AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST __, 1998
Registration No. [ ]
SECURITIES AND EXCHANGE COMMISSION
--------------------
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Metris Master Trust
(Issuer with respect to Offered Securities)
Metris Receivables, Inc.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
DELAWARE 41-1810301
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
600 SOUTH HIGHWAY 169
SUITE 300
ST. LOUIS PARK, MN 55426
(612) 417-5645
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
JILL B. BARCLIFT, ESQ.
600 SOUTH HIGHWAY 169
SUITE 1800
ST. LOUIS PARK, MN 55426
(612) 525-5090
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
ANDREW M. FAULKNER, ESQ. RENWICK MARTIN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER BROWN & WOOD LLP
& FLOM LLP ONE WORLD TRADE CENTER
919 THIRD AVENUE 58TH FLOOR
NEW YORK, NY 10022 NEW YORK, NY 10048
(212) 735-2853 (212) 839-5319
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable on or after the effective date of the Registration
Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
TITLE OF EACH PROPOSED PROPOSED
CLASS MAXIMUM MAXIMUM
OF SECURITIES TO OFFERING AGGREGATE AMOUNT OF
BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SECURITY (1) PRICE (1) FEE
Floating Rate $500,000 100% $500,000 $147.50
Series 1998-2,
Class A...........
Floating Rate $500,000 100% $500,000 $147.50
Asset Backed
Securities,
Series 1998-2,
Class B...........
Total............. $1,000,000 100% $1,000,000 $295.00
=============================================================================
(1)Estimated solely for purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED AUGUST __, 1998
Prospectus
METRIS MASTER TRUST
$__________ FLOATING RATE ASSET BACKED SECURITIES,
SERIES 1998-2, CLASS A
$__________ FLOATING RATE ASSET BACKED SECURITIES,
SERIES 1998-2, CLASS B
METRIS RECEIVABLES, INC. DIRECT MERCHANTS CREDIT CARD BANK,
TRANSFEROR NATIONAL ASSOCIATION
SERVICER
------------------
Each of the Floating Rate Asset Backed Securities, Series 1998-2, Class
A (the "Class A Securities") and each of the Floating Rate Asset Backed
Securities, Series 1998-2, Class B (the "Class B Securities," and, together
with the Class A Securities, the "Offered Securities") will represent an
interest in the Metris Master Trust (the "Trust") created pursuant to a
Pooling and Servicing Agreement among Metris Receivables, Inc., as
transferor (the "Transferor"), Direct Merchants Credit Card Bank, National
Association, as servicer (the "Servicer") and The Bank of New York
(Delaware), as trustee (the "Trustee"). The interests in the Trust
represented by the Class B Securities will be subordinated to fund certain
payments with respect to the Class A Securities as described in
"Description of the Offered Securities--Application of Collections,"
"--Redirected Principal Collections," and "--Investor Charge-Offs." The
property of the Trust includes a portfolio of receivables (the
"Receivables") generated or acquired from time to time in the ordinary
course of business in a portfolio of MasterCard(R) and VISA(R) or other
revolving consumer credit card accounts (the "Accounts"), all monies due or
to become due in payment of such Receivables and the benefit of funds on
deposit in certain accounts, including the Pre-Funding Account (as defined
herein). Certain capitalized terms used herein are defined in the "Glossary
of Terms" beginning on page 113 herein.
(continued on next page)
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" BEGINNING ON PAGE 29 HEREIN.
------------------
THE OFFERED SECURITIES REPRESENT INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF THE TRANSFEROR,
METRIS COMPANIES INC., DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL
ASSOCIATION OR ANY AFFILIATE THEREOF. AN OFFERED SECURITY IS NOT A DEPOSIT
AND NEITHER THE OFFERED SECURITIES NOR THE UNDERLYING ACCOUNTS OR
RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT THE TRANSFEROR(1)(2)
Per Class A Security... % % %
Per Class B Security... % % %
Total.................. $ $ $
=============================================================================
(1) Plus accrued interest, if any, from , 1998.
(2) Before deduction of expenses estimated to be $ .
The Offered Securities are offered by the Underwriters as described
in "Underwriting," subject to prior sale, when, as and if issued to and
accepted by the Underwriters and subject to approval of certain legal
matters by counsel for the Underwriters. The Underwriters reserve the right
to reject orders in whole or in part. It is expected that the Offered
Securities will be delivered in book-entry form on or about , 1998
through the facilities of The Depository Trust Company, Cedel Bank, societe
anonyme and the Euroclear System.
UNDERWRITERS OF THE CLASS A SECURITIES
CHASE SECURITIES INC.
UNDERWRITERS OF THE B SECURITIES
CHASE SECURITIES INC.
------------------
The date of this Prospectus is , 1998.
(continued from previous page)
Concurrently with the issuance of the Offered Securities, the Trust
will issue the Floating Rate Asset Backed Collateralized Trust Obligations,
Series 1998-2 (the "Collateralized Trust Obligations"), which may be
privately placed, and the Asset Backed Securities, Series 1998-2, Class D
(the "Class D Securities," and, together with the Collateralized Trust
Obligations and the Offered Securities, the "Securities" or the "Series
1998-2 Securities"), which will initially be retained by the Transferor.
The Securities constitute "Series 1998-2". The Collateralized Trust
Obligations will be subordinated to the Offered Securities and the Class D
Securities will be subordinated to the Collateralized Trust Obligations and
the Offered Securities as described in "Description of the Offered
Securities--Subordination of the Class B Securities," " --Redirected
Principal Collections," " --Application of Collections" and " --Investor
Charge-Offs." The Transferor will own the remaining interest in the Trust
not represented by the securities and any other investor Securities issued
by the Trust, which retained interest will be represented by the
Exchangeable Transferor Security (as defined herein). The Transferor from
time to time may offer other series of Securities that evidence interests
in the Trust by exchanging a portion of its interest in the Trust therefor.
