this Article V or
otherwise.
SECTION 2. CLAIMS. If a claim under Section 1 of this Article V is not
paid in full by the corporation within sixty (60) days after a written claim has
been received by the corporation, except in the case of a claim for expenses
incurred in defending a proceeding in advance of its final disposition, in which
case the applicable period shall be twenty (20) days, the indemnitee may
- 9 -
at any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit or in a
suit brought by the corporation to recover payments by the corporation of
expenses incurred by an indemnitee in defending in his or her capacity as a
director or officer, a proceeding in advance of its final disposition, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such claim. In any action brought by the indemnitee to enforce a right
to indemnification hereunder (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
corporation) or by the corporation to recover payments by the corporation of
expenses incurred by an indemnitee in defending, in his or her capacity as a
director or officer, a proceeding in advance of its final disposition, the
burden of proving that the indemnitee is not entitled to be indemnified under
this Article V or otherwise shall be on the corporation. Neither the failure of
the corporation (including the board of directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
corporation (including the board of directors, independent legal counsel or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall be a presumption that the indemnitee has not met the applicable
standard of conduct, or in the case of such an action brought by the indemnitee,
be a defense to the action.
SECTION 3. RIGHTS NOT EXCLUSIVE. The rights conferred on any person by
Sections 1 and 2 of this Article V shall not be exclusive of any other right
which such person may have or hereafter acquire under these by-laws, any
statute, certificate of incorporation, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 4. INSURANCE. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or other corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 5. EMPLOYEES AND AGENTS. Persons who are not included as
indemnities under Section 1 of this Article V but are employees or agents of the
corporation or any subsidiary may be indemnified to the extent authorized at any
time or from time to time by the board of directors.
- 10 -
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 1. FORM. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the president or a vice-president and the secretary or an assistant secretary of
the corporation, certifying the number of shares owned by such holder in the
corporation. If such a certificate is countersigned (1) by a transfer agent or
an assistant transfer agent other than the corporation or its employee or (2) by
a registrar, other than the corporation or its employee, the signature of any
such president, vice-president, secretary, or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or signatures have
been used thereon had not ceased to be such officer or officers of the
corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the corporation. Shares of stock of the corporation
shall only be transferred on the books of the corporation by the holder of
record thereof or by such holder's attorney duly authorized in writing, upon
surrender to the corporation of the certificate or certificates for such shares
endorsed by the appropriate person or persons, with such evidence of the
authenticity of such endorsement, transfer, authorization, and other matters as
the corporation may reasonably require, and accompanied by all necessary stock
transfer stamps. In that event, it shall be the duty of the corporation to issue
a new certificate to the person entitled thereto, cancel the old certificate or
certificates, and record the transaction on its books. The board of directors
may appoint a bank or trust company organized under the laws of the United
States or any state thereof to act as its transfer agent or registrar, or both
in connection with the transfer of any class or series of securities of the
corporation.
SECTION 2. LOST CERTIFICATES. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corpo ration alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
suffi cient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
- 11 -
SECTION 3. FIXING A RECORD DATE FOR STOCKHOLDER MEETINGS. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
SECTION 4. FIXING A RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stock holders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
SECTION 5. FIXING A RECORD DATE FOR OTHER PURPOSES. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
- 12 -
SECTION 6. REGISTERED STOCKHOLDERS. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
SECTION 7. SUBSCRIPTIONS FOR STOCK. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other purpose
and the directors may modify or abolish any such reserve in the manner in which
it was created.
SECTION 2. CHECKS, DRAFTS OR ORDERS. All checks, drafts, or other orders
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
SECTION 3. CONTRACTS. Subject to the Corporation's Certificate of
Incorporation, the board of directors may authorize any officer or officers, or
any agent or agents, of the corporation to enter into any contract or to execute
and deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
- 13 -
SECTION 4. LOANS. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, includ ing, without limitation, a pledge of shares
of stock of the corporation. Nothing in this section contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
SECTION 5. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
SECTION 6. CORPORATE SEAL. The board of directors may provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
SECTION 7. VOTING SECURITIES OWNED BY CORPORATION. Voting securities in
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
SECTION 8. INSPECTION OF BOOKS AND RECORDS. Any stockholder of record,
in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
SECTION 9. SECTION HEADINGS. Section headings in these bylaws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
SECTION 10. INCONSISTENT PROVISIONS. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General
- 14 -
Corporation Law of the State of Delaware or any other applicable law, the
provision of these by-laws shall not be given any effect to the extent of such
inconsistency but shall otherwise be given full force and effect.
ARTICLE VIII
AMENDMENTS
These by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the board of directors by a majority vote. The fact
that the power to adopt, amend, alter, or repeal the by-laws has been conferred
upon the board of directors shall not divest the stockholders of the same
powers.
- 15 -
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% Trust Certificate-Backed Notes
----------------------------------------
----------------------
INDENTURE
Dated as of May 30, 1996
----------------------
-----------------------------------------------
BANKERS TRUST COMPANY,
as Trustee and as Collateral Agent
-----------------------------------------------
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) ...................................................... 14.4
(c)(2) ...................................................... 14.4
(c)(3) ...................................................... N.A.
(d).......................................................... N.A.
(e) ........................................................ 14.5
(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
PAGE
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1 Definitions.................................................... 1
Section 1.2 Other Definitions.............................................. 11
Section 1.3 Incorporation by Reference of Trust Indenture Act.............. 11
Section 1.4 Rules of Construction.......................................... 12
ARTICLE 2
GRANTS OF SECURITY INTEREST;
APPOINTMENT OF COLLATERAL AGENT
Section 2.1 Grants Of Security Interest.................................... 12
Section 2.2 Appointment Of Collateral Agent................................ 13
ARTICLE 3
THE NOTES
Section 3.1 Form and Dating................................................ 13
Section 3.2 Execution and Authentication................................... 14
Section 3.3 Registrar and Paying Agent..................................... 14
Section 3.4 Paying Agent to Hold Money in Trust............................ 15
Section 3.5 Holder Lists................................................... 15
Section 3.6 Book-Entry Provisions for Global Notes......................... 15
Section 3.7 Special Transfer Provisions.................................... 16
Section 3.8 Replacement Notes.............................................. 17
Section 3.9 Outstanding Notes.............................................. 18
Section 3.10 Temporary Notes............................................... 18
Section 3.11 Cancellation.................................................. 18
Section 3.12 Defaulted Interest............................................ 19
ARTICLE 4
PAYMENTS; STATEMENTS TO
CERTIFICATEHOLDERS
Section 4.1 Establishment of Accounts...................................... 19
Section 4.2 Deposits Into The Interest Reserve Account..................... 20
Section 4.3 Deposits Into The Principal Reserve Account.................... 21
Section 4.4 Transfers to the Payment Account............................... 21
Section 4.5 Payments of Principal and Interest............................. 22
Section 4.6 Statements to Noteholders...................................... 22
Section 4.7 Daily Report and Settlement Statement.......................... 23
Section 4.8 Final Distributions............................................ 23
i
PAGE
ARTICLE 5
CONDITIONS PRECEDENT
Section 5.1 General Provisions............................................. 23
Section 5.2 Security For Notes............................................. 24
ARTICLE 6
REDEMPTION
Section 6.1 Optional Redemption............................................ 25
Section 6.2 Notices to Trustee............................................. 25
Section 6.3 Selection of Notes to Be Redeemed.............................. 25
Section 6.4 Notice of Redemption........................................... 26
Section 6.5 Effect of Notice of Redemption................................. 26
Section 6.6 Deposit of Redemption Price.................................... 27
Section 6.7 Notes Redeemed in Part......................................... 27
ARTICLE 7
COVENANTS
Section 7.1 Payment of Notes............................................... 27
Section 7.2 Maintenance of Office or Agency................................ 27
Section 7.3 Additional Reports............................................. 28
Section 7.4 Compliance Certificate......................................... 28
Section 7.5 Taxes.......................................................... 29
