As filed with the Securities and Exchange Commission on March 12, 1997
Registration No. 333-10843
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SRI RECEIVABLES MASTER TRUST
(Issuer of Collateral Certificates)
SRI RECEIVABLES PURCHASE CO., INC.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
------------------
DELAWARE 51-0349276
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
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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. [ ]
------------------
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.
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<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
Cover Page of Prospectus............. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Inside Front Cover Page; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Summary; Summary Historical Financial and
Charges and Other Information........ Operating Data of SRPC; Risk Factors; Selected
Historical Financial and Operating Data of SRPC;
Business of SRPC; The Exchange Offer; Certain
Federal Income Tax Consequences
4. Terms of the Transaction............. Outside Front Cover Page; Summary; The
Exchange Offer; Description of Notes; Certain
Federal Income Tax Consequences
5. Pro-Forma Financial Information...... Inapplicable
6. Material Contacts with the Company Being
Acquired............................. Inapplicable
7. Additional Information Required...... Inapplicable
8. Interests of Named Experts and
Counsel.............................. Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... Inapplicable
10. Information with Respect to S-3
Registrants.......................... Inapplicable
11. Incorporation of Certain Information by
Reference............................ Inapplicable
12. Information with Respect to S-2 or S-3
Registrants.......................... Inapplicable
13. Incorporation of Certain Information by
Reference............................ Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<S> <C> <C>
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 Management; Executive Compensation; Certain
Authorizations are not to be Solicited or Relationships and Related Transactions; Principal
in an Exchange Offer................. Stockholders
</TABLE>
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED MARCH 12, 1997
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 ,
1997, 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 ______________, 1997 (the
"INDENTURE"), by and among SRPC, Specialty Retailers, Inc., a Delaware
corporation ("SRI"), as administrative agent (in such capacity, the
"ADMINISTRATIVE AGENT") and Bankers Trust Company, as indenture trustee (in such
capacity, the "INDENTURE TRUSTEE") and as collateral agent (in such capacity,
the "COLLATERAL AGENT"). The Old Notes and the New Notes are referred to herein
collectively as the "NOTES." The form and terms of the New Notes will be
identical in all material respects to the form and terms of the Old Notes except
that the New Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof. See "The
Exchange Offer" and "Description of the Notes."
The New Notes are being issued by SRPC, a wholly owned subsidiary of Palais
Royal, Inc., a Texas corporation ("PALAIS"). Until February 1997, when SRI
merged with and into Palais, Palais was a wholly owned subsidiary of SRI, which
was 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 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").
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.
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" ON PAGE 24 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.
____________________, 1997
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<PAGE>
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, which consist of the
Transferor Certificate and the Class D Certificates. The Transferor Certificate
represents the fractional undivided interest in the Trust assets that are not
allocated to any holders of Investor Certificates. 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. The 1993-1 Class D Certificate
was issued on July 30, 1993 with an Initial Invested Amount of $30,000,000. The
1995-1 Class D Certificate was issued on August 11, 1995 with an Initial
Invested Amount of $5,120,000. The Class D Certificates do not bear interest and
have a Scheduled Amortization Period Commencement Date of December 1, 1999 and a
Scheduled Series Termination Date of January 1, 2003. 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.
SPRC has not issued, and has no current plans to issue, any significant
debt that would be senior to, subordinate to, or pari passu with the Notes.
Under the Indenture, SRPC may issue additional debt securities that are pari
passu with or subordinate to, but not senior to, the Notes; however, SPRC is
restricted by its certificate of incorporation and certain contractual covenants
from incurring additional indebtedness without the consent of the Rating
Agencies and certain Certificateholders.
SRPC will accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on , 1997, 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
- 2 -
<PAGE>
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 , 1997.
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<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION........................................................6
SUMMARY......................................................................7
The Offering..............................................................7
The Exchange Offer .......................................................7
Principal Terms of the New Notes ........................................10
The Trust and the Collateral Certificates ...............................11
Other Matters Relating to the Notes .....................................15
Certain Structural Features..............................................17
Use of Proceeds..........................................................18
Risk Factors.............................................................18
The Companies............................................................19
SUMMARY HISTORICAL FINANCIAL DATA
OF SRPC..................................................................23
RISK FACTORS................................................................24
The Notes and the Collateral Certificates................................24
Limited Recourse Provisions of the Notes.................................24
Subordination............................................................24
Fluctuating Balance of Transferor Interest...............................25
Limited Foreclosure Rights...............................................25
Payments and Maturity....................................................25
Interest Rate Risk.......................................................25
Control..................................................................26
Ability to Issue New Series of Notes.....................................26
Master Trust Considerations..............................................26
Lack of Public Market....................................................26
Transfer of the Receivables..............................................27
Possible Changes to the Terms of the
Accounts...............................................................28
Consumer and Debtor Protection Laws......................................28
Equalization Account.....................................................28
Ratings..................................................................28
Possible Impact of SRI and Palais
Guarantees.............................................................29
Business of SRI..........................................................29
Social, Legal and Economic Factors and
Seasonality............................................................29
Forms of Payment in SRI Stores...........................................29
Dependence on SRI and Palais.............................................30
Competition..............................................................30
USE OF PROCEEDS.............................................................31
CAPITALIZATION OF SRPC......................................................32
SELECTED HISTORICAL FINANCIAL DATA
OF SRPC..................................................................33
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................34
General..................................................................34
Results of Operations....................................................35
Liquidity and Capital Resources..........................................36
DESCRIPTION OF THE TRUST....................................................37
BUSINESS OF SRPC............................................................40
BUSINESS OF SRI.............................................................41
General..................................................................41
Retail Concept and Operating Strategy....................................41
Growth Strategy..........................................................43
Company Operations.......................................................44
Competition..............................................................46
Employees................................................................46
Properties...............................................................46
Litigation...............................................................47
SRI'S CREDIT CARD BUSINESS..................................................48
General..................................................................48
New Account Underwriting.................................................48
Creation of Account Balances.............................................48
Account Balances and Yield Experience....................................49
Loss and Delinquency Experience..........................................50
Plan for Credit Card Bank................................................52
THE ACCOUNTS................................................................53
Billing And Payments.....................................................56
MANAGEMENT..................................................................58
EXECUTIVE COMPENSATION......................................................59
Compensation Committee...................................................60
Management, Employment and Consulting
Agreements.............................................................61
Stock Option Plan........................................................62
1996 Equity Incentive Plan...............................................62
SRI Retirement Plan......................................................65
Company Deferred Compensation Plan.......................................66
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.............................................................68
PRINCIPAL STOCKHOLDERS......................................................69
DESCRIPTION OF CERTAIN
INDEBTEDNESS OF STAGE STORES
AND ITS AFFILIATES.......................................................71
Revolving Note...........................................................71
Bank of Boston Facility..................................................71
SRI Debt.................................................................71
Other Debt...............................................................72
THE EXCHANGE OFFER .........................................................74
Purpose and Effect of the Exchange Offer.................................74
Terms of the Exchange Offer .............................................75
Expiration Date; Extensions; Amendments..................................75
Interest on the New Notes ...............................................75
Procedures for Tendering.................................................76
Terms and Conditions of the Letter of
Transmittal ...........................................................77
Withdrawal of Tenders ...................................................78
Conditions to the Exchange Offer ........................................78
Exchange Agent ..........................................................79
Fees and Expenses .......................................................79
Accounting Treatment ....................................................79
Other ...................................................................80
DESCRIPTION OF THE NOTES....................................................81
Principal, Maturity and Interest.........................................81
Optional Redemption......................................................81
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
PAGE
----
Cash Flows Allocable to the Holders......................................82
Accounts.................................................................83
Deposits into the Interest Reserve Account...............................83
Deposits into the Principal Reserve
Account................................................................84
Transfers to the Payment Account;
Payment of Principal and Interest......................................85
Final Payments...........................................................86
Statements to Holders of the Notes.......................................86
Events of Default and Remedies...........................................86
Collateral Security......................................................87
No Personal Liability of Directors,
Officers, Employees and Shareholders...................................88
Legal Defeasance.........................................................89
Amendment, Supplement and Waiver.........................................89
Transfer and Exchange....................................................90
Book-Entry, Delivery and Form............................................90
Certificated Securities..................................................92
Same-Day Settlement and Payment..........................................92
Registration Rights......................................................92
Concerning the Indenture Trustee.........................................92
Additional Information...................................................92
DESCRIPTION OF THE COLLATERAL...............................................93
Overview of Trust Allocations............................................93
The Outstanding Certificates.............................................93
Principal Terms..........................................................94
Trust Assets.............................................................96
Receivables..............................................................96
Amortization Period......................................................96
Shared Principal Collections.............................................97
Transferor Percentage Cash Flows.........................................98
Transferor Shared Principal Collection
Cash Flows.............................................................98
Transferor Excess Finance Charge Cash
Flows..................................................................98
Transferor/Class D Cash Flows............................................98
Class D Daily Cash Flows.................................................99
Eligible Accounts; Eligible Receivables .................................99
Automatic Addition of Accounts ........................................100
Removal of Accounts.....................................................100
Collection and Other Servicing Procedures
.....................................................................101
Discount Option .......................................................101
Trust Accounts ........................................................102
Equalization Account ..................................................102
Interest Payments.......................................................103
Allocation Percentages..................................................103
Application of Collections..............................................104
Reallocation of Cash Flows..............................................112
Exchanges...............................................................112
Interest Rate Caps......................................................114
Defaulted Receivables; Rebates and
Fraudulent Charges; Portfolio
Reassignment ........................................................114
Recourse Arrangements...................................................114
Investor Charge-Offs ................................................115
Final Payment of Principal on Senior
Certificates; Termination ...........................................116
Pay Out Events ........................................................117
Servicing Compensation and Payment of
Expenses ............................................................118
Certain Matters Regarding SRPC and SRI
.....................................................................119
Servicer Default ......................................................120
The Receivables Trustee.................................................121
Definitions.............................................................122
HYPOTHETICAL MODEL SCENARIOS...............................................130
Overview................................................................130
The Model...............................................................130
Model Assumptions.......................................................131
Hypothetical Inputs.....................................................132
Basic Monthly Outputs...................................................136
Stress Factors..........................................................137
Simplified Priorities...................................................137
Model Results...........................................................138
Certain Definitions.....................................................139
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES.............................................................141
Transfer of Receivables.................................................141
Certain Matters Relating to Bankruptcy..................................141
Consumer and Debtor Protection Laws.....................................142
FEDERAL INCOME TAX CONSEQUENCES
.......................................................................142
Debt Characterization and Interest Income ..............................143
Exchange of Old Notes for New Notes.....................................143
Disposition of Notes....................................................143
Information Reporting and Backup
Withholding ..........................................................144
Tax Consequences to Foreign Holders ....................................144
ERISA CONSIDERATIONS.......................................................144
PLAN OF DISTRIBUTION ......................................................145
LEGAL MATTERS..............................................................146
INDEPENDENT ACCOUNTANTS....................................................146
INDEX OF DEFINED TERMS.....................................................147
INDEX TO FINANCIAL STATEMENTS..............................................F-1
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<PAGE>
AVAILABLE INFORMATION
SRPC has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "REGISTRATION STATEMENT") under the
Securities Act covering the New Notes offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, omits certain information
contained in the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to SRPC and
the Exchange Offer, reference is made to the Registration Statement and the
exhibits and the financial statements, notes and schedules filed as a part
thereof, which may be inspected at the public reference facilities of the
Commission, at the addresses set forth below. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the document or matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
SRPC will be subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and in accordance
therewith will file reports and other information with the Commission. The
Registration Statement, as well as such reports and other information filed by
SRPC pursuant to the Exchange Act, may be inspected and copied (at prescribed
rates) at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices
of the Commission at 7 World Trade Center, Suite 1300, New York, New York 10048
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Such material may also be obtained from the World Wide Web site
maintained by the Commission (http://www.sec.gov).
In the event that Stage Stores ceases to be subject to the information
requirements of the Exchange Act, Stage Stores 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
Stage Stores 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. Stage Stores will also make such
reports available to prospective purchasers of the Notes, securities analysts
and broker-dealers upon their request. In addition, Stage Stores has agreed that
for so long as any of the Notes remain outstanding it will make available to any
prospective purchaser of the Notes or beneficial owner of the Notes in
connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act, until such time as SRPC has either exchanged the Notes
for securities identical in all material respects which have been registered
under the Securities Act or until such time as the holders thereof have disposed
of such Notes pursuant to an effective registration statement filed by SRPC.
- 6 -
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS AND
IN THE INDENTURE. SRPC'S FISCAL YEAR ENDS ON THE SATURDAY NEAREST TO JANUARY 31
IN THE FOLLOWING CALENDAR YEAR. REFERENCES TO YEARS MEAN SRPC'S FISCAL YEAR. FOR
EXAMPLE, REFERENCES TO "1995" MEAN THE FISCAL YEAR ENDED FEBRUARY 3, 1996.
INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" PRIOR TO MAKING A DECISION TO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER. FOR A LISTING OF THE PAGES ON WHICH TERMS ARE DEFINED, SEE "INDEX OF
DEFINED TERMS" APPEARING ON PAGE 148.
THE OFFERING
The Offering...................... 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
- 7 -
<PAGE>
has no arrangement or understanding with
any person to participate in the
distribution of such New Notes and that
such Holder is not engaging in or
intending to engage in the distribution
of the New Notes. Each broker-dealer
that receives New Notes for its own
account in exchange for Old Notes that
were acquired as a result of
market-making or other trading activity
must acknowledge that it will deliver a
prospectus in connection with any resale
of such New Notes. The Letter of
Transmittal states that by so
acknowledging and by delivering a
prospectus, such broker-dealer will not
be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it
may be amended or supplemented from time
to time, may be used by such
broker-dealer in connection with resales
of New Notes received in exchange for
Old Notes where such New Notes were
acquired by such broker-dealer as a
result of 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
, 1997 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."
- 8 -
<PAGE>
Procedures for Tendering Notes.... Each Holder of an Old Note wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance
with the instructions contained herein
and therein, and mail or otherwise
deliver such Letter of Transmittal, or
such facsimile, together with the Old
Notes and any other required
documentation to the Exchange Agent at
the address set forth herein prior to
5:00 p.m., New York City time, on the
Expiration Date.
By executing a Letter of Transmittal,
each Holder represents to SRPC that,
among other things, the New Notes
acquired pursuant to the Exchange Offer
are being obtained in the ordinary
course of business of the person
receiving such New Notes, whether or not
such person is the Holder, that neither
the Holders nor any such other person
has any arrangement or understanding
with any person to participate in the
distribution of such 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
- 9 -
<PAGE>
Date. See "The Exchange Offer--Terms of
the Exchange Offer" and "--Conditions to
the Exchange Offer."
Exchange Agent.................... Bankers Trust Company is serving as
Exchange Agent (the "EXCHANGE AGENT") in
connection with the Exchange Offer. The
Exchange Agent's telephone number is
(800) 735-7777.
Certain Federal Income Tax
Considerations................... Holders will not recognize gain for
federal income tax purposes in respect
of the exchange of Old Notes for New
Notes. Each New Note will have the same
adjusted tax basis as the Old Note for
which it was exchanged. The holding
period of each New Note will include the
holding period of the Old Note for which
it is exchanged. See "Certain Federal
Income Tax Consequences." Persons
considering the exchange of Old Notes
for New Notes should consult their tax
advisors with regard to the application
of the United States federal income tax
laws to their particular situations as
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."
PRINCIPAL TERMS OF THE NEW NOTES
General........................... The form and terms of the New Notes are
the same as the form and terms of the
Old Notes (which they replace) except
that (i) the New Notes have been
registered under the Securities Act and,
therefore, will not bear legends
restricting the transfer thereof and
(ii) Holders of New Notes will not be
entitled to certain rights under the
Registration Rights Agreement, which
rights will terminate when the Exchange
Offer is consummated. The New Notes will
evidence the same debt as the Old Notes
and will be entitled to the benefits of
the Indenture. See "Description of the
Notes."
Notes Offered..................... $30,000,000 principal amount of 12.5%
Series B Notes, which have been
registered under the Securities Act. The
Notes will be issued in registered form,
without coupons, and in denominations of
$1,000 and integral multiples thereof.
Note Interest..................... The Notes will bear interest at the rate
of 12.5% per annum payable semi-
annually on June 15 and December 15,
commencing on December 16, 1996.
Interest will be paid to holders of
record on the last day of the preceding
month. Under certain circumstances,
interest will be payable monthly. See
"Description of the Notes--Deposits into
the Interest Reserve Account."
Note Principal.................... Principal is expected to be paid in full
on December 15, 2000 (the "EXPECTED
MATURITY DATE").
Optional Redemption............... The Notes will be subject to redemption
at the option of SRPC, in whole or in
part, upon not less than 30 nor more
than 60 days' notice, at the redemption
prices set forth below (expressed as
percentages of principal amount) plus
accrued and unpaid interest thereon to
the redemption date, if redeemed during
the applicable period beginning on the
dates indicated below:
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.
THE TRUST AND THE COLLATERAL CERTIFICATES
The Trust......................... The SRI Receivables Master Trust was
formed in 1993 in connection with the
implementation of SRI's private label
credit card accounts receivable
securitization program (the "ACCOUNTS
RECEIVABLE PROGRAM") pursuant to a
Pooling and Servicing Agreement by and
among SRPC, as Transferor, SRI, as
Servicer, and Bankers Trust Company, as
Trustee (together with any amendments
and supplements thereto, the "POOLING
AND SERVICING AGREEMENT"). The Trust, as
a master trust, is expected to issue
Series from time to time. 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,
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<PAGE>
Interest Funding Account and the
Principal Account for each Series and
(vii) proceeds of the foregoing. The
Receivables consist of amounts charged
by cardholders to the Accounts for goods
and services, and all related monthly
finance charges, late charges, returned
check fees, proceeds allocable to
finance charges, certain recoveries (net
of collection expenses) on Receivables
which were previously charged off as
uncollectible, and all other fees billed
to cardholders on the Accounts in any
month ("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. SRPC transfers to
the Trust, on a daily basis, all of the
Receivables generated by cardholders
which SRPC purchases through Palais, the
originator of the Receivables.
The Receivables................... 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.
Classes of Certificates; Allocation
of Trust Assets................... The Trust's assets are allocated among
the Senior Classes of Certificates, the
1993-1 Class D Certificate and the
1995-1 Class D Certificate (the "CLASS D
CERTIFICATES"), the Variable Funding
Certificates and the Transferor
Certificate. The Certificateholders of
any Class of any Series 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
Certificate represents the fractional
undivided interest in the Trust assets
that are not represented by the Class
Invested Amounts of the Senior Classes,
the Class D Invested Amounts or the
Variable Funding Class Invested Amounts
(the "TRANSFEROR CERTIFICATE"). The
amount of the Transferor Certificate
will vary according to the amount of
principal Receivables held by the Trust,
the level of utilization of the 1993-2
Class Certificates and other factors.
The Senior Certificates evidence
undivided interests in the assets of the
Trust allocated to such Senior
Certificates and represent the right to
receive from such assets funds up to
(but not in excess of) the amounts
required to make payments of interest on
the Senior Certificates at the Class A
Certificate Rate, Class B Certificate
Rate, or Class C Certificate Rate, as
the case may be, and the payment of
principal to the extent of the Class
Invested Amount for such Senior Class
(which may in certain circumstances be
less than the aggregate unpaid principal
amount of such Senior Certificates). See
"Description of the Collateral-The
Outstanding Certificates."
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<PAGE>
The aggregate principal amount of any
Certificate in any Series other than a
Variable Funding Series, except as
otherwise provided herein, will remain
fixed at the Initial Invested Amount
thereof through the Amortization Period
Commencement Date for such Series. See
"Description of the
Collateral-Application of
Collections-Payments of Principal."
The Class D Certificates evidence
undivided interests in the assets of the
Trust allocated to such Class D
Certificates and represent the right to
receive from such assets funds up to
(but not in excess of) the amounts
required to make payments of principal
to the extent of the Class D Invested
Amount. No payment of principal with
respect to the Class D Certificates may
be made until the final principal
payment of the Class Invested Amounts of
the Senior Certificates have been made.
No interest is payable on the Class D
Certificates at any time.
Allocations of Collections........ During each Fiscal Month, SRI allocates
among the interests of each Class of
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 each Class of
Certificateholders of a Designated
Series based on the applicable Class
Floating Allocation Percentage (or the
Class D Floating Allocation Percentage,
in the case of the Class D
Certificateholders) and to the interest
of the holders of the Variable Funding
Certificates based on the applicable
Class Variable Funding Floating
Allocation Percentage.
On any business day on or after the
Amortization Period Commencement Date
for a Series, Principal Collections will
be allocated to the interest of each
Class of Certificateholders for such
Designated Series based on the
applicable Class Fixed Allocation
Percentage (or the Class D Fixed
Allocation Percentage, in the case of
the Class D Certificateholders) for such
Designated Series, and for each Class of
Certificateholders of a Variable Funding
Series, based on the applicable Class
Variable Funding Fixed Allocation
Percentage. On any business day when
Principal Collections are being
allocated for payment to the Senior
Certificates of a Designated Series,
Principal Collections will be allocated
to the interest of holders of each Class
of the Senior Certificates for such
Designated Series based on the
applicable Class Fixed Allocation
Percentage for such Class of
Certificates. See "Description of the
Collateral-Allocation Percentages."
Exchanges of the Transferor
Certificate....................... The Transferor Certificate will be held
by SRPC as Transferor, and will be
transferable only as provided in the
Pooling and Servicing Agreement. The
Pooling and Servicing Agreement also
provides that, pursuant to any one or
more Supplements, the Transferor may
tender the Transferor Certificate or, if
provided in the relevant Supplement,
Certificates comprising any Series and
the Transferor Certificate, to the
Receivables
- 13 -
<PAGE>
Trustee in exchange for Certificates
comprising one or more new Series and a
reissued Transferor Certificate (an
"EXCHANGE"). However, at all times, the
interest in the principal Receivables in
the Trust and amounts on deposit in the
Equalization Account represented by the
Transferor Interest must equal or exceed
the Minimum Transferor Interest. The
Transferor may offer any Series for sale
in transactions either registered under
the Securities Act or exempt from
registration thereunder, directly or
through one or more underwriters or
placement agents, in fixed price
offerings or in negotiated transactions
or otherwise.
Under the Pooling and Servicing
Agreement, an Exchange of the Transferor
Certificate for Certificates comprising
one or more Series and a reissued
Transferor Certificate may occur only
upon delivery to the Receivables Trustee
of the following: (i) a Supplement
specifying the principal terms of each
Series to be issued in connection
therewith, (ii) an opinion of counsel to
the effect that the Certificates of such
Series will be characterized as
indebtedness or as a partnership
interest for federal income tax purposes
under existing law, and that the
issuance of such Series will not have a
material adverse effect on the federal
income tax characterization of any
outstanding Series or result in the
Trust being subject to tax at the entity
level, (iii) if required by such
Supplement, the form of Enhancement and
an appropriate Enhancement agreement
with respect thereto, (iv) written
confirmation from each Rating Agency
that the Exchange will not result in
such Rating Agency reducing or
withdrawing its original rating on any
then outstanding Series rated by it, (v)
an officer's certificate of the
Transferor stating that, after giving
effect to such Exchange, the Transferor
Interest would be at least equal to the
Minimum Transferor Interest, and (vi)
the existing Transferor Certificate and,
if applicable, the existing Certificates
representing the Series to be exchanged.
See "Description of the
Collateral-Exchanges."
Interest on Trust Certificates.... Interest on the Senior Certificates will
be distributed on each Distribution
Date, in an amount equal to one-fourth
of the product of the applicable
Certificate Rate and the applicable
Class Invested Amount as of the
preceding Record Date. Interest will be
calculated on the basis of actual days
elapsed during each Interest Accrual
Period over a year of 360 days.
Interest payments on the Senior
Certificates on each Distribution Date
will be funded from the portion of
Finance Charge Collections collected
during the preceding three Fiscal Months
and from certain other funds, allocated
to the Senior Certificates as set forth
in the Pooling and Servicing Agreement,
deposited on each business day during
each Fiscal Month in the Interest
Funding Account. See "Description of the
Collateral --Interest Payments."
The Class D Certificates and the 1993-2
Class B-R Certificates do not bear
interest.
The Transferor Certificate does not bear
interest at a stated rate, but the
holder of the Transferor Certificate is
entitled to Excess Finance Charges as
described in "--Collateral Certificates"
below and in "Description of
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<PAGE>
the Collateral--Application of
Collections--Payment of Fees, Interest
and Other Items." Such amounts are
payable even if the Transferor Interest
is zero.
OTHER MATTERS RELATING TO THE NOTES
Collateral Certificates........... The Notes will be secured by the Class D
Certificates, totaling $35,120,000 in
aggregate principal amount, and certain
rights with respect to the Transferor
Certificate (together with the Class D
Certificates, the "COLLATERAL
CERTIFICATES"). SRPC will assign and
pledge to the Indenture Trustee the
Collateral Certificates for the benefit
of the Holders of the Notes pursuant to
one or more pledge agreements. In
addition, SRPC may issue additional
notes from time to time ranking PARI
PASSU with the Notes offered hereby.
On July 30, 1993, $140,000,000 aggregate
Class Invested Amounts 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 Class Invested Amounts of
Floating Rate Certificates (Classes A-1,
B-1 and C-1) were issued by the Trust
and sold to investors, and a $5,120,000
Class D-1 Certificate was issued by the
Trust to SRPC. On July 30, 1993, the
Trust also established a facility for
the issuance of up to $40 million in
revolving certificates to financial
institutions (the "1993-2 CLASS A-R
CERTIFICATES") and issued revolving
1993-2 Class B-R Certificates (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 A-R Certificates can be
increased up to $40.0 million or reduced
to zero from time to time while such
certificates are outstanding. The
Transferor draws on the 1993-2 Class A-R
Certificates primarily to fund working
capital needs during the Seasonal
Period. The Class B-R Certificates'
invested amount is increased and
decreased in tandem with the invested
amount of the 1993-2 Class A-R
Certificates. Although SRPC holds the
1993-2 Class B-R Certificates, 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 Aggregate Invested Amount of any
outstanding Series of Investor
Certificates or the Variable Funding
Class Invested Amounts of any
outstanding Variable Funding Series of
Certificates. The amount of the
Transferor Certificate will vary,
according to the amount of principal
Receivables 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
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<PAGE>
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 holder of the Transferor Certificate
is entitled to all Excess Finance Charge
Collections from each Series not used
(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, or (z) to make any unpaid Required
Adjustment Payment. See "Description of
the Collateral--Application of
Collections--Payments of Fees, Interest
and Other Items." Since the
establishment of the Trust and the
issuance of the Senior Certificates and
the Collateral Certificates, no Excess
Finance Charge Collections have been
used to make any such payments, and all
Excess Finance Charge Collections have
been paid to SRPC.
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. See "Risk
Factors--Subordination" and "Description
of the Notes--Deposits into the
Principal Reserve Account--Generally."
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
- 16 -
<PAGE>
made by Palais with respect to a
Receivable sold by Palais or in the
event that a Receivable sold by Palais
is not an Eligible Receivable, Palais is
obligated to pay SRPC the outstanding
balance of the Receivable; (ii) in the
event of a breach of certain
representations and warranties made by
Palais, SRPC may direct Palais to
repurchase an amount of Receivables as
designated by SRPC; and (iii) if SRI as
Servicer adjusts downward the amount of
any Receivable because of a rebate,
refund, unauthorized charge, billing
error or return of merchandise, or
adjusts downward the amount of any
Receivable without receiving collections
therefor or charging off such amount as
uncollectible, then Palais may be
required to pay SRPC such amount. In
addition, subject to certain
limitations, SRI will indemnify SRPC
from liabilities incurred as a result of
actions of SRI as Servicer.
Events of Default................. Following the occurrence of an Event of
Default, the Notes will be subject to
early amortization. See "Description of
the Notes--Deposits into the Interest
Reserve Account," "--Deposits into the
Principal Reserve Account," "--Transfers
to the Payment Account; Payment of
Principal and Interest" and-- "Events of
Default and Remedies."
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 S&P and BB- by
DCR.
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."
- 17 -
<PAGE>
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 -
<PAGE>
THE COMPANIES
SRPC
SRPC is a 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 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 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 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 315 stores in nineteen 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 fiscal year 1996, SRI has opened 35 stores and
consummated the acquisition of Uhlmans Inc. ("UHLMANS"), a privately held
retailer with 34 locations in Ohio, Indiana and Michigan. See "Business of
SRI--General" and "--Growth Strategy."
RETAIL CONCEPT AND OPERATING STRATEGY
SUCCESSFUL RETAIL CONCEPT. SRI's retail concept centers on providing
moderately priced branded fashion apparel, accessories and footwear for women,
men and children. SRI believes that its retail concept is successful because of
its (i) ability to operate profitably in smaller markets, (ii) effective
merchandising strategy and automated merchandise allocation system, (iii)
emphasis on customer service, (iv) targeted advertising and marketing strategy,
and (v) strong operating and information systems and technology.
ABILITY TO OPERATE PROFITABLY IN SMALLER MARKETS. SRI's store format and
locations are designed to offer a convenient and efficient shopping experience
for customers. The stores are typically between 18,000 and 30,000 square feet in
size, which is smaller than typical department stores yet larger than most
specialty stores. SRI's store format is 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
- 19 -
<PAGE>
merchandise available in their assigned categories. SRI believes that the
combination of the size and experience of its buyer group, its strong
merchandising systems and its participation in a cooperative buying service
allows SRI to compete effectively with department and specialty stores.
EMPHASIS ON CUSTOMER SERVICE. A primary corporate objective is to provide
excellent customer service through stores staffed with highly trained and
motivated sales associates. In many of its smaller stores, SRI has implemented
its "Team One" operating format, which focuses employees on selling and customer
service during peak hours while handling non-customer oriented tasks such as
shipping/receiving and security tagging during off-peak hours. This format
allows for better customer service through the utilization of greater numbers of
personnel directly for customer service while also allowing for the efficient
completion of other tasks. SRI monitors the quality of its customer service and
actively solicits feedback by conducting over 3,000 telephone surveys with its
credit card customers each month. SRI believes that its strong customer service
is a significant competitive advantage over department stores, which generally
offer lower levels of customer service.
ADVERTISING AND MARKETING. SRI defines its target market as
fashion-conscious, middle-income consumers, primarily females aged 20 to 55, in
both urban and rural markets. Store layouts and visual merchandising are
designed to create a friendly, modern and convenient shopping environment,
consistent with making the customer feel "at home." SRI uses a multi-media
advertising approach to build traffic in the stores, and makes efficient use of
its proprietary credit card database to communicate directly with its customers
through the mail. In some urban markets, including the greater Houston area, SRI
is able to spread the cost of advertising across a concentrated group of stores.
STRONG OPERATING AND INFORMATION SYSTEMS AND TECHNOLOGY. SRI supports its
retail concept with highly automated, integrated systems in such areas as
merchandising, sales promotions, credit, personnel management, store design,
accounting and distribution. SRI has developed and utilizes an automated store
personnel scheduling system that analyzes historical hourly sales trends to
schedule sales personnel accordingly. This system optimizes labor costs while
producing a higher level of customer service. SRI's merchandising systems assist
merchandise planners in allocating inventory for each store based on its
specific attributes and recent sales trends. Additional systems allow SRI to
efficiently transfer slow moving merchandise to stores selling such items more
rapidly, identify merchandise requiring markdowns and maintain in-stock
positions in basic items such as hosiery and jeans. These systems have enabled
SRI to better manage its inventory while reducing costs and have contributed to
an improvement in margins.
GROWTH STRATEGY
The following are the primary elements of SRI's growth strategy:
NEW STORE OPENINGS IN SMALLER MARKETS. In 1995, SRI opened 68 new stores
in ten states, compared to ten new store openings in three states in 1994. In
1996, SRI opened 35 stores and acquired 34 additional stores as a result of the
Uhlmans acquisition. 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
- 20 -
<PAGE>
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).
- 21 -
<PAGE>
Corporate Organization
The table set forth describes the pro forma (indicated by dashes) corporate
organization reflecting the exchange offer being made hereby.
<TABLE>
<S> <C> <C>
Stage Stores, Inc.
|
|
Specialty Retailers, Inc.
(Servicer)
|
|
Palais Royal, Inc.
(Originator)
| | /|\
| | |
| | |
True | | | S and/or
Sale of | | | Revolving
Receivables \|/ | | Note
SRI Receivables Transfer of
Purchase Co., Inc. Receivables
(Holder of Class D -------------------> SRI Receivables
Pledge of Class D Certificates and Master Trust
|-------------------- Transferor Certificate) /|\ |
| Certificates and | /|\ | |
| Certain Rights with | | | |
| Respect to Transferor | | | |
| Certificates for | | | |
| Benefit of | | 12.5% Trust $ | | Previously placed
| Noteholders 12.5% | | Certificate-Backed | | Class A, B and C
| Series B Notes | | Notes | | Certificates
| | | | \|/
\|/ \|/ | Investors in Series 1993-1
Trustee or Noteholders and Series 1995-1
Collateral Agent
</TABLE>
-22-
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF SRPC
The following table presents summary historical financial data of SRPC
derived from the Financial Statements of SRPC. The information in the table
should be read in conjunction with the Financial Statements of SRPC included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year(1) From
----------------- -------------- Inception to
November 2, October 28, January 29,
1996 1995 1995 1994 1994
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Gain associated with Retained
Certificates(2) ................... $ 4,547 $ 26,975 $ 23,397 $ 25,095 $ 9,498
Interest income (expense) on balances
with Palais ....................... 2,043 686 825 495 (88)
Interest income ..................... 97 127 228 104 94
Interest expense .................... (1,603) -- -- -- --
Amortization of debt issue costs .... (233) -- -- -- --
(714) (622) (1,152) (892) (530)
-------- -------- -------- -------- --------
General and administrative
Operating income .................. 4,137 27,166 23,298 24,802 8,974
Income tax expense .................. (1,538) (10,086) (8,651) (9,031) (3,194)
-------- -------- -------- -------- --------
Net income .......................... $ 2,599 $ 17,080 $ 14,647 $ 15,771 $ 5,780
======== ======== ======== ======== ========
Dividends paid to Palais............. $ 29,477 $ 21,710 $ 26,454 $ 5,579 $ --
======== ======== ======== ======== ========
OTHER DATA:
Ratio of earnings to fixed charges(3) 3.25 -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Retained Certificates in Trust ...... $ 58,101 $ 45,615 $ 66,833 $ 64,693 $ 38,023
Total assets ........................ 72,063 64,740 77,171 74,543 50,172
Receivable from (payable to) Palais . (5,393) 9,116 (18,522) (8,928) (233)
Stockholder's equity ................ 33,123 62,183 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 gain associated with Retained Certificates decreased for the nine months
ended November 2, 1996 as compared to the comparable period in 1995 due to an
increase in the purchase price of receivables. See note 3 to SRPC's audited
financial statements.