Only the Offered Securities are being offered hereby.
Interest will accrue on the Class A Securities from , 1998
through , 1998 at the rate of % per annum above the arithmetic
mean of the London interbank offered quotations for one-month United States
dollar deposits ("LIBOR") as determined by the Trustee on , 1998, and
with respect to each Interest Accrual Period (as defined herein) thereafter,
at a rate of % per annum above LIBOR as determined by the Trustee on the
related LIBOR Determination Date (as defined herein). Interest will accrue
on the Class B Securities from , 1998 through , 1998 at the rate
of % per annum above LIBOR as determined by the Trustee on , 1998,
and with respect to each Interest Accrual Period thereafter, at the rate
of % per annum above LIBOR as determined by the Trustee on the related
LIBOR Determination Date. Interest with respect to the Securities will be
paid on , 1998 and on the th day of each month thereafter (or, if any
such the day is not a business day, the next succeeding business day) (each, a
"Distribution Date"). Principal with respect to the Class A Securities and
the Class B Securities is scheduled to be distributed on the Distribution
Date (the "Expected Final Payment Date"), but may be distributed earlier or
later under certain circumstances described herein. Principal payments will
not be made to Class B Securityholders unless and until the Class A
Invested Amount is paid in full. See "Maturity Considerations" and
"Description of the Offered Securities--Pay Out Events."
Application has been made to list the Offered Securities on the
Luxembourg Stock Exchange.
There currently is no secondary market for the Offered Securities,
and there is no assurance that one will develop or, if one does develop,
that it will continue until the Offered Securities are paid in full.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
OFFERED SECURITIES, INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING
TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS AND PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities (as defined herein) are issued
(which will occur under the limited circumstances described herein),
monthly and annual reports, containing information concerning the Trust and
prepared by the Servicer pursuant to the Pooling and Servicing Agreement
(as defined herein), will be sent on behalf of the Trust to Cede & Co., as
nominee of The Depository Trust Company ("DTC") which will be the only
registered holder (a "Securityholder") of the Offered Securities. See
"Description of the Offered Securities--Book-Entry Registration,"
"--Reports to Securityholders" and "--Evidence as to Compliance." Such
reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. None of Metris Companies
Inc., Direct Merchants Credit Card Bank, National Association, or any
successor servicer intends to send any of its financial reports to
Securityholders or to the owners of beneficial interests in the Offered
Securities ("Security Owners"). The Transferor will file with the
Securities and Exchange Commission (the "Commission") such periodic reports
with respect to the Trust as are required under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules and regulations of
the Commission thereunder for so long as the Offered Securities are
outstanding.
AVAILABLE INFORMATION
Metris Receivables, Inc., as originator of the Trust, has filed a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with the Commission on behalf of the Trust with respect
to the Securities offered pursuant to this Prospectus. For further
information, reference is made to the Registration Statement and amendments
thereof and exhibits thereto, which are available for inspection without
charge at the public references facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, Suite
1300, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration
Statement and amendments thereof and exhibits thereto may be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site at "http://www.sec.gov" that contains information
regarding registrants that file electronically with the Commission.
Periodic reports with respect to the Trust that have been filed under the
Exchange Act and the rules and regulations of the Commission thereunder and
other information filed by the Transferor can be inspected and copied at
the public reference facilities maintained by the Commission referred to
above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Transferor, on behalf of
the Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Prospectus and prior to the termination
of the offering of the Securities shall be deemed to be incorporated by
reference into this Prospectus and to be part hereof. Any statement
contained in a document incorporated or deemed to be incorporated by
reference in this Prospectus shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in
this Prospectus or in any subsequently filed document which also is or is
deemed to be incorporated by reference in this Prospectus modifies or
supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
The Transferor will provide without charge to each person to whom a
copy of this Prospectus is delivered, on the written or oral request of any
such person, a copy of any or all of the documents incorporated herein by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Written requests
for such copies should be directed to Metris Receivables, Inc., 600 South
Highway 169, Suite 300, St. Louis Park, Minnesota 55426. Telephone requests
for such copies should be directed to Metris Receivables, Inc. at (612)
417-5645.
OTHER INFORMATION
Upon receipt of a request by an investor who has received an
electronic Prospectus from an Underwriter or a request by such investor's
representative within the period during which there is an obligation to
deliver a Prospectus, the Transferor or such Underwriter will promptly
deliver, or cause to be delivered, without charge, a paper copy of the
Prospectus.
The distribution of this Prospectus and the offering of the Offered
Securities in certain jurisdictions may be restricted by law. Persons into
whose possession this Prospectus comes are required by the Underwriters to
inform themselves about and to observe any such restrictions.
The Transferor has taken all reasonable care to ensure that the
information contained in this Prospectus is true and accurate in all
material respects and that there are no material facts the omission of
which would make misleading any statement herein, whether fact or opinion.
The Transferor accepts responsibility accordingly.
As used in this Prospectus, all references to "dollars" and "$" refer
to United States dollars.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed herein under the captions "Direct
Merchants Bank's Credit Card Activities," "The Receivables" and "Maturity
Considerations" may constitute forward-looking statements within the
meaning of Section 27A of the Securities Act. Such forward-looking
statements may involve uncertainties and other factors that may cause the
actual results and performance of the Trust and the Receivables to be
materially different from future results or performance expressed or
implied by such statements. Among others, factors that could adversely
affect actual results and performance include economic conditions, the
ability of Direct Merchants Bank to change payment terms and collection
policies, and potential changes in consumers' attitudes toward financing
purchases with debt. See "Risk Factors."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used herein are defined in the "Glossary of Terms"
beginning on page 113 or elsewhere in this Prospectus. Unless the context
requires otherwise, certain capitalized terms, when used in this
Prospectus, relate only to the Securities and not to other securities which
may exist from time to time.