Section 7.6 Stay, Extension and Usury Laws................................. 29
Section 7.7 Liens.......................................................... 29
Section 7.8 Corporate Existence............................................ 29
Section 7.9 Senior Debt.................................................... 29
Section 7.10 Amendment of Receivables, Master Trust Documents.............. 30
Section 7.11 Conditions Precedent to Issuance of Future Notes.............. 30
Section 7.12 Charge Account Agreements and Credit and Collection Policies.. 30
ARTICLE 8
SUCCESSORS
Section 8.1 Merger, Consolidation, or Sale of Assets....................... 30
Section 8.2 Successor Corporation Substituted............................. 31
ARTICLE 9
DEFAULTS AND REMEDIES
Section 9.1 Defaults and Events of Default................................. 32
Section 9.2 Acceleration................................................... 33
Section 9.3 Other Remedies................................................. 33
Section 9.4 Waiver of Past Defaults........................................ 34
Section 9.5 Control by Majority............................................ 34
ii
PAGE
Section 9.6 Limitation on Suits............................................ 34
Section 9.7 No Bankruptcy Petition......................................... 35
Section 9.8 Rights of Holders of Notes to Receive Payment.................. 35
Section 9.9 Limited Recourse............................................... 35
Section 9.10 Undertaking for Costs......................................... 36
Section 9.11 Collection Suit by Trustee.................................... 36
Section 9.12 Trustee May File Proofs of Claim.............................. 36
ARTICLE 10
ADMINISTRATIVE AGENT
Section 10.1 Appointment and Authority of Administrative Agent............. 37
Section 10.2 Administrative Agent's Services and Duties.................... 37
Section 10.3 Standard of Care.............................................. 37
Section 10.4 Compensation of the Administrative Agent...................... 38
Section 10.5 Indemnification............................................... 38
ARTICLE 11
TRUSTEE
Section 11.1 Duties of Trustee............................................. 39
Section 11.2 Rights of Trustee............................................. 40
Section 11.3 Individual Rights of Trustee.................................. 40
Section 11.4 Trustee's Disclaimer.......................................... 41
Section 11.5 Notice of Defaults............................................ 41
Section 11.6 Reports by Trustee to Holders of the Notes.................... 41
Section 11.7 Compensation and Indemnity.................................... 41
Section 11.8 Replacement of Trustee........................................ 42
Section 11.9 Successor Trustee by Merger, etc.............................. 43
Section 11.10 Eligibility; Disqualification................................ 43
Section 11.11 Preferential Collection of Claims Against Company............ 43
ARTICLE 12
LEGAL DEFEASANCE
Section 12.1 Option to Effect Legal Defeasance............................. 44
Section 12.2 Legal Defeasance and Discharge................................ 44
Section 12.3 Conditions to Legal Defeasance................................ 44
Section 12.4 Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions................. 45
Section 12.5 Repayment to Company.......................................... 46
Section 12.6 Reinstatement................................................. 46
ARTICLE 13
AMENDMENT, SUPPLEMENT AND WAIVER
Section 13.1 Without Consent of Holders of Notes........................... 46
Section 13.2 With Consent of Holders of Notes.............................. 47
iii
PAGE
Section 13.3 Compliance with Trust Indenture Act........................... 48
Section 13.4 Revocation and Effect of Consents............................. 48
Section 13.5 Notation on or Exchange of Notes.............................. 48
Section 13.6 Trustee and Administrative Agent to Sign Amendments, etc...... 48
ARTICLE 14
MISCELLANEOUS
Section 14.1 Trust Indenture Act Controls.................................. 49
Section 14.2 Notices....................................................... 49
Section 14.3 Communication by Holders of Notes with Other Holders
of Notes...................................................... 51
Section 14.4 Certificate and Opinion as to Conditions Precedent............ 51
Section 14.5 Statements Required in Certificate or Opinion................. 51
Section 14.6 Rules by Trustee and Agents................................... 51
Section 14.7 No Personal Liability of Directors, Officers, Employees and
Stockholders.................................................... 52
Section 14.8 Governing Law................................................. 52
Section 14.9 No Adverse Interpretation of Other Agreements................. 52
Section 14.10 Successors................................................... 52
Section 14.11 Severability................................................. 52
Section 14.12 Counterpart Originals........................................ 52
Section 14.13 Table of Contents, Headings, etc............................. 52
EXHIBITS
Exhibit A Forms of Notes
Exhibit B Form of Legend for Book-Entry Notes
Exhibit C Form of Accredited Investor Letter
Exhibit D Form of Regulation S Letter
Exhibit E Amended and Restated Pooling and Servicing Agreement
Exhibit F Amended and Restated Series 1993-1 Supplement
Exhibit G Amended and Restated Series 1995-1 Supplement
Exhibit H Amended and Restated Receivables Purchase Agreement
Exhibit I Form of Daily Report
Exhibit J Form of Settlement Statement
Exhibit K Form of Statement to Noteholders
Exhibit L Form of Appointment Agreement
iv
INDENTURE dated as of May 30, 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% Trust Certificate-Backed
Notes (the "Notes"):
PRELIMINARY STATEMENTS
The Company is duly authorized to execute and deliver this
Indenture to provide for the 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 enter ing into this Indenture, and the Trustee is accepting the trusts
created hereby, for good and valuable consider ation, the receipt and
sufficiency of which are hereby acknowledged.
All things necessary to make the 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 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 E, F and G,
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 H, and further transferred by the Company
to the SRI Receivables Master Trust pursuant to the Pooling and Servicing
Agreement.
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 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.
1
"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.
"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 May 30, 1996.
2
"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 I 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 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 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.
"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 Notes.
"FINANCE CHARGE COLLECTIONS" has the meaning set forth in
Section 1.01 of the Receivables Purchase Agreement.
3
"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 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.
"HOLDER" or "NOTEHOLDER" means a Person in whose name a 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.
4
"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.
"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 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
5
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 Notes in global form, or any successor entity thereto.
"NOTES" means the SRI Receivables Purchase Co., Inc. 12.5% Trust
Certificate-Backed 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 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.
"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.
"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
Notes pursuant to Subsection 4.5 (b) as of such date.
6
"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.
"PRIVATE PLACEMENT LEGEND" means the legend initially set forth
on the Notes in the form set forth in Exhibit A.
"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).
"QIB" shall have the meaning set forth in Rule 144A under the
Securities Act.
"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 the date of this Indenture, by and among the Company and
the other parties named on the signature pages thereof, relating to the 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.
7
"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.
"RESTRICTED NOTE" shall have the meaning of the term "Restricted
Security" as set forth in Rule 144(a)(3) under the Securities Act, provided that
the Trustee shall be entitled to request and conclusively rely upon an Opinion
of Counsel with respect to whether any Note is a Restricted Note.
"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 Notes (plus, for the initial Semi-Annual Interest
Payment Date 16 days interest calculated on the basis of a 365 day year).
"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
Semi-Annual 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 SemiAnnual 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.
8
"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 J 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.
"STATEMENT TO NOTEHOLDERS" means the statement to Noteholders,
substantially in the forms of Exhibit K 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.
9
"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.
"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.
10
"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"........................................... 9.1
"EVENT OF DEFAULT".................................. 9.2
"GLOBAL NOTES"...................................... 3.1
"INTEREST RESERVE ACCOUNT".......................... 4.1
"LEGAL DEFEASANCE" ................................. 11.2
"OFFSHORE PHYSICAL NOTES"........................... 3.1
"PAYING AGENT"...................................... 3.3
"PAYMENT ACCOUNT"................................... 4.1
"PAYMENT DEFAULT" .................................. 9.1
"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.
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 Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee;
"OBLIGOR" on the Notes means the Company, any successor obligor
upon the 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
assignedaccordance with GAAP;
(3) words in the singular include the plural, and in the plural
include the singular;
11
(4) provisions apply to successive events and transactions; and
(5) references to sections of or rules under the Securities Act
shallincludemed to substitute, replacement or successor sections or
rules adopted by theto time.m 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 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
GRANTS OF SECURITY INTEREST;
APPOINTMENT OF COLLATERAL AGENT
SECTION 1 GRANTS OF SECURITY INTEREST.