(3)Prior to the issuance of the Notes, SRPC had no significant fixed charges.
Accordingly, the ratio of earnings to fixed charges is only presented for the
nine months ended November 2, 1996.
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<PAGE>
RECENT DEVELOPMENTS
During October 1996, Stage Stores completed an initial public offering of
its Common Stock (the "COMMON STOCK OFFERING"). The net proceeds from the Common
Stock Offering were approximately $165.9 million after deducting underwriting
discounts and expenses related to the Common Stock Offering. The net proceeds
were primarily used to retire all of the outstanding ARI Senior Discount
Debentures. Following the consummation of such offering, Stage Stores Common
Stock commenced quotation on the Nadsaq National Market under the symbol "STGE."
Mr. Fuchs retired as Chairman of SRPC and Stage Stores effective January
28, 1997. Mr Tooker was appointed Chairman upon Mr. Fuchs's retirement.
On February 3, 1997, SRI merged with and into Palais. In connection with
the merger, Palais changed its name to Specialty Retailers, Inc. References
herein to Palais and SRI after February 3, 1997 shall refer to the corporation
surviving such merger.
On March 5, 1997, Stage Stores issued a press release concerning the
acquisition of C.R. Anthony Company, a retailer operating 224 specialty stores
in 13 states. The acquisition is subject to the approval of the shareholders of
C.R. Anthony Company and certain other closing conditions.
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
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. Therefore, Holders' recourse on the Notes will be limited to
the amount of distributions on the Collateral Certificates.
NON-PETITION OBLIGATION
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. To this extent, the ability of
Holders to enforce their right to payment in respect of the notes will be
limited.
SUBORDINATION
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. To the extent that collections on the Receivables are
insufficient to pay such Invested Amounts, payments on the Notes will be
impaired.
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<PAGE>
POSSIBLE COLLATERAL IMPAIRMENT
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. Therefore,
the ability of SRPC to make payments on the Notes could be affected. See
"Description of the Collateral--Investor Charge-Offs."
FLUCTUATING BALANCE OF TRANSFEROR INTEREST
The interest in the Trust represented by the Transferor Certificate will
have a fluctuating balance, depending upon the amount of principal Receivables
in the Trust, amounts on deposit in the Equalization Account, the level of
utilization of the 1993-2 Certificates and other factors. The interest
represented by the Transferor Certificate will be decreased in the event that
SRPC elects to issue one or more additional series of Investor Certificates.
Also, during nine months of the year, the required Minimum Transferor Interest
is zero. If the interest in the Trust represented by the Transferor Certificate
is zero, then no Finance Charge Collections or Principal Collections will be
allocated directly to such interest, and the holder of the Transferor
Certificate will be entitled only to Excess Finance Charge Collections to the
extent described in "Description of the Collateral--Application of
Collections--Payments of Fees, Interest and Other Items" and to Principal
Collections which are not applied to repay Class Invested Amounts or for other
purposes as described in "Description of the Collateral--Shared Principal
Collections."
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.
Such limitations on Holders' foreclosure rights may affect the Indenture
Trustee's ability to collect all amounts owing on the Notes. In addition, 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 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. There can be
no assurance that Holders would be able to reinvest any principal distributed
prior to the Expected Maturity Date in other suitable investments having a
comparable yield.
- 25 -
<PAGE>
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 impaired.
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. Therefore, that portion of the collateral for the Notes represented
by the Transferor Certificate would be shared with such new series of notes.
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.
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
- 26 -
<PAGE>
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
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, thereby possibly affecting payments on the
Collateral Certificates and, accordingly, the Notes. See "Certain Legal Aspects
of the Receivables--Transfer of Receivables."
INSOLVENCY RISK CONSIDERATIONS
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 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
- 27 -
<PAGE>
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
A complete reassignment would eliminate the Trust's source of funds for payments
on the Collateral Certificates and adversely affect SRPC's ability to make
payments on the Notes. 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 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.
- 28 -
<PAGE>
RATINGS
The Notes are rated B+ by S&P and BB- by DCR. The ratings address the
likelihood of the receipt by Holders of payments required under the Indenture,
and are based primarily on the credit quality of the Notes.
A security rating is not a recommendation to buy, sell or hold securities,
inasmuch as such ratings do not comment as to the market price or suitability
for a particular investor, and may be subject to revision or withdrawal at any
time by S&P or DCR if, in their judgment, circumstances so warrant. The ratings
do not address the likelihood of an Event of Default. The ratings of the Notes
are also dependent on the ratings of any senior unsecured debt of SRI. S&P has
informed SRI and SRPC that, if any such debt were downgraded by S&P, the Notes
would also be subject to downgrading. Each security rating should be evaluated
independently of any other security rating.
SRPC has not requested a rating on the Notes by any rating agency other
than S&P and DCR. There can be no assurance as to whether any other rating
agency will rate the Notes, or, if it does, what rating would be assigned by any
such other rating agency. A rating on the Notes by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Notes by S&P and
DCR.
POSSIBLE IMPACT OF SRI AND PALAIS GUARANTEES
SRI is obligated as a guarantor of Palais's obligations under the
Revolving Credit Agreement, and Palais is a guarantor of SRI's Senior Notes and
Senior Subordinated Notes. See "Description of Other Indebtedness of SRI and its
Affiliates." To the extent that Palais is obligated to satisfy the guarantee of
SRI's debt in whole or in part, the ability of Palais to meet its obligation
under the Receivables Purchase Agreement to repurchase from SRPC certain
receivables may be impaired. If Palais were not able to make such repurchases
from SRPC, SRPC's ability to make payments on the Notes could be adversely
affected.
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.
- 29 -
<PAGE>
FORMS OF PAYMENT IN SRI STORES
All of the SRI stores accept cash, checks and Visa, MasterCard and
Discover cards in addition to SRI Cards. Sales using cash, checks and such other
credit cards do not generate Receivables. See "SRI's Credit Card
Business-Creation of Account Balances." Purchases using cash, checks and non-SRI
cards accounted for approximately 44% of net sales in 1995. Purchases using SRI
Cards have historically been lower in recently opened stores than in more mature
stores because of the time necessary to attract new accounts and to acclimate
new customers to the use of SRI Cards. Although the use of SRI Cards in recently
opened SRI stores has historically increased as such stores mature, there can be
no assurance that sales through SRI Cards will continue to increase or maintain
their historic percentage of retail sales. Lower purchases using SRI Cards would
decrease the funds available to support the Collateral Certificates and could
adversely affect payment on the Notes.
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.
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<PAGE>
USE OF PROCEEDS
SRPC will not receive any cash proceeds from the Exchange Offer. The net
proceeds of the Offering, which were approximately $27.5 million after payment
of the Initial Purchaser's discount and related expenses, were transferred to
Palais and ultimately used to fund in part the acquisition of Uhlmans.
SRPC applied such proceeds to help fund (i) the purchase by Palais, for
approximately $28.7 million in cash consideration and the assumption and
repayment of debt (subject to adjustments), of the capital stock of Uhlmans and
(ii) the integration costs and capital expenditures relating to the Uhlmans
acquisition. See "Business of SRI--Growth Strategy."
- 31 -
<PAGE>
CAPITALIZATION OF SRPC
The following table sets forth the capitalization of SRPC as of November
2, 1996. This presentation should be read in conjunction with the Financial
Statements of SRPC and other information appearing elsewhere in this Prospectus.
November 2, 1996
-----------------
(dollars in
thousands)
Payable to Palais........................................ $ 5,393
----------
12.5% Trust Certificate-Backed Notes..................... 30,000
Stockholder's equity..................................... 33,123
----------
Total capitalization..................................... 63,123
----------
Total capitalization and payable to Palais........... $ 68,516
===========
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF SRPC
The following table presents summary historical financial data of SRPC
derived from the Financial Statements of SRPC. The information in the table
should be read in conjunction with the Financial Statements of SRPC included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year(1) Inception to
----------------- -------------- From
November 2, October 28, January 29,
1996 1995 1995 1994 1994
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Gain associated with Retained
Certificates(2) ................... $ 4,547 $ 26,975 $ 23,397 $ 25,095 $ 9,498
Interest income (expense) on balances
with Palais ....................... 2,043 686 825 495 (88)
Interest income ..................... 97 127 228 104 94
Interest expense .................... (1,603) -- -- -- --
Amortization of debt issue costs .... (233) -- -- -- --
(714) (622) (1,152) (892) (530)
General and administrative Expenses.... -------- -------- -------- -------- --------
Operating income .................. 4,137 27,166 23,298 24,802 8,974
Income tax expense .................. (1,538) (10,086) (8,651) (9,031) (3,194)
-------- -------- -------- -------- --------
Net income .......................... $ 2,599 $ 17,080 $ 14,647 $ 15,771 $ 5,780
======== ======== ======== ======== ========
Dividends paid to Palais............. $ 29,477 $ 21,710 $ 26,454 $ 5,579 $ --
======== ======== ======== ======== ========
OTHER DATA:
Ratio of earnings to fixed charges(3) 3.25 -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Retained Certificates in Trust ...... $ 58,101 $ 45,615 $ 66,833 $ 64,693 $ 38,023
Total assets ........................ 72,063 64,740 77,171 74,543 50,172
Receivable from (payable to) Palais . (5,393) 9,116 (18,522) (8,928) (233)
Stockholder's equity ................ 33,123 62,183 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 gain associated with Retained Certificates decreased for the nine months
ended November 2, 1996 as compared to the comparable period in 1995 due to
an increase in the purchase price of receivables. See note 3 to SRPC's
audited financial statements.
(3) Prior to the issuance of the Notes, SRPC had no significant fixed charges.
Accordingly, the ratio of earnings to fixed charges is only presented for
the nine months ended November 2, 1996.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
OVERVIEW OF SRPC AND SRI. SRPC is an indirect, wholly owned,
limited-purpose subsidiary of SRI and was formed in 1993 pursuant to the
Accounts Receivable Program. SRPC purchases substantially all of the accounts
receivable generated by the use of the SRI Cards on a daily basis and sells
these accounts receivable to the Trust. SRI, through Palais, operates retail
stores under the trade names "Bealls", "Palais Royal" and "Stage." SRI offers to
its customers a proprietary credit card which can only be used to purchase
merchandise and services at SRI locations. SRPC is dependent upon Palais for the
generation of accounts receivable as Palais is its only source of accounts
receivable.
SRI's retail concept is to offer moderately priced, branded fashion
apparel, accessories and footwear for women, men and children. SRI currently
operates 315 stores in nineteen 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,
transferred 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 $204.1 million at
November 2, 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 November 2, 1996, the outstanding balance under the
revolving certificate was $8.8 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 transfers, on a daily basis, the accounts receivable
purchased and transferred from Palais to the Trust in exchange for cash or a
certificate representing an undivided interest in the Trust. Total accounts
receivable transferred to the Trust during 1995 and 1994 were $411.6 million and
$362.3 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 November 2, 1996,
the average rate of return on the term certificates was 7.0%. 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.
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").
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<PAGE>
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.
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 $14.8
million for the first nine months of 1996 and $12.0 million for fiscal 1995.
The most significant component of SRPC's statement of income is the gain
associated with the Retained Certificates. This gain consists primarily of
actual and projected (a) service charge and late fee income less (b)(i) payments
of returns to the holders of the Investor Certificates, (ii) payments in excess
of the face value of accounts receivable purchased from Palais attributable to
the accounts receivable portfolio, (iii) payments of servicing fees to SRI and
(iv) bad debt expense associated with defaulted accounts receivable not sold to
Palais pursuant to the Amendment.
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
NINE MONTHS ENDED NOVEMBER 2, 1996
COMPARED TO NINE MONTHS ENDED OCTOBER 28, 1995
The gain associated with the Retained Certificates for the first nine
months of 1996 decreased 83.3% to $4.5 million from $27.0 million in the first
nine months of 1995 due to an increase in premium payments to Palais for the
purchase of accounts receivable in excess of face value partially offset by an
increase in the amount of service charge income. SRPC paid a $14.8 million
premium on accounts receivable purchased during the first nine months of 1996.
There were no such premium payments during the first nine months of 1995 as the
amendment to the Receivables Purchase Agreement was not effective until the
fourth quarter of 1995. Bad debt expense increased significantly during the
first nine months of 1996 due primarily to the sale of approximately $21.7
million in defaulted accounts receivable during the first nine months of 1995 to
Palais as compared to $12.3 million for the first nine months of 1996. Service
charge income for the first nine months of 1996 increased 22.0% to $37.1 million
from $30.4 million in the first nine months of 1995. Such increase was due to an
increase in average accounts receivable balances combined with the increased
yield on the accounts receivable portfolio resulting primarily from an increase
in late fee charges applied to delinquent accounts.
1995 COMPARED TO 1994
The gain associated with the Retained Certificates for 1995 decreased 6.8%
to $23.4 million from $25.1 million in 1994 due primarily to a $12.0 million
increase in premiums paid for accounts receivable purchased during 1995 combined
with a $2.9 million increase in the return to the holders of the Investor
Certificates due to higher prevailing interest rates during 1995. These
increases were partially offset by a $8.4 million increase in service charge
income. Service charge income for 1995 increased 24.4% to $42.9 million from
$34.5 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.
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. 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.
1994 COMPARED TO 1993
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<PAGE>
The gain associated with the Retained Certificates for 1994 increased
164.2% to $25.1 million from $9.5 million in 1993. Such increase was due to a
full year of results for 1994 versus six months in 1993 (as SRPC was
incorporated on July 27, 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 Expected Maturity Date of the
Notes is December 15, 2000. The issuance of the Notes does not impact the
ability of the Trust to issue additional certificates under the Accounts
Receivable Program to third-party investors.
Intercompany interest is charged at LIBOR plus 1.0% (6.5% at November 2,
1996). The payable balance to Palais was $5.4 million and $18.5 million at
November 2, 1996 and February 3, 1996, respectively. The payable balance is
generally higher during the fourth quarter of the year due to increased
transfers of accounts receivable from Palais due to Christmas season sales.
During June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS
125"). The statement provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. A
transfer will be considered a sale to the extent consideration other than
beneficial interests in the assets transferred are received in exchange and
control over the assets is surrendered. SRPC is currently evaluating the
accounting implications of the standards set forth in this statement. Although
SRPC has not completed its evaluation of this statement and is unable to
determine the exact impact of the adoption of the statement, SRPC believes the
adoption of SFAS 125 will not have a material impact on its financial position
or results of operations.
SRPC's primary sources of funds are the issuance of term certificates by
the Trust to third-party investors, advances under the revolving certificate and
principal and finance charge 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, SRPC declared a cash
dividend in the amount of defaulted accounts receivable sold to Palais.
Management does not anticipate declaring such a dividend during the remainder of
1996 but anticipates that dividends paid to Palais during 1996 will be
approximately equal to its 1996 net income plus $27.5 million of proceeds from
the issuance of the Notes. Management anticipates that interest payments on the
Notes will be approximately $3.8 million during the next twelve months.
Management believes that collections on accounts receivable will be sufficient
to permit the Company to meet its cash requirements during the next twelve
months.
- 36 -
<PAGE>
DESCRIPTION OF THE TRUST
The SRI Receivables Master Trust was formed in 1993 in connection with the
implementation of SRI's private label credit card accounts receivable
securitization program. The Trust, as a master trust, is expected to issue
Series from time to time. The Trust has not engaged and will not engage in any
business activity other than acquiring and holding Trust assets and proceeds
therefrom, issuing Series of Certificates and the Transferor Certificate and
making payments thereon and related activities. As a consequence, the Trust does
not and is not expected to have any source of capital resources other than the
Trust assets. The Trust will be governed by the laws of the State of New York.
In July 1993 and August 1995, the Trust issued to SRPC 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). See "Business of SRPC." SRPC has
assigned and pledged the Collateral Certificates to the Indenture Trustee 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."
The Class D Certificates and the Transferor Certificate represent
undivided interests in the assets of the Trust. The Trust was formed pursuant to
the Pooling and Servicing Agreement between SRPC, as Transferor, SRI, as
Servicer, and Bankers Trust (Delaware), as Trustee (the "RECEIVABLES TRUSTEE").
SRPC, SRI and the Receivables Trustee from time to time execute supplements to
the Pooling and Servicing Agreement (each, a "SUPPLEMENT") in connection with
the issuance of each series (each, a "SERIES") of certificates representing an
undivided interest in the assets of the Trust (the "CERTIFICATES"). Each
Supplement contains information concerning the rights and obligations of the
holders of the Certificates (each, a "CERTIFICATEHOLDER") of that Series. The
Series pursuant to which the 1993-1 Certificates and the Series pursuant to
which 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
- 37 -
<PAGE>
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 Receivables held by the Trust, the amount on deposit in the
Equalization Account, the level of utilization of the Variable Funding
Certificates and other factors.
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, 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.
SRPC purchases all of the Receivables arising from time to time (i) in all
of the consumer revolving credit card accounts which were owned by Palais on the
Original Closing Date for the Series 1993-1 Certificates, (ii) in each Automatic
Additional Account and (iii) in certain circumstances, each Supplemental Account
(collectively, the "ACCOUNTS"), whether such Receivables are then existing or
thereafter created.
SRPC automatically transfers to the Trust all of its right, title and
interest in and to the Receivables purchased by it. SRPC has the right, under
certain circumstances, to cause the Receivables in any Removed Accounts to no
longer be transferred to the Trust and to accept the transfer from the Trust of
all Receivables in any Removed Accounts, whether such Receivables are then
existing or thereafter created.
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. 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.
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 amounts 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 "Description of the Collateral--Application of
Collections--Allocations" and "--Payment of Fees, Interest and Other Items."
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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 "Description of the Collateral--Final Payment of Principal on Senior
Certificates; Termination."
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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
$204.1 million at November 2, 1996) to support the term certificates (and,
during the fourth quarter, a seasonal minimum retained interest of SRPC) up to a
maximum of $40.0 million. In the 1993 issuance, the Trust sold to SRPC the $30
million Series 1993-1 Class D Certificate and the revolving 1993-2 Class B-R
Certificates pursuant to which up to $15.6 million may be drawn by SRPC. From
time to time, there may be no amounts drawn on the 1993-2 Class A-R Certificates
and the 1993-2 Class B-R Certificates. The Trust also issued to SRPC in 1993 an
exchangeable Transferor Certificate, representing the fractional undivided
interest in the Trust's assets that are not represented by the Certificates
issued to investors. On August 11, 1995, the Transferor exchanged the Transferor
Certificate for a new series of certificates comprised of $25 million of
additional term certificates (the 1995-1 Class A Certificates, the 1995-1 Class
B Certificates and the 1995-1 Class C Certificates), which the Transferor sold
to investors, and the $5.1 million 1995-1 Class D Certificate, which, together
with a Transferor Certificate of reduced principal amount, were retained by the
Transferor. See "Description of the Collateral--The Outstanding Certificates."
At the option of SRPC, the Trust may issue additional series of certificates
from time to time. Terms of any future series will be determined at the time of
issuance.
The Notes are secured by, and will be paid solely from distributions on,
the Class D Certificates and the Transferor Certificate, to the extent specified
herein, which represent undivided interests in the assets of the Trust. Payments
on the Notes will be supported by certain cash flows generated from the accounts
receivable allocable to the Class D Certificates and the Transferor Interest.
See "Description of the Notes--Cash Flows Allocable to the Holders." In
addition, the Collateral Certificates will have the benefit of certain payments
required to be made by SRPC to the Trust for the benefit of Certificateholders.
See "Description of the Collateral--Recourse Arrangements."
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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 315 stores in nineteen states located
throughout the central United States.
Stores have been operated under the Bealls and Palais Royal tradenames
since the 1920s and have developed strong name recognition in the markets they
serve. Bealls stores are primarily located in rural markets in Texas, Oklahoma
and New Mexico while Palais Royal is located primarily in Houston, Texas. The
Stage tradename was developed by SRI in 1994, has been registered nationally and
is the trade name that SRI intends to promote in all markets where its
traditional names are unrecognized. During 1995, SRI opened 68 new stores, the
majority of which were opened under the name Stage.
Stage Stores (formerly ARI) was formed during 1993 as the direct parent of
SRI when the existing stockholders of SRI exchanged all of their common stock
for common stock of ARI. Concurrent with the formation of ARI, ARI completed its
refinancing (the "REFINANCING") and distribution plans. The Refinancing included
the implementation of the Accounts Receivable Program, the formation of SRPC and
the issuance of new SRI long-term debt instruments which replaced certain
previously existing SRI debt. The Refinancing, together with funds generated
internally, provided capital to finance new store openings and the acquisition
of 45 Beall-Ladymon leases.
During 1993, management formalized its growth strategy to expand into
small market areas where SRI can become the dominant retailer by providing
quality, branded merchandise for the entire family at a fair price. SRI is
implementing this strategy by either opening new stores in select locations or
acquiring select apparel retail concerns or their related store leases.
RETAIL CONCEPT AND OPERATING STRATEGY
SUCCESSFUL RETAIL CONCEPT. SRI's retail concept centers on providing
moderately priced branded fashion apparel, accessories and footwear for women,
men and children. SRI believes that its retail concept is successful because of
its (i) ability to operate profitably in smaller markets, (ii) effective
merchandising strategy and automated merchandise allocation system, (iii)
emphasis on customer service, (iv) targeted advertising and marketing strategy
and (v) strong operating and information systems and technology.
ABILITY TO OPERATE PROFITABLY IN SMALLER MARKETS. SRI's store format and
locations are designed to offer a convenient and efficient shopping experience
for customers. The stores are typically between 12,000 and 30,000 square feet in
size, which is smaller than typical department stores yet larger than most
specialty stores. SRI's store format is large enough to offer apparel and
accessories for all members of the family and small enough to allow for
profitable strategic location either in rural markets where SRI faces lower
levels of competition and lower occupancy costs, or in numerous, convenient
locations in metropolitan/suburban areas. SRI's smaller market stores generally
experience higher profit margins due to lower operating costs, including payroll
and advertising costs.
Many of SRI's stores are located in small towns and communities with
15,000 to 30,000 people, or even fewer. SRI believes that its ability to operate
stores profitably in small markets is an important competitive advantage over
department stores, which are generally unable to operate profitably in small
communities. In addition, SRI's stores have an advantage over locally operated
retailers due to SRI's ability to offer a broader and higher quality assortment
of continuously replenished, branded merchandise at fair prices. In larger
communities, SRI's retailing concept differentiates it from both department and
specialty stores. As compared to department stores, SRI believes that it offers
multiple convenient locations and better customer service. As compared to
specialty stores, SRI believes that its stores offer more leading brand names
and a greater assortment of merchandise. All of SRI's stores have several
distinctive features, such as store size, layout and location, merchandising
strategy and personalized customer service, which are designed to provide a
convenient shopping experience and to build strong customer loyalty.
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EFFECTIVE MERCHANDISING STRATEGY AND AUTOMATED MERCHANDISE ALLOCATION
SYSTEM. SRI's merchandising strategy focuses on the traditionally higher margin
merchandise categories of women's, men's and children's apparel, accessories and
footwear. SRI offers a select assortment of first-quality, moderately priced
merchandise that is divided into distinct departments, including misses, men's,
boy's, shoes, intimate apparel, juniors, children's, accessories, cosmetics and
gifts. Merchandise mix may vary significantly from store to store to accommodate
differing demographic factors. SRI offers leading national brand names such as
Levi Strauss, Liz Claiborne, Bill Blass, Carole Little, Kasper by Leslie Fay,
Elizabeth Arden, Guess, Dockers, Hanes, Haggar, Chorus Line, Parson Place, Nike,
Reebok and other moderately priced, high quality brands, as well as its own
private label quality merchandise. SRI's 42 buyers, who average approximately 10
years of experience with SRI, regularly evaluate new vendors and the market for
new merchandise. Buyers are responsible for specific merchandise categories to
enhance their knowledge of the related vendors and the merchandise available in
their assigned categories. This focused buying approach, combined with SRI's
in-depth understanding of each of its individual markets and its highly
automated merchandise allocation system, enables SRI to keep each of its stores
stocked with a broad, frequently replenished assortment of high quality
merchandise that has been finely tuned to meet the fashion needs of its
customers. In addition, SRI is a member of Associated Merchandising Corporation
("AMC"), a cooperative buying service, through which SRI purchases imported
merchandise for its private label program. Such membership provides SRI with
group purchasing opportunities offering higher profit margins. SRI believes that
the combination of the size and experience base of its buyer group, its strong
merchandising systems and its participation in AMC allows SRI to compete
effectively with department and specialty stores.
Offering merchandise at moderate prices is also an important element of
SRI's merchandising strategy. In addition, SRI offers promotions to its
customers at selected events during the year.
SRI's merchandising strategy is based upon its in-depth understanding of
the needs of its customer base. Bealls and Palais Royal have over 70 years of
presence in their respective markets. SRI's primary target customers are women
who are high school and college graduates between the ages of 20 and 55 with
household incomes between $30,000 and $75,000. SRI attempts to maximize its
share of its target customers' purchases by carrying merchandise for the entire
family, since the target customer is often the principal decision-maker of where
to purchase the family's apparel. In addition, SRI markets basic, essential
clothing such as jeans, slacks, shirts, and simple but fashionable dresses,
which are not as subject to cyclical impact on discretionary spending as high
fashion items.
SRI believes that it can continue to increase sales and operating income
through its automated inventory planning, allocation and transfer systems. SRI
has devoted significant computer programming resources to the design and
development of, and created a new division to implement, its automated,
algorithm-based merchandise allocation and transfer systems. These systems allow
specific merchandise to be allocated and, if necessary, transferred to stores
where it is being more rapidly sold. SRI believes that the use of this
proprietary system, which maximizes in-stock positions by merchandise class,
increases sales and reduces markdowns, thereby improving margins.
EMPHASIS ON CUSTOMER SERVICE. A primary corporate objective is to provide
excellent customer service through stores staffed with highly trained and
motivated sales associates. In many of its smaller stores, SRI has implemented
its "Team One" operating format, which focuses employees on selling and customer
service during peak hours while handling non-customer oriented tasks such as
shipping/receiving and security tagging during off-peak hours. This format
allows for better customer service through the utilization of greater numbers of
personnel directly for customer service while also allowing for the efficient
completion of other tasks. SRI monitors the quality of its customer service and
actively solicits feedback by conducting over 3,000 telephone surveys with its
credit card customers each month. SRI believes that its strong customer service
is a significant competitive advantage over department stores which generally
offer lower levels of customer service.
In contrast to many competitors, SRI provides extensive training to new
sales associates in order to provide a uniformly high level of service to
customers. All sales associates are evaluated and compensated based on sales and
on their ability to meet specific customer service standards, such as offering
prompt assistance to a customer upon entering a department, suggesting
additional complementary items, responding promptly to fitting room needs once
the customer rings a "call button" mounted inside each fitting room in certain
stores, sending thank-you notes to charge customers, contacting customers about
promotional events, and establishing consistent contact with customers in order
to create a
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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 "neversay-no" policy forbids sales
associates in SRI from saying "no" to a customer request without involving their
immediate supervisor.
SRI's private label credit card program includes more than 1.5 million
active accounts, providing approximately 55.6% of net sales in 1995, and is an
important element of its customer service. SRI provides its cardholders with
additional services and special sales and promotions, which SRI believes builds
strong customer loyalty. SRI believes that promotions utilizing the cardholder
base are among the most effective promotions undertaken by SRI. SRI's most
active cardholders (those who purchase $750 or more of merchandise per year) are
automatically entitled to VIP membership, which includes extra services such as
free gift wrapping, emergency check cashing, free credit card registration,
discounts on alterations, free 24-hour message service and other benefits.
ADVERTISING AND MARKETING. SRI defines its target market as
fashion-conscious, middle-income consumers, primarily females aged 20 to 55, in
both urban and rural markets. Store layouts and visual merchandising are
designed to create a friendly, modern and convenient shopping environment,
consistent with making the customer feel "at home."
SRI uses a multi-media advertising approach to build traffic in the
stores, and makes efficient use of its proprietary credit card database to
communicate directly with its customers through the mail. In some urban markets,
including the greater Houston area, SRI is able to spread the cost of
advertising across a concentrated group of stores. Newspaper advertising
accounted for approximately 60% of the media budget in 1994 and 1995, with the
balance devoted to radio, television and direct mail. SRI spent $22.3 million
(approximately 3.9% of sales) and $25.9 million (approximately 3.8% of sales) on
advertising and promotion media, payroll and production in 1994 and 1995,
respectively.
STRONG OPERATING AND INFORMATION SYSTEMS AND TECHNOLOGY. SRI supports its
retail concept with highly automated, integrated systems in such areas as
merchandising, sales promotions, credit, personnel management, store design,
accounting and distribution. SRI believes that its automated systems provide it
with a significant competitive advantage over competitors that lack similar
capabilities. For example, SRI has developed and utilizes an automated store
personnel scheduling system that analyzes historical hourly sales trends to
schedule sales personnel accordingly. This system optimizes labor costs while
producing a higher level of customer service. SRI believes that these systems
increase sales per square foot, reduce markdowns and overhead and create
important efficiencies and cost savings in the most labor intensive areas of the
business, allowing store personnel to focus on customer service and selling.
SRI's merchandising systems assist merchandise planners in allocating inventory
for each store based on its specific attributes and recent sales trends.
Additional systems allow SRI to efficiently transfer slow moving merchandise to
stores selling such items more rapidly, identify merchandise requiring markdowns
and maintain in-stock positions in basic items such as hosiery and jeans. These
systems have enabled SRI to better manage its inventory while reducing costs and
have contributed to an improvement in margins.
GROWTH STRATEGY
The following are the primary elements of SRI's growth strategy:
NEW STORE OPENINGS IN SMALLER MARKETS. In 1995, SRI opened 68 new stores
in ten states, including as a result of the Beall-Ladymon acquisition described
below, compared to ten new store openings in three states in 1994. In 1996, SRI
opened 35 new stores and 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
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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, has opened 35 total new
stores to date in 1996. Substantially all of these additional stores were opened
as Stage stores.
SRPC applied the proceeds of the Offering (i) to the purchase by Palais,
for approximately $28.2 million in cash consideration and the assumption and
repayment of debt (subject to adjustments), of the capital stock of Uhlmans and
(ii) to the funding by Palais of integration costs and capital expenditures
relating to the Uhlmans acquisition. Uhlmans sells moderately priced, branded
apparel and accessories for men, women and children, principally in small urban
centers in the midwest where Uhlmans' 34 stores had sales of approximately $60
million in fiscal year 1995. The acquisition is intended to help SRI broaden its
national distribution base and pursue its growth strategy in the midwest. SRI
believes that it can increase margins and achieve economies previously not
obtained by Uhlmans by implementing SRI's credit and collection policies and
buying and merchandising strategies and by reducing central office overhead and
warehousing and distribution costs.
COMPANY OPERATIONS
MERCHANDISE PURCHASING AND ALLOCATION. SRI offers a select assortment of
quality, moderately priced soft goods, which are divided into departments
including misses, men's, boys, juniors, children's, intimate, petites,
accessories, cosmetics, gifts and shoe departments. Sales associates are
encouraged to adopt a "can do" attitude in order to "exceed a customer's
expectations." Merchandise mix may vary significantly from store to store to
accommodate differing demographic factors. SRI modifies its assortments to focus
on merchandise its buyers expect will have the broadest appeal to its targeted
customers based upon sales analyses and individual store attributes.
SRI purchases merchandise from a vendor base of over 2,000 suppliers.
SRI's leading vendors for 1995 were Levi Strauss, Liz Claiborne, Haggar, Guess,
Hanes, Nike, Chorus Line, Parson Place and Reebok. SRI was one of Levi Strauss's
top ten customers in 1995. No one supplier accounted for more than 9% of SRI's
1995 purchases. SRI is also a member of the cooperative buying service AMC, and
as such is entitled to make purchases of imported merchandise for its private
label program. The membership provides SRI with group purchasing opportunities.
Private label products result in better gross margins for SRI and excellent
value for the customer, as a result of the lower purchase cost of such apparel
as compared to branded items in the same categories. Private label purchases
were approximately 11%, 10% and 8% of total purchases in 1995, 1994 and 1993,
respectively. SRI currently intends to keep private label merchandise sales
below 15% of total purchases.
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Set forth below is certain information regarding the percentage of net
sales by major merchandise departments for SRI for 1995 and 1994.
DEPARTMENT 1995 1994
---------- ---- ----
Mens and Young Men.................. 22% 20%
Misses Sportswear................... 15 15
Juniors............................. 13 15
Accessories and Gifts............... 9 10
Children............................ 9 9
Shoes............................... 8 8
Intimate............................ 6 6
Special Sizes....................... 5 5
Cosmetics........................... 5 4
Misses Dresses...................... 4 4
Boys................................ 3 3
1 1
Furs and Coats...................... ---- ----
100% 100%
Total............................... ==== ====
SRI's integrated merchandising systems provide its buyers with the
information and analytical support needed to maximize efficiency and to increase
sales, reduce markdowns and increase inventory turnover through better inventory
management. These systems include, among others: (i) an automated merchandise
financial planning and allocation system which recognizes the attributes and
current merchandise needs by classification of merchandise for each store; (ii)
a staple stock replenishment system to ensure SRI is in stock on basic items
such as hosiery, foundation garments, dress shirts and jeans; (iii) markdown
exception analysis and merchandise transfer exception reporting; and (iv) an
assortment planning system which enables SRI to closely tailor the merchandise
assortment in each store based on local demographics and historical trends and
automatically allocate merchandise accordingly. SRI utilizes its information
systems to monitor slow and fast moving merchandise for the purpose of enabling
SRI to transfer slower moving merchandise from one store to another store where
such merchandise is selling more rapidly.