Offered Securities............... $ aggregate principal
amount of Class A Securities and $
aggregate principal amount of Class B
Securities are being offered hereby.
The Offered Securities represent the
right to receive certain payments
from the Trust only and do not
represent interests in or recourse
obligations of Metris Companies Inc.
("Metris"), Direct Merchants Credit
Card Bank, National Association
("Direct Merchants Bank"), the
Transferor, or any affiliate of any
of them.
The Class B Securities will be
subordinated to fund certain payments
with respect to the Class A
Securities as described herein. See
"Description of the Offered
Securities--Subordination of the
Class B Securities."
Other Securities Issued.......... $ aggregate principal
amount of Collateralized Trust
Obligations, which may be privately
placed, and $ aggregate principal
amount of Class D Securities, which
will initially be retained by the
Transferor, are being issued
concurrently with the Offered
Securities. The Trust has previously
issued four other Series which remain
outstanding. See "Annex I: Other
Series" for a summary of the terms of
these other Series. The Transferor
from time to time may create other
Series of securities that evidence
interests in assets of the Trust
(other than any Enhancement for, or
Collections allocated initially to,
any other Series), by exchanging a
portion of its interest in the Trust.
Only the Offered Securities are being
offered hereby.
Transferor....................... Metris Receivables, Inc. is the
Transferor. The principal executive
offices of the Transferor are located
at 600 South Highway 169, Suite 300,
St. Louis Park, MN 55426, telephone
number (612) 417-5645. See "The
Transferor."
Servicer......................... Direct Merchants Bank is the initial
Servicer. The principal executive
offices of the Servicer are located
in Phoenix, Arizona, with a mailing
address at 6909 East Greenway
Parkway, Scottsdale, Arizona 85254,
telephone number (602) 718-4600. A
substitute Servicer may be appointed
in certain circumstances. See
"Description of the Offered
Securities--Certain Matters Regarding
the Transferor and the Servicer."
Trustee.......................... The Bank of New York (Delaware), is the
Trustee. Under certain circumstances
specified herein, the Transferor and
the holders of the Securities will
have the right to remove the Trustee.
See "Description of the Offered
Securities--The Trustee."
Credit Card Originators.......... The Credit Card Originators are the Utah
Bank and Direct Merchants Bank and
their successors or assigns under the
Bank Purchase Agreement or any other
transferee of Accounts from Direct
Merchants Bank. In addition, Credit
Card Originators may include any
other originator of Accounts that
enters into a receivables purchase
agreement with Direct Merchants Bank,
Metris (or any successor to or
assignee of Metris that is a party to
a receivables purchase agreement with
the Transferor) or the Transferor in
accordance with the provisions of the
Pooling and Servicing Agreement, from
time to time.
Trust............................ Metris Master Trust (the "Trust") was
formed pursuant to the Pooling and
Servicing Agreement, which has been
supplemented by the Supplements
thereto relating to the Previously
Issued Series and will be
supplemented by the Series 1998-2
Supplement relating to the Securities
and the Supplements applicable to any
other Series that may be issued in
the future. See "The Trust."
As more fully described below and
elsewhere herein, the Trust assets
include the Receivables (the
"Receivables") that arise under
certain MasterCard(R) and VISA(R)1
accounts and may arise under other
revolving consumer credit card
accounts (the "Accounts") and the
proceeds thereof arising under the
Accounts from time to time.
Collections on the Receivables are
deposited into the Collection Account
maintained in the name of the Trust
and allocated on each business day
between Collections on Finance Charge
Receivables ("Finance Charge
Collections") and Collections
received with respect to Principal
Receivables ("Principal
Collections"). Finance Charge
Collections and Principal Collections
are allocated on each business day
among the Transferor Interest and the
respective interests of the
securityholders of each Series issued
and outstanding from time to time in
accordance with the Pooling and
Servicing Agreement and applicable
Supplements. In general, in
accordance with such allocations and
the provisions of the Pooling and
Servicing Agreement and the
applicable Supplements, (i) Finance
Charge Collections and certain other
amounts are applied on each business
day to fund interest on the
securities of any Series then
outstanding, to pay certain fees and
expenses, to cover series default
amounts, to reimburse investor
charge-offs and to make required
payments to the Transferor, and (ii)
Principal Collections and certain
other amounts are applied on each
business day to fund principal on the
securities of any Series then
outstanding, except that during any
revolving period applicable to a
Series, Principal Collections
otherwise allocable to the
securityholders of such Series are
paid to the holder of the
Exchangeable Transferor Security or,
with respect to amounts allocated to
any class of securities of such
Series which are not retained by the
Transferor, paid to the
securityholders of any other Series
then outstanding. See "Description of
the Offered Securities--Application
of Collections--Payment of Fees,
Interest and Other Items."
- -------------
1 MasterCard(R) and VISA(R) are federally registered servicemarks of
MasterCard International Inc. and VISA USA Incorporated, respectively.