(a) The Company hereby grants (i) to the Trustee, for the benefit and
security of the Noteholders and Future 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 and
the 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) is made in trust to secure the Notes
equally and ratably without prejudice, priority or distinction between any Note
and any other Note by reason of difference in time of issuance or otherwise and
to secure (x) the payment of all amounts due on the Notes in accordance with
their terms, (y) the payment of all other sums payable under this Indenture, and
(z) compliance with the provisions of this Indenture, all as provided in this
Indenture. The grant in clause (ii) is made in trust to secure (a) (1) the Notes
equally and ratably without prejudice, priority or distinction between any Note
and any other Note by reason of difference in time of issuance or otherwise and
(2) the payment of all amounts due on the Notes in accordance with their terms,
(3) the payment of all other sums payable under this Indenture, and (4)
compliance with the provisions of this Indenture, all as provided in this
Indenture and (b)(1) the Future Notes equally and ratably without prejudice,
priority or dis tinction between any Future Note and any other Future Note by
reason of difference in time of issuance or otherwise and to secure (2) the
payment 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 acknowledges such
grant and accepts the trusts hereunder in accordance with the provisions hereof.
(c) In connection with the grant described in Sections 2(a)(i) and
2(a)(ii), the Company shall file, on or prior to the Closing Date, 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
12
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
Company shall deliver to, and deposit with, the Trustee, on or before the
Closing Date, the certificates representing the Class D Certificates and in
connection with the grant described in Section 2(a)(ii), the Company shall
deliver 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
posses sion 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 APPOINTMENT OF COLLATERAL AGENT.
The Company hereby appoints the Collateral Agent as its agent to hold
the Transferor Certificate and the Collateral Agent hereby accepts such
appointment. The Collateral Agent hereby agrees 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 NOTES
SECTION 1 FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each Note
shall be dated the date of its authentication. The Notes shall be in
denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the 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.
Notes offered and sold in reliance on Rule 144A shall 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"), deposited
with the Trustee, as custodian for the Depository, and shall bear the legend set
forth on Exhibit B. 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.
Notes offered and sold in reliance on any other exemption from
registration under the Securities Act other than as described in the preceding
paragraph shall be certificated Notes in registered form in substantially the
form set forth in Exhibit A (the "Physical Notes").
SECTION 2 EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and may
be in facsimile form.
13
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate 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 Notes having a particular designation or series in such
Officers' Certificate.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate 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 Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 3 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-Registrars and one or more additional
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 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 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.
14
SECTION 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
Notes.
SECTION 6 BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES.
(a) The Global Notes initially shall (i) be registered in the name of
the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) 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 Note.
(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 and the provisions of Section 3.7. 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) Any Physical Note constituting a Restricted Note delivered in
exchange for an interest in a Global Note pursuant to paragraph (b) or (c)
shall, except as otherwise provided by paragraph (c) of Section 3.7, bear the
legend regarding transfer restrictions applicable to the Physical Notes set
forth in Exhibit A.
15
(f) 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 Notes.
SECTION 7 SPECIAL TRANSFER PROVISIONS.
(a) The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted Note
to any Institutional Accredited Investor which is not a QIB or to any Non-U.S.
Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Note, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after May
30, 1999 or (y) (1) in the case of a transfer to an Institutional
Accredited Investor which is not a QIB (excluding Non-U.S. Persons),
the proposed transferee has delivered to the Registrar a certificate
substantially in the form of Exhibit C hereto and the transferor has
delivered to the Trustee and the Company such certifications, legal
opinions and other information as the Trustee and the Company may
reasonably request to confirm that such transfer is being made pursuant
to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act or (2) in the case of a
transfer to a NonU.S. Person, the transferor has delivered to the
Registrar a certificate substantially in the form of Exhibit D hereto;
and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Note, upon receipt by the Registrar of (x)
the certificate, certificates, legal opinions and other informa tion, if
any, required by paragraph (i) above and (y) instructions given in
accordance with the Depositary's and the Registrar's procedures.
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of a Global Note in an amount equal to the
principal amount of the beneficial interest in a Global Note to be transferred,
and (b) the Company shall execute and the Trustee shall authenticate and deliver
one or more Physical Notes of like tenor and amount.
(b) The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted Note
to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Note for
its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the Notes
to be transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in the Global Note, upon receipt by the Registrar
of instructions given in accordance with the Depository's and the
Registrar's procedures,
16
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Global Note in an amount equal to
the principal amount of the Physical Notes to be transferred, and the
Trustee shall cancel the Physical Notes so transferred.
(c) Upon the transfer, exchange or replacement of Notes not bearing the
Private Placement Legend, the Registrar shall deliver Notes that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of Notes
bearing the Private Placement Legend, the Registrar shall deliver only Notes
that bear the Private Placement Legend unless (i) the circumstances contemplated
by paragraph (a)(i)(x) of this Section 3.7 exist, (ii) there is delivered to the
Registrar an Opinion of Counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act or (iii) such Note has been sold pursuant to an effective
registration statement under the Securities Act.
(d) By its acceptance of any Note bearing the Private Placement Legend,
each Holder of such a Note acknowledges the restrictions on transfer of such
Note set forth in this Indenture and in the Private Placement Legend and agrees
that it will transfer such Note only as provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 3.6 or this Section 3.7. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
SECTION 8 REPLACEMENT NOTES
If any mutilated 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 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 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 Note is replaced. The Company may
charge for its expenses in replacing a Note.
Every replacement 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 Notes duly issued hereunder.
SECTION 9 OUTSTANDING NOTES.
The Notes outstanding at any time are all the 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 Note does not cease to be outstanding because the
Company or an Affiliate holds the Note, except for purposes of granting any
consents or waivers of the Holders of the Notes.
If a Note is replaced pursuant to Section 3.7 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
17
If the principal amount of any 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 Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 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 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 Notes in
exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 11 CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes. Certification of the destruction of all cancelled Notes shall
be delivered to the Company. The Company may not issue new Notes to replace
Notes that it has paid or that have been delivered to the Trustee for
cancellation.
SECTION 12 DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the 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 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 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 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
18
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 investment 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 maintained 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 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 SemiAnnual 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
SemiAnnual 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 Semi-Annual 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.
19
(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 SemiAnnual 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 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 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 Notes has been reduced to zero.
SECTION 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 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
20
Interest Reserve Account as described in subsection 4.2(g) and shall distribute
such amounts in accordance with subsection 4.4(d).
SECTION 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 Final Interest Payment Amount
and (ii) the lesser of (x) Principal Balance of the 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 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.
21
(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 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).
SECTION 6 STATEMENTS TO NOTEHOLDERS.
On each Determination Date, the Administrative Agent shall prepare the
Statement to Noteholders, substantially in the form of Exhibit K 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 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 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 I and J, 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 determination 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 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 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 Notes to zero.
ARTICLE 5
CONDITIONS PRECEDENT
SECTION 1 GENERAL PROVISIONS.
22
The 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) the Series 1993-1 Class D Certificate and the Series 1995-1 Class D
Certificate, together with evidence of the delivery to the Collateral Agent
of the Transferor Certificate;
(2) 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 Purchase Agreement and the
execution, authentication and delivery of the 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 organiza tional documents are in full force and effect on and as of the
Closing Date and (iii) the officers autho rized to execute and deliver such
documents have the requisite power to do so and hold the offices and have
the signatures indicated thereon;
(3) an Officers' Certificate stating that the Company is not in Default
under this Indenture and that no Event of Default has occurred and that the
issuance of the Notes will not result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, the certificate
of incorporation or by-laws of the Company, any indenture or other
agreement or instrument to which the Company is a party or by which it is
bound, or violate any order of any court or administrative agency entered
in any proceeding to which the Company is a party or by which it may be
bound or to which it may be subject, except for any such breach, default or
violation which would not, individually or in the aggregate have a material
adverse effect on the business condition (financial or otherwise), or
results of operations of the Company or on its ability to perform its
obligations under the Master Trust Documents, the Purchase Agreement or the
Notes; and that all conditions precedent provided in this Indenture
relating to the authentication and delivery of the Notes have been complied
with;
(4) an executed counterpart of the Purchase Agreement;
(5) opinion(s) of Kirkland & Ellis, special counsel to the Company,
satisfactory in form and sub stance to the Rating Agencies, dated the
Closing Date;
(6) an opinion of Kirkland & Ellis, special tax counsel to the Company,
dated the Closing Date to the effect that the Notes will be characterized
as indebtedness for Federal and applicable state income tax purposes and
that the issuance of the Notes will not adversely affect the Federal or
applicable state tax characterization of any outstanding series of Investor
Certificates of the Master Trust or the status of the Master Trust (as not
being an "association" or publicly traded partnership taxable as a
corporation) under Federal or applicable state income tax laws;
(7) written evidence that the Rating Agencies shall have rated the
Notes at least B+ or its equivalent and that none of the then current
ratings of the Investor Certificates of the Master Trust will be reduced or
withdrawn as a result of the issuance of the Notes; and
(8) such other documents or opinions as the Trustee may reasonably
require.