CREDIT SERVICES. SRI offers its own private label credit card program,
which enhances SRI's relationship with core customers by tailoring credit
availability to individual customers and facilitating frequent communication of
promotional offerings. The number of private label credit accounts and dollar
volume of charges reflects an important element in SRI's marketing strategy. SRI
believes that private label credit card holders shop more regularly and purchase
more merchandise than customers who pay cash. In addition, SRI maintains a
database of all charge purchases of these customers. This data base is a
significant competitive advantage, allowing SRI to target promotional material,
via direct mail, to its regular customers. At February 3, 1996, there were more
than 1.5 million active accounts. Private label credit card purchases provided
approximately 55.6% of net sales in 1995. SRI seeks to develop and grow such
credit card purchases through a marketing strategy emphasizing (i) direct mail
of promotional materials to existing cardholders to communicate new merchandise
offerings, (ii) promotion of customer incentive programs and (iii) the issuance
of new credit through the opening of new accounts and extension of credit on
existing accounts. It is SRI's policy to expand the number and use of private
label credit card accounts on a controlled basis by utilizing computerized
systems such as point-scoring for approving new accounts and behavioral scoring
for monitoring account performance and approving additional purchases.
SRI supports its private label credit card program with an efficient back
office credit operation in Jacksonville, Texas. SRI's internally developed,
fully computerized and highly automated credit systems analyze customer payment
histories, automatically approve or reject new sales at point of sale and enable
account representatives to efficiently collect delinquent accounts. See "SRI's
Credit Card Business."
MANAGEMENT INFORMATION SYSTEMS. SRI relies on proprietary management
information systems to maximize productivity and minimize costs in the most
labor-intensive areas of its business, including merchandising, distribution,
personnel management, credit and accounting. In addition, SRI's merchandising
systems allow it to maximize its return
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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.
- 46 -
<PAGE>
SRI currently operates stores located in the following states:
Number of
Location Stores
- --------------------------------------- ---------
Alabama................................ 3
Arizona ............................... 3
Arkansas............................... 12
Colorado............................... 5
Illinois............................... 12
Indiana................................ 6
Iowa................................... 6
Kansas................................. 3
Louisiana.............................. 27
Michigan............................... 6
Minnesota ............................. 1
Mississippi............................ 6
Missouri............................... 6
Nebraska .............................. 1
New Mexico............................. 9
Ohio................................... 26
Oklahoma............................... 13
South Dakota .......................... 2
Texas.................................. 168
---
Total............................ 315
===
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.
- 47 -
<PAGE>
SRI'S CREDIT CARD BUSINESS
GENERAL
SRI provides certain credit related services for the stores operated by
its wholly owned subsidiary, Palais. SRI also performs certain credit related
services in its role as Servicer under the Pooling and Servicing Agreement. SRI
performs these services at its credit operations located in Jacksonville, Texas
and Houston, Texas. SRI credit operations involve approximately 234 full and
part-time employees and an internally developed, computerized and highly
automated credit collection system. The system analyzes customer payment
histories, automatically approves or rejects new sales at point of sale and
enables account representatives to efficiently contact delinquent customers and
respond to customer needs in the collections effort. Data processing support for
SRI's credit card business is provided by SRI's Management Information Services
division located in Houston, Texas.
The Accounts under which the Receivables arise are created by Palais and
enable the holders of the credit cards issued by Palais (the "SRI CARDS") to
purchase all of the various types of merchandise and services offered by SRI.
NEW ACCOUNT UNDERWRITING
The vast majority of all new accounts are originated through in-store
solicitations by sales associates. New account applications are also solicited
from certain target groups through direct mail campaigns that may be coordinated
with the opening of new stores or other special promotions. Such direct mail
solicitations often include pre-approved applications. Such pre-approved
applications are often directed at college students meeting various criteria and
other persons who have been pre-screened through information available from
credit bureaus to identify potential customers who are likely to respond to
solicitations and who present a positive credit profile.
All credit applications received from prospective cardholders, other than
pre-approved applications, are evaluated through the use of computerized credit
scoring systems. These systems rate applicants for several factors including
length of time at residence, occupation, number of inquiries and worst reference
from a credit bureau report, and other characteristics. Based upon the outcome
of the processing, the application may be approved and assigned a credit limit,
denied, or designated for further follow-up. During the credit application
process, applications are also reviewed for fraud, irregular credit bureau
reports and the possibility of duplicate accounts. In some cases, an application
is processed immediately to permit the applicant, if approved, to make purchases
on the same day. In addition, if a customer has a major credit card, an account
can be opened immediately via on-line access to credit bureaus from the store
location using credit bureau scores for approval and limit setting, and the
customer is then granted immediate credit availability.
During 1995, SRI approved approximately 82% of new applications (including
in-store applications) which had not been pre-approved. SRI may change its
credit evaluation policies or screening methods at any time.
Each cardholder is subject to an agreement governing the terms and
conditions of such cardholder's account. Pursuant to each agreement, SRI,
through its subsidiary Palais, reserves the right, subject to applicable law, to
change or terminate any terms, conditions, services or features of the related
account (including increasing or decreasing finance charges, other charges or
minimum payments). Credit guidelines are maintained by SRI and are adjusted
upward or downward at each monthly billing cycle based on credit account history
behavioral scoring models. Such models, developed and continuously monitored in
conjunction with an outside credit consultant, calculate a numerical risk
evaluation for each score value, and are used by management to determine credit
authorization and risk limit decisions for each account. Each account
transaction is entered and approved at the time of the transaction through
direct communication with SRI's centralized credit authorization system.
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
- 48 -
<PAGE>
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
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"):
- 49 -
<PAGE>
ACCOUNT BALANCES AND YIELD EXPERIENCE FOR THE SRI PORTFOLIO
(dollars in thousands)
Fiscal Year
------------------------------------
1995 1994 1993
------- ------- -------
Total Receivables outstanding at year end. $228,354 $210,941 $189,237
Average Receivables outstanding (1)....... $207,142 $183,318 $172,668
Net finance charges and fees billed ...... $ 41,827 $ 34,712 $ 32,459
Yield from finance charges and fees (2) .. 20.2% 18.9% 18.8%
- --------------------
(1) Average Receivables outstanding is calculated based on Receivables
outstanding at the end of each fiscal month for each period indicated.
(2) Yield from finance charges and fees is calculated as net finance charges
and fees billed divided by the average Receivables outstanding.
Finance charges are computed on the average daily balance of an account.
The annual percentage rate is 21% for most states. The most recent in-state
annual percentage rate change that affected SRI took place in Texas on October
1, 1991 when the annual percentage rate was increased to 21% from 18%. The
change was phased-in on a "grandfathered" basis; new purchases are assessed for
the higher rate while balances created prior to the rate change continue to be
charged the lesser rate of 18% until paid. Finance charges are assessed from the
date of purchase where permitted by applicable state law, although a grace
period is applicable if the account is paid in full within 30 days following the
billing date.
SRI has implemented certain changes which increased the yield of the SRI
Portfolio. On August 28, 1995, the late fee was increased to $10.00, from a fee
of the lesser of $5.00 or 5% of the minimum payment past due after 10 days,
assessed on account payments 21 days past due. The increase in yield from
finance charges and fees from 1994 to 1995 was attributable largely to such
increase in the late fee charged. A late fee may only be charged once to a
specific payment due.
Cash collections on the SRI Portfolio may not reflect the historical
experience shown in the account balances and yield experience table. During
periods of increasing delinquencies, billings of monthly finance charges and
fees may exceed cash receipts as amounts collected on Receivables lag behind
amounts billed to obligors. Conversely, as delinquencies decrease, cash receipts
may exceed billings of monthly finance charges and fees as amounts collected in
a current period may include amounts billed during prior periods. However, SRI
believes that during the periods shown, revenues on an as-billed basis closely
approximated revenues on a cash basis. Revenues from monthly finance charges and
fees on both an as-billed and a cash basis will be affected by numerous factors,
including the monthly finance charges and fees on principal Receivables, the
fluctuation of the principal Receivables portfolio, the amount of other fees
paid by obligors, the percentage of obligors who pay off their balances in full
each month and do not incur monthly finance charges on purchases, promotional
programs at the SRI stores, and changes in the delinquency rate on the
Receivables. Revenue from monthly finance charges and fees also varies somewhat
within a fiscal year due to the seasonal nature of SRI's business.
LOSS AND DELINQUENCY EXPERIENCE
All receivables in a particular account are considered delinquent if such
account has an unpaid balance past the original due date. Such accounts with
amounts of $5.00 or more past due are assigned to SRI's collection system. Under
current procedures, cardholders automatically receive a statement message
advising such cardholders of the account delinquency. When an account enters the
collection system it is given a score by various scoring models, which result in
the assignment of the account to one of three collection strategies. Each
collection strategy provides for a series of actions which principally consist
of statement messages, collection notices and telephone contacts. Accounts are
scored on their billing dates and are reviewed at 15-day intervals and assigned
to progressively more active collection strategies. The current policy of SRI is
generally to recognize a loss on a receivable after the seventh month following
the last payment on an account or, if no such payment has been made, eight
months following the origination of such receivable.
- 50 -
<PAGE>
SRI may change its charge-off policy and collection practices at any time in
accordance with its business judgment and applicable law.
The following table sets forth the loss experience with respect to
payments by cardholders for the SRI Portfolio for each of the periods presented.
There can be no assurance, however, that the loss experience for the Receivables
in the future will be similar to the historical experience set forth below.
LOSS EXPERIENCE FOR THE SRI PORTFOLIO
(dollars in thousands)
Fiscal Year
-----------------------------
1995 1994 1993
-------- -------- --------
Average Receivables outstanding(1).........$ 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)
------ ---------- ------ ---------- ------ ----------
<S> <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 9,225 4.53 6,426 3.57 5,262 3.08
--------- ----- ------- ---- ------- ----
Total $ 21,160 10.39% $15,511 8.61% $13,334 7.80%
========= ===== ======= ==== ======= ====
</TABLE>
- ------------------------
(1) Average delinquencies is the arithmetic average of delinquencies by
category at the last cycle closing of each fiscal month during each period
indicated.
(2) The percentages are the quotients obtained by dividing the delinquent
amount by average receivables outstanding.
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
- 51 -
<PAGE>
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.
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.
- 52 -
<PAGE>
THE ACCOUNTS
The Accounts include substantially all of the SRI Card accounts, some of
which are recently solicited and unseasoned. At August 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 August 3, 1996 totaled $221.9
million. Approximately 3.5% of the total Receivables were represented by finance
charge Receivables. At August 3, 1996, the average principal Receivable balance
of the Accounts was $236. At August 3, 1996, the Accounts had an average credit
guideline of $728, and the percentage of aggregate total Receivable balance to
the aggregate total credit guideline in the accounts was approximately 32%. At
August 3, 1996, 45.6% of the Accounts with a balance had been opened prior to
December 31, 1992. 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 August 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
August 3, 1996.
COMPOSITION OF ACCOUNTS BY ACCOUNT BALANCE
for billing cycles ending on or before
August 3, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage of
Percentage of Total
Number of Total Number Receivables Receivables
Accounts(1) of Accounts Outstanding(1) Outstanding
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
$0.00 or Less.............. 19,825 2.18% $ (428) (0.20)%
$0.01 to $250.00........... 565,890 62.23 62,562 29.08
$250.01 to $500.00......... 225,726 24.82 79,372 36.90
$500.01 to $750.00......... 61,590 6.77 37,190 17.29
$750.01 to $1,000.00....... 22,561 2.48 19,246 8.95
$1,000.01 to $1,250.00..... 9,824 1.08 10,899 5.07
$1,250.01 to $1,500.00..... 2,412 0.27 3,256 1.51
$1,500.01 to $1,750.00..... 787 0.09 1,266 0.59
$1,750.01 to $2,000.00..... 344 0.04 640 0.30
$2,000.01 or More.......... 380 0.04 1,103 0.51
------- ------ ------- ------
909,339 100.00% $ 215,106 100.00%
Total................ ======= ====== ======= ======
</TABLE>
- ----------------------
(1) Represents accounts which had a balance at August 3, 1996, stated on a sum
of cycles basis.
- 53 -
<PAGE>
COMPOSITION OF ACCOUNTS BY CREDIT LIMITS
at August 3, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage of
Percentage of Total
Number of Total Number Receivables Receivables
Accounts(1) of Accounts Outstanding(1) Outstanding
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
$0.00................... 158,261 17.40% $ 55,382 25.75%
$0.01 to $250.00........ 32,499 3.57 4,504 2.09
$250.01 to $500.00...... 145,524 16.00 29,331 13.64
$500.01 to $750.00...... 15,847 1.74 5,464 2.54
$750.01 to $1,000.00.... 257,283 28.29 57,805 26.87
$1,000.01 to $1,250.00.. 269,236 29.61 52,044 24.19
$1,250.01 to $1,500.00.. 5,430 0.60 3,924 1.82
$1,500.01 to $1,750.00.. 731 0.08 792 0.37
$1,750.01 to $2,000.00.. 23,821 2.62 5,051 2.35
$2,000.01 or More....... 707 0.09 809 0.38
------- ------- --------- -------
Total............. 909,339 100.00% $ 215,106 100.00%
======= ======= ========= =======
</TABLE>
- ----------------------
(1) Represents accounts which had a balance at August 3, 1996, stated on a sum
of cycles basis.
COMPOSITION OF ACCOUNTS BY PAYMENT STATUS
for billing cycles ending on or before
August 3, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage of
Percentage of Total
Number of Total Number Receivables Receivables
Accounts of Accounts Outstanding(1) Outstanding
----------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Current........................ 622,092 68.41% $128,994 59.97%
Current delinquent(2).......... 73,349 8.07 25,035 11.64
1-30 days past due............. 135,287 14.88 34,474 16.03
31-60 days past due............ 32,929 3.62 9,322 4.33
61-90 days past due............ 15,844 1.74 5,368 2.50
91-120 days past due........... 10,552 1.16 3,934 1.83
Over 120 days past due......... 19,286 2.12 7,979 3.70
------- ------- ------- ------
Total.................... 909,339 100.00% $215,106 100.00%
======= ======= ======= ======
</TABLE>
- ----------------------
(1) Represents Accounts which had a balance at August 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.
- 54 -
<PAGE>
COMPOSITION OF ACCOUNTS BY AGE
for billing cycles ending on or before
August 3, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage
Percentage of of Total
Number of Total Number Receivables Receivables
Accounts(1) of Accounts Outstanding(1) Outstanding
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
1996............................ 113,896 12.53 $18,236 8.48
1995............................ 202,979 22.32 44,797 20.83
1994............................ 105,120 11.56 26,197 12.18
1993............................ 73,104 8.04 18,431 8.57
1992............................ 52,360 5.75 13,537 6.29
1991 or earlier................. 361,880 39.80 93,908 43.65
------- ------- ------- -------
Total..................... 909,339 100.00% 215,106 100.00%
======= ======= ======= =======
</TABLE>
- ----------------------
(1) Represents Accounts which had a balance at August 3, 1996, stated on a sum
of cycles basis.
COMPOSITION OF ACCOUNTS BY GEOGRAPHIC DISTRIBUTION
at August 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 18,764 0.69% 1,165 0.54%
Arizona............ 2 7,065 0.26 11 0.01
Arkansas........... 13 75,301 2.79 6,496 3.02
Colorado........... 11 93,592 3.47 3,711 1.73
Illinois........... 11 26,031 0.96 1,073 0.50
Indiana............ 3 261 0.01 8 --
Iowa............... 6 5,531 0.20 284 0.13
Kansas............. 3 8,256 0.31 323 0.15
Louisiana.......... 27 160,494 5.94 13,933 6.48
Michigan........... 6 260 0.01 11 0.01
Minnesota.......... 1 221 0.01 4 --
Mississippi........ 7 28,183 1.04 2,492 1.16
Missouri........... 5 16,547 0.61 729 0.34
Nebraska........... 1 1,702 0.06 19 0.01
New Mexico......... 9 60,620 2.24 4,256 1.98
Ohio............... 25 243 0.01 7 --
Oklahoma........... 13 85,656 3.17 5,065 2.35
South Dakota....... 2 1,776 0.07 2 --
Texas.............. 165 1,704,833 63.12 165,895 77.12
Wyoming............ 1 335 0.01 55 0.03
Other.............. -- 405,322 15.02 9,567 4.44
------- --------- ------- -------- -------
Total........ 314 2,700,993 100.00% 215,106 100.00%
======= ========= ======= ======== =======
</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 August
3, 1996.
- 55 -
<PAGE>
BILLING AND PAYMENTS
The accounts for Bealls, Palais Royal and Stage are segregated and grouped
into billing cycles for purposes of administrative convenience. Each billing
cycle has a separate monthly billing date (which may vary slightly from month to
month) at which time the activity in the related accounts during the month
ending on such billing date is processed and billed to cardholders. New accounts
are assigned to billing cycles in a manner which is intended, for purposes of
administrative convenience, to equalize the number of accounts in the billing
cycles.
Monthly billing statements are sent by SRI's data processing facility in
Houston, Texas to holders of the SRI Cards who have positive or negative
balances. The billing statements present the total amount due and show the
allocation between principal, current fees, current finance charges, and the
minimum payment due. Subject to applicable law, late fees and returned check
fees are also added to a cardholder's outstanding balance. No issuance fees,
annual fees, over credit limit fees, or transaction fees are currently charged
to obligors on the Accounts. Palais may change its billing practices, including
the minimum monthly payment amounts, at any time. See "Description of the
Collateral--Collection and Other Servicing Procedures."
A monthly finance charge is assessed on the Accounts, except those
Accounts that have a zero balance at the beginning or end of any month. The
charge is based on the average daily balance outstanding on an Account during a
monthly billing period and is calculated by multiplying the average daily
balance by the applicable finance charge rate. Current purchase transactions are
included in the average daily balance where permitted by the applicable state
law. Finance charges are assessed from date of purchase, although a grace period
is applicable if the account is paid in full within 30 days following the
billing date. Payments by obligors generally are applied in the following order
(pursuant to applicable law): (i) finance charges; (ii) other charges or fees;
and (iii) the unpaid principal balance of purchases allocated first to the
longest outstanding receivable. The annual finance charge rate is 21% per annum,
generally subject (where permitted) to a minimum monthly charge of $.50, except
in those states in which a lower rate is established by law and in those states
in which a lower rate is chosen by SRI for competitive reasons. For 1995, the
average net finance charge rate including late fees for the SRI Portfolio was
20.2% per annum (excluding late fees, such rate was 18.0%). Under the terms of
the account agreements governing the Accounts, SRI may change its finance charge
rates at any time. There can be no assurance that finance charges, fees, and
other charges will remain at current levels in the future. See "Description of
the Collateral--Collection and Other Servicing Procedures" and "Risk
Factors--Possible Changes to the Terms of the Accounts."
SRPC expects that there will be sufficient funds to pay the principal
amount of the Notes in full on the Expected Maturity Date, based on the
following assumptions: (a) cardholder monthly payment rates for the Accounts are
not less than 12.49% (which rate is the payment rate assumed beginning in month
three of the Model described in "Hypothetical Model Scenarios--Hypothetical
Inputs--Payment Rate" and is below the lowest monthly payment rate shown in the
"Cardholder Monthly Payment Rates--SRI Portfolio" table below), (b) the
aggregate amount of principal Receivables outstanding, together with funds on
deposit in the Equalization Account, does not decline below $204,000,000 prior
to the Expected Maturity Date, (c) the total amount of Investor Charge-Offs as a
percentage of total Receivables outstanding and yield from finance charge
Receivables, fees, and other charges remain constant at the levels indicated in
the related tables for the fiscal year ended February 3, 1996, and (d) no Event
of Default occurs. SRPC cannot predict, and no assurance can be given, as to the
cardholder monthly payment rates that will actually occur in any future period,
as to whether any of the above assumptions will prove to have been correct, or
as to whether the actual rate of payment of principal of the Notes will be as
anticipated. The occurrence of any event that results in worse conditions than
those assumed could materially affect the payment experience of the Notes.
The following table sets forth the highest and lowest cardholder monthly
payment rates for the SRI Portfolio during any month in the period shown and the
average cardholder monthly payment rates for all months during the periods
shown, in each case calculated as a percentage of total closing monthly account
balances during the periods shown. Payment rates shown in the table are based on
amounts which would be deemed payments of principal Receivables and finance
charge Receivables with respect to the Accounts.
- 56 -
<PAGE>
CARDHOLDER MONTHLY PAYMENT RATES (1)
SRI PORTFOLIO
Fiscal Year
---------------------------------------
1995 1994 1993
--------- --------- ---------
Lowest Month............................ 15.0% 15.2% 14.8%
Highest Month........................... 20.2 19.5 22.8
Monthly Average......................... 17.3 16.5 17.0
- --------------------
(1) Annualized.
The amount of collections of Receivables may vary from month to month due
to seasonal variations, general economic conditions, payment habits of
individual cardholders, and other factors. There can be no assurance that
collections of principal Receivables with respect to the SRI Portfolio, and thus
the rate at which the Holders could expect to receive payments of principal on
their Notes, will be similar to the historical experience set forth above. If an
Event of Default occurs, the average life and maturity of the Notes could be
significantly reduced.
- 57 -
<PAGE>
MANAGEMENT
The following sets forth certain information with respect to the directors
and executive officers of SRPC.
Name Age Position
- ------------------ ----- -----------------------------------------------------
Carl Tooker 49 Chairman, President and Chief Executive Officer
James Marcum 37 Executive Vice President and Chief Financial Officer
Joshua Bekenstein 38 Director
R. Wayne Cain 59 Director
Adam Kirsch 35 Director
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 became Chairman upon the retirement of Bernard Fuchs on January 28,
1997. 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. Cain has been a director of SRPC since February 1997. Mr. Cain has
been Treasurer and Vice President of Navistar Financial Corporation since 1985.
Prior to 1985, Mr. Cain served as Assistant Treasurer of Navistar International
Corporation. Mr. Cain also currently serves as a director of Harco Holdings,
Inc., Harco Insurance Services, Inc., Harco Leasing Company, Inc., Harco
National Insurance Company, Navistar Financial Corporation, Navistar Financial
Retail Receivables Corporation, Navistar Financial Securities Corporation,
Navistar, Inc., and Truck Retail Instalment Paper Corp.
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.
- 58 -
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summarizes the principal components of compensation of
SRPC's Chief Executive Officer and its other two executive officers. The
compensation and benefits set forth below fully reflect compensation and
benefits earned for work performed on behalf of SRI and SRPC.
<TABLE>
<CAPTION>
LONG-TERM
COMPEN-
SATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS/ COMP.
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) SARS(#) ($)(1)
- ------------------------------------------- ------ ------- ------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Bernard Fuchs, ............................ 1995 437,500 28,870 189,375(3) -- 252
Chairman (Retired) (2) .................. 1994 450,000 65,265 35,625(4) -- 1,260
1993 450,000 59,200 3,713,000(5) 186,612 1,260
Carl Tooker, .............................. 1995 538,416 43,305 67,600(6) -- 87
Chairman, President and ................. 1994 468,750 56,128 67,600(6) 47,363 174
Chief Executive Officer(2) .............. 1993 247,916 75,000 132,116(6) 189,454 --
James Marcum, ............................. 1995 183,333 55,000 184,722(8) 94,727 173
Executive Vice President ................ 1994 -- -- -- -- --
and Chief Financial Officer ............. 1993 -- -- -- -- --
</TABLE>
- ---------------------
(1) Amounts shown for 1995 reflect premiums paid for life insurance coverage.
(2) Mr. Fuchs retired as Chairman on January 28, 1997. Mr. Tooker was appointed
Chairman upon Mr. Fuchs's retirement.
(3) 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.
(4) Amount shown reflects a distribution related to options vested.
(5) 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.
(6) 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.
(7) Amount shown reflects moving expenses of $114,861 and housing and automobile
allowances of $17,255 paid to Mr. Tooker during 1993.
(8) Amount shown reflects moving expenses paid to Mr. Marcum during 1995.
- 59 -
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following discloses options granted during 1995 for SRPC's executive
officers.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation For
Individual Grants Option Term
----------------------------------------------------------------------- -----------------------------
Number of
Securities % of Total
Underlying Options/
Options/ SARs Granted 10%
SARs to Employees 5% Annual Annual
Granted(#) in Fiscal Year Exercise or Growth Rate Growth
Name (1) (%) Base Price ($) Expiration Date ($) Rate ($)
- ------------ ---------- -------------- -------------- ---------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
James Marcum 94,727 23.2 3.04 6/01/05 180,000 459,000
</TABLE>
- ------------
(1) All of such options were granted under SRI's Third Amended and Restated
Stock Option Plan. The options granted under such plan are subject to
vesting and repurchase provisions upon termination of employment.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following summarizes exercises of stock options (granted in prior
years) by SRPC's executive officers during 1995, as well as the number and value
of all unexercised options held by SRPC's officers at the end of 1995.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at FY-
FY-End (#) End($)(2)
Shares --------------- ---------------------
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Unexercisable Unexercisable
- ------------------------------------- ------------ -------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Bernard Fuchs 79,949 153,750 44,426/62,235 210,540/264,120
Carl Tooker -- -- 85,254/151,563 420,000/702,000
James Marcum -- -- -/94,727 -/212,000
</TABLE>
- ------------
(1) Value is based upon the fair market value of the stock at the exercise
date minus the exercise price. Fair market value is determined in good
faith by the Board of Directors and is based upon historical and projected
financial performance.
(2) Value is based upon the fair market value of the stock as of February 3,
1996 minus the exercise price.
COMPENSATION COMMITTEE
The current members of the Compensation Committee of SRI are Mr. Tooker
and Mr. Bekenstein. Mr. Fuchs and Mr. Bekenstein served as members of the
Compensation Committee during the last fiscal year. Mr. Fuchs had regularly
abstained from voting on matters relating directly to his compensation as an
executive officer, and Mr. Tooker is expected to abstain from voting on matters
directly relating to his compensation as an executive officer.
-60-
<PAGE>
MANAGEMENT, EMPLOYMENT AND CONSULTING AGREEMENTS
FUCHS CONSULTING AGREEMENT
Stage Stores and Bernard Fuchs entered into a consulting agreement (the
"FUCHS CONSULTING AGREEMENT"), dated as of February 1, 1997 pursuant to which
Mr. Fuchs agrees to render consulting services to Stage Stores and will receive
a consulting fee of $200,000 in fiscal 1997 and $100,000 in each fiscal year
thereafter. The Fuchs Consulting Agreement will terminate January 31, 2002. In
addition to the consulting fee, Mr. Fuchs will receive reasonable out of pocket
expenses as well as an additional $12,000 of business expenses per year not
requiring verification and reimbursement for membership dues and reasonable
business expenses incurred at the University Club and Houstonian Club.
Prior to February 1, 1997, Mr. Fuchs was party to a Management
Agreement which was terminated as of such date and replaced by the Fuchs
Consulting Agreement.
In February 1993, SRI entered into a stock option agreement with Mr.
Fuchs providing the grant of options to acquire up to 142,090 shares of SRI's
common stock at an original purchase price of $5.28 per share. Such options are
subject to vesting and repurchase restrictions. In connection with the formation
of ARI, such options were converted into options to acquire shares of ARI (now
Stage Stores) common stock (the "COMMON STOCK") at a price of $0.11 per share
and the right to receive payments equaling $1.00 per option share ratably over
the vesting schedule.
TOOKER EMPLOYMENT AGREEMENT
Stage Stores and Carl Tooker entered into an employment agreement (the
"TOOKER EMPLOYMENT AGREEMENT") which provides for Mr. Tooker's employment as
President and Chief Executive Officer. The Tooker Employment Agreement provides
for an initial base salary of $600,000 plus an annual incentive bonus as agreed
to with the Compensation Committee. The Tooker Employment Agreement also
provides for annual performance and salary reviews, and for participation in all
other bonus and benefit plans available to executive officers of Stage Stores.
If Stage Stores terminates Mr. Tooker other than for good cause (as
defined in the Tooker Employment Agreement) or if Mr. Tooker voluntarily
terminates his employment for good reason, Mr. Tooker would be entitled to 18
months' base salary, any accrued or unpaid bonus, salary and deferred
compensation, any expense allowances and any earned but unpaid benefits under
Stage Stores' benefit plans. The Tooker Employment Agreement also provides that,
following a change in control (as defined in the Tooker Employment Agreement) if
Mr. Tooker is terminated other than for good cause or Mr. Tooker resigns for
good reason, Mr. Tooker would be entitled to three years' base salary (as
opposed to eighteen months) plus the amounts referred to above. In the event of
a change of control of Stage Stores in which Stage Stores does not survive, all
unvested options for the purchase of Common Stock held by Mr. Tooker would vest
immediately. The Tooker Employment Agreement contains certain non-compete and
confidentiality provisions. The Tooker Employment Agreement will renew annually
in accordance with its terms unless terminated by either party.
MARCUM EMPLOYMENT AGREEMENT
Stage Stores entered into an employment agreement with James Marcum
(the "MARCUM EMPLOYMENT AGREEMENT") which provides for an initial base salary of
$300,000 as well as annual incentive bonuses as agreed to with the Compensation
Committee. The Marcum Employment Agreement also provides for annual performance
reviews, salary increases at the discretion of the Compensation Committee, and
participation in all other bonus and benefit plans available to executive
officers of Stage Stores.
If Stage Stores terminates Mr. Marcum other than for good cause (as
defined in the Marcum Employment Agreement), Mr. Marcum would be entitled to one
year's base salary, any accrued or unpaid bonus, salary and deferred
compensation, any expense allowances, and any earned but unpaid benefits under
Stage Stores' benefit plans. The Marcum Employment Agreement also provides that,
following a change of control (as defined in the Marcum Employment Agreement),
Mr. Marcum would be entitled to two years' base salary (as opposed to one) plus
the amounts
-61-
<PAGE>
referred to above. In the event of a change of control of Stage Stores in which
Stage Stores does not survive, all unvested options for the purchase of Common
Stock held by Mr. Marcum would vest immediately. The Marcum Employment Agreement
contains certain non-compete and confidentiality provisions. The Marcum
Employment Agreement will renew annually in accordance with its terms unless
terminated by either party.
MANAGEMENT AGREEMENTS
SRI, Bain Capital, Inc. ("BAIN") and certain of its affiliates,
Citicorp Venture Capital ("CVC") also entered into management agreements with
certain other officers, pursuant to which such officers purchased from either
Bain and certain of its affiliates, and affiliates of Citicorp or SRI, shares of
Common Stock and Senior Preferred Stock of ARI (subsequently redeemed in
connection with the Refinancing). The shares of Common Stock acquired pursuant
to such management agreements ("EXECUTIVE STOCK") are subject to certain vesting
provisions in addition to restrictions on transfer and repurchase options. The
management agreements give SRI, or if SRI does not exercise its repurchase
right, Bain and certain of its affiliates, CVC and Acadia, the right to
repurchase all or a portion of such Executive Stock upon termination of the
officer's employment. The repurchase price upon termination is the lower of the
fair market value or the original cost to the officer for unvested Executive
Stock and the fair market value for vested Executive Stock. Executive Stock
vests 40% two years from the date of issue and in 20% annual increments
thereafter.
If the Board of Directors and the holders of a majority of the Common
Stock then outstanding approve the sale of SRI to an independent third party
(whether by merger, consolidation or sale of all or substantially all of the
outstanding capital stock), the holders of Executive Stock are required to
consent and raise no objections against such transaction. Additionally, holders
of Executive Stock are required to agree to sell all of their Executive Stock
and rights to acquire Common Stock issued pursuant to the Stock Option Plan, as
defined below, if the transaction is structured as a sale of stock. SRI has the
right to redeem the Executive Stock held by any holder who fails to comply with
these provisions.
STOCK OPTION PLAN
In 1993, Stage Stores adopted the Third Amended and Restated Stock
Option Plan, a successor plan to prior Stage Stores plans (the "STOCK OPTION
PLAN"), designed to provide incentives to present and future execute,
managerial, marketing, technical, other key employees, and consultants and
advisors of Stage Stores and its subsidiaries as selected in the sole discretion
of the Board of Directors. The Stock Option Plan provided for aggregate options
grants of up to 1,894,540 shares. As of September 20, 1996, options to purchase
an aggregate of 1,511,523 shares of Common Stock at prices from $0.11 to $21.11
are currently outstanding under the Stock Option Plan. In connection with the
Common Stock Offering, the Compensation Committee has granted options to
purchase 255,762 shares of Common Stock under this plan to members of executive
management at an exercise price of $21.11 per share with a five-year cliff
vesting requirement. No additional grants shall be made under the Stock Option
Plan after the consummation of the Common Stock Offering.
1996 EQUITY INCENTIVE PLAN
In connection with the Common Stock Offering, Stage Stores has adopted
the 1996 Equity Incentive Plan (the "INCENTIVE PLAN") designed to update and
replace the Stock Option Plan.
The Incentive Plan provides for the granting to employees and other key
individuals who perform services for Stage Stores and its subsidiaries
("PARTICIPANTS") of the following types of incentive awards: stock options,
stock appreciation rights ("SARS"), restricted stock, performance units,
performance grants and other types of awards that the Board of Directors or the
Compensation Committee (the "PLAN ADMINISTRATOR") deems to be consistent with
the purposes of the Incentive Plan. An aggregate of 1,500,000 shares of Common
Stock have been reserved for issuance under the Incentive Plan; however, no
Participant shall be entitled to receive grants of Common Stock, stock options
or SARs with respect to Common Stock, in any calendar year in excess of 400,000
shares in the aggregate. The Incentive Plan affords Stage Stores latitude in
tailoring incentive compensation for the retention of key personnel, to support
corporate and business objectives, and to anticipate and respond to a changing
business environment and competitive compensation practices.
-62-
<PAGE>
The Plan Administrator will have exclusive discretion to select the
Participants and to determine the type, size and terms of each award, to modify
the terms of awards, to determine when awards will be granted and paid, and to
make all other determinations which it deems necessary or desirable in the
interpretation and administration of the Incentive Plan. The Incentive Plan is
scheduled to terminate ten years from the date that the Incentive Plan was
initially approved and adopted by the stockholders of Stage Stores, unless
extended for up to an additional five years by action of the Board of Directors.
With limited exceptions, including termination of employment as a result of
death, disability or retirement, or except as otherwise determined by the Plan
Administrator, rights to these forms of contingent compensation are forfeited if
a recipient's employment or performance of services terminates within a
specified period following the award. Generally, a Participant's rights and
interest under the Incentive Plan will not be transferable except by will or by
the laws of descent and distribution.
Options, which include nonqualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Common Stock at
a price fixed by the Plan Administrator. The option price may be less than,
equal to or greater than the fair market value of the underlying shares of
Common Stock, but in no event less than the fair market value on the date of
grant. Options generally will expire not later than ten years after the date on
which they are granted. Options will become exercisable at such times and in
such installments as the Plan Administrator shall determine. Payment of the
option price must be made in full at the time of exercise in such form
(including, but not limited to, cash or Common Stock of Stage Stores) as the
Plan Administrator may determine.