Trust Assets..................... The Trust assets include (i) all
Receivables generated or acquired
from time to time by Direct Merchants
Bank satisfying certain criteria
described herein (see "Description of
the Offered Securities--Eligible
Receivables"), (ii) all funds to be
collected from Obligors in respect of
the Receivables (which shall not
include fees and charges for
insurance and insurance type
products), (iii) all right, title,
and interest of the Transferor in,
to, and under the Purchase Agreement
and the Bank Purchase Agreement, (iv)
the benefit of funds on deposit in
certain bank accounts maintained for
the benefit of securityholders of
each Series, including the Excess
Funding Account, (v) the benefit of
funds on deposit in certain bank
accounts maintained for the benefit
of the Securityholders, including the
Pre-Funding Account and the Principal
Funding Account, (vi) Recoveries, and
(vii) proceeds of the foregoing. The
Offered Securities will not have the
benefit of any Enhancement other than
the subordination of the Class B
Securities, the Collateralized Trust
Obligations and the Class D
Securities for the benefit of each
more senior Class of Securities as
described herein. See "Description of
the Offered Securities--Subordination
of the Class B Securities." The Trust
assets do not currently include
interchange fees received by Direct
Merchants Bank in connection with the
Receivables, but such fees may be
included as Trust assets at some
future date.
Pursuant to the Bank Purchase
Agreement, Metris purchases from
Direct Merchants Bank all of the
Receivables arising from time to time
under Accounts. See "Description of
the Purchase Agreements--Purchases of
Receivables."
Pursuant to the Purchase Agreement, the
Transferor purchases from Metris all
of the Receivables arising from time
to time under Accounts. See
"Description of the Purchase
Agreements--Purchases of
Receivables."
Direct Merchants Bank, Metris or the
Transferor may, from time to time,
enter into similar receivables
purchase agreements with other Credit
Card Originators.
Pursuant to the Pooling and Servicing
Agreement, the Transferor
automatically transfers to the Trust
all of its right, title and interest
in and to the Receivables purchased
by it pursuant to the Purchase
Agreement. See "Risk
Factors--Transfer of the Receivables;
Insolvency Risk Considerations" for a
discussion of certain legal
considerations relating to such
transfer.
Receivables...................... The Receivables consist of amounts owing
on MasterCard(R) credit cards and
VISA(R)credit cards and may include
amounts owing on other revolving
credit cards (see "Description of the
Offered Securities--Eligible
Receivables"). The Receivables in the
Trust are divided into two
components: Principal Receivables and
Finance Charge Receivables. At any
time, "Finance Charge Receivables"
means all amounts billed from time to
time to the Obligors on any Account
in respect of Periodic Finance
Charges, overlimit fees, late
charges, returned check fees, annual
membership fees and annual service
charges, if any, transaction charges,
cash advance fees and similar fees
and charges (excluding fees and
charges for insurance and insurance
type products and interchange fees),
plus Recoveries, investment earnings
on amounts credited to the Excess
Funding Account and Discount Option
Receivables, if any. "Principal
Receivables" equals all other
Eligible Receivables.
All new Receivables arising in the
Accounts are purchased by Metris from
Direct Merchants Bank pursuant to the
Bank Purchase Agreement and
subsequently are purchased by the
Transferor from Metris pursuant to
the Purchase Agreement and thereafter
will be automatically transferred to
the Trust. Accordingly, the amount of
Receivables fluctuates from day to
day as new Receivables are generated
and as existing Receivables are
collected, charged off as
uncollectible, or otherwise adjusted.
Collections...................... The Servicer deposits all collections of
Receivables in the Collection Account
("Collections"). The Collections on
the Receivables received on any
business day are allocated by the
Servicer between Principal
Collections and Finance Charge
Collections in accordance with the
definitions thereof. All such amounts
are then applied in accordance with
the respective interests of the
Securityholders, the securityholders
of any other Series, and the holder
of the Exchangeable Transferor
Security in the Principal Receivables
and in the Finance Charge Receivables
in the Trust. See "Description of the
Offered Securities--Allocation
Percentages."
Allocation of Trust Assets....... The right to receive payments from the
Trust's assets will be allocated
among the Class A Securityholders'
Interest, the Class B
Securityholders' Interest, the CTO
Securityholders' Interest, the Class
D Securityholders' Interest, the
interest of the securityholders of
the Previously Issued Series and any
other Series issued pursuant to the
Pooling and Servicing Agreement and
applicable Supplements, and the
Transferor Interest. The interest of
the securityholders of any class of
any Series in the assets of the Trust
will be limited to the
securityholders' interest for such
class and Series, and such
securityholders will not have any
recourse against any assets of the
Trust other than those allocated to
such securityholders' interest
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 the
Securityholders' Interest or the
interest of the securityholders of
any other Series issued pursuant to
the Pooling and Servicing Agreement
and applicable Supplements. The
principal amount of the Transferor
Interest will fluctuate as the amount
of Principal Receivables in the
Trust, the invested amount of each
Series (including the Variable
Funding Securities) and the amounts
on deposit in the Excess Funding
Account and the Pre-Funding Account
change from time to time. See
"Description of the Offered
Securities--General," "--Previously
Issued Series," "--Excess Funding
Account" and "--Pre-Funding Account."
The Class A Securities will represent
the right to receive payments of
interest on the aggregate outstanding
principal amount of the Class A
Securities at the Class A Interest
Rate, the payment of principal to the
extent of the Class A Invested Amount
(which may be less than the aggregate
unpaid principal amount of the Class
A Securities, in certain
circumstances, if the Series Default
Amount exceeds funds allocable
thereto and the Class B Invested
Amount, the CTO Invested Amount and
the Class D Invested Amount are
reduced to zero) and amounts on
deposit in the Pre-Funding Account
allocated to the Class A Securities.
See "Description of the Offered
Securities--Subordination of the
Class B Securities," "--Pre-Funding
Account," "--Allocation Percentages"
and "--Investor Charge-Offs."