SECTION 2 SECURITY FOR NOTES.
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 to the Company by the
23
Trustee upon direction by the Company and upon delivery by the Company to the
Trustee, and receipt by the Trustee, of 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 Indenture;
(2) the Company has acquired its ownership in the Collateral
Securities in good faith without notice of any adverse claim;
(3) the Company has not assigned, pledged or otherwise
encumbered any interest in the Collateral Securities other than
interests granted pursuant to this Indenture; and
(4) the Company has full right to grant a security interest in
and assign and pledge the Collat eral Securities to the Trustee.
ARTICLE 6
REDEMPTION
SECTION 1 OPTIONAL REDEMPTION.
The Company shall not have the option to redeem the Notes pursuant to
this Section 6.1 prior to August 15, 1997. Thereafter, the Company shall have
the option to redeem the 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
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 2 NOTICES TO TRUSTEE.
If the Company elects to redeem 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 Notes to be
redeemed and (iv) the redemption price.
24
SECTION 3 SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed, the Trustee shall
select the Notes to be redeemed among the Holders of the 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 Notes of $1,000 or less shall
be redeemed in part. In the event of partial redemption by lot, the particular
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 Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of 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 Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 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 Notes are to be redeemed at its registered
address.
The notice shall identify the 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 Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued;
(d) the name and address of the Paying Agent;
(e) that 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 Notes called for redemption ceases to
accrue on and after the redemption date;
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the 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 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
25
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 5 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 6.4
hereof, 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 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 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 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 Notes or
the portions of Notes called for redemption. If a 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 Note was registered at the close of business on such record date. If any
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 7 NOTES REDEEMED IN PART.
Upon surrender of a 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 new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
ARTICLE 7
COVENANTS
SECTION 1 PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in this
Indenture and in the 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 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 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 Notes and this Indenture may be served. The
Company shall give prompt
26
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 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 3 ADDITIONAL REPORTS.
(a) 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.
(b) For so long as any Restricted Securities remain outstanding, the
Company shall furnish to all Holders and prospective purchasers of the Notes
designated by the Holders of Restricted Securities, promptly upon their request,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
SECTION 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, 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 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(a) 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
27
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 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 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 Notes.
SECTION 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 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.
SECTION 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 (charter and statutory), licenses and franchises
of the Company.
SECTION 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 Notes.
SECTION 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
28
Company shall have first obtained the prior written consent of the majority of
the outstanding principal amount of the Notes.
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 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 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 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 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
29
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
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.
SECTION 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
Notes.
ARTICLE 9
DEFAULTS AND REMEDIES
SECTION 1 DEFAULTS AND EVENTS OF DEFAULT.
A "Default" occurs if:
(a) the Company defaults in the payment when due of interest on
the Notes and the default continues for a period of 30 days;
30
(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 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 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;
(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 In debtedness issued to extend, refinance or
replace the Senior Notes or Senior Subordinated Notes, which default
results in the acceleration of such Indebtedness; or
31
(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 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 Notes. If an Event of Default occurs all
outstanding Notes will become due and payable without further action or notice
and Holders of the 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 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
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 Notes prior to such date, then the premium
payable for purposes of this paragraph shall be as specified pursuant to Section
6.1 hereof for the twelve-month period beginning December 15, 1997.
SECTION 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 Notes or to enforce the performance of any provision of the
Notes or this Indenture. Such remedies may include foreclosure 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 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 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 Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a 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 4 WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the 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 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 Notes may rescind
an acceleration and its consequences, including any related payment default that
resulted from such
32
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 5 CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding Notes
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 Notes or that may involve the
Trustee in personal liability.
SECTION 6 LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a 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 Notes make a written request to the Trustee to
pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(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 Notes do not give the Trustee
a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
SECTION 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 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, 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 Notes
evidencing more than 50% of the Principal Balance of the 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
33
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 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 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 protection 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 8 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Except as provided in Section 9.7, the right of any Holder of a Note to
receive payment of principal, premium, if any, and interest on the Note, on or
after the respective due dates expressed in the 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.
SECTION 9 LIMITED RECOURSE.
Payments of 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 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 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
Note pursuant to Section 9.8 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
SECTION 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
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 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
34
for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and the Holders of the Notes allowed in any
judicial proceedings relative to the Company (or any other obligor upon the
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 advanc es 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 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 autho rize 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 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.
ARTICLE 10
ADMINISTRATIVE AGENT
SECTION 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 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 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 execution 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;
35
(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;
(xi) preparing the Offering Circular and other offering
memoranda to be provided to the Initial Purchaser in connection with
the initial sale of the Notes and assuring for the benefit of the
Initial Purchaser and the Company that no such Offering Circular or
offering memoranda (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 state ments 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 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 Notes and, in no
event with less care than it exercises or would exercise in connection with the
administration of assets or in vestments similar to the Notes issued in its own
capacity.
36
SECTION 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 5 INDEMNIFICATION.
The Administrative Agent hereby agrees to indemnify and hold harmless
each of the Company 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 or the Trustee,
its officers, employees or agents (other than the Administrative Agent). The
Company 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. Failure to give such notice shall not relieve the
Administrative Agent of its indemnity hereunder; PROVIDED, HOWEVER, that the
Administrative Agent shall not be held re sponsible for any damage, loss,
liability, cost or expense resulting from the failure to give such notice.
ARTICLE 11
TRUSTEE AND COLLATERAL AGENT
SECTION 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;
37
(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.
SECTION 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.
38
SECTION 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 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 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 Notes, and they shall not be accountable for
the Company's use of the proceeds from the Notes or 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 Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than (in the case of the Trustee) its certificate of
authentication.
SECTION 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 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 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 Notes.
SECTION 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 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
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed. The Company shall promptly notify the
Trustee when the Notes are listed on any stock exchange.
SECTION 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.
39
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.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular 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 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 Notes of a majority in principal amount of the then outstanding Notes
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 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 Notes of at least 10% in principal amount of
40
the then outstanding Notes 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 Note who has
been a Holder of a Note for at least six months, fails to comply with Section
11.10, such Holder of a 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 Notes and to the Rating Agencies. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor 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 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 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 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.
41
ARTICLE 12
LEGAL DEFEASANCE
SECTION 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 Notes upon compliance with the
conditions set forth below in this Article Eight.
SECTION 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 Section 12.3 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding 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 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 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 Notes when such payments
are due, (b) the Company's obligations with respect to such Notes under Article
Three 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 Twelve.
SECTION 3 CONDITIONS TO LEGAL DEFEASANCE.
The following shall be the conditions to the application of Section 12.2
hereof to the outstanding 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 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 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
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;
42
(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 Notes
pursuant to this Article Eight concurrently with such incurrence) or
insofar as Sections 9.1(g) and 9.1(h) 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
(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 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 Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such 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 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 Notes.
Anything in this Article Eight 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 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 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 Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment
43
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 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 Notes shall be revived
and reinstated as though 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 Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 13
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 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 Notes without the consent of any Holder of a 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 Notes in the case of a merger or consolidation pursuant to
Article Eight hereof;
(c) 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 hereunder of any Holder of the 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.
44
SECTION 2 WITH CONSENT OF HOLDERS OF NOTES.