An SAR may be granted alone, or in tandem with another option or award,
or a holder of an option or other award may be granted a related SAR, either at
the time of grant or by amendment thereafter. In the event that an SAR is
granted in tandem with another award, the holder of the SAR must surrender the
SAR and surrender, unexercised, any related option or other award, and the
holder will receive in exchange, at the election of the Plan Administrator, cash
or Common Stock or other consideration, or any combination thereof, equal in
value to the difference between the exercise price or option price per share and
the fair market value per share on the last business day preceding the date of
exercise, times the number of shares subject to the SAR or option or other
award, or portion thereof, which is exercised.
A restricted stock award is an award of a given number of shares of
Common Stock which are subject to a restriction against transfer and to a risk
of forfeiture during a period set by the Plan Administrator. During the
restriction period, the Participant generally has the right to vote and receive
dividends on the shares. Dividends received while under restriction are treated
as compensation.
Performance grants are awards whose final value, if any, is determined
by the degree to which specified performance objectives have been achieved
during an award period set by the Plan Administrator, subject to such
adjustments as the Plan Administrator may approve based on relevant factors.
Performance objectives are based on such measures of performance, including,
without limitation, measures of industry, Stage Stores, unit or Participant
performance, or any combination of the foregoing, as the Plan Administrator may
determine. The Committee may make such adjustments in the computation of any
performance measure as it deems appropriate. A target value of an award is
established (and may be amended thereafter) by the Plan Administrator and may be
a fixed dollar amount, an amount that varies from time to time based on the
value of a share of Common Stock, or an amount that is determinable from other
criteria specified by the Plan Administrator. Payment of the final value of an
award is made as promptly as practicable after the end of the award period or at
such other time or times as the Plan Administrator may determine.
Upon the liquidation or dissolution of Stage Stores all outstanding
awards under the Incentive Plan shall terminate immediately prior to the
consummation of such liquidation or dissolution, unless otherwise provided by
the Plan Administrator. In the event of a proposed sale of all or substantially
all of the assets of Stage Stores, or the merger of Stage Stores with or into
another corporation, all restrictions on any outstanding awards may lapse and
Participants may be entitled to the full benefit of such awards, as determined
by the Plan Administrator, immediately prior to the closing date of such sale or
merger.
-63-
<PAGE>
CERTAIN FEDERAL TAX CONSEQUENCES UNDER THE INCENTIVE PLAN
The following discussion addresses certain federal income tax
consequences under current law to recipients of awards made under the Incentive
Plan. The following discussion is intended only as a general summary of the
federal income tax consequences arising under the Incentive Plan based upon the
Internal Revenue Code of 1986, as amended (the "CODE") as currently in effect.
Because federal income tax consequences will vary as a result of individual
circumstances, each Participant should consult his tax advisor with respect to
the tax consequences of such participation. Moreover, the following summary
relates only to a Participants' federal income tax treatment, and the state,
local and foreign tax consequences may be substantially different.
A Participant to whom a nonqualified stock option is granted will not
recognize any income at the time of the grant. When a Participant exercises a
nonqualified stock option, he generally will recognize ordinary compensation
income equal to the difference, if any, between the fair market value of the
Common Stock he receives at such time and the option's exercise price. The
Participant's tax basis in such shares will be equal to the exercise price paid
plus the amount includable in his gross income as compensation, and his holding
period for such shares will begin on the day on which he recognizes taxable
income in respect of such shares.
A Participant to whom an incentive stock option is granted will not
recognize any ordinary income at the time of grant or at the time of exercise.
However, upon the exercise of an incentive stock option, the Participant
generally will be required to include the excess of fair market value of the
Common Stock over the option's exercise price in his alternative minimum taxable
income and, as a result, he may be subject to an alternative minimum tax
("AMT"). In order to obtain incentive stock option treatment for federal income
tax purposes, a Participant (i) must be an employee of the Company or a
subsidiary continuously from the date of grant until any termination of
employment and (ii) in the event of such a termination, must exercise an
incentive stock option within three months after such termination, except if
disabled, in which case exercise may occur within one year from the date of
termination of employment. If a Participant holds Common Stock received upon the
exercise of an incentive stock option for more than one year after exercise and
more than two years after the option was granted (the "STATUTORY HOLDING
PERIODS"), then upon a sale of such Common Stock he will recognize long-term
capital gain or loss equal to the difference, if any, between the sale price of
such shares and the option's exercise price. If the Participant has not held
such shares for the Statutory Holding Periods, when he sells such share (a
"DISQUALIFYING DISPOSITION") he will recognize ordinary compensation income
equal to the lesser of (i) the excess, if any, of the fair market value of such
shares on the date of exercise over the exercise price or (ii) the excess, if
any, of the sale price over the exercise price. Any additional gain or any loss
on such sale will constitute capital gain or loss, short- or long-term depending
upon whether the Participant has held the Common Stock for more than one year
after the exercise date. The tax basis of such shares to the Participant, for
purposes of computing such other gain or loss, will be equal to the exercise
price paid plus the amount includable in his gross income as compensation, if
any.
A participant will not recognize any taxable income as a result of the
inclusion of SARs in a nonqualified stock option or an incentive stock option.
At the time of exercise, a Participant generally will recognize ordinary
compensation income in an amount equal to the cash and the fair market value of
the Common Stock he receives to satisfy his SARs. The Participant's tax basis in
any such shares received pursuant to a SAR will be equal to the amount
includable in his gross income as compensation in respect of such shares, and
the Participant's holding period therefor will begin on the day on which he
recognizes taxable income in respect of such shares.
With respect to restricted stock awards, unless he files a timely
election with the Internal Revenue Service under Section 83(b) of the Code (a
"SECTION 83(B) ELECTION"), a Participant who receives Common Stock pursuant to a
restricted stock award will not recognize any taxable income upon the receipt of
such award, but will recognize taxable compensation income at the time his
interest in such shares is no longer subject to the repurchase option imposed by
the Plan in an amount equal to the fair market value of such shares at such
time. Alternatively, by filing a Section 83(b) election within 30 days after the
shares are granted, the Participant may elect to recognize ordinary income equal
to the fair market value of the shares on the grant date. In either event, the
Participant's tax basis in such shares will be equal to the amount includable in
his gross income as compensation, and his holding period for such shares will
begin on the date his compensation income is determined. If a Participant does
not make a Section 83(b) election, dividends paid on restricted stock awards
will be includable in his income as compensation when received.
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<PAGE>
A Participant to whom a performance grant award is made will not
recognize taxable income at the time such award is made. Such Participant
generally will recognize taxable income, however, at the time cash, Common Stock
or other Stage Stores securities or property are paid to him pursuant to such
award in an amount equal to the amount of such cash and the fair market value at
such time of such shares, securities or property. The tax basis of any such
shares, securities or property received by a Participant pursuant to a
performance grant award will be equal to the amount includable in his gross
income as compensation in respect of such shares, securities or property, and
the holding period therefor will begin on the day on which he recognizes taxable
income in respect of such shares, securities or property. Any income equivalents
paid to a Participant with respect to his performance grant award should
generally be regarded as compensation.
If a Participant who receives Common Stock under the Incentive Plan
(whether pursuant to the exercise of an option, as a restricted stock award, or
as a performance grant award) is subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") (such recipient, an
"INSIDER"), the tax consequences may be different from those described above.
Generally, an Insider will not recognize income (or, in the case of the exercise
of an incentive stock option, alternative minimum taxable income) on receipt of
Common Stock until he is no longer subject to liability with respect to the
disposition of such Common Stock. However, by filing a Section 83(b) election
with the Internal Revenue Service no later than 30 days after the date of
transfer of property (e.g., after exercise of a nonqualified stock option that
was granted within six months of such exercise to the extent a six month holding
period is required), an Insider may elect to be taxed based upon the fair market
value of the Common Stock at the time of such transfer.
Subject to certain limitations described in the next paragraph, the
company for which a Participant is performing services generally will be allowed
to deduct amounts that are includable in the Participant's income as ordinary
compensation income at the time such amounts are so includable, provided that
such amounts qualify as reasonable compensation for personal services actually
rendered.
With limited exceptions, Stage Stores may not deduct certain
compensation paid to its chief executive officer or any of its four other
highest paid executives to the extent such compensation exceeds $1 million in
any taxable year. Depending on the circumstances, some or all of the
compensation paid to such an executive under the Incentive Plan may be
nondeductible.
SRI RETIREMENT PLAN
The Specialty Retailers, Inc. Restated Retirement Plan (the "SRI
RETIREMENT PLAN") is a qualified defined benefit plan. Benefits under the SRI
Retirement Plan are administered through a trust arrangement providing benefits
in the form of monthly payments or a single lump sum payment. The SRI Retirement
Plan covers substantially all employees who have completed one year of service
with 1,000 hours of service. The SRI Retirement Plan is administered by the
retirement plan committee (the "COMMITTEE"), and its three to five members are
appointed by SRI. All determinations of the Committee are made in accordance
with the provisions of the SRI Retirement Plan in a uniform and
nondiscriminatory manner.
Generally, a participant is eligible for a benefit on his/her normal
retirement date, which is the later of age 65 or the fifth anniversary of the
date of hire. A participant may elect an early retirement benefit if he/she is
at least 55 years old, has 10 Years of Service (as defined below) and retires
from active employment with SRI. Early retirement benefits are reduced according
to a formula established in the SRI Retirement Plan based upon each full month
that the participant's age is less than 65 on the date the payments commence. If
a participant who is vested terminates employment, he/she is entitled to a
deferred benefit payable at his/her normal retirement date or an earlier date,
if requested, but not before age 55.
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
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retirement benefit is derived, subject to certain limitations, by adding (i) 1%
of earnings up to $30,600 plus 1 1/2% of the excess of such earnings over
$30,600 for each Year of Credited Service earned on or after July 1, 1989
through December 31, 1991, (ii) 1% of earnings up to $31,800 plus 1 1/2% of the
excess of such earnings over $31,800 for each Year of Credited Service earned
after December 31, 1991, (iii) 1% of earnings up to $42,500 plus 1 1/2% of the
excess of such earnings over $42,500 for each Year of Credited Service earned
after December 31, 1994 and (iv) accrued benefits determined in accordance with
the terms of the SRI Retirement Plan under any superseded plan. The normal
retirement benefit formula produces an annual benefit which is paid to the
participant in equal monthly installments. The standard form of payment for a
single participant is a monthly benefit payable for the participant's life only.
The standard form of payment for a married participant is a 50% joint and
survivor benefit, which provides a reduced monthly benefit to the participant
during his/her lifetime, and 50% of that benefit to the participant's spouse for
his/her lifetime in the event of the participant's death. Other forms of the
payment are also provided including lump sum payouts, but they require
participant election. In addition, the Committee may elect to pay the benefit
equivalent of a benefit payable at normal retirement date in the form of a lump
sum payment, if the lump sum payment does not exceed $3,500.
Any participant who is credited with 1,000 or more hours of service in
a calendar year receives a "YEAR OF SERVICE," while any participant who is
credited with 1,284 or more hours of service in a calendar year receives a "YEAR
OF CREDITED SERVICE." Years of Service determine a participant's eligibility for
benefits under the SRI Retirement Plan, and the percentage vested in those
benefits. After five Years of Service, a participant is 100% vested.
Participants in any superseded plan earn Years of Service and Years of Credited
Service pursuant to sightly different criteria for plan years beginning prior to
January 1, 1990.
The SRI Retirement Plan is funded entirely by SRI contributions which
are held by a trustee for the exclusive benefit of the participants. SRI
voluntarily agreed to contribute the amounts necessary to provide the assets
required to meet the future benefits payable to SRI Retirement Plan
participants. Under the SRI Retirement Plan, contributions are not specifically
allocated to individual participants. Although SRI intends to continue the SRI
Retirement Plan indefinitely, it can terminate the plan at any time, upon which
all participants will become 100% vested in any benefit accrued to the extent
funds are available in trust. In this event, assets will be allocated to benefit
categories in the order specified in the SRI Retirement Plan.
The Specialty Retailers, Inc. Benefit Equalization Plan (the
"EQUALIZATION PLAN") is a nonqualified defined benefit plan which is intended to
replace the benefits that cannot be provided under the terms of the SRI
Retirement Plan on account of certain limitation imposed under the Internal
Revenue Code (for example, the SRI Retirement Plan cannot consider compensation
for a participant which is in excess of $150,000 when determining the
participant's benefit). The Equalization Plan is unfunded. However, upon a
change of control as defined in the Equalization Plan, SRI is required to
deposit into a rabbi trust sufficient funds to cover all obligations then
accrued under the Equalization Plan.
SRI is currently considering adopting a supplemental employee
retirement plan (the "PROPOSED SERP"). If adopted, the Proposed SERP may provide
for certain additional retirement benefits for SRI's senior management upon
retirement at or after a certain age with a certain number of years of service
with SRI. Additionally, the Proposed SERP may provide for certain accelerated
benefits which could be triggered upon, among other things, a change of control
of Stage Stores.
The estimated annual benefits payable upon retirement under the SRI
Retirement Plan and Equalization Plan at normal retirement age subject to
certain adjustments permitted by applicable federal law, for the individuals
named in the cash compensation table above would be as follows: Mr. Fuchs-$0;
Mr. Tooker-$172,000; and Mr. Marcum-$133,000. No amounts were paid or
distributed during 1995 or to date in 1996 pursuant to the SRI Retirement Plan
to any of the individuals named or included in the group in the cash
compensation table above.
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
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restrict contributions to a 401(k) plan by highly compensated employees. The
Deferred Compensation Plan is intended to allow officers to defer income at the
same rates as those employees not restricted by such regulations. Under the
Deferred Compensation Plan, participants may defer up to 15% of their salary and
bonus (not otherwise covered by SRI's 401(k) plan) and earn a rate of return
based on select indices chosen by each participant. SRI may, but is not
obligated to, establish a grantor trust for the purposes of holding assets to
provide benefits to the participants. SRI will match 25% of the first 6% of each
participant's contributions to the Deferred Compensation Plan not otherwise
covered by SRI's 401(k) plan. Company contributions vest over five years of
service.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Substantially all of SRPC's transactions are with SRI, Palais or the
Trust. See Notes 3 and 4 to SRPC's annual financial statements contained
elsewhere herein. SRPC transfers, 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 outstanding balance
of principal Receivables. During 1995, SRPC paid $3.8 million of servicing fees
to SRI and sold $306.8 million of accounts receivable to the Trust.
In connection with purchase of accounts receivable discussed above,
SRPC will record a payable to or a receivable from Palais. Intercompany interest
is charged at LIBOR plus 1.0% (6.5% at November 2, 1996). Interest income on
intercompany balances was $0.8 million during 1995.
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PRINCIPAL STOCKHOLDERS
Stage Stores' authorized equity consists of Common Stock and Class B
Common Stock. Except as otherwise described herein, all shares of Common Stock
and Class B Common Stock are identical and entitle the holders thereof to the
same rights and privileges (except with respect to voting privileges). Holders
of Class B Common Stock may elect at any time to convert any or all of such
shares into Common Stock, on a share-for-share basis, to the extent the holder
thereof is not prohibited from owning additional voting securities by virtue of
regulatory restrictions. The holders of Common Stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. Except as
required by law, holders of Class B Common Stock do not have the right to vote
on any matters to be voted upon by the stockholders. As of November 2, 1996,
1,351,967 shares of Class B Common Stock were outstanding, 1,250,584 of which is
owned by Court Square Capital Limited (see note (5) to ownership table below).
The percentage of shares of Common Stock is calculated assuming all Class B
Common Stock is converted.
During October 1996, Stage Stores completed an initial public offering
of its Common Stock. Stage Stores sold 10,750,000 shares at an initial offering
price of $16.50 per share.
The table below sets forth certain information regarding ownership of
Common Stock as of November 2, 1996 assuming exercise of options exercisable
within sixty days of such date by (i) each person or entity who owns of record
or beneficially 5% or more of the Common Stock, (ii) each director and named
executive officer of Stage Stores and (iii) all executive officers and directors
of Stage Stores as a group. Except as indicated, each of such stockholders is
assumed to have sole voting and dispositive power as to the shares shown.
Number of Percentage of
Shares of Shares of
Name Common Stock Common Stock
---- ------------ ------------
Joshua Bekenstein (1) .......... 3,574,183 15.3%
Adam Kirsch (2) ................ 3,580,248 15.3%
Bain and the Tyler Entities (3) 3,547,828 15.2%
Acadia Partners, L.P. (4) ...... 3,030,095 13.0%
Court Square Capital Limited (5) 1,620,651 6.9%
Bernard Fuchs (6) .............. 1,067,526 4.6%
Carl Tooker .................... 141,901 *
Mark Shulman ................... 40,733 *
Jerry Ivie (7) ................. 32,323 *
James Marcum ................... 18,945 *
Stephen Lovell ................. 14,209 *
Lasker Meyer (8) ............... 12,800 *
Peter Mulvihill (9) ............ -- *
All executive officers and
directors as a group
(10 Persons) (10) .......... 4,935,040 21.1%
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* Less than 1%.
(1) Amount shown for Mr. Bekenstein includes (i) shares beneficially owned by
Bain and the Tyler Entities as Mr. Bekenstein may be deemed to share
voting and dispositive power as to all shares owned by Bain and the Tyler
Entities and (ii) 4,736 options which are exercisable within 60 days.
(2) Amount shown for Mr. Kirsch includes shares beneficially owned by Bain and
the Tyler Entities as Mr. Kirsch may be deemed to share voting and
dispositive power as to all shares owned by Bain and the Tyler Entities.
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(3) 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.
(4) Amounts shown represent shares held by the nominee of Acadia and shares
held by FWHY-Coinvestment I Partner L.P. ("FCP") and Rosecliff-Specialty
Retailing 1989 Partners, L.P. ("ROSECLIFF"), both affiliates of Acadia.
The address of Acadia and FCP is 201 Main Street, Fort Worth, Texas 76102.
The address of Rosecliff is 65 East 55th Street, New York, New York 10022.
(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 include
1,250,584 shares of non-voting Class B Common Stock owned by Court Square.
Each share of non-voting Class B Common Stock is convertible, subject to
certain restrictions, into one share of Common Stock. The address of Court
Square is 399 Park Avenue, 6th Floor, New York, New York 10043.
(6) Amount shown for Mr. Fuchs includes (i) 445,216 shares held by The Fuchs
Family Limited Partnership for which Mr. Fuchs may be deemed to possess
beneficial ownership and (ii) 8,904 options which are exercisable within
60 days.
(7) Includes 334 shares of Common Stock that may be acquired through options
exercisable within 60 days.
(8) Includes 1,670 shares of Common Stock that may be acquired through options
exercisable within 60 days.
(9) 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.
(10) Amount shown includes 15,644 shares of Common Stock that such persons or
group could acquire upon the exercise of options exercisable within 60
days.
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DESCRIPTION OF CERTAIN INDEBTEDNESS OF STAGE STORES AND ITS AFFILIATES
REVOLVING NOTE
In connection with the purchase of Receivables by SRPC from Palais,
SRPC may increase the principal amount of a note payable to Palais (the
"REVOLVING NOTE") in lieu of making a cash payment. Interest accrues on the
outstanding principal amount of the Revolving Note at an annual rate equal to
LIBOR plus 1%. All amounts paid by SRPC with respect to the Revolving Note shall
be allocated first to accrued interest until all such interest is paid and then
to outstanding principal and shall be payable out of Excess Cash. "EXCESS CASH"
means all cash and cash equivalents held by SRPC in excess of any other due and
owing obligations of SRPC, including the Notes, and any reserves against future
obligations which SRPC deems reasonably necessary or prudent to establish and
maintain, including amounts in the Interest Reserve Account and the Principal
Reserve Account. Palais may only look to Excess Cash for payment of the
Revolving Note and, to the extent that such amounts are insufficient, Palais
shall not have any claim against SRPC or additional recourse against SRPC (other
than with respect to Excess Cash available in the future). The Revolving Note
may not be sold or otherwise transferred. However, the Revolving Note may be
pledged to a creditor of Palais or SRI. SRPC may offset any amount due and owing
by Palais against any amount due and owing by SRPC to Palais under the terms of
the Revolving Note. SRPC has the option to repay all or any portion of the
accrued interest on and principal of any Revolving Note at any time.
BANK OF BOSTON FACILITY
On January 31, 1997, SRI entered into amended and restated revolving
credit agreements with the Bank of Boston (the "CREDIT AGREEMENT") to help fund
its annual working capital needs. The Credit Agreement provides for a base
borrowing level of $50.0 million, seasonal borrowings of an additional $10.0
million and letters of credit of an additional $15.0 million for a total
commitment of $75.0 million. The Credit Agreement is available through January
29, 2000 and provides for a commitment fee of 1/2 of 1% per annum on 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 Credit Agreement contains covenants which, among other things,
restrict the (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 under the Credit Agreement,
(viii) aggregate amount of capital expenditures, and (ix) transactions with
related parties.
The Credit Agreement also contains certain financial covenants
including: (i) maintenance of the debt service ratio above predetermined levels,
(ii) capital expenditures should not exceed $40.0 million in 1997, (iii)
maintenance of the ratio of total funded indebtedness to earnings before
interest, taxes, depreciation and amortization ("EBITDA") above predetermined
levels, (iv) maintenance of a minimum EBITDA on a quarterly basis, (v) the ratio
of consolidated current assets to consolidated current liabilities of 2.5 or
above and (vi) the seasonal debt service ratio should be maintained at
predetermined levels. A portion of the Credit Agreement is secured by SRI's
distribution center located in Jacksonville, Texas, including equipment located
therein, a pledge of SRPC stock and a pledge of the Company's trademarks.
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.
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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 31. The combination of coupon interest
payments and original issue discount results in an effective interest rate of
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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 were secured by all of the
issued and outstanding common stock of SRI and is subordinated to all debt. All
of the SRI Senior Discount Debentures were retired in 1996 with proceeds of the
Common Stock Offering.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by SRPC on May 30, 1996 to the Initial
Purchaser. The Initial Purchaser subsequently resold the Old Notes to qualified
institutional buyers pursuant to Rule 144A and to persons other than U.S.
persons outside the United States in reliance upon Regulation S under the
Securities Act and to a limited number of institutional accredited investors
that agreed to comply with certain transfer restrictions and other conditions.
In connection therewith, SRPC entered into the Registration Rights Agreement,
which grants Holders of the Old Notes certain exchange and registration rights.
SRPC agreed to commence the Exchange Offer promptly after the Registration
Statement has been declared effective. A copy of the form of Registration Rights
Agreement has been filed as an exhibit to the Registration Statement and is
available from SRPC upon request. See "Available Information." Unless the
context requires otherwise, the term "HOLDER" with respect to the Exchange Offer
means any person in whose name Old Notes are registered on the books of SRPC or
any other person who has obtained a properly completed bond power from the
registered holder, or any person whose Old Notes are held of record by the
Depository Trust Company, New York, New York ("DTC"), who desires to deliver
such Old Notes by book-entry transfer at DTC.
SRPC has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on an interpretation by the staff of the Commission set
forth in no-action letters issued to third parties, SRPC believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any Holder of such New
Notes (other than any such Holder that is an "affiliate" of SRPC within the
meaning of Rule 405 under the Securities Act and except in the case of
broker-dealers, as set forth below) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business, that such
Holder has no arrangement or understanding with any person to participate in the
distribution of such New Notes and that such holder is not engaging in or
intending to engage in the distribution of the New Notes. Any Holder who tenders
in the Exchange Offer for the purpose of participating in a distribution of the
New Notes or who is an affiliate of SRPC may not rely on such interpretation by
the staff of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. Any resales or other transfers of New Notes
must also be conducted in compliance with applicable state securities or blue
sky laws. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder of Old Notes will
represent to SRPC that, among other things, (i) the New Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of business of
the person receiving such New Notes, whether or not such person is such Holder,
(ii) neither the Holder of Old Notes nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, (iii) that such holder is not engaging in or intending to
engage in the distribution of the New Notes and (iv) neither the Holder nor any
such other person is an "affiliate" of SRPC within the meaning of Rule 405 under
the Securities Act or, if such Holder is an "affiliate," that such Holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. If the tendering Holder is a
broker-dealer (whether or not it is also an "affiliate") that will receive New
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that is will deliver a prospectus in connection with any
resale of such New Notes.
Following the consummation of the Exchange Offer, Holders of Old Notes
not tendered will not have any further registration rights and the Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for the Old Notes could be adversely affected.
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This Prospectus, together with the Letter of Transmittal, is being sent
to all registered Holders as of , 1997.
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
________________, 1997, 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.
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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, or,
if the
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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, execute and deliver
any additional documents deemed by SRPC to be necessary or desirable to complete
the exchange,
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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 reasonable judgment of SRPC, would
prohibit, restrict or otherwise render illegal consummation of the Exchange
Offer, or
(b) there shall occur a change in the current interpretation by the staff
of the Commission which permits the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes to be offered for resale, resold and otherwise
transferred by Holders thereof (other than broker-dealers and any such Holder
which is an "affiliate" of SRPC within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such New Notes are acquired in
the ordinary course of such Holders' business and such Holders have no
arrangement or understanding with any person to participate in the distribution
of such New Notes.
SRPC expressly reserves the right to terminate the Exchange Offer and not
accept for exchange any Old Notes upon the occurrence of either of the foregoing
conditions. In addition, SRPC may amend the Exchange Offer at any time prior to
the Expiration Date if either of the conditions set forth above occur. Moreover,
regardless of whether either of such conditions has occurred, SRPC may amend the
Exchange Offer in any manner which, in its good faith judgment, is advantageous
to Holders of the Old Notes.
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The foregoing conditions are for the sole benefit of SRPC and may be
waived by SRPC, in whole or in part, in its reasonable discretion. The foregoing
conditions must be either satisfied or waived prior to termination of the
Exchange Offer. Any determination made by SRPC concerning an event, development
or circumstance described or referred to above will be final and binding on all
parties.
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:
<TABLE>
<CAPTION>
<S> <C>
BY MAIL (REGISTERED OR CERTIFIED MAIL RECOMMENDED): BY OVERNIGHT COURIER OR BY HAND:
BT Services Tennessee, Inc. BT Services Tennessee, Inc.
Reorganization Unit Reorganization Unit
P.O. Box 292737 Corporate Trust & Agency Group
Nashville, TN 37229-2737 648 Grassmere Park Drive
Nashville, TN 37211
</TABLE>
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.
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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."
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DESCRIPTION OF THE NOTES
The following summary of certain provisions of the 12.5% Series B Notes
does not purport to be complete and is qualified in its entirety by reference to
the Indenture among SRPC, SRI, as Administrative Agent and Bankers Trust
Company, as Indenture Trustee and Collateral Agent. A copy of the Indenture and
the Registration Rights Agreement described below is available to investors upon
request. The Notes will accrue interest at the rate of 12.5% per annum and will
be secured by the Collateral Certificates. See "Description of the Collateral."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $30,000,000 and
have an Expected Maturity Date of December 15, 2000. Principal is expected to be
paid on the Notes in one payment on the Expected Maturity Date. If principal is
not paid in full on the Expected Maturity Date it will be paid monthly
thereafter on each Monthly Payment Date, to the extent of available funds.
Interest on the Notes will accrue at the rate per annum set forth on the cover
page of this Prospectus and will be payable semi-annually on June 15 and
December 15 of each year, including the Expected Maturity Date (or, if any such
day is not a business day, the first business day thereafter) (each a
"SEMI-ANNUAL INTEREST PAYMENT DATE"), commencing December 16, 1996, except that,
on and after the occurrence of an Event of Default with respect to the Notes, or
on any day following the Expected Maturity Date, interest will be payable on the
15th day (or, if such day is not a business day, then the first business day
thereafter) of each month (each a "MONTHLY PAYMENT DATE" and together with each
Semi-Annual Interest Payment Date, a "PAYMENT DATE"). Interest will accrue from
each Payment Date to the day preceding the next succeeding Monthly Payment Date.
Interest will be paid to holders of record on the last day of the month
preceding each Payment Date. Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the closing date of the Offering. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
Principal, interest and premium, if any, on the Notes will be secured by,
and will be paid solely from distributions on, the Collateral Certificates to
the extent provided herein.
The Notes will be payable both as to principal and interest by the
Indenture Trustee through the Depositary in immediately available funds.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at the option of SRPC, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices set forth below (expressed as percentages of principal amount) plus
accrued and unpaid interest thereon to the redemption date, if redeemed during
the twelve-month period beginning on the dates indicated below:
YEAR PERCENTAGE
---- ----------
December 15, 1996............. The greater of (i) 106.25% or (ii) 100% plus
the coupon discounted at a rate equal to the
yield on the date of the redemption notice
of the class of United States Treasury Notes
maturing closest to August 15, 1999, plus
100 basis points, to August 15, 1999
December 15, 1998............. 106.25%
August 15, 1999 and thereafter 100%
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made on a PRO RATA basis, by lot or by such method
as the Indenture Trustee shall deem fair and appropriate, except that no Note
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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.
(a) "TRANSFEROR SHARED PRINCIPAL COLLECTION CASH FLOWs" means Principal
Collections or Finance Charge Collections that are treated as Shared Principal
Collections, EXCEPT to the extent that such Shared Principal Collections are
applied to (i) Principal Shortfalls on any Series, or (ii) repayment of
principal of any Variable Funding Certificates.
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ACCOUNTS
The Indenture Trustee will establish and maintain an interest reserve
account (the "INTEREST RESERVE ACCOUNT"), a principal reserve account (the
"PRINCIPAL RESERVE ACCOUNT") and a payment account (the "PAYMENT ACCOUNT"), each
in the name of the Indenture Trustee and under its exclusive dominion and
control for the benefit of the Holders. Funds on deposit in the Interest Reserve
Account and the Principal Reserve Account will be invested, at the direction of
the Administrative Agent in Cash Equivalents. Any earnings (net of losses and
investment expenses) on funds in the Interest Reserve Account and the Principal
Reserve Account will be paid to SRPC or, at SRPC's option, retained in the
Interest Reserve Account or the Principal Reserve Account, as applicable, and
applied toward then current reserve requirements and the Principal Reserve
Account. The Indenture Trustee will have the revocable power to make withdrawals
and payments from the Interest Reserve Account and the Principal Reserve Account
for the purpose of making deposits and payments required under the Indenture.
The amounts on deposit in the Payment Account shall not be invested.
DEPOSITS INTO THE INTEREST RESERVE ACCOUNT
GENERALLY
In the absence of an Event of Default, interest will be paid to Holders on
each Semi-Annual Interest Payment Date.
Commencing on the first business day of the June 1996 Fiscal Month and
prior to the Rapid Reserve Period and so long as an Event of Default has not
occurred, on each business day during each of the first four Fiscal Months in a
Semi-Annual Interest Period (each such month, a "SCHEDULED DEPOSIT MONTH") SRPC
shall deposit in the Interest Reserve Account an amount equal to 10% of the Note
Allocation Percentage of Transferor Daily Cash Flows, until SRPC has deposited
an amount (the "MONTHLY INTEREST RESERVE AMOUNT") equal to 25% of the
Semi-Annual Interest Payment Amount.
If deposits are being made by SRPC pursuant to the preceding paragraph and
an amount has not been deposited into the Interest Reserve Account equal to the
Monthly Interest Reserve Amount in any Scheduled Deposit Month, SRPC shall,
beginning on the first business day following a Scheduled Deposit Month in which
the Monthly Interest Reserve Amount was not deposited into the Interest Reserve
Account and on each business day thereafter through the last business day of the
sixth Fiscal Month related to such Semi-Annual Interest Period, deposit into the
Interest Reserve Account an amount equal to 100% of the Note Allocation
Percentage of Transferor Daily Cash Flows until such time as SRPC has deposited
in the Interest Reserve Account an amount equal to (i) the current Fiscal
Month's Monthly Interest Reserve Amount, if any, and (ii) any portion of the
Monthly Interest Reserve Amount for any prior Fiscal Month that has not
previously been deposited into the Interest Reserve Account.
During the Rapid Reserve Period, on each business day during each
Scheduled Deposit Month, SRPC shall deposit in the Interest Reserve Account an
amount equal to 50% of the Note Allocation Percentage of Excess Transferor Daily
Cash Flows, until SRPC has deposited an amount equal to the Monthly Interest
Reserve Amount for such Fiscal Month. SRPC shall make the deposits referred to
in the preceding sentence until the amounts on deposit in the Interest Reserve
Account equal the Semi-Annual Interest Payment Amount.
If deposits are being made by SRPC pursuant to the preceding paragraph and
an amount has not been deposited into the Interest Reserve Account equal to the
Monthly Interest Reserve Amount in any Scheduled Deposit Month, SRPC shall, on
the first business day of the Fiscal Month following the Scheduled Deposit Month
in which the Monthly Interest Reserve Amount was not deposited into the Interest
Reserve Account, and on each business day thereafter through the last business
day of the sixth Fiscal Month related to such Semi-Annual Interest Period,
deposit into the Interest Reserve Account an amount equal to the Note Allocation
Percentage of Excess Transferor Daily Cash Flows, until such time as the
Semi-Annual Interest Payment Amount has been deposited in the Interest Reserve
Account.
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<PAGE>
"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.
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<PAGE>
DEPOSITS INTO THE PRINCIPAL RESERVE ACCOUNT
GENERALLY
Prior to the first day of the June 2000 Fiscal Month, so long as an Event
of Default has not occurred, no depos its will be made into the Principal
Reserve Account.
On and after the June 2000 Fiscal Month, so long as a Purchase Termination
Event of Default shall not have occurred, on each business day SRPC shall
deposit into the Principal Reserve Account the sum of (i) the Class D Daily Cash
Flows and (ii) the excess of the Note Allocation Percentage of Excess Transferor
Daily Cash Flows over the amount thereof required to be deposited in the
Interest Reserve Account on such day, until such time as an amount equal to the
outstanding principal amount of the Notes has been deposited into the Principal
Reserve Account.
EVENT OF DEFAULT
On each business day on and after the date on which an Event of Default
(other than a Purchase Termination Event of Default) shall have occurred, and on
each business day following the Expected Maturity Date until an amount equal to
the outstanding balance of the Notes is deposited in the Principal Reserve
Account, SRPC shall deposit into the Principal Reserve Account the sum of (i)
the Class D Daily Cash Flows and (ii) the excess of the Note Allocation
Percentage of Excess Transferor Daily Cash Flows over the amount thereof
required to be deposited in the Interest Reserve Account.