The Class B Securities will represent
the right to receive payments of
interest on the aggregate outstanding
principal amount of the Class B
Securities at the Class B Interest
Rate, the payment of principal to the
extent of the Class B Invested Amount
(which may be less than the aggregate
unpaid principal amount of the Class
B Securities, in certain
circumstances, if the Series Default
Amount exceeds funds allocable
thereto and the CTO Invested Amount
and the Class D Invested Amount are
reduced to zero) and amounts on
deposit in the Pre-Funding Account
allocated to the Class B Securities.
See "Description of the Offered
Securities--Subordination of the
Class B Securities," "--Pre-Funding
Account," "--Allocation Percentages"
and "--Investor Charge-Offs."
The Collateralized Trust Obligations
will represent the right to receive
payments of interest on the aggregate
outstanding principal amount of the
Collateralized Trust Obligations at
the CTO Interest Rate and the payment
of principal to the extent of the CTO
Invested Amount (which may be less
than the aggregate unpaid principal
amount of the Collateralized Trust
Obligations, in certain
circumstances, if the Series Default
Amount exceeds funds allocable
thereto and the Class D Invested
Amount is reduced to zero) and
amounts on deposit in the Pre-Funding
Account allocated to the
Collateralized Trust Obligations. See
"Description of the Offered
Securities--Subordination of the
Class B Securities," "--Pre-Funding
Account," "--Allocation Percentages"
and "--Investor Charge-Offs." The
Collateralized Trust Obligations are
not being offered hereby.
The Class D Securities will represent
the right to receive from the Trust
assets funds up to (but not in excess
of) the amounts required to make
payments of principal and interest
(if any) to the extent of the Class D
Invested Amount. The Class D
Securities are not being offered
hereby.
The aggregate amount of Receivables in
the Accounts as of , 1998 was
$ comprised of $ of
Finance Charge Receivables and $ of
Principal Receivables. The "Initial
Invested Amount" will be equal to the
sum of (i) an amount equal to the
initial principal balance of the
Class A Securities less the Class A
Percentage on the Closing Date of the
initial deposit to the Pre-Funding
Account, plus the Class A Percentage
of any withdrawals from the
Pre-Funding Account during the
Funding Period in connection with
increases in the aggregate amount of
Principal Receivables in the Trust;
(ii) an amount equal to the initial
principal balance of the Class B
Securities less the Class B
Percentage on the Closing Date of the
initial deposit to the Pre-Funding
Account, plus the Class B Percentage
of any withdrawals from the
Pre-Funding Account during the
Funding Period in connection with
increases in the aggregate amount of
Principal Receivables in the Trust;
(iii) an amount equal to the initial
principal balance of the
Collateralized Trust Obligations; and
(iv) an amount equal to the initial
principal balance of the Class D
Securities. The Invested Amount will,
except as otherwise provided herein,
increase up to a maximum amount of $
(the "Full Invested Amount") during
the Funding Period, remain fixed at
the Full Invested Amount during the
Revolving Period and decline
thereafter during any Amortization
Period or Early Amortization Period
as principal is paid on the
Securities. The Invested Amount is
subject to increase during the
Funding Period to the extent amounts
are withdrawn from the Pre-Funding
Account and paid to the Transferor in
connection with the addition of
Principal Receivables to the Trust
or, at the end of the Funding Period,
deposited in the Excess Funding
Account. During the Accumulation
Period, the Adjusted Invested Amount
will be reduced concurrently with
deposits to the Principal Funding
Account. The aggregate principal
amount of the Securities, except as
otherwise provided herein, will
remain fixed at the initial amount
thereof during the period beginning
on the Closing Date and ending with
the date on which the first principal
payment is made with respect to the
Securities during any Amortization
Period. No payment of principal with
respect to the Class B Securities may
be made until the final principal
payment of the Class A Invested
Amount with respect to the Class A
Securities has been made. No payment
of principal with respect to the
Collateralized Trust Obligations may
be made until the final principal
payment of the Class A Invested
Amount with respect to the Class A
Securities and the final principal
payment of the Class B Invested
Amount with respect to the Class B
Securities have been made. During the
Controlled Amortization Period, the
Class D Invested Amount may be
reduced and the amount of the
Transferor Interest correspondingly
increased concurrently with payments
of principal for the benefit of the
Offered Securities and the
Collateralized Trust Obligations to
an amount equal to the Stated Class D
Amount. See "Description of the
Offered Securities --Principal
Payments."
The Class A Securityholders' Interest,
the Class B Securityholders'
Interest, the CTO Securityholders'
Interest, and the Class D
Securityholders' Interest will each
include the right to receive (but
only to the extent needed to make
required payments under the Pooling
and Servicing Agreement) varying
percentages of Finance Charge
Collections and Principal Collections
during each Monthly Period. Finance
Charge Collections prior to the
occurrence of a Pay Out Event, the
amount of Receivables in Defaulted
Accounts at all times, and Principal
Collections during the Revolving
Period will be applied on each
business day to the Class A
Securityholders' Interest, the Class
B Securityholders' Interest, the CTO
Securityholders' Interest, and the
Class D Securityholders' Interest
based on the Class A Floating
Percentage, the Class B Floating
Percentage, the CTO Floating
Percentage, and the Class D Floating
Percentage, respectively. On and
after the date on which a Pay Out
Event is deemed to occur, Finance
Charge Collections will be applied on
each business day to the Class A
Securityholders' Interest, the Class
B Securityholders' Interest, the CTO
Securityholders' Interest and the
Class D Securityholders' Interest
based on the Fixed/Floating
Percentage. During the Revolving
Period for each Series, all Principal
Collections that would otherwise be
applied to the Securityholders will
be applied on each business day and
paid to the holder of the
Exchangeable Transferor Security
(except for Shared Principal
Collections used to make payments to
other Series). During the
Amortization Period, until the Class
B Principal Payment Commencement
Date, Principal Collections will
generally be applied on each business
day to the Class A Securityholders'
Interest based on the Fixed/Floating
Percentage. On and after the Class B
Principal Payment Commencement Date,
Principal Collections will generally
be applied on each business day to
the Class B Securityholders' Interest
based on the Fixed/Floating
Percentage. On and after the CTO
Principal Payment Commencement Date,
Principal Collections will be applied
on each business day for the benefit
of the CTO Securityholders' Interest
based on the Fixed/Floating
Percentage. See "Description of the
Offered Securities --Allocation
Percentages."