The Company, the Administrative Agent and the Trustee may amend or
supplement this Indenture and the Notes 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 the
Notes), and any existing Default or Event of Default or compliance with any
provision of this 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 the Notes).
Notwithstanding the foregoing, without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Notes held by a
non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter or waive any of the provisions with respect to the
redemption of the Notes;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal
of or 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 of the then outstanding Notes and a waiver
of the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or interest on the 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 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 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.
45
After an amendment, supplement or waiver under this Section 13.2
becomes effective, the Company shall mail to the Holders of 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 Notes disproportionately impacts any particular series of
Notes exclusively, then the Company shall also be required to obtain the consent
of the applicable percentage of the outstanding principal amount of Notes in
such series, voting as a separate class, before such amendment, supplement or
waiver becomes effective.
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 3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its 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 5 NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 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 Nine 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.
46
ARTICLE 14
MISCELLANEOUS
SECTION 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.
SECTION 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
Telecopier No.: (713) 660-3342
Attention: Chief Financial Officer
With a copy to:
Bain Capital
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Telecopier No.: (617) 572-3274
Attention:
and to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
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
Telecopier No.: (212) 250-6439
Attention: Structured Finance
47
If to the Administrative Agent:
Specialty Retailers, Inc.
10201 South Main Street
Houston, Texas 77025
Telecopier No.: (713) 660-3342
Attention: Chief Financial Officer
with a copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, IL 60601
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
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 registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the
48
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.
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 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 Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 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 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) condition;
(b) 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;
(c) 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
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
49
SECTION 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.
SECTION 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 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
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes.
SECTION 8 GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES.
SECTION 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 10 SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 11 SEVERABILITY.
In case any provision in this Indenture or in the 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 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 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
SIGNATURES
Dated as of May , 1996 SRI RECEIVABLES PURCHASE CO., INC.
-----
By:
Name:
Title:
Attest:
(SEAL)
Dated as of May , 1996 BANKERS TRUST COMPANY
-------
as Trustee and as Collateral Agent
By:
Name:
Title:
Attest:
(SEAL)
Dated as of May , 1996 SPECIALTY RETAILERS, INC.
-----
as Administrative Agent
By:
Name:
Title:
Attest:
(SEAL)
51
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
Dated as of May 30, 1996
by and among
SRI RECEIVABLES PURCHASE CO., INC.
and
BT SECURITIES CORPORATION
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of May 30, 1996 by SRI Receivables Purchase Co., Inc., a
Delaware corporation (the "COMPANY"), and BT Securities Corporation ("BT"), who
has agreed to purchase the Company's 12.5%Trust Certificate-Backed Notes (the
"NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
May 30, 1996 (the "PURCHASE AGREEMENT"), by the Company and BT. In order to
induce BT to purchase the Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is one of the conditions to the obligations of BT set forth in
Section 8 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
ACT: The Securities Act of 1933, as amended.
BROKER-DEALER: Any broker or dealer registered under the
Exchange Act.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: A Registered Exchange Offer shall be deemed
"Consummated" for purposes of this Agreement upon the occurrence of (i) the
filing and effectiveness under the Act of the Exchange Offer Registration
Statement relating to the Series B Notes to be issued in the Exchange Offer,
(ii) the maintenance of such Registration Statement's continuous effectiveness
and the keeping of the Exchange Offer open for a period not less than the
minimum period required pursuant to Section 3(b) hereof, and (iii) the delivery
by the Company to the Registrar under the Indenture of Series B Notes in the
same aggregate principal amount as the aggregate principal amount of Notes that
were tendered by Holders thereof pursuant to the Exchange Offer.
DAMAGES PAYMENT DATE: With respect to the Notes, each Interest
Payment Date.
EFFECTIVENESS DATE: As defined in Section 3.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The registration by the Company under the Act of
the Series B Notes pursuant to a Registration Statement pursuant to which the
Company offers the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted Securities held
by such Holders for Series B Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which BT propose to sell the
Notes to certain "qualified institutional buyers," as such term is defined in
Rule 144A under the Act, and to certain institutional "accredited
-1-
investors," as such term is defined in Rule 501(a)(1), (2), (3) and (7) of
Regulation D under the Act ("ACCREDITED INSTITUTIONS").
HOLDERS: As defined in Section 2(b) hereof.
INDEMNIFIED PERSON: As defined in Section 8(a) hereof.
INDENTURE: The Indenture, dated as of May 30, 1996, between the
Company and Bankers Trust Company, as trustee (the "TRUSTEE"), pursuant to which
the Notes are to be issued, as such Indenture is amended or supplemented from
time to time in accordance with the terms thereof.
INTEREST PAYMENT DATE: As defined in the Indenture.
NASD: National Association of Securities Dealers, Inc.
PERSON: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
PROSPECTUS: The prospectus included in a Registration Statement
at the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECORD HOLDER: With respect to any Damages Payment Date relating
to the Notes or the Series B Notes, each Person who is a Holder of Notes on the
record date with respect to the Interest Payment Date on which such Damages
Payment Date shall occur.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
SERIES B NOTES: The Company's 12.5% Series B Notes to be issued
pursuant to the Indenture in the Exchange Offer.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
is entitled to be resold to the public by the Holder thereof without complying
with the prospectus delivery requirements of the Act, (b) the date on which such
Note has been effectively registered under the Act and disposed of in accordance
with a Shelf Registration Statement and (c) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Act or by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein).
-2-
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) TRANSFER RESTRICTED SECURITIES. The securities entitled to
the benefits of this Agreement are the Transfer Restricted Securities.
(b) HOLDERS OF TRANSFER RESTRICTED SECURITIES. A Person is deemed
to be a holder of Transfer Restricted Securities (each, a "HOLDER") whenever
such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable federal law (after the procedures set forth in Section 6(a)(i) below
have been complied with), the Company shall (i) cause to be filed with the
Commission as soon as practicable after the Closing Date, but in no event later
than 90 days after the Closing Date, a registration statement under the Act
relating to the Series B Notes and the Exchange Offer, (ii) use their best
efforts to cause such Registration Statement to become effective at the earliest
possible time (the "EFFECTIVENESS DATE"), but in no event later than 180 days
after the Closing Date, (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Registration Statement as may be necessary in
order to cause such Registration Statement to become effective, (B) file, if
applicable, a post-effective amendment to such Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Series B Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Registration Statement, commence the Exchange Offer. The Exchange Offer shall be
on the appropriate form permitting registration of the Series B Notes to be
offered in exchange for the Transfer Restricted Securities and to permit resales
of Series B Notes held by Broker-Dealers as contemplated by Section 3(c) below.
If, after such Exchange Offer Registration Statement initially is declared
effective by the Commission, the Exchange Offer or the issuance of Series B
Notes thereunder or the resale of Series B Notes by Broker-Dealers pursuant
thereto as contemplated by Section 3(c) below is interfered with by any stop
order, injunction or other similar order or requirement of the Commission or any
other governmental agency or court, such Exchange Offer Registration Statement
shall be deemed not to have become effective for purposes of this Agreement
during the period in which such stop order, injunction, or other similar order
or requirement shall remain in effect.
(b) The Company shall cause the Exchange Offer Registration
Statement to be effective continuously and shall keep the Exchange Offer open
for a period of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange Offer; PROVIDED,
HOWEVER, that in no event shall such period be less than 20 business days. The
Company shall cause the Exchange Offer to comply with all applicable federal and
state securities laws. No securities other than the Notes shall be included in
the Exchange Offer Registration Statement. The Company shall use its best
efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 business days thereafter.
(c) The Company shall indicate in a "Plan of Distribution"
section contained in the Prospectus contained in the Exchange Offer Registration
Statement that any Broker-Dealer who holds the Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the
-3-
Company), may exchange such Notes pursuant to the Exchange Offer; however, such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act
and must, therefore, deliver a prospectus meeting the requirements of the Act in
connection with any resales of the Series B Notes received by such Broker-Dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such BrokerDealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such resales by Broker-Dealers
that the Commission may require in order to permit such resales pursuant
thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer
or disclose the amount of Notes held by any such Broker-Dealer except to the
extent required by the Commission.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of Notes acquired by Broker-Dealers for
their own accounts as a result of market-making activities or other trading
activities, and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of six months from the date on which
the Exchange Offer Registration Statement is declared effective.