Notwithstanding the foregoing paragraph, following the occurrence of a
Purchase Termination Event of Default, SRPC will not make any additional
deposits into the Principal Reserve Account and will only make the deposits into
the Interest Reserve Account as described in "--Deposits into the Interest
Reserve Account" above.
TRANSFERS TO THE PAYMENT ACCOUNT; PAYMENT OF PRINCIPAL AND INTEREST
The Indenture Trustee, acting in accordance with the instructions of the
Administrative Agent, will on the following dates cause the following amounts to
be withdrawn and deposited into the Payment Account to the extent available in
the Interest Reserve Account or the Principal Reserve Account, as applicable:
(a) Unless an Event of Default has occurred, on the Semi-Annual Interest
Payment Date from the Interest Reserve Account, an amount equal to
the Semi-Annual Interest Payment Amount.
(b) On the Expected Maturity Date, from the Principal Reserve Account,
an amount equal to the principal amount of the Notes.
(c) Following the occurrence of an Event of Default that is not a
Purchase Termination Event of Default, on each Monthly Payment Date,
(i) from the Interest Reserve Account, the Monthly Interest Payment
Amount plus any overdue interest and (ii) from the Principal Reserve
Account, the amount on deposit in the Principal Reserve Account at
the close of business on the business day prior to such Monthly
Payment Date.
(d) Following a Purchase Termination Event of Default, on the Monthly
Payment Date, (i) from the Interest Reserve Account, the Monthly
Interest Payment Amount, (ii) from the Principal Reserve Account,
the amount on deposit in the Principal Reserve Account at the close
of business on the business day prior to such Monthly Payment Date,
and (iii) from the Interest Reserve Account, the remaining amount on
deposit in the Interest Reserve Account at the close of business on
the business day prior to such Monthly Payment Date after
withdrawing the amount described in clause (i) of this paragraph.
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<PAGE>
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.
In addition, in each Fiscal Month the Indenture Trustee will provide to the
Holders of the Notes a copy of the monthly statement relating to the previous
Fiscal Month prepared by SRI for the benefit of the holders of the Senior
Certificates.
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
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<PAGE>
or by which there may be secured or evidenced any indebtedness for money
borrowed by SRPC whether such indebtedness now exists or is created after the
date of the Indenture, which default (a) is caused by a failure to pay when due
principal or interest on such indebtedness within the grace period provided in
such indebtedness (a "PAYMENT DEFAULT") or (b) results in the acceleration of
such indebtedness prior to its express maturity and, in each case, the principal
amount of such indebtedness, together with the principal amount of any other
such indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5 million or more; (v) a final
judgment or final judgments for the payment of money are entered by a court or
courts of competent jurisdiction against SRPC and such judgment or judgments
remain undischarged for a period (during which execution shall not be
effectively stayed) of 60 days, except that the aggregate of all such
undischarged judgments exceeds $1 million; (vi) certain events of bankruptcy or
insolvency with respect to SRPC; (vii) the occurrence of a Purchase Termination
Event, Pay Out Event or Servicer Default regardless of whether the
Certificateholders have exercised a remedy with respect thereto; (viii) defaults
of SRI pursuant to its outstanding Senior Notes and Senior Subordinated Notes or
any 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.
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<PAGE>
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.
The following table sets forth the amounts of certain cash flows
distributed to the Transferor from the Accounts Receivable Program for the
periods indicated below.
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS TWELVE TEN MONTHS
ENDED ENDED MONTHS ENDED ENDED
JAN. 29, 1994 JAN. 28, 1995 FEB. 3, 1996 NOV. 30, 1996
------------- ------------- ------------ -------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Finance Charge Collections
allocated to Series 1993-1,
1993-2 and 1995-1 14,050 35,912 39,418 38,546
Uses of Collections:
Senior Certificate Monthly 2,510 8,147 11,241 9,338
Interest Paid
Reimbursed Losses(1) 4,794 12,462 17,271 18,542
Monthly Servicing Fees 1,216 3,403 3,760 3,439
Commitment Fees Paid 85 201 140 73
----- ------ ------ ------
Transferor Excess Finance Charge
Cash Flows 5,445 11,699 7,006 7,154
===== ====== ====== ======
</TABLE>
- ----------------
(1) Includes Investor Default Amounts and Class D Investor Charge-Offs.
The amounts set forth in the above table as Transferor Excess Finance
Charge Cash Flows represent a component of the total amount of funds that are
available to make payments in respect of interest and principal on the Notes. In
addition, Transferor Percentage Principal Cash Flows, Transferor Percentage
Finance Charge Cash Flows, Released Equalization Account Cash Flows, Transferor
Shared Principal Collection Cash Flows and Transferor/Class
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<PAGE>
D Cash Flows may also be available for making payments on the Notes. See
"Description of the Notes--Cash Flows Allocable to the Holders." Although
Principal Collections are a significant component of the cash flows listed in
the preceding sentence, Principal Collections are set forth above because most
Principal Collections will not be distributed to the Transferor during an
Amortization Period until the Senior Certificates have been retired. See
"Description of the Collateral--Application of Collections."
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of SRPC, as
such, shall have any liability for any obligations of SRPC under the Notes or
the Indenture or any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such waiver is against public policy.
LEGAL DEFEASANCE
SRPC may, at its option and at any time, elect to have its obligations
discharged with respect to the Notes ("LEGAL DEFEASANCE"). Such Legal Defeasance
means that SRPC shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes except for (i) the rights of
Holders of such Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii)
SRPC's obligations with respect to such Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trust, duties and immunities of the
Indenture Trustee, and SRPC's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the applicable Indenture.
In order to exercise Legal Defeasance, (i) SRPC must irrevocably deposit
with the Indenture Trustee, in trust, for the benefit of the Holders of the
Notes, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be, of
such principal or installment of principal of and premium, if any, or interest
on such Notes; (ii) SRPC shall have delivered to the Indenture Trustee an
opinion of counsel in the United States reasonably acceptable to the Indenture
Trustee confirming that (A) SRPC has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of such Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
with respect to the Indenture resulting from the incurrence of Indebtedness, all
or a portion of which will be used to defease the Notes concurrently with such
incurrence) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (iv) such Legal Defeasance shall not result in a breach or violation
of, or constitute a default under the Indenture or any other material agreement
or instrument to which SRPC or any of its Subsidiaries is a party or by which
SRPC or any of its Subsidiaries is bound; (v) SRPC shall have delivered to the
Indenture Trustee an officer's certificate stating that the deposit was not made
by SRPC with the intent of preferring the Holders of such Notes over any other
creditors of SRPC or others; and (vi) SRPC shall have delivered to the Indenture
Trustee an officer's certificate and an opinion of counsel, each stating that
all conditions precedent provided for or relating to the Legal Defeasance have
been complied with.
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
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<PAGE>
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for such Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Note held by a non-consenting Holder) (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the Expected Maturity Date or
Legal Maturity Date or alter or waive the provisions with respect to the
redemption of the Notes, (iii) reduce the rate of or change the time for payment
of interest on any Note, (iv) waive a Default or Event of Default in the payment
of principal of, premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount thereof and a waiver of the payment default that resulted from
such acceleration), (v) make any Note payable in money other than that stated in
the Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of the Holders of Notes to receive
payments of principal of or interest on the Notes or (vii) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder, SRPC and
the Indenture Trustee may amend or supplement the Indenture or the Notes to cure
any ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
SRPC's obligations to the Holders of the Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder.
In addition, the Pooling and Servicing Agreement and the Receivables
Purchase Agreement may be amended without the prior consent of the Holders of
the Notes. However, SRPC must consent to any such amendment. SRPC will agree
with Holders not to grant any such consent if such amendment would materially
adversely affect the rights of Holders without first obtaining the consent of
the Holders of the majority of the outstanding principal amount of the Notes.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The registrar under the Indenture and the Indenture Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and SRPC may require a Holder to pay any taxes and fees required by
law or permitted by the Indenture. SRPC is not required to transfer or exchange
any Note selected for redemption. Also, SRPC is not required to transfer or
exchange any Note for a period of 15 days before a selection of such Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner for all
purposes.
BOOK-ENTRY, DELIVERY AND FORM
Except as described in the next paragraph, the New Notes initially will be
represented by a single, permanent global certificate in definitive, fully
registered form (the "GLOBAL NOTE"). The Global Note will be deposited on the
date of closing of the Exchange Offer (the "CLOSING DATE") with, or on behalf
of, the Depositary and registered in the name of a nominee of the Depositary.
Any Old Notes (i) originally purchased by or transferred to "foreign
purchasers" or Accredited Investors who are not QIBs or (ii) held by QIBs who
elected to take physical delivery of their certificates instead of holding their
interest through the Global Note (and which are thus ineligible to trade through
the Depositary) (collectively referred to herein as the "NON-GLOBAL PURCHASERS")
were issued in registered form (the "CERTIFICATED SECURITY"). Upon the 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.
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<PAGE>
THE GLOBAL NOTE
SRPC expects that pursuant to procedures established by Depositary (i)
upon the issuance of the Global Note, the Depositary or its custodian will
credit, on its internal system, the principal amount of Notes of the individual
beneficial interests represented by such Global Note to the respective accounts
of persons who have accounts with such Depositary and (ii) ownership of
beneficial interests in the Global Note will be shown on, and the transfer of
such ownership will be effected only through, records maintained by the
Depositary or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants). Such accounts were initially designated by or on behalf of the
Initial Purchaser and ownership of beneficial interests in the Global Note will
be limited to persons who have accounts with the Depositary ("DEPOSITARY
PARTICIPANTS") or persons who hold interests through Depositary participants.
QIBs may hold their interests in the Global Note directly through the Depositary
if they are Depositary participants in such system, or indirectly through
organizations which are Depositary participants in such system.
So long as the Depositary or its nominee, is the registered owner or
holder of the Notes, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global Note
for all purposes under the Indenture. No beneficial owner of an interest in the
Global Note will be able to transfer that interest except in accordance with
Depositary's procedures, in addition to those provided for under the Indenture
with respect to the Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on, the Global Note will be made to the Depositary or its
nominee, as the case may be, as the registered owner thereof. None of SRPC, the
Trustee or any paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
SRPC expects that the Depositary or its nominee, upon receipt of any
payment of principal, premium, if any, or interest in respect of the Global
Note, will credit Depositary participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Note as shown on the records of the Depositary or its nominee.
SRPC also expects that payments by Depositary participants to owners of
beneficial interests in the Global Note held through such participants will be
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between Depositary participants in the Depositary will be
effected in the ordinary way in accordance with Depositary rules and will be
settled in clearinghouse funds. If a Holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such Holder must transfer its interest in the Global Note, in
accordance with the normal procedures of Depositary and with the procedures set
forth in the Indenture.
The Depositary has advised SRPC that it will take any action permitted to
be taken by a Holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more Depositary participants
to whose account the Depositary interests in the Global Note are credited and
only in respect of such portion of the aggregate principal amount of Notes as to
which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Indenture, the Depositary
will exchange the Global Note for Certificated Securities, which it will
distribute to its participants.
The Depositary has advised SRPC as follows: the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 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
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securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the Depositary system is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Depositary
participant, either directly or indirectly ("INDIRECT PARTICIPANTS").
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depositary, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither SRPC nor the Indenture
Trustee will have any responsibility for the performance by the Depositary or
its participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
CERTIFICATED SECURITIES
If the Depositary is at any time unwilling or unable to continue as a
depositary for the Global Note and a successor depositary is not appointed by
SRPC within 90 days, Certificated Securities will be issued in exchange for the
Global Note.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes (including
principal, premium, if any, and interest) be made in immediately available
funds. Secondary trading in long-term notes and debentures of corporate issuers
is generally settled in clearing-house or next-day funds. In contrast, the New
Notes are expected to be eligible to trade in the PORTAL Market and to trade in
the Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in the New Notes will therefore be required by the
Depositary to be settled in immediately available funds. No assurance can be
given as to the effect, if any, of such settlement arrangements on trading
activity in the New Notes.
REGISTRATION RIGHTS
On May 30, 1996, SRPC entered into the Registration Rights Agreement with
the Initial Purchaser. Pursuant to the Registration Rights Agreement, SRPC
agreed to file with the Commission the Registration Statement with respect to
the New Notes. Upon effectiveness of the Registration Statement, SRPC will
effect the Exchange Offer. The rights granted to Holders pursuant to the
Registration Rights Agreement terminate upon the consummation of the Exchange
Offer.
CONCERNING THE INDENTURE TRUSTEE
The Indenture contains certain limitations on the rights of the Indenture
Trustee, should the Indenture Trustee become a creditor of SRPC, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Indenture Trustee
will be permitted to engage in other transactions; however, if the Indenture
Trustee acquires any conflicting interest it must eliminate such conflict within
90 days.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Indenture Trustee, subject
to certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Indenture Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Indenture Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Indenture Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to SRPC at 10201 South Main Street, Houston, Texas
77025, Attention: Corporate Secretary.
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DESCRIPTION OF THE COLLATERAL
SRPC's payment obligations under the Notes will be secured by the
Collateral Certificates (comprised of the $30,000,000 Class D-1 Certificate,
Series 1993-1 and the $5,120,000 Class D-1 Certificate Series 1995-1 and certain
rights with respect to the Transferor Certificate). SRPC has assigned and
pledged the Collateral Certificates to the Indenture Trustee 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 the Receivables Trustee. SRPC, SRI and the Receivables Trustee
from time to time execute Supplements to the Pooling and Servicing Agreement in
connection with the issuance of each Series of Certificates. Each Supplement
contains information concerning the rights and obligations of the
Certificateholders of that Series.
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Pursuant to the Series 1993-1 Supplement, $121,500,000 aggregate principal
amount of the 1993-1 Class A Certificates, $8,500,000 aggregate principal amount
of the 1993-1 Class B Certificates, and $10,000,000 aggregate principal amount
of the 1993-1 Class C Certificates were issued to investors, and the $30,000,000
1993-1 Class D Certificate was issued to SRPC.
Pursuant to the Series 1993-2 Supplement, the 1993-2 Class A-R
Certificates and the 1993-2 Class B-R 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 Series of Variable Funding Certificates with
fluctuating principal amounts. 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, $21,700,000 aggregate principal
amount of the 1995-1 Class A Certificates, $1,500,000 aggregate principal amount
of the 1995-1 Class B Certificates, and $1,800,000 aggregate principal amount of
the 1995-1 Class C Certificates were issued to investors, and the $5,120,000
1995-1 Class D Certificate was issued to SRPC.
The Transferor Certificate represents the fractional undivided interest in
the Trust assets that is not represented by the Investor Certificates. The
amount of the Transferor Certificate varies daily according to the amount of
Principal Collections held by the Trust, the amount on deposit in the
Equalization Account, the level of utilization of the Variable Funding
Certificates and other factors.
PRINCIPAL TERMS
The principal terms of each class of each Series of Certificates are as
follows:
1993-1 CLASS A CERTIFICATES
Class A Initial Invested Amount...............................$121,500,000
Class A Certificate Rate......................................LIBOR + .82%
Class A Expected Final Payment Date...........................June 1, 2000
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date................................................July 30, 1993
Ratings............................................................AAA/AAA
1993-1 CLASS B CERTIFICATES
Class B Initial Invested Amount.................................$8,500,000
Class B Certificate Rate.....................................LIBOR + 1.39%
Class B Expected Final Payment Date......................September 1, 2000
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date................................................July 30, 1993
Ratings................................................................A/A
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1993-1 CLASS C CERTIFICATES
Class C Initial Invested Amount................................$10,000,000
Class C Certificate Rate.....................................LIBOR + 3.00%
Class C Expected Final Payment Date......................September 1, 2000
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date................................................July 30, 1993
Ratings............................................................BBB/BBB
1993-1 CLASS D CERTIFICATE
Class D Initial Invested Amount................................$30,000,000
Class D Certificate Rate................................................0%
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date................................................July 30, 1993
1993-2 CLASS A-R CERTIFICATES
Class A-R Stated Amount........................................$40,000,000
Class A-R Invested Amount (as of February 3, 1996)......................$0
Class A-R Certificate Rate.........Revolving Credit Facility Cost of Funds
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date................................................July 30, 1993
Ratings............................................................AAA/AAA
1993-2 CLASS B-R CERTIFICATES
Class B-R Stated Amount........................................$15,555,556
Class B-R Invested Amount (as of February 3, 1996)......................$0
Class B-R Certificate Rate..............................................0%
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date................................................July 30, 1993
1995-1 CLASS A CERTIFICATES
Class A Initial Invested Amount................................$21,700,000
Class A Certificate Rate......................................LIBOR + .52%
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date..............................................August 11, 1995
Ratings............................................................AAA/AAA
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1995-1 CLASS B CERTIFICATES
Class B Initial Invested Amount.................................$1,500,000
Class B Certificate Rate......................................LIBOR +1.50%
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date..............................................August 11, 1995
Ratings................................................................A/A
1995-1 CLASS C CERTIFICATES
Class C Initial Invested Amount.................................$1,800,000
Class C Certificate Rate......................................LIBOR +1.50%
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date..............................................August 11, 1995
Ratings............................................................BBB/BBB
1995-1 CLASS D CERTIFICATE
Class D Initial Invested Amount.................................$5,120,000
Class D Certificate Rate................................................0%
Scheduled Amortization Period Commencement Date...........December 1, 1999
Scheduled Series Termination Date..........................January 1, 2003
Series Servicing Fee Percentage.........................................2%
Issuance Date..............................................August 11, 1995
TRUST ASSETS
The Trust's assets include (i) all Receivables existing from time to time
in the Accounts, (ii) all funds to be collected from cardholders in respect of
the Receivables, (iii) all right, title and interest of SRPC in, to and under
the Receivables Purchase Agreement, (iv) the Interest Rate Caps, for each
Series, (v) the benefit of funds on deposit in the Equalization Account, (vi)
the Collection Account, Distribution Account, Interest Funding Account and the
Principal Account for each Series and (vii) proceeds of the foregoing.
SRPC purchases all of the Receivables arising from time to time (i) in all
of the consumer revolving credit card accounts which were owned by Palais on the
Original Closing Date for the Series 1993-1 Certificates, (ii) in each Automatic
Additional Account and (iii) in certain circumstances, each Supplemental Account
(collectively, the "ACCOUNTS"), whether such Receivables are then existing or
thereafter created.
SRPC automatically transfers to the Trust all of its right, title and
interest in and to the Receivables purchased by it. SRPC has the right, under
certain circumstances, to cause the Receivables in any Removed Accounts to no
longer be transferred to the Trust and to accept the transfer from the Trust of
all Receivables in any Removed Accounts, whether such Receivables are then
existing or thereafter created.
RECEIVABLES
The Receivables consist of amounts charged by cardholders to the Accounts
for goods and services, and all related monthly finance charges, late charges,
returned check fees, proceeds allocable to finance charges, certain recoveries
(net of collection expenses) on Receivables which were previously charged off as
uncollectible, and all other fees billed to cardholders on the Accounts in any
Fiscal Month. The amount of Receivables fluctuates from day to
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day as new Receivables are generated and as existing Receivables are collected,
written off as uncollectible, or otherwise adjusted.
AMORTIZATION PERIOD
During an Amortization Period for any Series, Principal Collections
allocable to the Certificates (other than the Transferor Retained Class) and
certain other amounts are no longer reinvested in the Trust, but instead are
distributed for each Series as principal payments quarterly on each Distribution
Date beginning with the first Distribution Date following the Amortization
Period Commencement Date. Following the payment in full of the Invested Amount
of the Senior Certificates, Principal Collections are distributed to the Class D
Certificateholders until the Class D Invested Amount for such Series is paid in
full. See "--Final Payment of Principal on Senior Certificates; Termination."
SHARED PRINCIPAL COLLECTIONS
To the extent that Principal Collections and certain other amounts that
are allocated to the Certificates of any Class of any Series (other than any
Transferor Retained Class, such as the Class D Certificates) are not needed to
make payments to the Certificateholders of such Class or required to be
deposited in the Principal Account for such Series, they may be applied to cover
principal payments due to or for the benefit of Certificateholders of another
Series, including principal payments which SRPC elects to make with respect to
the Variable Funding Certificates. Any amount not so applied will be deposited
in the Equalization Account, to the extent required pursuant to the Pooling and
Servicing Agreement and the remainder will be distributed to SRPC, as holder of
the Transferor Certificate. In addition, any such reallocation will not result
in a reduction in the Certificateholders' Interest of the Series to which such
Principal Collections were initially allocated. Such amounts are referred to
herein as "SHARED PRINCIPAL COLLECTIONS" and are derived from the following
sources:
(A) for each business day during a Revolving Period for a Designated
Series, (i) the product of (a) the Floating Allocation Percentage
for such Designated Series and (b) Principal Collections allocated
to such Designated Series as set forth in clause (iv) of
"--Application of Collections--Allocations;" (ii) the amount
allocated with respect to the unpaid Investor Default Amount for
such Designated Series for the current day and any prior business
day during the then-current Fiscal Month as described in clause (3)
of "--Application of Collections--Payment of Fees, Interest and
Other Items--Designated Series;" and (iii) for such Designated
Series, the amount allocated with respect to the unreimbursed Class
A Investor Charge-Offs, Class B Investor Charge-Offs, Class C
Investor Charge-Offs and Class D Investor Charge-Offs as described
in clauses (4), (6) and (7) of "-- Application of
Collections--Payment of Fees, Interest and Other Items--Designated
Series;"
(B) for each business day during a Revolving Period for a Variable
Funding Series, to the extent not used to pay amounts in respect of
principal of the Variable Funding Certificates, (i) the product of
(a) the Class Variable Funding Floating Allocation Percentage for
such Variable Funding Series and (b) Principal Collections allocated
to such Variable Funding Series; (ii) the unpaid Investor Default
Amount for such Variable Funding Series for the current day and any
prior business day during the then-current Fiscal Month as described
in clause (C) of "--Application of Collections--Payment of Fees,
Interest and Other Items--Variable Funding Series;" and (iii) the
amount of remaining and unreimbursed Class A-R Investor Charge-Offs
and Class B-R Investor Charge-Offs as described in clauses (D) and
(E) of "--Application of Collections--Payment of Fees, Interest and
Other Items-- Variable Funding Series;" and
(C) for each business day during an Amortization Period for a Designated
Series, (i) on and prior to the day on which the Class Invested
Amount for the Class A Certificateholders of such Designated Series
has been deposited in the Principal Account for such Designated
Series, the product of (a) the sum of the Class Fixed Allocation
Percentage for the Class B Certificates of such Designated Series
and the Class Fixed Allocation Percentage for the Class C
Certificates of such Designated Series,
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multiplied by (b) the Principal Collections allocated to such
Designated Series; (ii) on and after the day on which the Class
Invested Amount for the Class A Certificates of such Designated
Series has been deposited in the Principal Account for such
Designated Series, the product of (a) the sum of the Class Fixed
Allocation Percentage for the Class A Certificates and the Class C
Certificates of such Designated Series, multiplied by (b) Principal
Collections allocated to such Designated Series; and (iii) on and
after the day on which the Class Invested Amount for the Class B
Certificates of such Designated Series has been deposited in the
Principal Account for such Designated Series, the product of (a) the
sum of the Class Fixed Allocation Percentage for the Class A
Certificates and the Class B Certificates of such Designated Series,
multiplied by (b) Principal Collections allocated to such Designated
Series.
TRANSFEROR PERCENTAGE CASH FLOWS
PRINCIPAL COLLECTIONS. On each business day, SRPC, as holder of the
Transferor Certificate, will receive a portion of Principal Collections equal to
(i) the product of (a) the Transferor Percentage and (b) Principal Collections
less (ii) the amount of Principal Collections deposited in the Equalization
Account as set forth in the second sentence under "--Finance Charge
Collections."
FINANCE CHARGE COLLECTIONS. On each business day, SRPC as holder of the
Transferor Certificate, will receive an amount equal to (i) the product of (a)
the Transferor Percentage and (b) Finance Charge Collections minus (ii) the sum
of (a) the amount of Finance Charge Collections deposited in the Equalization
Account as set forth in the next sentence and (b) any amount of such portion of
Finance Charge Collections applied to satisfy the Required Amount of any Series
pursuant to "--Application of Collections--Payment of Fees, Interest and Other
Items."
Principal Collections and Finance Charge Collections allocated and
otherwise payable to SRPC as set forth above on any business day will instead be
deposited in the Equalization Account, if and to the extent of any Minimum
Transferor Interest Deficiency for such business day.
RELEASED EQUALIZATION ACCOUNT CASH FLOWS. On each business day during a
Revolving Period for a Designated Series, SRPC is entitled to receive funds from
the Equalization Account in the amount by which the Transferor Interest exceeds
the Minimum Transferor Interest for such day. See "--Equalization Account."
TRANSFEROR SHARED PRINCIPAL COLLECTION CASH FLOWS
SRPC is entitled to receive Principal Collections and Finance Charge
Collections that are treated as Shared Principal Collections, EXCEPT to the
extent that such Shared Principal Collections are applied (i) to a Principal
Shortfall for any Series, (ii) to repayment of principal of any Variable Funding
Certificate, or (iii) in the event that a Minimum Transferor Interest Deficiency
exists, to increase the amount in the Equalization Account to the extent
necessary to eliminate such deficiency.
TRANSFEROR EXCESS FINANCE CHARGE CASH FLOWS
On each business day other than during an Early Amortization Period for
any Designated Series, SRPC will receive an amount equal to the Excess Finance
Charge Collections for such Series less (i) the amount needed for other Series
to cover any shortfalls in Required Amounts or other uses of Finance Charge
Collections, as further described in "--Application of Collections--Payment of
Fees, Interest and Other Items--Designated Series," (ii) any amounts paid to a
successor Servicer in respect of unpaid commercially reasonable costs and
expenses, and (iii) the unpaid amount, if any, of Required Adjustment Payments,
which unpaid amount will be deposited in the Equalization Account. During an
Early Amortization Period for any Designated Series, SRPC will receive such
amount only on the last business day of each Fiscal Month. On each business day
during an Early Amortization Period other than the last business day of the
Fiscal Month, Excess Finance Charge Collections are deposited in the Interest
Funding Account for such Series and are reapplied as Available Designated Series
Finance Charge Collections or Available Variable
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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 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,
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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 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.
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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, 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
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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 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
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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 Account since the preceding Distribution Date are withdrawn from
the Equalization Account and treated as Finance Charge Collections.
INTEREST PAYMENTS
Interest will accrue on the Class Invested Amount for each Senior Class at
the Class A Certificate Rate, Class B Certificate Rate or Class C Certificate
Rate, as the case may be. Interest will be distributed on each Distribution Date
to Certificateholders in the amount equal to one-fourth of the product of the
applicable Certificate Rate and the applicable Class Invested Amount as of the
preceding Record Date. Interest is calculated on the basis of the number of days
in an Interest Accrual Period over a year of 360 days.
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
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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;
(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
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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 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;
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(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."
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
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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 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
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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.
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;
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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;
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
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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 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
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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 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
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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 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.
EXCHANGES
The Pooling and Servicing Agreement provides for the Receivables Trustee
to issue two types of certificates: (i) one or more Series of Certificates, each
of which may have one or more classes which are transferable, and (ii) the
Transferor Certificate. The Transferor Certificate evidences the Transferor
Interest, is held initially by the Transferor,
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and is transferable only as provided in the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement also provides that, pursuant to any one or more
Supplements, the holder of the Transferor Certificate may tender the Transferor
Certificate and the Certificates evidencing any Series of Certificates to the
Trustee in exchange for one or more new Series and a reissued Transferor
Certificate. The holder of the Transferor Certificate may define, with respect
to any newly issued Series, certain terms including: (i) its name or
designation; (ii) its initial invested amount (or method for calculating such
amount); (iii) its certificate rate (or the method of allocating interest
payments or other cash flows to such Series); (iv) the closing date; (v) the
rating agency or agencies, if any, rating the Series; (vi) the interest payment
date or dates and the date or dates from which interest shall accrue; (vii) the
name of the clearing agency, if any; (viii) the method for allocating
collections to Certificateholders of such Series with respect to Principal
Collections, Finance Charge Collections, and Receivables in defaulted Accounts
and the method by which the principal amount of such Series will amortize or
accrue; (ix) the names of any accounts to be used by such Series and the terms
governing the operation of any such accounts; (x) the percentage used to
calculate monthly servicing fees; (xi) the Minimum Transferor Interest; (xii)
the Enhancement provider, if applicable, and the terms of any Enhancement with
respect to such Series; (xiii) the base rate applicable to such Series; (xiv)
the terms on which the Certificates of such Series may be repurchased or
remarketed to other investors; (xv) the termination date of such Series; (xvi)
any deposit into any account provided; (xvii) the number of classes of such
Series and, if more than one class, the rights and priorities of each such
class; (xviii) the fees, if any, to be included in funds available to
Certificateholders in such Series; (xix) the subordination, if any, of such new
Series with respect to any other Series; (xx) the rights, if any, of the holder
of the Transferor Certificate that have been transferred to the holders of such
Series; (xxi) the pool factor (consisting of a seven-digit decimal expressing
the ratio of the investor interest to the initial investor interest); (xxii)
whether such Series will be part of a group or subject to being paired with any
other prefunded Series; (xxiii) whether such Series will be prefunded or paired
with any other Series; and (xxiv) any other relevant terms, including whether or
not such Series will be pledged as collateral for an issuance of any other
securities, including commercial paper. None of the Transferor, the Servicer,
the Receivables Trustee, or the Trust is required or intends to obtain the
consent of any Certificateholder to issue any additional Series or in connection
with the determination of the principal terms thereof. However, as a condition
of an Exchange, the holder of the Transferor Certificate will deliver to the
Trustee written confirmation that the Exchange will not result in the Rating
Agencies reducing or withdrawing their rating of any outstanding Series. In
addition, each Rating Agency must reconfirm its original rating of each Class of
rated Certificates. The Transferor may offer any Series to the public or other
investors in transactions either registered under the Securities Act or exempt
from registration thereunder, directly, through one or more underwriters or
placement agents, in fixed-price offerings, in negotiated transactions, or
otherwise. Any such Series may be issued in fully registered or book-entry form
in minimum denominations determined by the Transferor.
The Pooling and Servicing Agreement provides that the holder of the
Transferor Certificate may perform Exchanges and define the principal terms of
each Series, including the period during which amortization of the principal
amount thereof is intended to occur, which period may have a different length
and begin on a different date than such period for any other Series.
Accordingly, one or more Series may be in their amortization periods while other
Series are not. Moreover, any Series may have the benefit of an Enhancement
which is available only to such Series. Under the Pooling and Servicing
Agreement, the Receivables Trustee will hold any such form of Enhancement only
on behalf of the Series with respect to which it relates. Likewise, with respect
to each such form of Enhancement, the holder of the Transferor Certificate may
deliver a different form of Enhancement agreement. The Pooling and Servicing
Agreement also provides that the holder of the Transferor Certificate may
specify different coupon rates and monthly servicing fees with respect to each
Series (or a particular class within such Series). Collections allocated to
Finance Charge Collections not used to pay interest on the Certificates, the
monthly servicing fee, the Investor Default Amount, or investor charge-offs with
respect to any Series will be allocated as provided in such Enhancement
agreement, if applicable. The holder of the Transferor Certificate also has the
option under the Pooling and Servicing Agreement to vary between Series the
terms upon which a Series (or a particular class within such Series) may be
repurchased by the Transferor or remarketed to other investors. Additionally,
certain Series may be subordinated to other Series, and classes within a Series
may have different priorities. There is no limit to the number of Exchanges that
may be performed under the Pooling and Servicing Agreement. The Trust will
terminate only as provided in the Pooling and Servicing Agreement.
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Under the Pooling and Servicing Agreement and pursuant to a Supplement, an
Exchange may occur only upon the satisfaction of certain conditions provided in
the Pooling and Servicing Agreement. Under the Pooling and Servicing Agreement,
the holder of the Exchangeable Certificate may perform an Exchange by notifying
the Receivables Trustee at least five business days in advance of the date upon
which the Exchange is to occur. Under the Pooling and Servicing Agreement, the
notice will state the designation of any Series to be issued on the date of the
Exchange and, with respect to each such Series: (i) its initial principal amount
(or method for calculating such amount), which amount may not be greater than
the then-current principal amount of the Transferor Certificate, (ii) its
certificate rate (or the method of allocating interest payments or other cash
flows to such Series), and (iii) the provider of the Enhancement, if any, which
is expected to provide credit support with respect to it. The Pooling and
Servicing Agreement provides that on the date of the Exchange the Receivables
Trustee will authenticate any such Series only upon delivery to the Receivables
Trustee of the following: (i) a Supplement specifying the principal terms of
such Series, (ii) an opinion of counsel to the effect that the certificates of
such Series will be characterized as indebtedness or as partnership interests
under existing law for federal and applicable state income tax purposes and that
the issuance of such Series will not materially adversely affect the federal
income tax characterization of any outstanding Series or result in the Trust
being subject to tax at the entity level for federal or applicable state tax
purposes, (iii) if required by such Supplement, the form of Enhancement and an
appropriate Enhancement agreement with respect thereto executed by the
Transferor and the issuer of the Enhancement, (iv) written confirmation from
each Rating Agency that the Exchange will not result in such Rating Agency
reducing or withdrawing its original rating on any then-outstanding Series rated
by it, (v) the existing Transferor Certificate and, if applicable, the
Certificates representing the Series to be exchanged, and (vi) an officer's
certificate of the Transferor stating that, after giving effect to such
Exchange, certain conditions will be met. Upon satisfaction of such conditions,
the Receivables Trustee will cancel the existing Transferor Certificate and the
Certificates of the exchanged Series, if applicable, and authenticate the new
Series and a new Transferor Certificate.
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.
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In the event that SRPC has breached its representations in the Pooling and
Servicing Agreement regarding the Receivables Trustee's holding a first priority
security interest in the Receivables, certain basic corporate matters, and the
enforceability of the Pooling and Servicing Agreement and the Receivables
Purchase Agreement, then (upon the direction of the Receivables Trustee or a
majority of the investors in Certificates) SRPC is obligated to accept
reassignment of the Trust's portfolio of Receivables in exchange for a deposit
with the Receivables Trustee of an amount sufficient to repay the Invested
Amount and accrued interest of all Investor Certificates (such reassignment
being a "PORTFOLIO REASSIGNMENT"). Under the Receivables Purchase Agreement,
Palais has a similar obligation to accept a reassignment from SRPC in the event
of a breach of similar representations by Palais. See "--Recourse Arrangements."