Exchanges........................ The Pooling and Servicing Agreement
provides that the Trustee will issue
two types of securities: (i) Investor
Securities in one or more Series each
of which may have multiple classes of
securities of which one or more such
classes may be transferable, and (ii)
the Exchangeable Transferor Security.
The Exchangeable Transferor Security
will evidence the Transferor
Interest, will initially be held by
the Transferor, and will be
transferable only as provided in the
Pooling and Servicing Agreement,
including through the issuance of a
Supplemental Security. See
"Description of the Offered
Securities--Exchanges." The
Exchangeable Transferor Security is
not being registered under the
Securities Act. The Pooling and
Servicing Agreement also provides
that, pursuant to any one or more
Supplements, the Transferor may
tender the Exchangeable Transferor
Security or, if provided in the
relevant Supplement, securities
comprising any Series and the
Exchangeable Transferor Security, to
the Trustee in exchange for
securities comprising one or more new
Series and a reissued Exchangeable
Transferor Security. However, at all
times, the interest in the Principal
Receivables in the Trust and amounts
on deposit in the Excess Funding
Account represented by the Transferor
Interest must equal or exceed the
Minimum Transferor Interest. Under
the Pooling and Servicing Agreement,
the Transferor may define, with
respect to any new Series, the
Principal Terms of such Series. See
"Description of the Offered
Securities--Exchanges." The
Transferor may offer any Series for
sale 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.
The Transferor currently intends to
offer, from time to time, additional
Series issued by the Trust.
Under the Pooling and Servicing
Agreement, an Exchange of the
Exchangeable Transferor Security for
securities comprising one or more
Series and a reissued Exchangeable
Transferor Security may occur only
upon delivery to the Trustee of the
following: (i) a Supplement
specifying the Principal Terms of
each Series to be issued in
connection therewith, (ii) a Tax
Opinion, (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 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, (a) the
Transferor Interest would be at least
equal to the Minimum Transferor
Interest and (b) the Retained
Interest (as defined in the Pooling
and Servicing Agreement) would equal
or exceed the Minimum Retained
Interest, and (vi) the existing
Exchangeable Transferor Security and,
if applicable, the existing
securities representing the Series to
be exchanged. See "Description of the
Offered Securities--Exchanges."
Interest......................... Each Class A Security represents the
right to receive interest accruing
from the Closing Date at the rate
equal to % per annum above LIBOR
(calculated as described under
"Description of the Offered
Securities--Interest Payments") as
determined on , 1998 for the
period from the Closing Date through
, 1998 and on the related
LIBOR Determination Date for each
Interest Accrual Period thereafter
(such rate, as in effect from time to
time, the "Class A Interest Rate").
Each Class B Security represents the
right to receive interest accruing
from the Closing Date at the rate
equal to % per annum above LIBOR as
determined on , 1998 for the
period from the Closing Date through
, 1998 and on the related LIBOR
Determination Date for each Interest
Accrual Period thereafter (such rate,
as in effect from time to time, the
"Class B Interest Rate").
Interest on the Offered Securities will
be payable on , 1998 and on the th
day of each month thereafter or, if
such day is not a business day, on
the next succeeding business day
(each, a "Distribution Date"), in an
amount equal to (a) with
respect to the Class A Securities,
the product of (i) the actual number
of days in the related Interest
Accrual Period divided by 360, (ii)
the Class A Interest Rate for such
Interest Accrual Period and (iii) the
outstanding principal balance of the
Class A Securities as of the
preceding Record Date (or in the case
of the first Distribution Date, the
initial principal amount of Class A
Securities) and (b) with respect to
the Class B Securities the product of
(i) the actual number of days in the
related Interest Accrual Period
divided by 360, (ii) the Class B
Interest Rate for such Interest
Accrual Period and (iii) the
outstanding principal balance of the
Class B Securities as of the
preceding Record Date (or in the case
of the first Distribution Date, the
initial principal amount of the Class
B Securities).
Interest payments on the Class A
Securities on each Distribution Date
will be funded from Available Series
Finance Charge Collections with
respect to the preceding Monthly
Period (or, with respect to the first
Distribution Date, such Collections
from and including the Closing Date
to and including , 1998 plus the
amount of the initial deposit to the
Interest Funding Account to be made
on the Closing Date) and from certain
other funds allocated as set forth in
the Pooling and Servicing Agreement
to the respective Classes of the
Securities and deposited on each
business day during such Monthly
Period in the Interest Funding
Account. See "Description of the
Offered Securities--Interest
Payments."
Subject to the prior payment of
interest on the Class A Securities,
interest payments on the Class B
Securities on each Distribution Date
will be funded from the portion of
Available Series Finance Charge
Collections with respect to the
preceding Monthly Period and from
certain other funds allocated as set
forth in the Pooling and Servicing
Agreement to the Class B Securities
and deposited on each business day
during such Monthly Period in the
Interest Funding Account. See
"Description of the Offered
Securities--Interest Payments" and
"--Application of Collections."