The Company shall provide sufficient copies of the latest version
of such Prospectus to BrokerDealers promptly upon request at any time during
such one-year period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Company is not required to
file an Exchange Offer Registration Statement with respect to the Series B Notes
because the Exchange Offer is not permitted by applicable law (after the
procedures set forth in Section 6(a)(i) below have been complied with) or (ii)
if any Holder of Transfer Restricted Securities (other than an "affiliate" of
the Company, as defined in Rule 144 under the Act), within 10 business days
after the Consummation of the Exchange Offer (or, if the Exchange Offer is
terminated without being Consummated, within 10 business days after such
termination), shall notify the Company that (A) such Holder is prohibited by law
or Commission policy from participating in the Exchange Offer, or (B) such
Holder may not resell the Series B Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder, or (C) such Holder is a Broker-Dealer and holds the
Notes acquired directly from the Company or one of its affiliates, then the
Company shall cause to be filed a shelf registration statement pursuant to Rule
415 under the Act, which may be an amendment to the Exchange Offer Registration
Statement (in either event, the "SHELF REGISTRATION STATEMENT"), relating to all
such Transfer Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof, and shall use their best
efforts to cause such Shelf Registration Statement to become effective as soon
as practicable after the Closing Date, but in no event later than 30 business
days following Consummation of the Exchange Offer (or, if the Exchange Offer is
terminated without being Consummated, no later than 30 business days following
such termination); PROVIDED, HOWEVER, that if the Company is not required to
file an Exchange Offer Registration Statement with respect to the Series B Notes
because the Exchange Offer is not permitted by applicable law, no later than 180
days after the Closing Date. The Company shall use its best efforts to keep such
Shelf Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for resales of Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a), and
to ensure that it conforms with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of at least (x) one year following the date on which such
Shelf Registration Statement becomes effective under the Act if Holders holding
in the aggregate less than $15 million
-4-
in aggregate principal amount of Transfer Restricted Securities shall have
furnished to the Company the information required by Section 4(b) hereof, (y)
two years following the date on which such Shelf Registration Statement becomes
effective under the Act if Holders holding in the aggregate at least $15 million
but less than $20 million in aggregate principal amount of Transfer Restricted
Securities shall have furnished to the Company the information required by
Section 4(b) hereof and (z) three years following the date on which such Shelf
Registration Statement becomes effective under the Act if Holders holding in the
aggregate at least $20 million in aggregate principal amount of Transfer
Restricted Securities shall have furnished to the Company the information
required by Section 4(b) hereof; PROVIDED, HOWEVER, that for purposes of
calculating the aggregate principal amount of Transfer Restricted Securities the
Holders of which shall have furnished to the Company the information required by
Section 4(b) hereof, the aggregate principal amount of Transfer Restricted
Securities held by a Holder who was unable to participate in the Exchange Offer
solely because such Holder is an affiliate (as such term is defined in Rule 144
under the Act) of the Company shall be excluded; and PROVIDED FURTHER that,
notwithstanding the foregoing, at such time as all Holders that have furnished
to the Company the information required by Section 4(b) hereof shall have sold
all of the Transfer Restricted Securities held by them, the obligations of the
Company under this Section 4(a) shall terminate.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION
WITH THE SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted
Securities may include any of its Transfer Restricted Securities in any Shelf
Registration Statement pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing, within 10 business days after receipt of a
request therefor, such information as the Company may reasonably request for use
in connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to liquidated damages pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder as to which any Shelf Registration Statement
is being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) none of the Registration Statements required by this
Agreement has been declared effective by the Commission on or prior to the date
specified for such effectiveness in this Agreement, (ii) the Exchange Offer has
not been Consummated within 30 business days after the Effectiveness Date or
(iii) the Shelf Registration Statement is filed and declared effective but shall
thereafter cease to be effective without being succeeded within five business
days by a post-effective amendment to such Registration Statement that cures
such failure and that is itself declared effective within three business days
thereafter (each such event referred to in clauses (i) through (iii), a
"REGISTRATION DEFAULT"), the Company will pay liquidated damages to each Holder
of Transfer Restricted Securities, during the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per $1,000 principal amount of Notes constituting Transfer Restricted
Securities held by such Holder for each week in which the Registration Default
continues and has not been cured. The amount of the liquidated damages for each
week in which the Registration Default continues and has not been cured shall
increase by an additional $.05 per $1,000 principal amount of Transfer
Restricted Securities for each subsequent 90-day period until the applicable
Registration Statement is declared effective, the Exchange Offer is Consummated
or the Shelf Registration Statement again becomes effective, as the case may be,
up to a maximum amount of liquidated damages of $.30 per $1,000 principal amount
of Transfer Restricted Securities for each week in which the Registration
Default continues and has not been cured. All accrued liquidated damages shall
be paid to Record Holders by wire transfer of immediately available funds or by
federal funds check by the Company on each Damages Payment Date. Following the
cure of all Registration Defaults relating to any particular Transfer Restricted
Security, the payment of liquidated damages with respect to such Transfer
Restricted Security will cease.
-5-
All obligations of the Company set forth in the preceding
paragraph that are outstanding with respect to any Transfer Restricted Security
at the time such security ceases to be a Transfer Restricted Security shall
survive until such time as all such obligations with respect to such security
shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, the Company shall comply with all of the provisions of Section
6(c) below, shall use its best efforts to effect such exchange to permit the
sale of Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and shall comply with all of
the following provisions:
(i) If in the reasonable opinion of counsel to the Company
there is a substantial question as to whether the Exchange Offer is
permitted by applicable law, the Company hereby agrees to seek a
no-action letter or other favorable decision from the Commission
allowing the Company to Consummate an Exchange Offer for the Notes. The
Company hereby agrees to pursue the issuance of such a decision to the
Commission staff level but shall not be required to take commercially
unreasonable action to effect a change of Commission policy. The Company
hereby agrees, however, to (A) participate in telephonic conferences
with the Commission, (B) deliver to the Commission staff an analysis
prepared by counsel to the Company setting forth the legal bases, if
any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursue a resolution (which need
not be favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange
Offer pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation of the Exchange Offer, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that (A) it is not an affiliate of the Company, (B) it is
not engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a distribution of
the Series B Notes to be issued in the Exchange Offer and (C) it is
acquiring the Series B Notes in its ordinary course of business. In
addition, all such Holders of Transfer Restricted Securities shall
otherwise cooperate in the Company's preparations for the Exchange
Offer. Each Holder hereby acknowledges and agrees that any Broker-Dealer
and any such Holder using the Exchange Offer to participate in a
distribution of the securities to be acquired in the Exchange Offer (1)
could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in MORGAN
STANLEY AND CO., INC. (available June 5, 1991) and EXXON CAPITAL
HOLDINGS CORPORATION (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including any no-action letter obtained
pursuant to clause (i) above), and (2) must comply with the registration
and prospectus delivery requirements of the Act in connection with a
secondary resale transaction and that such a secondary resale
transaction should be covered by an effective registration statement
containing the selling security holder information required by Item 507
or 508, as applicable, of Regulation S-K if the resales are of Series B
Notes obtained by such Holder in exchange for the Notes acquired by such
Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall provide a supplemental letter
to the Commission (A) stating that the Company is registering the
Exchange Offer in reliance on the position of the Commission enunciated
in EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988), MORGAN
STANLEY AND CO., INC. (available June 5, 1991) and, if applicable, any
no-action letter obtained pursuant to clause (i) above and (B) including
a representation that the Company has not entered into any arrangement
or understanding with any Person to distribute
-6-
the Series B Notes to be received in the Exchange Offer and that, to the
best of the Company's information and belief, each Holder participating
in the Exchange Offer is acquiring the Series B Notes in its ordinary
course of business and has no arrangement or understanding with any
Person to participate in the distribution of the Series B Notes received
in the Exchange Offer.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, if any, the Company shall comply with all the provisions
of Section 6(c) below and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will as expeditiously as possible
prepare and file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in accordance with
the intended method or methods of distribution thereof.