RECOURSE ARRANGEMENTS
The Collateral Certificates have the benefit of Required Adjustment
Payments and of the payments required to be made by SRPC to the Trust for the
benefit of Certificateholders with respect to breaches of certain
representations and warranties as described in "Defaulted Receivables; Rebates
and Fraudulent Charges; Portfolio Reassignment." Such payment obligations of
SRPC are supported by corresponding obligations imposed on Palais pursuant to
the Receivables Purchase Agreement. In the event of a breach of any
representation or warranty made by Palais with respect to a Receivable sold by
Palais or in the event that a Receivable sold by Palais is not an Eligible
Receivable, Palais is obligated to pay SRPC the outstanding balance of such
Receivable. In addition, SRPC may direct Palais to repurchase an amount of
Receivables designated by SRPC, which designation may include all of the
Receivables, in the event of a breach of certain representations and warranties
made by Palais.
As described in "--Equalization Account" and "--Transferor Excess Finance
Charge Cash Flows," certain funds may be deposited into or withdrawn from the
Equalization Account as a result of SRPC's failure to make any Required
Adjustment Payment. Any such deposit or withdrawal shall not discharge SRPC from
its obligation to make such adjustment payment.
In addition, subject to certain limitations, SRI will indemnify SRPC from
liabilities incurred as a result of actions of SRI as Servicer.
INVESTOR CHARGE-OFFS
The Class D Invested Amount for a Designated Series is increased (but not
in excess of the unpaid principal balance of the Class D Certificates of such
Series) on any business day by the amounts allocated and available for that
purpose as described under clause (7) of "--Application of Collections--Payment
of Fees, Interest, and Other Items-Designated Series."
If, on the second business day preceding a Distribution Date (the
"DETERMINATION DATE"), the aggregate Investor Default Amount for a Series, if
any, for all business days in the preceding Fiscal Month exceeded the aggregate
amount of Finance Charge Collections, Transferor Finance Charge Collections,
amounts available from the Negative Carry Account, and Excess Finance Charge
Collections allocated with respect to Investor Default Amounts during such
Fiscal Month, then the Class D Invested Amount for such Series will be reduced
by the aggregate amount of such excess, but not more than the aggregate Investor
Default Amount for such Series for such Fiscal Month (such reduction being a
"CLASS D INVESTOR CHARGE-OFF").
In the event that any such reduction of the Class D Invested Amount for a
Designated Series would cause the Class D Invested Amount for such Designated
Series to be a negative number, the Class D Invested Amount for such Designated
Series is reduced to zero, and the Class Invested Amount for the Class C
Certificates for such Designated Series is reduced by the aggregate amount of
such excess, but not more than the aggregate Investor Default Amount for such
Fiscal Month (a "CLASS C INVESTOR CHARGE-OFF"). The Class Invested Amount for
the Class C Certificates of 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."
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In the event that any such reduction of the Class Invested Amount for the
Class C Certificates of such Designated Series would cause the Class Invested
Amount for the Class C Certificates of a Designated Series to be a negative
number, the Class Invested Amount for the Class C Certificates of such
Designated Series is reduced to zero, and the Class Invested Amount for the
Class B Certificates of such Designated Series is reduced by the aggregate
amount of such excess, but not more than the aggregate Investor Default Amount
for such Fiscal Month (a "CLASS B INVESTOR CHARGE-OFF"). The Class Invested
Amount for the Class B Certificates of such Designated Series is thereafter
increased (but not in excess of the unpaid principal balance of the Class B
Certificates of such Designated Series) in any Fiscal Month by the amounts
allocated and available for that purpose as described under clause (6) of
"-Application of Collections--Payment of Fees, Interest, and Other
Items--Designated Series."
In the event that any such reduction of the Class Invested Amount for the
Class B Certificates of a Designated Series would cause the Class Invested
Amount for the Class B Certificates of a Designated Series to be a negative
number, the Class Invested Amount for the Class B Certificates is reduced to
zero, and the Class Invested Amount for the Class A Certificates of such
Designated Series is reduced by the amount by which the Class Invested Amount
for the Class B Certificates would have been reduced below zero, but not more
than the aggregate Investor Default Amount for such Fiscal Month (a "CLASS A
INVESTOR CHARGE-OFF"). If the Class Invested Amount for the Class A Certificates
has been reduced by the amount of any Class A Investor Charge-Offs, it is
increased on any business day (but not by an amount in excess of the aggregate
Class A Investor Charge-Offs) by the amounts allocated and available for such
purpose as described under clause (4) of "--Application of Collections--Payment
of Fees, Interest, and Other Items-Designated Series." The Class A Investor
Charge-Off, the Class B Investor Charge-Off, the Class C Investor 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
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A Certificates of such Series until paid in full, then to the Class B
Certificates of such Series until paid in full, then to the Class C Certificates
of such Series until paid in full, and finally to the Class D Certificates of
such Series to the extent necessary to pay such remaining amounts to all
Certificateholders of such Series pro rata within each Class as final payment of
the Certificates) interests in the Receivables or certain Receivables, as
specified in the Pooling and Servicing Agreement and any applicable Supplement,
in an amount up to 110% of the Invested Amount of such Series at the close of
business on such date (but not more than the total amount of Receivables
allocable to the Certificates). If the sale contemplated by the preceding
sentence has not occurred by the applicable Termination Date for such Series,
the affected Certificateholders of such Series shall remain entitled to receive
proceeds of such sale when it occurs. The net proceeds of such sale and any
collections on the Receivables, up to an amount equal to the Aggregate Invested
Amount of such Series plus accrued interest due on the Certificates, will be
paid on the Termination Date first to Class A Certificateholders of such Series
until the Class Invested Amount for the Class A Certificates of such Series is
paid in full, then to the Class B Certificateholders of such Series until the
Class Invested Amount for the Class B Certificates of such Series is paid in
full, then to the Class C Certificateholders of such Series until the Class
Invested Amount for the Class C Certificates is paid in full, and then to the
Class D Certificateholders of such Series until the Class D Invested Amount is
paid in full.
Unless SRI and the holder of the Transferor Certificate instruct the
Receivables Trustee otherwise, the Trust terminates on the earlier of (a) the
day after the Distribution Date following the date on which funds shall have
been deposited in the Distribution Account for the payment to certificateholders
outstanding sufficient to pay in full the aggregate investor interest of all
Series outstanding plus interest thereon at the applicable certificate rates
through the end of the day prior to the next Distribution Date and (b) a date
which shall not be later than the expiration of 21 years from the death of the
last survivor of the descendants of a specified person living on the date of the
Pooling and Servicing Agreement. Upon the termination of the Trust and the
surrender of the Transferor Certificate, the Receivables Trustee will convey to
the holder of the Transferor Certificate all right, title and interest of the
Trust in and to the Receivables and other funds of the Trust (other than funds
on deposit in the Distribution Account and other similar bank accounts of the
Trust with respect to any Series).
PAY OUT EVENTS
As described in "--Final Payment of Principal on Senior Certificates;
Termination," the Revolving Period for each Designated Series will continue
unless a Pay Out Event occurs prior to such date. A "PAY OUT EVENT" for a
Designated Series refers to any of the following events:
(i) failure on the part of SRPC (a) to make any payment or deposit
on the date required under the Pooling and Servicing Agreement (or within
the applicable grace period which will not exceed five business days) or
(b) to observe or perform in any material respect any other covenants or
agreements of SRPC set forth in the Pooling and Servicing Agreement, the
Receivables Purchase Agreement or any applicable Supplement, which failure
has a material adverse effect on the Certificateholders and which
continues unremedied for a period of 60 days after written notice of such
failure, requiring the same to be remedied, shall have been given to SRPC
by the Receivables Trustee, or to SRPC and the Receivables Trustee by the
holders of 50% of the Aggregate Invested Amount of any Series and
continues to materially and adversely affect the interests of the
Certificateholders for such period;
(ii) any representation or warranty made by SRPC in the Pooling and
Servicing Agreement or any information required to be given by SRPC to the
Receivables Trustee to identify the Accounts proves to have been incorrect
in any material respect when made and which continues to be incorrect in
any material respect for a period of 60 days after written notice to SRPC
from the Receivables Trustee, or to SRPC and the Receivables Trustee by
Certificateholders representing more than 50% of the Aggregate Invested
Amount of any class of any Series outstanding, and as a result of which
the interests of the Certificateholders are materially and adversely
affected and continue to be materially and adversely affected for such
period; EXCEPT 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;
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(iii) certain events of insolvency or receivership relating to SRPC
or SRI;
(iv) any reduction of the average of the Portfolio Yields for any
three consecutive Fiscal Months to a rate which is less than the weighted
average of the Base Rates for three consecutive Fiscal Months;
(v) the Trust shall become subject to regulation by the Commission
as an "investment company" within the meaning of the Investment Company
Act of 1940, as amended;
(vi) for any Series, (a) a Minimum Transferor Interest Deficiency
exists, (b) the Transferor Interest is less than the Minimum Transferor
Interest or (c) the total amount of principal Receivables and the amount
on deposit in the Equalization Account is less than the Minimum Aggregate
Principal Receivables, in each case for 15 consecutive days;
(vii) any Servicer Default (as defined below) shall occur which
would have a material adverse effect on the Certificateholders; or
(viii) SRI or any of its affiliates shall fail to own or control
100% of the issued and outstanding stock of SRPC.
In the case of any event described in clause (i), (ii), or (vii) above, a
Pay Out Event will be deemed to have occurred only if, after any applicable
grace period, holders of more than 50% of the Aggregate Invested Amount of any
Designated Series, by written notice to SRPC and SRI, declare that a Pay Out
Event has occurred with respect to the Certificates as of the date of such
notice. The Class D Certificateholders are not entitled to vote on any matter.
In the case of any event described in clause (iii), (v) or (viii) above, a Pay
Out Event with respect to all Series then outstanding (a "TRUST PAY OUT EVENT"),
and in the case of any event described in clause (iv) or (vi), a Pay Out Event
with respect only to such Series, will be deemed to have occurred without any
notice or other action on the part of the Receivables Trustee or the
Certificateholders immediately upon the occurrence of such event. On the date on
which either a Pay Out Event or a Trust Pay Out Event is deemed to have occurred
(the "PAY OUT COMMENCEMENT DATE"), the Early Amortization Period will commence
for all Series, in the case of a Trust Pay Out Event or for the applicable
Series in the case of a Pay Out Event. In such event, distributions of principal
to the Certificateholders will begin on the first Distribution Date following
the Fiscal Month in which such Pay Out Event occurred. Furthermore, if a Pay Out
Event shall be deemed to have occurred in regards to any event described in
clause (i) above and such event shall have been willful on the part of SRPC or
if an event described in clause (viii) shall have occurred (either such event,
an "EARLY TERMINATION EVENT") on or before the one year anniversary of the
Original Closing Date for such Designated Series, then the holders of the Senior
Certificates shall receive the early termination amount for such Series, in
addition to payments of principal and accrued interest otherwise payable to
holders of the Senior Certificates.
In addition to the consequences of a Pay Out Event discussed above, if,
(i) pursuant to certain provisions of federal law, SRPC voluntarily enters
liquidation or a receiver is appointed for SRPC, or (ii) the Transferor Retained
Percentage is equal to or less than 1% on the day of such event (an "INSOLVENCY
EVENT"), SRPC will immediately cease to transfer principal Receivables to the
Trust and promptly give notice to the Receivables Trustee of such event. Within
15 days, the Receivables Trustee will publish a notice of the liquidation or the
appointment stating that the Receivables Trustee intends to sell, dispose of, or
otherwise liquidate the Receivables in a commercially reasonable manner. Unless
otherwise instructed within a specified period by holders of more than 50% of
the Aggregate Invested Amount of each Series outstanding at such time, the
Receivables Trustee will sell, dispose of, or otherwise liquidate the portion of
the Receivables allocable to the Series that did not vote to continue the Trust
in accordance with the Pooling and Servicing Agreement in a commercially
reasonable manner and on commercially reasonable terms. The proceeds from the
sale, disposition, or liquidation of the Receivables will be treated as
collections on the Receivables and applied as provided above in "--Application
of Collections."
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
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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) suffered or sustained by reason of any acts or
omissions or alleged acts or omissions arising out of or based upon the
arrangement created
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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.
CERTAIN LIMITATIONS ON SRPC INDEBTEDNESS
The certificate of incorporation of SRPC limits SRPC's ability to incur
indebtedness. Subject to specific exceptions, prior to the incurrence of any
debt, SRPC must receive written confirmation from the Rating Agencies that the
incurrence of such debt would not have an adverse effect on the ratings of the
Investor Certificates. Such confirmation was received in connection with the
issuance of the Notes.
In addition, pursuant to a Certificate Purchase Agreement between SRPC and
the holders of the 1993-2 Class A-R Certificates, SRPC is restricted from
incurring any indebtedness other than indebtedness to SRI or Palais and certain
other permitted indebtedness. In order to issue the Notes, SRPC obtained a
waiver of this restriction from such holders.
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
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the time SRI ceases to act as Servicer, all authority, power, and obligations of
SRI under the Pooling and Servicing Agreement will pass to and be vested in the
Receivables Trustee. If the Receivables Trustee is unable to obtain any bids
from eligible servicers and SRI delivers an officer's certificate to the effect
that it cannot in good faith cure the applicable Servicer Default, and if the
Receivables Trustee is legally unable to act as successor Servicer, then the
Receivables Trustee will give SRPC the right of first refusal to purchase the
Receivables on terms equivalent to the best purchase offer as determined by the
Receivables Trustee.
A "SERVICER DEFAULT" refers to any of the following events:
(i) failure by SRI to make any payment, transfer, or deposit, or to
give instructions to the Receivables Trustee to make certain payments,
transfers, or deposits within two business days after the date SRI is
required 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
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certain local jurisdictions, the Receivables Trustee has the power to appoint a
co-Receivables Trustee or separate Receivables Trustees of all or any part of
the Trust. In the event of such appointment, all rights, powers, duties, and
obligations conferred or imposed upon the Receivables Trustee by the Pooling and
Servicing Agreement will be conferred or imposed upon the Receivables Trustee
and such separate Receivables Trustee or co-Receivables Trustee jointly, or, in
any jurisdiction in which the Receivables Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate Receivables
Trustee or co-Receivables Trustee who will exercise and perform such rights,
powers, duties, and obligations solely at the direction of the Receivables
Trustee.
The Receivables Trustee may resign at any time. SRPC may also remove the
Receivables Trustee if the Receivables Trustee ceases to be eligible to continue
as such under the Pooling and Servicing Agreement or if the Receivables Trustee
becomes insolvent. In such circumstances, SRPC is obligated to appoint a
successor Receivables 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.
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"AMORTIZATION PERIOD COMMENCEMENT DATE" means, with respect to any Series,
the earlier of the first day of the Fiscal Month in which scheduled
amortization begins and the date on which a Pay Out Event is deemed to
have occurred.
"AUTOMATIC ADDITIONAL ACCOUNT" means a consumer revolving credit card
account (i) which is originated by Palais during the normal operation of
the Palais' credit card business and is not acquired by SRPC or Palais
from another credit card issuer, (ii) which was in existence and owned by
Palais and the Receivable of which had been transferred to SRPC pursuant
to the Receivables Purchase Agreement on the date on which Receivables
generated in such account are to be added to the Trust and is in existence
at the close of business on the date that Receivables generated therein
are designated for inclusion in the Trust, (iii) which is payable 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
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Certificates, 1.39%, calculated on the basis of the actual number of days
elapsed in such subsequent Interest Accrual Period over a year of 360
days.
"CLASS B MONTHLY INTEREST" for any Designated Series, on any Distribution
Date means an amount equal to one-twelfth of the product of (i) the Class
B Certificate Rate for such Series and (ii) the Class B Invested Amount
for such Series as of the close of business on the last day of the Fiscal
Month immediately preceding the related Interest Accrual Period.
"CLASS B PRINCIPAL" for any Designated Series with respect to any
Distribution Date on or after the Class B Principal Payment Commencement
Date for such Designated Series means an amount equal to the sum of (i) an
amount equal to the Class Fixed Allocation Percentage for the Class B
Certificates of such Designated 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
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with respect to the preceding Fiscal Month as described in clause (3) of
"--Application of Collections-Payment of Fees, Interest and Other
Items--Designated Series" and any reimbursements for such Designated
Series of unreimbursed Class C Investor Charge-Offs and Class D Investor
Charge-Offs as described in clauses (6) and (7) of "--Application of
Collections--Payment of Fees, Interest and Other Items--Designated
Series"; EXCEPT that with respect to the termination date for such
Designated Series, Class C Principal is an amount equal to the Class
Invested Amount for the Class C Certificates.
"CLASS C PRINCIPAL PAYMENT COMMENCEMENT DATE" means, for any Designated
Series, the earlier of (a) the Distribution Date on which the Class
Invested Amount for the Class B Certificates of such Designated Series is
paid in full, or if there are no remaining Principal Collections allocable
to such Series, the Distribution Date following the Distribution Date on
which the Class Invested Amount for the Class B Certificates is paid in
full and (b) the Repurchase Distribution Date.
"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
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allocated with respect to the Investor Default Amount for such Designated
Series with respect to the preceding Fiscal Month as described in clause
(3) of "--Application of Collections--Payment of Fees, Interest and Other
Items--Designated Series" and any reimbursements for such Designated
Series of unreimbursed Class D Investor Charge-Offs as described in
subsection (7) of "--Application of Collections--Payment of Fees, Interest
and Other Items--Designated Series"; and (iv) the amount of Shared
Principal Collections allocated to such Designated Series with respect to
the three preceding Fiscal Months as described in clause (xii) of
"-Application of Collections--Allocations;" EXCEPT that with respect to
the termination date for such Designated Series, Class D Monthly Principal
is an amount equal to the Class D Invested Amount.
"CLASS D PRINCIPAL PAYMENT COMMENCEMENT DATE" for a Designated Series
means the earlier of (a) the Distribution Date on which the Class Invested
Amount for the Class C Certificates of such Designated Series is paid in
full, or if there are no remaining Principal Collections allocable to such
Series, the Distribution Date following the Distribution Date on which the
Class Invested Amount for the Class C Certificates is paid in full and (b)
the Repurchase Distribution Date.
"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
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(b) with respect to Principal Collections only, the sum of the numerators
for all Classes of all Series then outstanding used to calculate the
applicable allocation percentage.
"DAILY CAP PROCEEDS AMOUNT" means, for any Series, with respect to any
business day, an amount on deposit in the Cap Proceeds Account for such
Series equal to the lesser of (A) the amount determined to be deposited in
the Interest Funding Account for such Series pursuant to clause (1)(B) of
"--Application of Collections-Payment of Fees, Interest and Other
Items--Designated Series" above or clause (B) of subsection (A) of
"-Application of Collections--Payment of Fees, Interest and Other
Items--Variable Funding Series" below and (B) the sum of (a) the product
of (x) the quotient of (I) the amount deposited in the Cap Proceeds
Account for such Series on the immediately preceding payment date of the
Interest Rate Caps for such Series divided by (II) the number of days from
payment date to payment date for such Interest Rate Caps for such Series,
times (y) the number of days elapsed since the preceding business day and
(b) the aggregate amount not transferred prior to such day during the
period since the preceding payment date pursuant to this subclause (B).
"DISTRIBUTION DATE" means, for a Designated Series, the third Wednesday of
each March, June, September and December, or if such day is not a business
day, the next succeeding business day.
"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.
"ENHANCEMENT" means, with respect to any Series, any letter of credit,
cash collateral account, guaranty, guaranteed late agreement, maturity
guaranty facility, tax protection agreement, Interest Rate Cap, interest
rate swap, or other contract or agreement for the benefit of
Certificateholders or any Class of Certificateholders of 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.
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"INVESTOR DEFAULT AMOUNT" means, for each Series, the amount allocated to
the Certificateholders of such Series on each business day in an amount
equal to the product of the Floating Allocation Percentage for such Series
on such day and the amount of principal Receivables in defaulted Accounts
identified since the prior reporting date. Defaulted Receivables will not
be excluded from the Investor Default Amount by reason of their repurchase
by Palais. See "--Defaulted Receivables; Rebates and Fraudulent Charges;
Portfolio Reassignment."
"INVESTOR PERCENTAGE" means, for any business day, for each Class and
Series of Certificates (a) with respect to Finance Charge Collections and
Receivables in defaulted Accounts at any time or Principal Collections
during the Revolving Period, the Floating Allocation Percentage and (b)
with respect to Principal Collections during the Amortization Period, the
Fixed Allocation Percentage.
"LATEST RATING AGENCY APPROVAL" means the most recent date of written
confirmation from the Rating Agency that the addition of accounts to such
date would not result in a downgrading of the rating of any outstanding
Class of any Series.
"MINIMUM AGGREGATE PRINCIPAL RECEIVABLES" means, as of any Determination
Date, an amount equal to the sum of (a) the Initial Invested Amounts for
all outstanding Series on any such date except a Variable Funding Series,
and (b) during a Revolving Period for a Variable Funding Series, the
Invested Amount for such Series on the date of determination or, during an
Amortization Period for a Variable Funding Series, the Invested Amount of
such Series on the last day of the Revolving Period for such Series.
"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.
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"RATE DETERMINATION DATE" means, for any Designated Series, with respect
to any Interest Accrual Period, the second business day before the first
day of such Interest Accrual Period.
"RECORD DATE" means, with respect to any date of distribution, the last
business day of the preceding Fiscal Month.
"REPURCHASE DISTRIBUTION DATE" means, for any Designated Series, the
Distribution Date following a sale or repurchase of Receivables in the
event (i) of a Portfolio Reassignment, (ii) a bankruptcy trustee or
receiver or liquidator for the winding-up or liquidation of SRPC's affairs
is appointed, (iii) the sum of the Transferor Interest and the Invested
Amount of any Transferor Retained Class divided by the aggregate amount of
principal Receivables at the end of the day immediately prior to such day
is equal to or less than 1%, (iv) of a Servicer Default and inability of
SRPC to locate a successor servicer, or (v) the Trust is terminated.
"REQUIRED AMOUNT" means (i) for any Designated Series, on any business day
the amount, if any, by which the full amount to be paid pursuant to
clauses (1)-(8) above in "--Application of Collections--Payments of Fees,
Interest, and Other Items--Designated Series" exceeds the portion of the
Available Designated Series Finance Charge Collections, Transferor Finance
Charge Collections and Daily Cap Proceeds Amount for such Designated
Series, if any, on any business day applied to the payment of the amounts
described in such clauses; and (ii) for the Variable Funding Certificates,
on any business day the amount, if any, by which the full amount to be
paid pursuant to clauses (A)-(H) above in "--Application of
Collections--Payments of Fees, Interest, and Other Items--Variable Funding
Series" exceeds the portion of the Available Variable Funding Series
Finance Charge Collections, Transferor Finance Charge Collections and
Daily Cap Proceeds Amount 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.
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<PAGE>
"TRANSFEROR PERCENTAGE" means, on any Determination Date, when used with
respect to Principal Collections, Finance Charge Collections and
Receivables in Defaulted Accounts, a percentage equal to 100% minus the
Aggregate Investor Percentage with respect to such categories of
Receivables.
"TRANSFEROR RETAINED CLASS" means, for any Series, any Class of Investor
Certificates which is required to be retained by SRPC. For the Existing
Series, the Class D Certificates and the 1993-2 Class B-R Certificates are
Transferor Retained Classes.
"TRANSFEROR RETAINED CLASS PRINCIPAL PAYMENT COMMENCEMENT DATE" means, for
a Variable Funding Series, the earlier of (a) the Distribution Date in an
Amortization Period for such Variable Funding Series on which the Senior
Class Invested Amount is paid in full or, if there are no Principal
Collections allocable to the Certificates of such Variable Funding Series
remaining after payments have been made to the Senior Class Certificates
on such Distribution Date, the Distribution Date following the
Distribution Date on which the Senior Class Invested Amount is paid in
full and (b) the Repurchase Distribution Date.
"VARIABLE FUNDING CLASS INVESTED AMOUNT" means, for each Class of Variable
Funding Certificates, an amount equal to (a) the initial principal balance
of such Certificates plus the aggregate principal amount of additional
Invested Amounts purchased by the holders of such Class of Certificates
prior to such date minus (b) the aggregate amount of principal payments
made to the Certificateholders of such Class prior to such date, and minus
(c) the aggregate amount of Investor Charge-Offs for all prior
Distribution Dates, including the amount by which the Variable Funding
Class Invested Amount has been reduced to fund the Investor Default Amount
on all prior Distribution Dates as described under "--Investor
Charge-Offs," and plus (d) the aggregate amount of Finance Charge
Collections and Excess Finance Charge Collections applied (as described in
clause (10) of "--Application of Collections--Payment of Fees, Interest
and Other Items--Designated Series") on all prior Distribution Dates for
the purpose of reimbursing amounts deducted pursuant to the foregoing
clause (c).
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<PAGE>
HYPOTHETICAL MODEL SCENARIOS
OVERVIEW
The hypothetical model scenarios set forth in the accompanying Table 3
(the "MODEL RESULTS") have been prepared to assist potential investors in
evaluating the impact of certain hypothetical levels of Receivables Charge-offs,
Receivables Dilutions and LIBOR on the Notes. Such hypothetical model scenarios
are based on certain assumed events described herein, any or all of which may
not occur or may not occur to the degree assumed herein. Other events that were
not taken into account may occur, and could significantly affect actual cash
flows and payment on the Notes. Different assumptions, which could be
appropriate, could materially affect the results depicted in the Model Results.
The information set forth below contains forward-looking statements (including,
but not limited to, the Model Results), and actual results could differ
materially from those projected in such forward-looking statements.
The hypothetical model scenarios do not purport to represent the actual
returns that may be achieved by an investor in the Notes. No representation or
warranty is made that such returns will be similar to those set forth herein.
Potential investors should conduct their own economic analysis, using such
assumptions as they deem relevant, prior to making an investment in the Notes.
The assumptions made for purposes of the cash flow model described below
(the "MODEL") are not intended to predict the composition of the SRI Portfolio;
the range, magnitude or timing of Receivables Charge-offs or Receivables
Dilutions; the actual amount and timing of expenses and liabilities of SRPC, SRI
or Palais; the level of interest rates; the likelihood of prepayment of the
Notes; or the timing of realizations on the collateral. The assumptions employed
in preparing the Model may yield results that are inconsistent with the results
that are likely to occur. The assumptions used are hypothetical and have been
provided only to give a general sense of how the cash flows might behave under
varying scenarios. The actual characteristics and performance of the Receivables
will differ, and may differ significantly, from those presented in the Model
Results.
The amount and timing of cash flows available to repay the Notes will
depend on numerous factors, including the rate and timing of payments on the
Accounts and the levels of Receivables Charge-offs and Receivables Dilutions,
general and regional economic conditions, the availability of credit, the
financial condition of obligors on the Accounts and the level of prevailing
interest rates.
THE INFORMATION CONTAINED IN THE MODEL RESULTS AND IN THE CASH FLOW MODEL
DESCRIBED BELOW IS PRESENTED FOR ILLUSTRATIVE PURPOSES ONLY, SHOULD BE VIEWED AS
HYPOTHETICAL, AND DOES NOT PURPORT TO REPRESENT THE ACTUAL RESULTS THAT WILL BE
EXPERIENCED OR THE NET AMOUNTS THAT WILL BE RECEIVED WITH RESPECT TO THE
COLLATERAL CERTIFICATES OR THE TIMING THEREOF.
THE MODEL
The results depicted in the Model Results are the outputs of the Model,
which was developed for the purpose of the Offering. The Model is intended to
demonstrate the impact in a Declining Pool Scenario, as described below, of
certain variables. The key variables used in the model are the levels of
Receivables Charge-offs and Receivables Dilutions that are experienced in the
Receivables pool, and the LIBOR level that is assumed for interest payments on
the Senior Certificates.
The Model operates by taking a set of data inputs (the "HYPOTHETICAL
INPUTS"), generating certain resulting levels of monthly collections, defaults
and dilutions (the "BASIC MONTHLY OUTPUTS"), and then allocating the Basic
Monthly Outputs to a series of priority uses (the "SIMPLIFIED PRIORITIES") which
is intended to approximate the priorities for applications of Collections set
forth in "Description of the Collateral--Application of Collections" and
"Description of the Notes--Cash Flows Allocable to the Holders."
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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
Finally, the Cumulative Base Assumptions shows, for any assumed sales month, the
percentage of embedded Receivables Dilutions that the Model estimates will have
occurred by the end of any specified interval.
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TABLE 1
HISTORICAL ANALYSIS OF RETURNS
<TABLE>
<CAPTION>
DAYS ELAPSED (BY INTERVALS) BETWEEN DATE OF SALE AND DATE OF RETURN
-----------------------------------------------------------------------------------
0-14 15-30 16-45 31-60 46-75 61-90 OVER 75 UNABLE OVER
DAYS DAYS DAYS(1) DAYS DAYS(1) DAYS DAYS(1) TO MATCH 90 DAYS
----- ------ -------- ------- ------ ------- ------- --------- --------
RETURNS BY NUMBER OF OCCURRENCES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 1992 ............................... 71.76% 10.99% -- 6.74% -- 2.07% -- 1.44% 7.00%
September 1992 .......................... 69.57% 12.45% -- 8.01% -- 2.10% -- 1.66% 6.21%
December 1992 ........................... 71.37% 13.37% -- 5.26% -- 1.70% -- 1.40% 6.90%
Average ................................. 70.90% 12.27% -- 6.67% -- 1.96% -- 1.50% 6.70%
Cumulative .............................. 70.90% 83.17% -- 89.84% -- 91.80% -- 93.30% 100.00%
RETURNS BY DOLLAR VOLUME
November 1995 ........................... 71.28% 11.51% -- 6.70% -- 2.02% -- 1.58% 6.91%
January 1996 ............................ 54.47% 17.45% -- 12.90% -- 2.89% -- 2.54% 9.75%
April 1996 .............................. 71.08% 12.37% -- 6.57% -- 1.60% -- 1.78% 6.60%
Average(2) .............................. 71.18% 11.94% -- 6.64% -- 1.81% -- 1.68% 6.75%
Cumulative(2) ........................... 71.18% 83.12% -- 89.76% -- 91.57% -- 93.25% 100.00%
DILUTION HORIZON ASSUMPTIONS USED IN THE MODEL
Rounded average
returns ................................. 71.00% 13.00% -- 6.00% -- 2.00% -- -- 8.00%
Interpolated average
returns(3) .............................. -- -- 16.00% -- 4.00% -- 9.00% -- --
Base assumptions by
interval ................................ 71.00% -- 16.00% -- 4.00% -- 9.00%(4) -- --
Cumulative base
assumptions ............................. 71.00% -- 87.00% -- 91.00% -- 100.00% -- --
</TABLE>
- ------------------------------
(1) Historical data is not available for these intervals.
(2) January 1996 returns are excluded from calculations.
(3) Calculated as described in the preceding text.
(4) Assumed to occur 2% in each of the 76-105, 106-135, 136-165, and 166-195
day intervals and 1% in the 196-225 day interval.
The results shown in Table 1 have been utilized to create a set of
Dilution Horizon Percentages for use in the Model. First, two simplifying
assumptions have been made: that all sales in a sales month occur on the 15th
day of that month and that each year consists of twelve thirty-day months. Then,
the Model uses the Base Assumptions by Interval shown in Table 1 to establish
the percentage of embedded Receivables Dilutions arising in a sales month that
will occur in the first 15 days following the assumed date on which all sales
occurred in such month (the 15th of such month) and in each 30-day interval
thereafter. For each Fiscal Month during the Amortization Period (which are the
column headings across the top of Table 2 below), Table 2 shows the percentage
of Receivables Dilutions that are assumed to arise out of sales in each of the
months comprising the row headings.
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<PAGE>
An example of the use of the Dilution Horizon Percentages is as follows.
If the first day of the Amortization Period occurs in April, then Receivables
Dilutions arising in April will relate to sales that occurred in March,
February, January, December and earlier. The preceding data showed that 71% of
returns occurred within two weeks of the related sale. If it is assumed for the
sake of simplicity that all sales occurred on approximately the 15th of a month,
then approximately 71% of the returns for such sales month would occur before
the end of such sales month and only 29% would occur in later months. This 29%
is divided up among the later months as shown in Table 2. For the first month of
the Amortization Period, it is assumed that 16% (which is 87% minus 71%) of the
Receivables Dilutions embedded in the charge sales from the immediately
preceding month would occur in the first month of the Amortization Period, that
4% of the Receivables Dilutions embedded in the charge sales from the second
preceding month would occur in the first month of the Amortization Period, that
2% of the Receivables Dilutions embedded in the charge sales for each of the
next preceding four months would occur in the applicable 30-day intervals, and
that the final 1% would occur in the seventh preceding month.
The Model thus is using an eight-month Receivables Dilutions
"horizon," because it is assuming that any Receivables Dilutions that are going
to arise out of a given month's charge sales will be realized over an
eight-month period: 71% will occur in the Fiscal Month in which the charge sale
occurred (and therefore will have occurred before the Amortization Period
commences), 16% will occur in the first following Fiscal Month, 4% in the second
following Fiscal Month, 2% in each of the next four following Fiscal Months and
1% in the seventh following Fiscal Month.
TABLE 2
RECEIVABLES DILUTION HORIZON PERCENTAGES
<TABLE>
<CAPTION>
Fiscal Month During Amortization Period
---------------------------------------------------------------------------------------
Sales Month Prior (1) Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7
- ------------------------------------ --------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First preceding month .............. 71% 16% 4% 2% 2% 2% 2% 1%
Second preceding month ............. 87% 4 2 2 2 2 1 --
Third preceding month .............. 91% 2 2 2 2 1 - --
Fourth preceding month ............. 93% 2 2 2 1 - - --
Fifth preceding month .............. 95% 2 2 1 - - - --
Sixth preceding month .............. 97% 2 1 - - - - --
Seventh preceding month ............ 99% 1 -- - - - - --
------- ------- ------- ------- ------- ------- -------
29% 13% 9% 7% 5% 3% 1%
</TABLE>
- ------------------------------
(1) Percentage of embedded receivables dilutions for such sales month occurring
prior to the commencement of the Amortization Period.