Funding Period................... During the period from and including the
Closing Date to but excluding the
earlier of (x) the first day for
which the Invested Amount equals the
Full Invested Amount; (y) the first
day on which a Pay Out Event is
deemed to occur; and (z) the first
business day of the _________ Monthly
Period (the "Funding Period"), the
Pre-Funded Amount will be maintained
in a trust account to be established
with The Bank of New York (the
"Pre-Funding Account"). The
"Pre-Funded Amount" will equal the
amount of the initial deposit to the
Pre-Funding Account, less the amounts
of any increases in the Invested
Amount pursuant to the Series 1998-2
Supplement in connection with the
increase in the amount of Receivables
in the Trust. On the Closing Date a
cash deposit will be made to the
Pre-Funding Account such that the
Amount of Principal Receivables plus
the amount of such cash deposit on
such date will at least equal the sum
of the initial outstanding principal
balances of the Class A Securities,
the Class B Securities, the
Collateralized Trust Obligations and
the Class D Securities, and the then
current outstanding principal amount
of the Previously Issued Series.
Funds on deposit in the Pre-Funding
Account will be invested by the
Trustee at the direction of the
Servicer in Cash Equivalents.
During the Funding Period, funds on
deposit in the Pre-Funding Account
will be withdrawn and paid to the
Transferor to the extent of any
increases in the Invested Amount as a
result of the increase in the amount
of Receivables in the Trust. The
Transferor expects that the funds on
deposit in the Pre-Funding Account
will be fully invested in Receivables
by the end of the _________ Monthly
Period. In the event of the
occurrence of a Pay Out Event during
the Funding Period, the amounts
remaining on deposit in the
Pre-Funding Account, will be payable
as principal first to the Class A
Securityholders until the Class A
Invested Amount is paid in full and
then to the Class B Securityholders
until the Class B Invested Amount is
paid in full and then to the CTO
Securityholders until the CTO
Invested Amount is paid in full.
Should the Pre-Funded Amount be
greater than zero on the first day of
the __________ Monthly Period, such
amount will be deposited in the
Excess Funding Account and the
Invested Amount will be increased in
an amount equal to such deposit.
Amounts on deposit in the Excess
Funding Account are treated as assets
of the Trust allocated to all Series
then outstanding and the Exchangeable
Transferor Security and will be
applied as described in "Description
of the Offered Securities--Excess
Funding Account."
Revolving Period................. The "Revolving Period" with respect to
the Securities means the period from
and including the Closing Date to,
but excluding, the earlier of (a) the
commencement of the Accumulation
Period and (b) the commencement of
the Early Amortization Period. See
"Description of the Offered
Securities--Pay Out Events" herein
for a discussion of the events which
might lead to the termination of the
Revolving Period prior to the
commencement of the Accumulation
Period. The accumulation period with
respect to the Securities (the
"Accumulation Period") is scheduled
to begin at the close of business on
the last day of the _________ Monthly
Period. Subject to the conditions set
forth herein under "Description of
the Offered Securities--Postponement
of Accumulation Period," the day on
which the Revolving Period ends and
the Accumulation Period begins may be
delayed to no later than the close of
business on the last day of the
_________ Monthly Period. During the
Revolving Period, Principal
Collections otherwise allocable to
the Securityholders (other than any
Shared Principal Collections paid to
the holders of securities of other
Series and any Redirected Principal
Collections) will, subject to certain
limitations, be paid from the Trust
to the holder of the Exchangeable
Transferor Security. See "Description
of the Offered Securities--Pay Out
Events" for a discussion of the
events which might lead to the
termination of the Revolving Period
for the Securities prior to the end
of the ________ Monthly Period.
Principal Payment;
Accumulation Period........... Unless a Pay Out Event shall have
occurred, the Accumulation Period
will begin at the close of business
on the last day of the Revolving
Period and will end on the earliest
to occur of (i) the commencement of
the Early Amortization Period, (ii)
payment of the Invested Amount in
full and (iii) the Termination Date.
With respect to each Monthly Period
during the Accumulation Period, prior
to the payment in full of the Class A
Invested Amount, the Class B Invested
Amount and the CTO Invested Amount,
amounts equal to the least of (i) the
Available Investor Principal
Collections for such Monthly Period,
(ii) the sum of the Controlled
Accumulation Amount plus any
Accumulation Shortfall for such
Monthly Period and (iii) the ABC
Adjusted Invested Amount, will be
deposited monthly in the Principal
Funding Account until the Principal
Funding Account Balance is equal to
the sum of the Class A Invested
Amount, the Class B Invested Amount
and the CTO Invested Amount. Although
it is anticipated that during each
Monthly Period in the Accumulation
Period prior to the Expected Final
Payment Date funds will be deposited
in the Principal Funding Account in
an amount equal to the applicable
Controlled Deposit Amount and that
scheduled principal will be available
for distribution to the Class A
Securityholders and the Class B
Securityholders on the Expected Final
Payment Date, no assurance can be
given in that regard. See "Maturity
Considerations." If the Principal
Collections for any Monthly Period
are less than the applicable
Controlled Deposit Amount, the amount
of such deficiency will be the
applicable "Accumulation Shortfall"
for the succeeding Monthly Period.
See "Description of the Offered
Securities--Application of
Collections" herein.