(c) GENERAL PROVISIONS. In connection with any Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus, to the extent that the same
are required to be available to permit resales of Series B Notes by
Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement,
as applicable; upon the occurrence of any event that would cause any
such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement, in the case of
clause (A), correcting any such misstatement or omission, and, in the
case of either clause (A) or (B), use its best efforts to cause such
amendment to be declared effective and such Registration Statement and
the related Prospectus to become usable for their intended purpose(s) as
soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments
and post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 4 hereof, or such shorter period
as will terminate when all Transfer Restricted Securities covered by
such Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with the applicable provisions of Rules 424 and 430A under
the Act in a timely manner; and comply with the provisions of the Act
with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the sellers thereof
set forth in such Registration Statement or supplement to the
Prospectus;
(iii) advise the underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons, confirm such advice
in writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of
the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the
-7-
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to
make the statements therein not misleading, or that requires the making
of any additions to or changes in the Prospectus in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement,
or any state securities commission or other regulatory authority shall
issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company shall use its best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
(iv) furnish to BT, each selling Holder named in any
Registration Statement or Prospectus and each of the underwriter(s), if
any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review
of such Holders and underwriter(s), if any, for a period of at least
five business days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which the selling Holders of the Transfer
Restricted Securities covered by such Registration Statement or the
underwriter(s), if any, shall reasonably object within five business
days after the receipt thereof. A selling Holder or underwriter, if any,
shall be deemed to have reasonably objected to such filing if such
Registration Statement, amendment, Prospectus or supplement, as
applicable, as proposed to be filed, contains a material misstatement or
omission;
(v) promptly prior to the filing of any document that is
to be incorporated by reference into a Registration Statement or
Prospectus, provide copies of such document to the selling Holders and
to the underwriter(s), if any, make the Company's representatives
available for discussion of such document and other customary due
diligence matters, and include such information in such document prior
to the filing thereof as such selling Holders or underwriter(s), if any,
reasonably may request;
(vi) make available at reasonable times for inspection by
the selling Holders, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or accountant
retained by such selling Holders or any of the underwriter(s), all
financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers, directors
and employees to supply all information reasonably requested by any such
Holder, underwriter, attorney or accountant in connection with such
Registration Statement subsequent to the filing thereof and prior to its
effectiveness;
(vii) if requested by any selling Holders or the
underwriter(s), if any, promptly incorporate in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, agree should be included therein, including,
without limitation, information relating to the "Plan of Distribution"
of the Transfer Restricted Securities, including, without limitation,
information with respect to the principal amount of Transfer Restricted
Securities being sold to such underwriter(s), the purchase price being
paid therefor and with respect to any other terms of the offering of the
Transfer Restricted Securities to be sold in such offering; and make all
required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be incorporated in such Prospectus supplement or
post-effective amendment;
-8-
(viii) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(ix) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company hereby
consents to the use of the Prospectus and any amendment or supplement
thereto by each of the selling Holders and each of the underwriter(s),
if any, in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(x) enter into such agreements (including, unless not
required pursuant to Section 10 hereof, an underwriting agreement) and
take all such other actions in connection therewith in order to expedite
or facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement as
may be reasonably requested by any underwriter in connection with any
Underwritten Registration, and in such connection, the Company shall:
(A) furnish to each underwriter, if any, upon the date of
the Consummation of the Exchange Offer and, if applicable, the
effectiveness of the Shelf Registration Statement:
(1) a certificate, dated the date of Consummation
of the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, signed
by (y) the President or any Vice President and (z) a
principal financial or accounting officer of the Company,
confirming, as of the date of thereby, the matters set
forth in Section 8(j) of the Purchase Agreement;
(2) an opinion, dated the date of Consummation of
the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, of
counsel for the Company, covering the matters set forth in
Section 8(a) of the Purchase Agreement (with appropriate
modifications), including a statement to the effect that
such counsel has participated in conferences with officers
and other representatives of the Company, representatives
of the independent public accountants for the Company,
representatives of and counsel to the underwriters in
connection with the preparation of such Registration
Statement and the related Prospectus and have considered
the matters required to be stated therein and the
statements contained therein, although such counsel has
not independently verified the accuracy, completeness or
fairness of such statements; and that such counsel advises
that, on the basis of the foregoing (relying as to
materiality to a large extent upon facts provided to such
counsel by officers and other representatives of the
Company and without independent check or verification), no
facts came to such counsel's attention that caused such
counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective, and, in
the case of the Exchange Offer Registration Statement, as
of the date of Consummation, contained an untrue statement
of a material fact or omitted to state a material fact re
quired to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus
contained in such Registration Statement as of its date
and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material
fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the
-9-
circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state
further that such counsel assumes no responsibility for,
and has not independently verified, the accuracy,
completeness or fairness of the financial statements,
notes and schedules and other financial, statistical and
accounting data included in any Registration Statement
contemplated by this Agreement or the related Prospectus;
and
(3) a customary comfort letter, dated as of the
date of Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement, as the
case may be, from the Company's independent accountants,
in the customary form and covering matters of the type
customarily covered in comfort letters by underwriters in
connection with primary underwritten offerings, and
affirming the matters set forth in the comfort letters
delivered pursuant to Section 8(f) of the Purchase
Agreement;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions
and procedures of Section 8 hereof with respect to all parties to
be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may
be reasonably requested by the selling Holders or the
underwriter(s), if any, to evidence compliance with clause (A)
above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Company pursuant to this clause (x).
The above shall be done at each closing under such underwriting
or similar agreement, as and to the extent required thereunder, and if
at any time the representations and warranties of the Company
contemplated in (A)(1) above cease to be true and correct, the Company
shall so advise the underwriter(s), if any, and selling Holders promptly
and if requested by such Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with, and cause to cooperate with, the selling
Holders, the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s) may request and
do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the Shelf Registration Statement; PROVIDED, HOWEVER, that the
Company shall not be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xii) shall issue, upon the request of any Holder of the
Notes covered by any Registration Statement contemplated by this
Agreement, Series B Notes, having an aggregate principal amount equal to
the aggregate principal amount of the Notes surrendered to the Company
by such Holder in exchange therefor or being sold by such Holder; such
Series B Notes to be registered in the name of such Holder or in the
name of the purchaser(s) of such Series B Notes, as the case may be; in
return, the Notes held by such Holder shall be surrendered to the
Company for cancellation;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing
-10-
Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Securities to
be in such denominations and registered in such names as the Holders or
the underwriter(s), if any, may request at least two business days prior
to any sale of Transfer Restricted Securities;
(xiv) if any fact or event contemplated by clause
(c)(iii)(D) above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(xv) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration
Statement and provide the Trustee under the Indenture with printed
certificates for the Transfer Restricted Securities which are in a form
eligible for deposit with the Depository Trust Company;
(xvi) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the
rules and regulations of the NASD, and use its reasonable best efforts
to cause such Registration Statement to become effective and approved by
such governmental agencies or authorities as may be necessary to enable
the Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
(xvii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) for the twelve-month period (A) commencing
at the end of any fiscal quarter in which Transfer Restricted Securities
are sold to underwriters in a firm or best efforts Underwritten Offering
or (B) if not sold to underwriters in such an offering, beginning with
the first month of the Company's first fiscal quarter commencing after
the effective date of the Registration Statement;
(xviii) cause the Indenture to be qualified under the TIA
not later than the effective date of the first Registration Statement
required by this Agreement, and, in connection therewith, cooperate with
the Trustee and the Holders of Notes to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use its best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner;
(xix) cause all Transfer Restricted Securities covered by
the Registration Statement to be listed on each securities exchange on
which similar securities issued by the Company are then listed if
requested by the Holders of a majority in aggregate principal amount of
the Notes or the managing underwriter(s), if any; and
(xx) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted
Security that, upon receipt of any notice from the Company of the existence of
any fact of the kind described in Section 6(c)(iii)(D) hereof, such
-11-