BASIC MONTHLY OUTPUTS
The Model generates certain Basic Monthly Outputs from the
Hypothetical Monthly Inputs. The first Basic Monthly Output that is generated is
the level of Collections for a Fiscal Month. This number is generated by
multiplying the assumed payment rate on the Receivables pool for the particular
month by the ending principal Receivables balance on the last day of the
preceding Fiscal Month. The Model then splits this amount of Collections into
Finance Charge Collections and Principal Collections. The portion of the
Collections that constitute Finance Charge Collections is established by
utilizing the Hypothetical Monthly Input for per annum yield on the Receivables
pool of 20.2%. The Model multiplies the monthly equivalent of this per annum
rate by the assumed ongoing overall Receivables pool balance of $200,120,000,
which results in the assumed level of Finance Charge Collections for the
applicable Fiscal Month.
The level of Principal Collections for a Fiscal Month during the
Amortization Period is another Basic Monthly Output. This result equals the
Collections for the Fiscal Month minus the Finance Charge Collections derived as
described above.
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<PAGE>
Another Basic Monthly Output is the level of Receivables
Charge-offs. This amount is derived by multiplying the assumed Hypothetical
Monthly Input variable for Receivables Charge-offs (8.30%) by the amount of
Principal Collections for the applicable Fiscal Month.
The level of Receivables Dilutions is another Basic Monthly Output.
As described above in "--Hypothetical Inputs--Receivables Dilutions--Dilution
Horizon Percentages," the amount of Receivables Dilutions in, for example, the
first Fiscal Month during the Amortization Period is calculated as the sum of
the embedded Receivables Dilutions for each of the seven Fiscal Months preceding
the Amortization Period Commencement Date (11.13% of $34,304,000, or
approximately $3,818,000) multiplied by the applicable Dilution Horizon
Percentage for such sales month. Thus, for example, in the first month of the
Amortization Period, the calculation would be $3,818,000 multiplied by 13%, the
calculation for the next preceding sales month would be $3,818,000 multiplied by
4%, the calculation for the next four preceding sales months would be $3,818,000
multiplied by 2%, and the calculation for the next preceding sales month would
be $3,818,000 multiplied by 1%. All such amounts are then totaled to determine
the total Receivables Dilutions to occur in such first month of the Amortization
Period.
The final Basic Monthly Output in the Model is the balance of
principal Receivables at the end of the Fiscal Month. This amount is calculated
as the result of the following formula: the principal Receivables balance at the
beginning of the Fiscal Month MINUS Principal Collections MINUS Receivables
Charge-offs MINUS Receivables Dilutions, in each case for such Fiscal Month.
STRESS FACTORS
The Hypothetical Inputs that are presented at different levels in
the "stress analysis" are the level of Receivables Charge-offs, the amount of
embedded Receivables Dilutions and the level of LIBOR. The Model presents (i)
the level of Receivables Charge-offs and the embedded Receivables Dilutions
percentage at 1.0, 1.25 and 1.5 times the base case Hypothetical Input and (ii)
LIBOR at assumed levels of 5.50%, 7.50% and 9.50% (which levels are assumed to
be constant throughout the entire Amortization Period).
SIMPLIFIED PRIORITIES
The Model contains certain simplifications of the priorities and
requirements for allocations that are set forth in the documents governing the
Trust and the Notes. One such simplification is that the Model assumes that
principal payments are made to each Class of Certificateholders quarterly in an
amount equal to all collected principal. However, this assumption ignores the
"controlled amortization" features of certain classes of the Series 1993-1 and
Series 1995-1 Certificates. For Series 1995-1, distributions in respect of
principal must be made in an amount equal to a minimum of $2,500,000 with
respect to the Class A Certificates and $100,000 with respect to the Class B
Certificates, and integral multiples thereof. At such time as the distribution
will reduce the Class Invested Amount of such Class to zero, the distribution
must be equal to $1,700,000 and integral multiples of $2,500,000 with respect to
the Class A Certificates and $300,000 and integral multiples of $100,000 with
respect to the Class B Certificates. Similarly, any distribution with respect to
principal on the Series 1993-1 Class A Certificates must be made in an amount
equal to $6,295,336.80 and multiples of $1,259,067.40. As a result of such
limitations on the amount of distributions in respect of principal on the Series
1995-1 Class A Certificates, the Series 1995-1 Class B Certificates and the
Series 1993-1 Class A Certificates, actual distributions in respect of principal
on such Certificates would not be made in the amounts contained in the Model.
The Model assumes the total amount of Basic Monthly Outputs are
received on one day during each month. In actuality, the Trust receives
collections on each business day during a month. In addition, on each business
day, Finance Charge Collections are allocated among various priorities and uses.
The Model allocates such funds on a monthly rather than daily basis. The Model
also determines the Floating Allocation Percentage for each Series of
Certificates on a monthly basis. As the components of the Floating Allocation
Percentage fluctuate on a daily basis, the Floating Allocation Percentage will
also fluctuate daily. As a result, Finance Charge Collections allocated to each
Series pursuant to the Floating Allocation Percentage in the Model will differ
from the amount of Finance Charge Collections actually allocated to such Series.
See "Description of the Collateral--Allocation Percentages."
- 140-
<PAGE>
On each business day during an Amortization Period, if a Negative
Carry Amount for a Series exists, such amount will be deducted from Finance
Charge Collections or Principal Collections and deposited in the Negative Carry
Account for such Series. The Negative Carry Amount represents the amount by
which the amount of interest accrued on the Certificates on a business day
exceeds the amount of earnings available on such business day from investments
on amounts on deposit in the Equalization Account. The Model does not provide
for the application of funds to be deposited in the Negative Carry Account. As a
result, the amount of Finance Charge Collections and Principal Collections
available for other uses in the Model may be larger than such amounts actually
are by reason of the failure to deduct amounts which are required to be
deposited in the Negative Carry Amount.
The Trust may redeem any Series of Certificates if the sum of the
Invested Amounts of all Classes in a Series (other than any Transferror Retained
Class) is less than or equal to 10% of the sum of the Initial Invested Amount of
all such Classes in such Series. However, the Model assumes the Trust will not
exercise its right to redeem such Certificates. As a result, holders of Investor
Certificates and Holders of Notes may not receive distributions in respect of
principal in the same amounts or on the same date as reflected in the Model.
A portion of funds will be deposited in the Interest Reserve Account
each month according to a given percentage. If the required amount of funds has
not been reserved during the prior month, the percentage of funds deposited will
increase. Such reservation of funds in respect of interest is designed to ensure
funds equal to the amount of the semi-annual interest payment will be available.
The Model does not contain a mechanism for reserving interest or increasing the
amount of such funds reserved if there has been a failure to reserve the
appropriate amount of funds in a prior period. See "Description of the
Notes--Deposits in the Reserve Account."
The Pooling and Servicing Agreement provides that the Trust may
issue additional Series of Certificates under certain circumstances. The Model
assumes that only the 1995-1 Certificates and the 1993-1 Certificates are
outstanding. The issuance of additional Series of Certificates or the existence
of a positive Variable Funding Class Invested Amount would reduce the percentage
of Collections allocated to the 1995-1 Certificates and the 1993-1 Certificates,
although the dollar amount of funds available will remain relatively unchanged
unless a paired series has been issued. In addition, as Excess Finance Charge
Collections from other Series are available to the extent of any shortfall, the
issuance of an additional Series of Certificates may increase the amount of
funds allocable to the 1995-1 Certificates and the 1993-1 Certificates.
MODEL RESULTS
Table 3 sets forth certain results of the Model under the Stress
Factors identified above. The Model Results are presented as of the end of the
last Fiscal Month (the "PRESENTATION DATE") following the Amortization Period
Commencement Date in which, under the Model, Collections are set aside either to
repay the Notes in full or to reduce the Note principal balance to its lowest
level (because thereafter interest accrues on, and is added to, the remaining
Note principal balance at a rate faster than funds become available to repay
principal). As of the Presentation Date, the Model Results consist of the
amounts, if any, of Unpaid Original Principal, Capitalized Unpaid Interest,
Total Unpaid Principal and Dilution Recourse.
For purposes of the presentation of Model Results in Table 3, funds
available to repay amounts due on the Notes are assumed to be applied first to
accrued and unpaid current interest on the Notes, then to repayment of the
original $30,000,000 principal balance of the Notes and finally to unpaid
interest from prior periods that has been capitalized. It should be noted that
such assumption is not fully consistent with the application of funds as
required under the Indenture, pursuant to which, upon the occurrence of a
Purchase Termination Event of Default, all available Transferor Daily Cash Flows
are applied first to interest payments (including overdue interest, none of
which is capitalized) and second to the repayment of principal. See "Description
of the Notes--Deposits into the Interest Reserve Account--Event of Default" and
"Description of the Notes--Deposits into the Principal Reserve Account--Event of
Default." The amounts shown for Unpaid Original Principal and Capitalized Unpaid
Interest are presented as of the Presentation Date on this basis, and the Total
Unpaid Principal is the sum of such amounts.
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<PAGE>
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.
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<PAGE>
TABLE 3
MODEL RESULTS
Unpaid Capitalized Total
original unpaid unpaid Dilution
LIBOR principal(1) interest(1) principal(1) recourse(2)
- ------------------------------------------------------------------
CASE I (3)
CHARGE OFFS 1x Actual (8.30%)
- ------------------------------------------------------------------
Dilution 1x
- ------------------------------------------------------------------
5.50% -- -- -- N/R
7.50% -- -- -- N/R
9.50% -- -- -- N/R
- ------------------------------------------------------------------
Dilution 1.25x
- ------------------------------------------------------------------
5.50% -- -- -- N/R
7.50% -- -- -- N/R
9.50% -- 729,498 729,498 3,197,604
- ------------------------------------------------------------------
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 1x
- ------------------------------------------------------------------
5.50% -- -- -- N/R
7.50% -- 727,123 727,123 2,558,084
9.50% -- 1,652,624 1,652,624 2,558,084
- ------------------------------------------------------------------
Dilution 1.25x
- ------------------------------------------------------------------
5.50% -- 588,718 588,718 3,197,604
7.50% -- 1,496,842 1,496,642 3,197,604
9.50% 340,121 2,083,445 2,423,566 3,197,604
- ------------------------------------------------------------------
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 1x
- ------------------------------------------------------------------
5.50% -- 1,489,829 1,489,829 2,558,084
7.50% 275,040 2,125,833 2,400,873 2,558,084
9.50% 1,187,770 2,141,167 3,328,937 2,558,084
- ------------------------------------------------------------------
Dilution 1.25x
- ------------------------------------------------------------------
5.50% 125,728 2,125,295 2,251,023 3,197,604
7.50% 1,025,887 2,137,394 3,163,281 3,197,604
9.50% 1,939,842 2,152,718 4,092,560 3,197,604
- ------------------------------------------------------------------
Dilution 1.50x
- ------------------------------------------------------------------
5.50% 875,351 2,136,866 3,012,217 3,837,125
7.50% 1,776,734 2,148,955 3,925,689 3,837,125
9.50% 2,693,700 2,164,061 4,857,761 3,837,125
- ------------
(1) The amounts, if any, of Unpaid Original Principal, Capitalized Unpaid
Interest and Total Unpaid Principal are presented as of the end of the last
Fiscal Month following the Amortization Period Commencement Date in which,
under the Model, Collections are set aside either to repay the Notes in
full or to reduce the Note principal balance to its lowest level (because
thereafter interest accrues on, and is added to, the remaining Note
principal balance at a rate faster than funds become available to repay
principal).
(2) The amounts shown for Dilution Recourse represent the aggregate amounts
owing by Palais to SRPC in respect of Receivables Dilutions as of the
Presentation Date, under the Model Assumption that Palais has not honored
its obligations to SRPC in respect of Receivables Dilutions.
(3) In each case, the amounts shown assume a Presentation Date in the ninth
month of the Amortization Period and a payment date in the tenth month of
the Amortization Period.
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<PAGE>
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
SRPC represents and warrants in the Pooling and Servicing Agreement
that the transfer of Receivables by it to the Trust constitutes either a valid
transfer and assignment to the Trust of all right, title, and interest of SRPC
in and to the Receivables, except for the interest of SRPC as holder of the
Transferor Certificate and any Investor Certificate of any Series then held by
it, or the grant to the Trust of a security interest in the Receivables. SRPC
also represents and warrants in the Pooling and Servicing Agreement that, in the
event the transfer of Receivables by SRPC to the Trust is deemed to create a
security interest under the Uniform Commercial Code, there exists a valid,
subsisting, and enforceable first priority perfected security interest in such
Receivables created thereafter in favor of the Trust on and after their
creation, subject only to permitted liens.
SRPC represents that the Receivables are "accounts," "general
intangibles" or "chattel paper" for purposes of the UCC. Both the transfer and
assignment of accounts, general intangibles, and chattel paper and the transfer
of accounts, general intangibles, and chattel paper as security for an
obligation are treated under Article 9 of the UCC as creating a security
interest therein and are subject to its provisions, and an appropriate financing
statement perfects the security interest of the Trust. In order to protect the
interests of the Trust in the Receivables, financing statements covering the
Receivables have been filed with the appropriate governmental authorities and
the charge slip pursuant to which each Receivable that constitutes "chattel
paper" for purposes of the UCC was generated has been marked with a legend
stating that such Receivable has been conveyed to the Trust.
There are certain limited circumstances under the UCC in which a
prior or subsequent transferee of Receivables coming into existence after each
Original Closing Date could have an interest in such Receivables with priority
over the Trust's interest. Under the Pooling and Servicing Agreement, however,
SRPC represents and warrants that it transferred the Receivables to the Trust
free and clear of the lien of any third party. In addition, SRPC covenants that
it will not sell, pledge, assign, transfer, or grant any lien on any Receivable
(or any interest therein) other than to the Trust. A tax or other government
lien on property of SRPC arising prior to the time a Receivable comes into
existence may also have priority over the interest of the Trust in such
Receivable.
In the event that the Bank is chartered and becomes the originator
of new Receivables, it is currently expected that the Bank would enter into
appropriate agreements with the Trust and make representations, warranties and
covenants similar to those described above.
CERTAIN MATTERS RELATING TO BANKRUPTCY
SRPC will not, and does not, engage in any activities except
purchasing accounts receivable from Palais, forming trusts, transferring such
accounts receivable to such trusts and engaging in activities incident to, or
necessary or convenient to accomplish, the foregoing. SRPC has no intention of
filing a voluntary petition under the United States Bankruptcy Code or any
similar applicable state law so long as SRPC is solvent and does not reasonably
foresee becoming insolvent.
The voluntary or involuntary application for relief under the United
States Bankruptcy Code or any similar applicable state law with respect to SRI
or Palais should not necessarily result in a similar voluntary application with
respect to SRPC so long as SRPC is solvent and does not reasonably foresee
becoming insolvent either by reason of SRI's or Palais's insolvency or
otherwise. Counsel has advised SRI, Palais, and SRPC that (i) the assets and
liabilities of SRPC will not be substantively consolidated with the assets and
liabilities of SRI or Palais in the event of an application for relief under the
United States Bankruptcy Code with respect to SRI or Palais and (ii) the sale of
Receivables by Palais constitutes a valid sale and, therefore, such Receivables
would not be property of Palais in the event of the filing of an application for
relief by or against Palais under the United States Bankruptcy Code. The
foregoing conclusions are reasoned conclusions, based upon various assumptions
regarding factual matters and future events, as to which there necessarily can
be no assurance. If a bankruptcy trustee for SRI or Palais, SRI or Palais as
debtor in possession, or a creditor of SRI or Palais were to take the view that
SRI or Palais and SRPC should be substantively consolidated or that the transfer
of the Receivables from Palais to SRPC should be recharacterized as a pledge of
such Receivables, then delays in payments on the Class D Certificates and
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<PAGE>
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."
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of material generally applicable federal
income tax consequences of the acquisition, ownership and disposition of the New
Notes is based on the advice of Federal Tax Counsel. This discussion is based
upon provisions of the Code, applicable Treasury Department regulations,
judicial authority and current administrative rulings and practice, all of which
are subject to change at any legislative, judicial or administrative action. Any
such changes may be applied retroactively in a manner that could adversely
affect a Holder of the Notes. Further, there can
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<PAGE>
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
In the opinion of Federal Tax Counsel, a Holder will not recognize
gain for federal income tax purposes in respect of the exchange of Old Notes for
New Notes. Each New Note will have the same adjusted tax basis as the Old Note
for which it was exchanged. The holding period of each New Note will include the
holding period of the Old Note for which it is exchanged if such Old Note was
held as a capital asset.
DISPOSITION OF NOTES
If a Holder sells a Note, the Holder will recognize gain or loss in
an amount equal to the difference between the amount realized on the sale and
the Holder's adjusted tax basis in the Note. The adjusted tax basis of the Note
to a
- 146 -
<PAGE>
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.
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
- 147 -
<PAGE>
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 , 1997, all dealers effecting transactions in
the New Notes may be required to deliver a prospectus.
SRPC will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of six months from the date on which the Registration
Statement is declared effective, SRPC will promptly send additional copies of
this Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal.
- 148 -
<PAGE>
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 27,575 shares of 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.
- 149 -
<PAGE>
INDEX OF DEFINED TERMS
PAGE
1993-1 Certificates.............................................. 37
1993-1 Class A Certificates...................................... 37
1993-1 Class B Certificates...................................... 37
1993-1 Class C Certificates...................................... 37
1993-1 Class D Certificate....................................... 37
1993-2 Certificates.............................................. 37
1993-2 Class A-R Certificates.................................... 15
1993-2 Class B-R Certificates.................................... 15
1995-1 Certificates.............................................. 38
1995-1 Class A Certificates...................................... 38
1995-1 Class B Certificates...................................... 38
1995-1 Class C Certificates...................................... 38
1995-1 Class D Certificate....................................... 38
Accounts......................................................... 38
Accounts Receivable Program...................................... 11
Active Account................................................... 125
Adjusted Invested Amount......................................... 125
Administrative Agent............................................. 1
Aggregate Invested Amount........................................ 125
Aggregate Investor Percentage.................................... 125
AMC.............................................................. 42
Amendment........................................................ 35
Amortization Period.............................................. 125
Amortization Period Commencement Date............................ 125
AMT.............................................................. 65
ARI.............................................................. 1
ARI Senior Discount Debentures................................... 74
Automatic Additional Account..................................... 125
Available Designated Series Finance Charge
Collections............................................... 109
Available Variable Funding Series Finance
Charge Collections........................................ 111
Bain............................................................. 63
Bank............................................................. 52
Base Rate........................................................ 126
Basic Monthly Outputs............................................ 134
Bealls Holding................................................... 73
Bealls Holding Junior Subordinated Debentures.................... 73
Bealls Holding Subordinated Debentures........................... 73
Benefit Plan..................................................... 150
Cap Proceeds Account............................................. 104
Cash Equivalents................................................. 104
Certificated Security............................................ 91
Certificateholder................................................ 37
Certificates..................................................... 37
Class A Certificate Rate......................................... 126
Class A Investor Charge-Off...................................... 118
Class A Monthly Interest......................................... 126
Class A Principal................................................ 126
Class A Principal Payment Commencement
Date...................................................... 126
Class A Principal Payment Commencment
Date...................................................... 131
Class B Certificate Rate......................................... 126
Class B Investor Charge-Off...................................... 118
Class B Monthly Interest......................................... 126
Class B Principal................................................ 126
Class B Principal Payment Commencement
Date...................................................... 127
Class C Certificate Rate......................................... 127
Class C Investor Charge-Off...................................... 118
Class C Monthly Interest......................................... 127
Class C Principal................................................ 127
Class C Principal Payment Commencement
Date...................................................... 127
Class D Certificate Rate......................................... 127
Class D Certificateholders....................................... 101
Class D Certificates............................................. 12
Class D Daily Cash Flows......................................... 83
Class D Fixed Allocation Percentage.............................. 128
Class D Floating Allocation Percentage........................... 128
Class D Initial Invested Amount.................................. 128
Class D Invested Amount.......................................... 128
Class D Investor Charge-Off...................................... 118
Class D Monthly Principal........................................ 113
Class D Principal................................................ 128
Class D Principal Payment Commencement
Date...................................................... 129
Class Fixed Allocation Percentage................................ 129
Class Floating Allocation Percentage............................. 129
Class Invested Amount............................................ 129
Class Variable Funding Fixed Allocation
Percentage................................................ 129
Class Variable Funding Floating Allocation
Percentage................................................ 129
Closing Date..................................................... 91
Code............................................................. 65
Collateral Agent................................................. 1
Collateral Certificates.......................................... 15
Collection Account............................................... 104
Commission....................................................... 2
Commitment Fees.................................................. 112
Committee........................................................ 66
Common Stock..................................................... 62
Common Stock Offering............................................ 24
Court Square..................................................... 71
Credit Agreement................................................. 72
CVC.............................................................. 63
Daily Cap Proceeds Amount........................................ 129
DCR............................................................... 1
Declining Pool Scenario........................................... 135
Default........................................................... 87
Deferred Compensation Plan........................................ 68
Depositary participants........................................... 92
Designated Series.................................................37,82
Determination Date................................................ 118
Discount Option Receivable Collections............................ 104
Discount Option Receivables....................................... 104
Discounted Percentage............................................. 104
disqualifying disposition......................................... 65
Distribution Account.............................................. 104
Distribution Date................................................. 130
DTC............................................................... 75
- 150 -
<PAGE>
Early Amortization Period......................................... 130
Early Termination Event........................................... 121
Eligible Account.................................................. 101
Eligible Institution.............................................. 77
Eligible Receivable............................................... 101
Enhancement....................................................... 130
Equalization Account.............................................. 104
Equalization Plan................................................. 67
ERISA............................................................. 150
Event of Default.................................................. 88
Excess Cash....................................................... 72
Excess Finance Charge Collections................................. 110
Excess Transferor Daily Cash Flows................................ 85
Exchange.......................................................... 14
Exchange Act...................................................... 6
Exchange Agent.................................................... 10
Exchange Offer.................................................... 1
Executive Stock................................................... 63
Existing Series................................................... 130
Expected Final Payment Date....................................... 11
Expected Maturity Date............................................ 11
Expiration Date................................................... 2
Facilities Costs.................................................. 112
FB Holdings....................................................... 73
FB Holdings Subordinated Notes.................................... 73
FCP............................................................... 71
FDIC.............................................................. 53
Federal Tax Counsel............................................... 17
Finance Charge Collections........................................ 130
Fiscal Month...................................................... 85
Fixed Allocation Percentage....................................... 130
Floating Allocation Percentage.................................... 130
foreign person.................................................... 149
Fuchs Management Agreement........................................ 62
Global Note....................................................... 91
Holder............................................................ 75
Hypothetical Inputs............................................... 134
In-Store Payment.................................................. 106
Incentive Plan.................................................... 63
Indenture......................................................... 1
Indenture Trustee................................................. 1
indirect participants............................................. 93
Initial Invested Amount........................................... 130
Initial Purchaser................................................. 2
Insider........................................................... 66
Insolvency Event.................................................. 121
Interest Accrual Period........................................... 130
Interest Funding Account.......................................... 104
Interest Payment Date............................................. 82
Interest Rate Cap................................................. 117
Interest Reserve Account.......................................... 84
Investor Certificates............................................. 15
Investor Charge-Offs.............................................. 118
Investor Default Amount........................................... 130
Investor Percentage............................................... 131
IRS............................................................... 148
Latest Rating Agency Approval..................................... 131
Legal Defeasance.................................................. 90
Legal Maturity Date............................................... 87
Letter of Transmittal............................................. 1
LIBOR............................................................. 144
Marcum Employment Agreement....................................... 62
Minimum Aggregate Principal Receivables........................... 131
Minimum Transferor Interest....................................... 131
Minimum Transferor Interest Deficiency............................ 105
Minimum Transferor Percentage..................................... 131
Model............................................................. 134
Model Assumptions................................................. 135
Model Factors..................................................... 135
Model Results..................................................... 134
Monthly Interest Payment Amount................................... 85
Monthly Interest Period........................................... 85
Monthly Interest Reserve Amount................................... 84
Monthly Payment Date.............................................. 82
Monthly Servicing Fee............................................. 121
Negative Carry Account............................................ 104
Negative Carry Amount............................................. 131
Negative Carry Fill-up Date....................................... 115
New Notes......................................................... 1
Non-Global Purchasers............................................. 91
Note Allocation Percentage........................................ 83
Notes............................................................. 1
OCC............................................................... 53
Offering.......................................................... 7
OID............................................................... 148
Old Notes......................................................... 1
Original Closing Date............................................. 131
Palais............................................................ 1
Participants...................................................... 63
Pay Out Commencement Date......................................... 121
Pay Out Event..................................................... 120
Payment Account................................................... 84
Payment Date...................................................... 82
Payment Default................................................... 88
Plan Administrator................................................ 63
Pooling and Servicing Agreement................................... 11
Port Arthur IDRB.................................................. 74
PORTAL............................................................ 3
Portfolio Reassignment............................................ 117
Portfolio Yield................................................... 131
POS ........................................................... 46
Presentation Date................................................. 143
Principal Account................................................. 104
Principal Collections............................................. 131
Principal Reserve Account......................................... 84
Principal Shortfall............................................... 131
Proposed SERP..................................................... 67
Prospectus........................................................ 1
PTCE ........................................................... 150
Purchase Agreement................................................ 7
Purchase Termination Event........................................ 131
Purchase Termination Event of Default............................. 85
Rapid Reserve Period.............................................. 85
Rate Determination Date........................................... 131
Rating Agency..................................................... 101
Receivables....................................................... 12
- 151 -
<PAGE>
Receivables Charge-offs........................................... 144
Receivables Dilutions............................................. 144
Receivables Purchase Agreement.................................... 17
Receivables Trustee............................................... 37
Record Date....................................................... 131
Refinancing....................................................... 41
Registration Rights Agreement..................................... 7
Registration Statement............................................ 6
Related Person.................................................... 125
Released Equalization Account Cash Flows.......................... 83
Removed Accounts.................................................. 103
Repurchase Distribution Date...................................... 132
Required Adjustment Payment....................................... 117
Required Amount................................................... 132
Revolving Note.................................................... 72
Revolving Period.................................................. 132
Rosecliff......................................................... 71
S&P ........................................................... 1
SARs ........................................................... 63
Scheduled Deposit Month........................................... 84
Seasonal Period................................................... 72
Section 83(b) election............................................ 65
Securities Act.................................................... 1
Semi-Annual Interest Payment Amount............................... 85
Semi-Annual Interest Payment Date................................. 82
Semi-Annual Interest Period....................................... 85
Senior Certificate Monthly Interest............................... 132
Senior Certificate Principal Repayment Date....................... 132
Senior Certificates............................................... 105
Senior Class Certificate Rate..................................... 112
Senior Class Interest............................................. 112
Senior Class Investor Charge-Off.................................. 119
Senior Classes.................................................... 132
Senior Equalization Account Percentage............................ 132
Senior Notes...................................................... 72
Senior Subordinated Notes......................................... 73
Series ........................................................... 37
Series 1993-1 Supplement.......................................... 37
Series 1993-2 Supplement.......................................... 37
Series 1995-1 Supplement.......................................... 37
Series B Senior Subordinated Notes................................ 73
Series D Senior Subordinated Notes................................ 73
Service Transfer.................................................. 123
Servicer.......................................................... 103
Servicer Default.................................................. 123
SFAS 125.......................................................... 36
Shared Principal Collections...................................... 99
Simplified Priorities............................................. 134
SRI ........................................................... 1
SRI Cards......................................................... 48
SRI Portfolio..................................................... 50
SRI Retirement Plan............................................... 66
SRPC ........................................................... 1
Stage Stores...................................................... 1
Statutory Holding Periods......................................... 66
Stock Option Plan................................................. 63
Supplement........................................................ 37
Supplemental Accounts............................................. 102
Tendering Holder.................................................. 78
Tooker Employment Agreement....................................... 62
Transfer Date..................................................... 113
Transferor........................................................ 83
Transferor Certificate............................................ 12
Transferor Daily Cash Flows....................................... 83
Transferor Excess Finance Charge Cash Flows....................... 83
Transferor Finance Charge Collections............................. 132
Transferor Interest............................................... 132
Transferor Percentage............................................. 132
Transferor Percentage Finance Charge Cash
Flows...................................................... 83
Transferor Percentage Principal Cash Flows........................ 83
Transferor Retained Class......................................... 133
Transferor Retained Class Investor Charge-Off..................... 119
Transferor Retained Class Principal Payment
Commencement Date.......................................... 133
Transferor Shared Principal Collection Cash
Flows...................................................... 84
Transferor/Class D Cash Flows..................................... 83
Trust Pay Out Event............................................... 121
Tyler Entities.................................................... 71
Uhlmans........................................................... 19
Variable Funding Certificates..................................... 37
Variable Funding Class Invested Amount............................ 133
Variable Funding Series........................................... 37
Year of Credited Service.......................................... 67
Year of Service................................................... 67
- 152 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
SRI RECEIVABLES PURCHASE CO., INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheet at November 2, 1996
and February 3, 1996 .......................................... F-2
Condensed Statement of Income for the nine months ended
November 2, 1996 and October 28, 1995 ......................... F-3
Condensed Statement of Cash Flows for the nine months ended
November 2, 1996 and October 28, 1995 ......................... F-4
Condensed Statement of Stockholder's Equity for the nine months
ended November 2, 1996 ........................................ F-5
Notes to Unaudited Condensed Financial Statements ............. F-6
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants ............................. F-7
Balance Sheet at February 3, 1996 and January 28, 1995 ........ F-8
Statement of Income for the fiscal years 1995 and 1994
and from inception to January 29, 1994 ........................ F-9
Statement of Cash Flows for the fiscal years 1995 and 1994
and from inception to January 29, 1994 ........................ F-10
Statement of Stockholder's Equity for the fiscal years 1995
and 1994 and from inception to January 29, 1994 ............... F-12
Notes to Financial Statements ................................. F-13
F-1
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED BALANCE SHEET
(dollars in thousands, except par value)
November 2, February 3,
1996 1996
------- -------
(unaudited)
ASSETS
Retained Certificates in Trust ......................... $58,101 $66,833
Restricted cash ........................................ 6,306 4,411
Debt issue costs ....................................... 2,401 --
Trust organization costs ............................... 5,255 5,927
------- -------
$72,063 $77,171
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued expenses and other accrued liabilities ......... $ 1,715 $ 56
State franchise taxes payable .......................... 676 1,170
Payable to Palais ...................................... 5,393 18,522
Deferred income taxes .................................. 1,156 1,063
Long-term debt ......................................... 30,000 --
------- -------
Total liabilities ...................................... 38,940 20,811
------- -------
Common stock, par value $0.01, 1,000 shares
authorized, issued and outstanding ..................... -- --
Additional paid-in capital ............................. 28,336 52,195
Retained earnings ...................................... 4,787 4,165
------- -------
Stockholder's equity ................................... 33,123 56,360
------- -------
Commitments and contingencies .......................... -- --
------- -------
$72,063 $77,171
======= =======
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF INCOME
(in thousands)
(unaudited)
Nine Months Ended
----------------------
November 2, October 28,
1996 1995
------- --------
Gain associated with Retained Certificates ........ $ 4,547 $ 26,975
Interest income on balances with Palais ........... 2,043 686
Interest income ................................... 97 127
Interest expense .................................. (1,603) --
Amortization of debt issue costs .................. (233) --
General and administrative expenses ............... (714) (622)
------- --------
Operating income .................................. 4,137 27,166
Income tax expense ................................ (1,538) (10,086)
------- --------
Net income ........................................ $ 2,599 $ 17,080
======= ========
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
November 2, October 28,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................. $ 2,599 $ 17,080
--------- ---------
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of Trust organization and debt issue costs ..................... 993 585
Deferred income taxes ....................................................... 93 (123)
Change in operating assets and liabilities:
Decrease in payable to Palais ............................................... (13,129) (18,044)
Decrease in prepaid expenses and other current assets ....................... -- 49
Increase (decrease) in state franchise taxes payable ........................ (494) 743
Increase in accrued expenses and other accrued liabilities .................. 1,659 18
Unrealized gain associated with the Retained Certificates ................... (1,033) (782)
--------- ---------
Total adjustments ........................................................... (11,911) (17,554)
--------- ---------
Net cash used in operating activities ....................................... (9,312) (474)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash ................................................. (1,895) (19)
Purchases of accounts receivable from Palais ................................ (290,691) (255,410)
Transfer of accounts receivable to the Trust ................................ 304,010 278,313
Net cash provided by investing activities ................................... 11,424 22,884
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt .................................... 30,000 --
Additions to debt issue costs ............................................... (2,635) --
Additions to Trust organization costs ....................................... -- (700)
Dividends paid to Palais .................................................... (29,477) (21,710)
--------- ---------
Net cash used in financing activities ....................................... (2,112) (22,410)
--------- ---------
Net change in cash and cash equivalents ..................................... -- --
CASH AND CASH EQUIVALENTS:
Beginning of period ......................................................... -- --
--------- ---------
End of period ............................................................... $ -- $ --
--------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Contribution of ineligible accounts receivable .............................. $ 3,554 $ 3,043
========= =========
Contribution of Trust organization costs .................................... $ 87 $ 74
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands except number of shares)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------------------- Additional
Shares Paid-in Retained
Outstanding Amount Capital Earnings Total
----------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance, February 3, 1996 .............. 1,000 $ -- $ 52,195 $ 4,165 $ 56,360
Net income ............................. -- -- -- 2,599 2,599
Dividends .............................. -- -- (27,500) (1,977) (29,477)
Contribution of ineligible accounts
receivable ............................. -- -- 3,554 -- 3,554
Contribution of Trust organization costs -- -- 87 -- 87
----------- ------------ -------- ------- --------
Balance, November 2, 1996 .............. 1,000 $ -- $ 28,336 $ 4,787 $ 33,123
=========== ============ ======== ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements of SRI
Receivables Purchase Co., Inc. ("SRPC") have been prepared in accordance with
Rule 10-01 of Regulation S-X and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Those adjustments, which include only normal recurring
adjustments, that are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods have been made. The results
of operations for such interim periods are not necessarily indicative of results
of operations for a full year. The unaudited condensed financial statements
should be read in conjunction with the audited financial statements and notes
thereto contained elsewhere herein. SRPC is an indirect, wholly owned subsidiary
of Specialty Retailers, Inc. ("SRI"). SRPC's ultimate parent is Stage Stores,
Inc. ("Stage Stores," formerly Apparel Retailers, Inc.). The fiscal years
discussed herein end on the Saturday nearest to January 31 in the following
calendar year. For example, references to "1996" mean the fiscal year ended
February 1, 1997.
2. Under the accounts receivable securitization program implemented
in 1993 (the "Accounts Receivable Program"), SRPC purchases the accounts
receivable generated under the private label credit card program. Such accounts
receivable are in turn transferred to a master trust (the "Trust") which has
issued certain certificates representing undivided interests in the Trust. SRPC
owns an undivided interest in the accounts receivable not supporting the
certificates issued by the Trust (the "Retained Interest"). SRPC is a separate
corporate entity from Stage Stores and SRPC's creditors have a claim on its
assets prior to those assets becoming available to any creditor of Stage Stores
or any of its subsidiaries.
3. During May 1996, SRPC issued $30.0 million in aggregate principal
amount of 12.5% Trust Certificate-Backed Notes Due 2000 (the "SRPC Notes"). The
proceeds of such issuance were transferred to SRI 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 $28.2 million, including the
repayment of certain debt of Uhlmans. Uhlmans, which operated thirty-four family
apparel stores located in Ohio, Michigan and Indiana, had sales of $59.7 million
and net income of $0.6 million for the year ended February 3, 1996. Stage Stores
plans to operate the majority of the acquired locations under the "Stage" banner
following a brief conversion period. Stage Stores filed a Current Report on Form
8-K on May 9, 1996 related to this transaction.
4. During June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities ("SFAS
125"). The statement provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. A
transfer will be considered a sale to the extent consideration other than
beneficial interests in the assets transferred are received in exchange and
control over the assets is surrendered. SRPC is currently evaluating the
accounting implications of the standards set forth in this statement. Although
SRPC has not completed its evaluation of this statement and is unable to
determine the exact impact of the adoption of the statement, SRPC believes the
adoption of SFAS 125 will not have a material impact on its financial position
or results of operations.
5. During February 1997, SRI merged into Palais Royal, Inc.
("Palais"). In connection with the merger, Palais changed its name to Specialty
Retailers, Inc. All references to SRI in the accompanying financial statements
refer to either SRI or Palais, as appropriate.
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
SRI Receivables Purchase Co., Inc.
In our opinion, the accompanying financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of SRI
Receivables Purchase Co., Inc., an indirect, wholly owned subsidiary of Stage
Stores, Inc. (formerly Apparel Retailers, Inc.), at February 3, 1996 and January
28, 1995, and the results of its operations and its cash flows for each of the
two years in the period ended February 3, 1996 and for the period from inception
to January 29, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Houston, Texas
April 19, 1996
F-7
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
BALANCE SHEET
(dollars in thousands, except par value)
February 3, January 28,
1996 1995
--------- ---------
ASSETS
Retained Certificates in Trust .................... $ 66,833 $ 64,693
Restricted cash ................................... 4,411 3,454
Trust organization costs .......................... 5,927 6,396
--------- ---------
$ 77,171 $ 74,543
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued expenses and other accrued liabilities .... $ 56 $ 28
State franchise taxes payable ..................... 1,170 533
Payable to Palais ................................. 18,522 8,928
Deferred income taxes ............................. 1,063 1,358
--------- ---------
Total liabilities ............................ 20,811 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 ..................... -- --
--------- ---------
$ 77,171 $ 74,543
========= =========
The accompanying notes are an integral part of this statement.
F-8
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
STATEMENT OF INCOME
(in thousands)
From
Fiscal Year Inception to
----------------------- January 29,
1995 1994 1994
-------- -------- -------
Gain associated with
Retained Certificates ......... $ 23,397 $ 25,095 $ 9,498
Interest income (expense) on
balances with Palais .......... 825 495 (88)
Interest income .................... 228 104 94
General and administrative
expenses ...................... (1,152) (892) (530)
-------- -------- -------
Operating income ................... 23,298 24,802 8,974
Income tax expense ................. (8,651) (9,031) (3,194)
-------- -------- -------
Net income ......................... $ 14,647 $ 15,771 $ 5,780
======== ======== =======
The accompanying notes are an integral part of this statement.
F-9
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
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 (used in) 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 ............. 28 (627) 673
Unrealized (gain) loss associated with the
Retained Certificates ..................... (1,017) 827 (4,706)
----------- ----------- -----------
Total adjustments ................... 9,416 13,004 (5,961)
----------- ----------- -----------
Net cash provided by (used in)
operating activities ...................... 24,063 28,775 (181)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted cash ............ (957) 181 (3,635)
Purchases of accounts receivable from Palais ...... (408,278) (385,660) (189,570)
Transfer of accounts receivable to the Trust ...... 411,626 362,283 193,386
Net cash provided by (used in) investing activities 2,391 (23,196) 181
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to Palais .......................... (26,454) (5,579) --
----------- ----------- -----------
Net cash used in investing activities ....... (26,454) (5,579) --
----------- ----------- -----------
Net change in cash and cash equivalents ..... -- -- --
CASH AND CASH EQUIVALENTS:
Beginning of period ............................... -- -- --
----------- ----------- -----------
End of period ..................................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
STATEMENT OF CASH FLOWS (CONTINUED)
(in thousands)
From
Fiscal Year Inception to
---------------------- January 29,
1995 1994 1994
--------- ---------- -------
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
========= ========== =======
The accompanying notes are an integral part of this statement.
F-11
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands, except numbers of shares)
<TABLE>
<CAPTION>
Common Stock
------------------- Additional
Shares Paid-In Retained
Outstanding Amount Capital Earnings Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, July 27, 1993 inception date ......... -- $ -- $ -- $ -- $ --
Issuance of stock ............................. 1,000 -- 35,177 -- 35,177
Net income .................................... -- -- -- 5,780 5,780
Contribution of ineligible accounts receivable -- -- 1,956 -- 1,956
Contribution of trust organization costs ...... -- -- 3,805 -- 3,805
Contribution of deferred tax benefit associated
with bad debt reserve ......................... -- -- 2,548 -- 2,548
-------- -------- -------- -------- --------
Balance, January 29, 1994 ..................... 1,000 -- 43,486 5,780 49,266
Net income .................................... -- -- -- 15,771 15,771
Dividend ...................................... -- -- -- (5,579) (5,579)
Contribution of ineligible accounts receivable -- -- 4,120 -- 4,120
Contribution of trust organization costs ...... -- -- 118 -- 118
-------- -------- -------- -------- --------
Balance, January 28, 1995 ..................... 1,000 -- 47,724 15,972 63,696
Net income .................................... -- -- -- 14,647 14,647
Dividend ...................................... -- -- -- (26,454) (26,454)
Contribution of ineligible accounts receivable -- -- 4,471 -- 4,471
-------- -------- -------- -------- --------
Balance, February 3, 1996 ..................... 1,000 $ -- $ 52,195 $ 4,165 $ 56,360
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-12
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS:
SRI Receivables Purchase Co., Inc. ("SRPC") is a wholly owned,
special-purpose subsidiary of Specialty Retailers, Inc. ("SRI"). SRPC's ultimate
parent is Stage Stores, Inc. ("Stage Stores"). SRPC was incorporated on July 27,
1993 ("Inception") and was established to (i) acquire substantially all of the
accounts receivable from SRI and (ii) transfer 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.
RETAINED CERTIFICATES IN TRUST: Retained certificates in Trust
represents the Class D Term Certificates and the transferor certificate (the
"Transferor Certificate" and along with the Class D Term Certificates, the
"Retained Certificates") which are held by SRPC. SRPC accounts for the Retained
Certificates under Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115").
Under SFAS 115, the Retained Certificates are accounted for as debt securities
and classified as trading securities. Accordingly, the Retained Certificates are
recorded at fair value in the accompanying balance sheet with any change in fair
value reflected currently in income.
Fair value is determined based upon the purchase price of the
receivables from SRI as well as actual and estimated finance charge income,
servicing cost and bad debt expense associated with the underlying accounts
receivable portfolio as well as the return paid to the holders of the Class A, B
and C certificates (the "Term Certificates") and the $40.0 million revolving
certificate (the "Revolving Certificate"). The realized gain associated with the
Retained and Revolving Certificates represents (i) actual finance charge income
billed to the holders of the underlying accounts receivable less (ii) actual
servicing costs incurred by SRPC under an agreement with SRI, actual return paid
to the holders of the Term Certificates, actual premium payments made to Palais
and actual bad debt write-offs net of any recoveries of defaulted accounts
receivable from SRI, see Note 3. The change in the unrealized gain (loss)
associated with the Retained Certificates represents (i) estimated future
finance charge income to be billed to the holders of the underlying accounts
receivable as the underlying accounts receivable portfolio liquidates less (ii)
the estimated servicing cost to be incurred by SRPC over the liquidation period,
estimated return to be paid to the holders of the Term and Revolving
Certificates over the liquidation period and estimated future bad debt expense
associated with the underlying accounts receivable portfolio.
TRUST ORGANIZATION COSTS: Trust organization costs are amortized on
a straight-line basis over the expected life of the Trust (nine years).
Accumulated amortization of trust organization costs was $2,206,000 and
$1,105,000 at February 3, 1996 and January 28, 1995, respectively.
F-13
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS: SRPC considers highly liquid investments
with initial maturities of less than three months to be cash equivalents in its
statement of cash flows.
FINANCIAL INSTRUMENTS AND DERIVATIVES: SRPC records all financial
instruments, other than the Retained Certificates, at cost. The fair values of
these financial instruments approximate cost. SRPC has entered into two interest
rate cap agreements in order to hedge its interest rate risk. The cost of
entering into the agreements was not material and there are no future costs
related to the exercise of these agreements. If future interest rates increase
above specified amounts, reimbursements to SRPC under the agreements will reduce
interest expense.
INCOME TAXES: Although SRPC is included in the consolidated federal
tax return of Stage Stores, the provisions for federal income taxes has been
computed as if SRPC had filed a separate federal income tax return. The asset
and liability approach is used to recognize deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
RECLASSIFICATION: The accompanying financial statements include
reclassifications from financial statements issued in previous years.
NOTE 3 - RECEIVABLES PURCHASE AGREEMENT:
SRPC has entered into a Receivables Purchase Agreement (the
"Purchase Agreement") with SRI. The Purchase Agreement requires SRPC to purchase
eligible accounts receivable at a price which may be greater or less than the
face amount of such receivables.
The purchase price is based on (i) the expected yield on the
Receivables, reduced by certain costs to SRPC (ii) the expected losses on the
Receivables, net of certain expected benefits to SRPC from SRI and (iii) a
reasonable rate of return on SRPC's capital. 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 terminates upon
the occurrence of certain events specified therein.
Effective October 7, 1994, the Purchase Agreement and the Agreement
were amended to allow SRPC to sell defaulted accounts receivable to SRI, subject
to certain limitations (the "Amendment"). The Purchase Agreement does not allow
for the repurchase of any other receivables by Palais. 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.
NOTE 4 - POOLING AND SERVICING AGREEMENT:
On July 30, 1993, SRPC entered into a Pooling and Servicing
Agreement, amended and restated as of August 11, 1995 (the "Agreement"), with
the Trust, SRI and Bankers Trust (Delaware), as the trustee. Under the terms of
the Agreement, as supplemented by the Series 1993-1 Supplement, the Series
1993-2 Supplement and the Series 1995-1 Supplement, the Trust issued to third
parties $165.0 million of long-term Class A, B and C certificates (the "Term
Certificates") and a $40.0 million revolving certificate (the "Revolving
Certificate") in exchange for substantially all of the credit card accounts
receivable of SRPC. The Trust also issued a $35.1 million Class D Term
Certificate to SRPC, which does not receive a return, and a transferor
certificate (the "Transferor Certificate") which represents an undivided
interest in the assets of the Trust which do not support the Term, Revolving or
Class D Term Certificates outstanding. The amount of the Transferor Certificate
will vary depending on the level of assets in the Trust. The holder of the
Revolving Certificate has agreed to purchase interests in the Trust equal to the
amount of accounts receivable in the Trust above the level required to support
the Term Certificates and the transferor's retained interest (currently $204.1
million), up to a maximum of $40.0 million. If receivable balances in the Trust
fall below the level required to support the term
F-14
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
certificates and revolving certificates, certain principal collections may be
retained in the Trust until such time as the receivable balances exceed the
certificates then outstanding and the required transferor's interest. SRI
continues to service all of the accounts receivable in the Trust. The Trust may
issue additional series of certificates from time to time. Terms of any future
series will be determined at the time of issuance. The outstanding balances of
the Term Certificates totaled $165.0 and $140.0 million February 3, 1996 and
January 28, 1995, respectively. There was no portion of the Revolving
Certificate outstanding at February 3, 1996 and January 28, 1995.
The repayment of the Class D Term Certificates are contingent upon
full repayment of the Class A, B and C Term Certificates. The repayment of the
Class C Term Certificates are contingent upon full repayment of the Class A and
B Term Certificates. The repayment of the Class B Certificates are contingent
upon full repayment of the Class A Term Certificates.
Total accounts receivable transferred to the Trust during 1995, 1994
and 1993 were $411.6 million, $362.3 million and $333.4 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 SRI, (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 the London Interbank Offered Rate
("LIBOR"), plus a specified margin paid on a quarterly basis. Principal payments
commence on December 31, 1999 but can be accelerated upon occurrence of certain
events. The revolving certificate entitles the holder to receive a return based
upon a floating LIBOR rate, plus a specified margin, paid on a monthly basis.
SRPC has entered into two interest rate protection agreements with a bank with
notional amounts of $165.0 million and $40.0 million, respectively, which expire
in 2002 and 2003, respectively. These agreements are designed to protect SRPC
from increases in the floating rates on the Term and Revolving Certificates.
Under these agreements, SRPC will receive payments from the bank if the floating
LIBOR rate, as specified in the agreements, exceeds 12%. Currently, SRPC is not
receiving any payments under the agreements. If the bank does not perform under
the interest rate protection agreements, SRPC's exposure is limited to not
receiving such payments. SRPC is exposed to loss in the event of non-performance
by the bank. However, SRPC does not anticipate non-performance by the bank. At
February 3, 1996, the weighted average rate of return on the Term Certificates
was 6.8%. The Class D Term Certificates do not receive a return. The purchase
commitment for the Revolving Certificate expires in December 1999, 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 under the Agreement.
F-15
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - 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
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
Deferred tax liabilities (assets) consist of the following (in
thousands):
February 3, January 28,
1996 1995
---------- ----------
Gross deferred tax liabilities:
Unrealized gain associated
with Retained Certificates ................ $ 1,218 $ 1,358
State income taxes ............................. 125 --
---------- ----------
1,343 1,358
---------- ----------
Gross deferred tax assets:
Other .......................................... (280) --
---------- ----------
(280) --
---------- ----------
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 6 - 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 7 - 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 SRI. Intercompany interest is
charged at LIBOR plus 1.0% (6.8% at February 3, 1996).
NOTE 8 - SUBSEQUENT EVENTS (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 SRI 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
<PAGE>
SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO FINANCIAL STATEMENTS
During February 1997, SRI merged into Palais Royal, Inc. ("Palais"). In
connection with the merger, Palais changed its name to Specialty Retailers, Inc.
All references to SRI in the accompanying financial statements refer to either
SRI or Palais, as appropriate.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides, in effect, that any person made a party to any action by reason of the
fact that he is or was a director, officer, employee or agent of the Company may
and, in certain cases, must be indemnified by the Company against, in the case
of a non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorney's fees) incurred by him as a result of
such action. In the case of a derivative action, such person must be indemnified
against expenses (including attorney's fees). In either type of action the
person must have acted in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of the Company. This indemnification
does not apply, in a derivative action, to matters as to which it is adjudged
that the director, officer, employee or agent is liable to the Company, unless
upon court order it is determined that, despite such adjudication of liability,
but in view of all the circumstances of the case, such director, officer,
employee or agent is fairly and reasonably entitled to indemnity for expenses.
In a non-derivative action this indemnification does not apply to any criminal
proceeding in which such person had reasonable cause to believe his conduct was
unlawful.
Article Eleventh of the Company's Certificate of Incorporation provides
that to the fullest extent permitted by the DGCL, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
a breach of fiduciary duty as a director.
Article V of the Company's bylaws provides that the Company shall
indemnify each person who is or was an officer or director of the Company to the
fullest extent authorized by the DGCL as currently in effect or as the same may
be amended (but only to provide broader indemnification rights) in the future.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
3.1 Certificate of Incorporation of SRI Receivables Purchase Co., Inc.
3.2 By-Laws of SRI Receivables Purchase Co., Inc.
4.1 Form of Indenture among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc., as Administrative Agent, and
Bankers Trust Company, as Trustee and Collateral Agent,
relating to the 12.5% Series B Notes of SRI Receivables
Purchase Co., Inc. (including form of note).
4.2 Amended and Restated Pooling and Servicing Agreement by and
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated as of
August 11, 1995 (incorporated by reference to Exhibit 4.6 on
Form 10-Q of Apparel Retailers, Inc., dated October 28,
1995).
4.3 First Amendment to Amended and Restated Pooling and Servicing
Agreement by and among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc. and Bankers Trust (Delaware) dated
as of May 30, 1996 (incorporated by reference to Exhibit 4.2
on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
II-1
<PAGE>
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.
8.1 Tax Opinion of Kirkland & Ellis.
10.1 Registration Rights Agreement dated as of May 30, 1996 by and among
SRI Receivables Purchase Co., Inc. and BT Securities Corporation
relating to the sale of SRI Receivables Purchase Co., Inc. 12.5%
Trust Certificate-Backed Notes.
10.2 Employment Agreement between Specialty Retailers, Inc. and Carl E.
Tooker dated June 9, 1993 (incorporated by reference to Exhibit
10.17 to Registration No. 33-68258 on Form S-4 of Specialty
Retailers, Inc.).
II-2
<PAGE>
10.3 Stock Option Agreement between Specialty Retailers, Inc. and Carl E.
Tooker dated June 9, 1993 (incorporated by reference to Exhibit
10.18 to Registration No. 33-68258 on Form S-4 of Specialty
Retailers, Inc).
10.4 Employment Agreement between Mark Shulman and Specialty
Retailers, Inc., dated as of January 8, 1994 (incorporated by
reference to Exhibit 10.1 on Form 10-Q of Apparel Retailers,
Inc., dated April 29, 1995).
10.5 Stock Option Agreement between Apparel Retailers, Inc. and Mark
Shulman dated as of January 31, 1994 (incorporated by reference to
Exhibit 10.2 on Form 10-Q of Apparel Retailers, Inc., dated April
29, 1995).
10.6 Employment Agreement between James Marcum and Specialty Retailers,
Inc. dated as of May 15, 1995 (incorporated by reference to Exhibit
10.3 on Form 10-Q of Apparel Retailers, Inc., dated April 29, 1995).
10.7 Employment Agreement between Stephen Lovell and Specialty Retailers,
Inc. dated as of May 19, 1995 (incorporated by reference to Exhibit
10.4 on Form 10-Q of Apparel Retailers, Inc., dated April 29, 1995).
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Kirkland & Ellis (included in Exhibits 5 and 8).
24.1 Powers of Attorney.
25.1 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guarantee Delivery.
99.3 Form of Instructions to Registered Holder.
(B) FINANCIAL STATEMENT SCHEDULES
Not Applicable.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
II-3
<PAGE>
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions described under Item 20, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS ON MARCH 12, 1997.
SRI RECEIVABLES PURCHASE CO., INC.,
AS ORIGINATOR OF, AND ON BEHALF OF,
THE TRUST AND AS REGISTRANT
By: /S/ JAMES A. MARCUM
James A. Marcum
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
SIGNATURE TITLE DATE
* /s/ CARL TOOKER President and Chief August 27, 1996
Carl Tooker Executive Officer
* /s/ JAMES MARCUM Executive Vice President August 27, 1996
James Marcum and Chief Financial Officer
(Principal Accounting Officer)
* /s/ JOSHUA BEKENSTEIN Director August 27, 1996
Joshua Bekenstein
* /s/ ADAM KIRSCH Director August 27, 1996
Adam Kirsch
* /s/ R. WAYNE CAIN Director March 11, 1997
R. Wayne Cain
The undersigned, by signing his name hereto, does hereby sign this
Amendment No. 2 to Registration Statement on behalf of each of the
above-indicated officers and directors of the registrant pursuant to the power
of attorney signed by such officers and directors.
By: /s/ JAMES A. MARCUM
James A. Marcum, Attorney-in-Fact
II-5
<PAGE>
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 Form of Indenture among SRI Receivables Purchase Co., Inc., ***
Specialty Retailers, Inc., as Administrative Agent, and
Bankers Trust Company, as Trustee and Collateral Agent,
relating to the 12.5% Series B Notes of SRI Receivables
Purchase Co., Inc. (including form of note).
4.2 Amended and Restated Pooling and Servicing Agreement by **
and among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated as of
August 11, 1995 (incorporated by reference to Exhibit 4.6
on Form 10-Q of Apparel Retailers, Inc. dated October 28,
1995)
4.3 First Amendment to Amended and Restated Pooling **
and Servicing Agreement by and among SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc. and
Bankers Trust (Delaware) dated as of May 30, 1996
(incorporated by reference to Exhibit 4.2 on Form
10-Q of Apparel Retailers, Inc., dated May 4, 1996)
4.4 Amended and Restated Series 1993-1 Supplement **
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated as of
May 30, 1996 (incorporated by reference to Exhibit 4.3 on
Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
4.5 Amended and Restated Series 1993-2 Supplement **
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated as of
May 30, 1996 (incorporated by reference to Exhibit 4.4 on
Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
4.6 First amendment to the Series 1993-2 Supplement **
and Revolving Certificate Purchase Agreement by and among
Specialty Retailers, Inc., SRI Receivables Purchase Co.,
Inc., Bankers Trust (Delaware) as Trustee for the SRI
Receivables Maser Trust, the financial institutions
parties thereto and National Westminster Bank Plc, New
York branch, dated as of August 11, 1995 (incorporated by
reference to Exhibit 4.5 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
4.7 Amended and Retailed Series 1995-1 Supplement **
by and among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) on behalf of
the Series 1995-1 Certificateholders dated as of May 30,
1996 (incorporated by reference to Exhibit 4.6 on Form
10-Q of Apparel Retailers, Inc., dated May 4, 1996).
4.8 Amended and Restated Receivables Purchase **
Agreement among SRI Receivables Purchase Co., Inc. and the
Originators dated as of May 30, 1996 (incorporated by
reference to Exhibit 4.7 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
II-6
<PAGE>
4.9 Certificate Purchase Agreements between SRI **
Receivables Purchase Co., Inc. an the Purchasers of the
Series 1993-1 Offered Certificates (incorporated by
reference to Exhibit 4.10 of Registration No. 33-68258 on
Form S-4 of Specialty Retailers, Inc.)
4.10 Revolving Certificate Purchase Agreement **
between SRI Receivables Purchase Co., Inc., the Facility
Agent and the Revolving Purchasers with respect to the
Class a-R Certificates (incorporated by reference to
Exhibit 4.11 of Registration No. 33-68258 on Form S-4 of
Specialty Retailers, Inc.)
4.11 Certificate Purchase Agreement among SRI **
Receivables Purchase Co., Inc., Specialty Retailers, Inc.
and the Certificate Purchaser dated as of August 11, 1995
(incorporated by reference to Exhibit 4.9 on Form 10-Q of
Apparel Retailers, Inc., dated October 28, 1995.
5.1 Opinion of Kirkland & Ellis. *
8.1 Tax Opinion of Kirkland & Ellis. *
10.1 Registration Rights Agreement dated as ***
of May 30, 1996 by and among SRI Receivables Purchase Co.,
Inc. and BT Securities Corporation relating to the sale of
SRI Receivables Purchase Co., Inc. 12.5% Trust
Certificate-Backed Notes.
10.2 Employment Agreement between Specialty **
Retailers, Inc. and Carl E. Tooker dated June 9, 1993
(incorporated by reference to Exhibit 10.17 to
Registration No. 33-68258 on Form S-4 of Specialty
Retailers, Inc.).
10.3 Stock Option Agreement between Specialty **
Retailers, Inc. and Carl E. Tooker dated June 9, 1993
(incorporated by reference to Exhibit 10.18 to
Registration No. 33-68258 on Form S-4 of Specialty
Retailers, Inc.).
10.4 Employment Agreement between Mark Shulman and **
Specialty Retailers, Inc., dated as of January 8, 1994
(incorporated by reference to Exhibit 10.1 on Form 10-Q of
Apparel Retailers, Inc., dated April 29, 1995).
10.5 Stock Option Agreement between Apparel Retailers, **
Inc. and Mark Shulman dated as of January 31, 1994
(incorporated by reference to Exhibit 10.2 on Form 10-Q of
Apparel Retailers, Inc., dated April 29, 1995).
10.6 Employment Agreement between James Marcum and **
Specialty Retailers, Inc., dated as of May 15, 1995
(incorporated by reference to Exhibit 10.3 on Form 10-Q of
Apparel Retailers, Inc., dated April 29, 1995).
10.7 Employment Agreement between Stephen Lovell and **
Specialty Retailers, Inc., dated as of May 19, 1995
(incorporated by reference to Exhibit 10.4 on Form 10-Q of
Apparel Retailers, Inc., dated April 29, 1995).
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges. *
II-7
<PAGE>
23.1 Consent of Price Waterhouse LLP. *
23.2 Consent of Kirkland & Ellis (included in opinions *
filed as Exhibits 5.1 and 8.1).
24.1 Powers of Attorney. ***
25.1 Statement of Eligibility of Trustee ***
99.1 Form of Letter of Transmittal. ***
99.2 Form of Notice of Guaranteed Delivery. ***
99.3 Form of Instructions to Registered Holder. ***
- --------------
* Filed herewith.
** Incorporated by reference.
*** Previously filed.
II-8
EXHIBIT 5.1
To Call Writer Direct:
312 861-2000
March 12, 1997
SRI Receivables Purchase Co., Inc.
10201 South Main Street
Houston, Texas 77025
Re: 12.5% SERIES B NOTES
Ladies and Gentlemen:
We have acted as special counsel to SRI Receivables Purchase Co.,
Inc., a Delaware Corporation (the "Company"), in connection with the proposed
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of $30,000,000 principal amount of 12.5% Trust Certificate-Backed Notes
(the "New Notes") for the purpose of effecting an exchange offer (the "Exchange
Offer"), as described in the Registration Statement on Form S-4 (Registration
No. 333-10843) (including all amendments and supplements thereto, the
"Registration Statement"), for the Company's 12.5% Series B Notes (the "Old
Notes").
In connection therewith, we have examined and relied upon the
original, or copies certified or otherwise identified to our satisfaction, of:
(i) the Certificate of Incorporation and Bylaws of the Company; (ii) minutes and
records of the corporate proceedings of the Company with respect to the issuance
and sale of the New Notes; (iii) the Registration Statement and exhibits
thereto; (iv) the Indenture entered into as of May 30, 1996 among the Company,
Specialty Retailers, Inc. and Bankers Trust Company (the "Trustee") relating to
the Old Notes (the "Original Indenture") and the form of Indenture to be entered
into among the Company, Specialty Retailers, Inc. and the Trustee relating to
the New Notes (the "New Indenture" and, together with the Original Indenture,
the "Indentures"); and (v) such other documents, corporate records and other
instruments as we have deemed necessary for the expression of the opinions
contained herein.
For purposes of this opinion, we have assumed the authenticity of
all documents submitted to us as originals, the conformity to the originals of
all documents submitted to us as copies, and the authenticity of the originals
of all documents submitted to us as copies. We have
<PAGE>
March 12, 1997
Page 2
also assumed the genuineness of the signatures of persons signing all documents
in connection with which this opinion is rendered, the authority of such persons
signing on behalf of the parties thereto other than the Company, and the due
authorization, execution and delivery of all documents by the parties thereto
other than the Company.
Based on the foregoing, we are of the opinion that:
(1) The Company is a corporation validly existing under the laws of
the State of Delaware.
(2) The sale and issuance of the New Notes has been validly
authorized by the Company.
(3) When, as and if (i) the Registration Statement shall have become
effective pursuant to the provisions of the Securities Act, (ii) the
Indenture shall have been qualified pursuant to the provisions of the
Trust Indenture Act of 1939, as amended, (iii) the Old Notes shall have
been validly tendered to the Company and (iv) the New Notes shall have
been issued in the form and containing the terms described in the
Registration Statement, the Indentures, the resolutions of the Company's
Board of Directors authorizing the foregoing and any legally required
consents, approvals, authorizations and other order of the Securities and
Exchange Commission and any other regulatory authorities to be obtained,
the New Notes when issued pursuant to the Exchange Offer will be legally
issued, fully paid and nonassessable and will constitute binding
obligations of the Company, subject to the effect of applicable
bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance
or transfer or other laws of general applicability relating to or
affecting the enforcement of creditors' rights from time to time in effect
and to general principles of equity (regardless of whether enforcement is
considered in proceedings at law or in equity).
Our opinions as herein expressed are subject to the following
qualifications:
(a) we express no opinion as to the enforceability of the
indemnification provisions of the Indentures and the New Notes insofar as
said provisions might require indemnification with respect to any
litigation against the Company determined adversely to the Trustee, or any
loss, cost or expense arising out of the
<PAGE>
March 12, 1997
Page 3
Trustee's gross negligence or willful misconduct or any violation by such
trustee of statutory duties, general principles of equity or public
policy; and
(b) we express no opinion with respect to indemnification or
contribution obligations which contravene public policy, including,
without limitation, indemnification or contribution obligations which
arise out of failure to comply with applicable state or federal securities
law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
titled "Legal Matters" in the Prospectus which is part of the Registration
Statement.
We do not find it necessary for purposes of this opinion, and
accordingly do not purport to cover herein, the application of the securities or
"Blue Sky" laws of the various states to issuance of the New Notes.
We express no opinions as to matters under or involving any laws
other than the laws of the State of New York, the federal laws of the United
States of America and the General Corporation Law of the State of Delaware.
This opinion is furnished to you in connection with the filing of
the Registration Statement, and is not to be used, circulated, quoted or
otherwise relied upon for any other purposes.
Yours very truly,
/s/ KIRKLAND & ELLIS
Kirkland & Ellis
EXHIBIT 8.1
To Call Writer Direct:
312 861-2000
March 12, 1997
SRI Receivables Purchase Co., Inc.
10201 South Main Street
Houston, Texas 77025
Re: 12.5% SERIES B NOTES
Ladies and Gentlemen:
In connection with the proposed exchange of 12.5% Series B Trust
Certificate-Backed Notes (the "New Notes") of SRI Receivables Purchase Co., Inc.
(the "Company") for the outstanding 12.5% Series B Notes (the "Old Notes") of
the Company pursuant to a registered exchange offer (the "Exchange Offer"), as
described in the Registration Statement on Form S-4 (Registration No. 333-
10843) (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") on August 27, 1996, as amended by Amendment No. 1
to the Registration Statement, filed with the Commission on October 30, 1996,
and Amendment No. 2 to the Registration Statement, filed with the Commission on
or after the date hereof, you have requested our legal opinion concerning
certain United States federal income tax consequences of the exchange of the New
Notes for the Old Notes.
We are familiar with the corporate proceedings to date with respect to the
proposed exchange of New Notes for Old Notes and have examined the form of the
New Notes, the Old Notes and such other records and documents as we considered
necessary.
The opinion set forth herein is based on relevant provisions of the
Internal Revenue Code of 1986, as amended through the date hereof (the "Code"),
Treasury regulations promulgated thereunder (the "Regulations"), and
interpretations thereof by the courts and the Internal Revenue Service, all as
they exist at the date of this letter. No tax rulings will be sought from the
Internal Revenue Service with respect to any of the matters discussed herein.
All such provisions of the Code, Regulations, judicial decisions, and
administrative interpretations are subject to change at any time and, in some
circumstances, with retroactive effect. Any such change could affect any or all
of the conclusions set forth in this opinion.
<PAGE>
March 12, 1997
Page 2
Based on the foregoing and assuming that the documents to be delivered in
connection with the Exchange Offer are, to the extent applicable, executed and
delivered in substantially the form we have examined, we are of the opinion that
the statements in the Registration Statement under the caption "Federal Income
Tax Consequences" fairly describe the material United States federal tax
consequences of the exchange of the New Notes for the Old Notes and we hereby
confirm that the opinions of Federal Tax Counsel specified in the Registration
Statement under the caption "Federal Income Tax Consequences" constitute the
opinions of this firm. There can be no assurance, however, that such discussion
will not be successfully challenged by the Internal Revenue Service, or
significantly altered by new legislation, changes in Internal Revenue Service
positions or judicial decisions, any of which challenges or alterations may be
applied retroactively with respect to completed transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm and its opinions as the
Company's Federal Tax Counsel under the caption "Federal Income Tax
Consequences" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ KIRKLAND & ELLIS
Kirkland & Ellis
EXHIBIT 12.1
SRI RECEIVABLES PURCHASE CO., INC.
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year
------------------------ --------------------------------
November 2, October 28,
1996 1995(1) 1995(1) 1994(1) 1993(1)
------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Pretax earnings ........................................... $4,137 $ -- $ -- $ -- $ --
------ ------- ------ ------- -------
Fixed charges charged to expense:
Interest expense .......................................... 1,603 -- -- -- --
Amortization of debt issue costs .......................... 233 -- -- -- --
Total fixed charges charged to expense .................... 1,836 -- -- -- --
------ ------- ------ ------- -------
Income before income tax
and fixed charges charged to expense ...................... $5,973 $ -- $ -- $ -- $ --
====== ======= ====== ======= =======
Fixed charges charged to accruals:
Interest expense .......................................... -- -- -- -- --
Amortization of debt issue costs .......................... -- -- -- -- --
------ ------- ------ ------- -------
Total fixed charges charged to accruals ................... -- -- -- -- --
------ ------- ------ ------- -------
Total fixed charges ....................................... $1,836 $ -- $ -- $ -- $ --
====== ======= ====== ======= =======
Ratio of earnings to fixed charges ........................ 3.25 -- -- -- --
====== ======= ====== ======= =======
</TABLE>
- --------------------
(1) Prior to the issuance of the SRPC Notes, SRPC had no significant fixed
charges. Accordingly, the ratio of fixed charges is only presented for the
nine months ended November 2, 1996.
EXHIBIT 23.1
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to the Registration Statement on Form S-4 of SRI Receivables
Purchase Co., Inc. ("SRPC") of our report dated April 19, 1996 relating to the
financial statements of SRPC, which appears in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Houston, Texas
March 12, 1997