Holder will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xiv) hereof, or until it is advised in writing (the "ADVICE") by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of such notice. In
the event the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xiv) hereof.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made with the NASD (including, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel, as may be required by the
rules and regulations of the NASD)); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws; (iii) all
expenses of duplicating (including printing certificates for the Series B Notes
to be issued in the Exchange Offer and duplicating of Prospectuses), messenger
and delivery services and telephone; (iv) all fees and disbursements of counsel
for the Company and, subject to Section 7(b) below, the Holders of Transfer
Restricted Securities; (v) all application and filing fees in connection with
listing the Series B Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and (vi) all fees and
disbursements of independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by
this Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Holders of Transfer Restricted Securities being tendered in the Exchange Offer
and/or resold pursuant to the "Plan of Distribution" contained in the Exchange
Offer Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel chosen by the Holders of a majority of the principal amount of
such Transfer Restricted Securities in an amount not to exceed $25,000.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each
Holder and (ii) each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
-12-
"INDEMNIFIED PERSON"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Person) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or any
amendment thereto), or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or supplement
thereto), or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders or their plan of distribution furnished in
writing to the Company by any of the Holders expressly for use therein in
accordance with Section 4(b) hereof, and PROVIDED that the Company shall not be
liable under this Section 8(a) to any Holder that is required by law to deliver
a Prospectus in connection with resales of Series B Notes to the extent that (A)
any such loss, claim, damage, liability or expense of such Holder resulted
solely from an untrue statement of a material fact contained in, or the omission
of a material fact from, a preliminary prospectus, which untrue statement or
omission was corrected in the Prospectus and (B) such Holder sold Series B Notes
to the person alleging such loss, claim, damage, liability or expense without
sending or giving a copy of the Prospectus. The Company shall notify you
promptly of the institution, threat or assertion of any claim, proceeding
(including any governmental investigation) or litigation of which the Company is
aware in connection with the matters addressed by this Agreement which involves
the Company or an Indemnified Person.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Persons with respect to which indemnity may be sought against
the Company, such Indemnified Person (or the Holder controlled by such
controlling person) shall promptly notify the Company in writing (PROVIDED, that
the failure to give such notice shall not relieve the Company of its obligations
pursuant to this Agreement, except to the extent that the Company is prejudiced
thereby). Such Indemnified Person shall have the right to employ its own counsel
in any such action and the fees and expenses of such counsel shall be paid, as
incurred, by the Company. The Company shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for such Indemnified Persons, which firm shall be designated by the Holders. The
Company shall be liable for any settlement of any such action or proceeding
effected with the Company's prior written consent, which consent shall not be
withheld unreasonably, and the Company agrees to indemnify and hold harmless any
Indemnified Person from and against any loss, claim, damage, liability or
expense by reason of any settlement of any action effected with the written
consent of the Company. The Company shall not, without the prior written consent
of each Holder, settle or compromise or consent to the entry of judgment in or
otherwise seek to terminate any pending or threatened action, claim, litigation
or proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not any Indemnified Person is a party thereto), unless
such settlement, compromise, consent or termination includes an unconditional
release of each Indemnified Person from all liability arising out of such
action, claim, litigation or proceeding.
(b) Each Holder of Transfer Restricted Securities agrees,
severally and not jointly, to indemnify and hold harmless the Company, and its
directors, officers, and any person controlling (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Company, and its officers,
directors, partners, employees, representatives and agents of each such person,
to the same extent as the foregoing
-13-
indemnity from the Company to each Indemnified Person, but only with respect to
claims and actions based on information relating to such Holder or its plan of
distribution furnished in writing by such Holder expressly for use in any
Registration Statement pursuant to Section 4(b) hereof. In case any action or
proceeding shall be brought against the Company or its directors or officers or
any such controlling person in respect of which indemnity may be sought against
a Holder of Transfer Restricted Securities, such Holder shall have the rights
and duties given the Company and the Company or its directors or officers or
such controlling person shall have the rights and duties given to each Holder by
the preceding paragraph. In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the proceeds received
by such Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other hand
from their sale of Transfer Restricted Securities or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportions
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying parties and
indemnified party, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and any Holder on the other shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or such Holder on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The indemnity and contribution obligations of the Company set forth
herein shall be in addition to any liability or obligation the Company may
otherwise have to any Indemnified Party.
The Company and each Holder of Transfer Restricted Securities
agree that it would not be just and equitable if contribution pursuant to this
Section 8(c) were determined by pro rata allocation (even if the Holders were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, none of the Holders (and its related Indemnified Persons) shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total consideration received by such Holder with respect to the Notes
sold by it exceeds the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Notes sold by each of the Holders hereunder and not joint.
-14-
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Act in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration
hereunder unless (a) holders of at least $15 million in aggregate principal
amount of Transfer Restricted Securities shall have furnished to the Company the
information required by Section 4(b) hereof and (b) such Holder (i) agrees to
sell such Holder's Transfer Restricted Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements, lock-up letters and
other documents required under the terms of such underwriting arrangements;
PROVIDED, HOWEVER, that if holders of less than $15 million in aggregate
principal amount of Transfer Restricted Securities shall have furnished to the
Company the information required by Section 4(b) hereof, all references herein
to an Underwritten Registration (including, without limitation, references to
underwriter(s) and underwriting agreements) shall be of no force or effect, and
the Company shall be under no obligation to facilitate an Underwritten
Registration.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the
Shelf Registration Statement who desire to do so may sell such Transfer
Restricted Securities in an Underwritten Offering. In any such Underwritten
Offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of a majority
in aggregate principal amount of the Transfer Restricted Securities included in
such offering; PROVIDED, that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 12. NO BANKRUPTCY PETITION
Each Holder of a 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 (as each such term is
defined in the Indenture) and Future Notes (as defined in the Indenture) 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, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any federal or
state bankruptcy or similar law.
SECTION 13. MISCELLANEOUS
(a) REMEDIES. Each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture, the Purchase Agreement or
granted by law, including recovery of liquidated or other damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the
-15-
provisions of this Agreement and hereby agree to waive the defense in any action
for specific performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The rights granted
to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any agreement in effect on the date hereof.
(c) ADJUSTMENTS AFFECTING THE NOTES. The Company will not take
any action, or permit any change to occur, with respect to the Notes that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless the Company has
obtained the written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being tendered
pursuant to the Exchange Offer and that does not affect directly or indirectly
the rights of other Holders whose securities are not being tendered pursuant to
such Exchange Offer may be given by the Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities being tendered or registered.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records
of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company:
SRI Receivables Purchase Co., Inc.
c/o Specialty Retailers, Inc.
10201 South Main Street
Houston, Texas 77025
Telecopier No.: (713) 660-3342
Attention: James A. Marcum
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopier No.: (312) 861-2200
Attention: Kenneth P. Morrison
-16-
All such notices and communications 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 on
the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications shall
be concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; PROVIDED,
HOWEVER, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities from such Holder.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement, together with the Purchase
Agreement, the Indenture and the Offering Circular (as defined in the Purchase
Agreement), is intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein with respect to the registration
rights granted by the Company with respect to the Transfer Restricted
Securities. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
-17-
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
SRI RECEIVABLES PURCHASE CO., INC.
By:
Name:
Title:
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
BT SECURITIES CORPORATION
By:
Name:
Title:
-18-
Exhibit 23.1
We hereby consent to the use in the Prospectus constituting part of this
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
August 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE SRI RECEIVABLES PURCHASE CO., INC. CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> FEB-01-1997 FEB-03-1996
<PERIOD-END> MAY-04-1996 FEB-03-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 47,824 62,454
<ALLOWANCES> 0 902
<INVENTORY> 0 0
<CURRENT-ASSETS> 58,344 71,761
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 64,103 77,688
<CURRENT-LIABILITIES> 7,558 21,328
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 56,545 56,360
<TOTAL-LIABILITY-AND-EQUITY> 64,103 77,688
<SALES> 0 0
<TOTAL-REVENUES> 4,686 15,125
<CGS> 0 0
<TOTAL-COSTS> 3,277 (8,173)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,409 23,298
<INCOME-TAX> 520 8,651
<INCOME-CONTINUING> 889 14,647
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 889 14,647
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