Funds on deposit in the Principal
Funding Account will be available to
pay the Class A Securityholders in
respect of the Class A Invested
Amount on the Expected Final Payment
Date. If the aggregate principal
amount of deposits made to the
Principal Funding Account are
insufficient to pay in full the Class
A Invested Amount on the Expected
Final Payment Date, the Early
Amortization Period will commence as
described below, and the Class A
Securityholders will receive
distributions of Class A Principal
and Class A Monthly Interest on each
Distribution Date thereafter until
the Class A Invested Amount is paid
in full.
On the Expected Final Payment Date,
provided that the Class A Invested
Amount is paid in full and the Early
Amortization Period has not
commenced, funds remaining on deposit
in the Principal Funding Account will
be used to pay the Class B Invested
Amount as described herein. If the
funds remaining on deposit in the
Principal Funding Account are
insufficient to pay in full the Class
B Invested Amount on the Expected
Final Payment Date, the Early
Amortization Period will commence as
described below, and the Class B
Securityholders will receive
distributions of Class B Principal
and Class B Monthly Interest on each
Distribution Date thereafter until
the Class B Invested Amount is paid
in full. No payment of principal to
the CTO Securityholders will be made
until the Class B Invested Amount has
been paid in full.
If a Pay Out Event occurs during the
Accumulation Period, the Early
Amortization Period will commence and
any amount on deposit in the
Principal Funding Account will be
paid to the Securityholders of each
Class of Securities, sequentially, in
alphabetical order, on the
Distribution Date following the
Monthly Period in which the Early
Amortization Period commences.
Other Series offered by the Trust may
or may not have accumulation periods
like the Accumulation Period or
amortization periods like the Early
Amortization Period, and such periods
may have different lengths and begin
on different dates than the
Accumulation Period or Early
Amortization Period described herein.
Thus, certain Series may be in their
revolving periods while others are in
periods during which Principal
Collections are distributed to or
accumulated for such other Series. In
addition, other Series may allocate
Principal Collections based upon
different investor percentages. See
"Description of the Offered
Securities--Exchanges" for a
discussion of the potential terms of
other Series. See "Annex I: Other
Series" for a description of the
terms of the Previously Issued
Series.
Early Amortization Period........ During the Early Amortization Period,
Principal Collections allocable to
the respective Securityholders'
Interest and certain other amounts
(including Shared Principal
Collections from any other Series,
funds on deposit in the Excess
Funding Account and, on the first
Distribution Date with respect to the
Early Amortization Period, funds on
deposit in the Pre-Funding Account or
the Principal Funding Account) will
no longer be reinvested in the Trust
or otherwise used to maintain the
Securityholders' Interest of such
Series, but instead will be
distributed as principal payments
monthly on each Distribution Date
beginning with the first Distribution
Date following the Monthly Period in
which a Pay Out Event occurs or is
deemed to have occurred to the Class
A Securityholders in respect of the
Class A Invested Amount and,
following the payment in full of the
Class A Invested Amount, to the Class
B Securityholders in respect of the
Class B Invested Amount and,
following the payment in full of the
Class B Invested Amount, to the CTO
Securityholders in respect of the CTO
Invested Amount and, following the
payment in full of the CTO Invested
Amount, to the Class D
Securityholders until the Class D
Invested Amount is paid in full. See
"Description of the Offered
Securities--Pay Out Events."
Shared Principal Collections..... To the extent that Principal Collections
and other amounts that are initially
applied for the benefit of the
securityholders' interest of any
class of any Series are not needed to
make payments to the securityholders
of such class or required to be
deposited in the Principal Account,
they may be applied to cover
principal payments due to or for the
benefit of securityholders of another
Series, including principal payments
which the Transferor elects to make
with respect to any Variable Funding
Securities. Any such reallocation
will not result in a reduction in the
Securityholders' Interest. In
addition, Principal Collections and
certain other amounts initially
applied for the benefit of other
Series, to the extent such
collections are not needed to make
payments to the securityholders of
such other Series, may be applied to
cover principal payments due to or
for the benefit of the holders of the
Securities. See "Description of the
Offered Securities--Application of
Collections."
Excess Funding Account........... At any time at which the Transferor
Interest is less than the Minimum
Transferor Interest, funds (to the
extent available therefor as
described herein) otherwise payable
to the Transferor will be deposited
in the Excess Funding Account on each
business day until the Transferor
Interest is at least equal to the
Minimum Transferor Interest. Funds on
deposit in the Excess Funding Account
may, at the option of the Transferor,
be withdrawn and paid to the
Transferor to the extent that on any
day the Transferor Interest exceeds
the Minimum Transferor Interest.
Any funds on deposit in the Excess
Funding Account at the beginning of
an Amortization Period will be
deposited in the Principal Account as
part of Class A Principal, Class B
Principal, or CTO Principal, as
applicable, for any Distribution
Date. In addition, no funds allocated
to Investor Securities will be
deposited in the Excess Funding
Account during any amortization
period or early amortization period
for any Series until the Principal
Account for such Series for such
Distribution Date has been fully
funded or the Investor Securities of
such Series have been paid in full.
See "Description of the Offered
Securities--Excess Funding Account."
Distribution of Available Series Available Series Finance Charge
Finance Charge Collections Collections will be applied on each
Allocable to Securityholders.. business day in a Monthly Period in the
following order of priority:
(i) an amount equal to the amount of
Class A Monthly Interest and any
overdue Class A Monthly Interest
not previously deposited in the
Interest Funding Account for such
Monthly Period and interest on any
overdue interest amounts will be
deposited in the Interest Funding
Account;
(ii) an amount equal to the amount of
Class B Monthly Interest and any
overdue Class B Monthly Interest
not previously deposited in the
Interest Funding Account for such
Monthly Period and interest on any
overdue interest amounts will be
deposited in the Interest Funding
Account;
(iii) an amount equal to the amount of
CTO Monthly Interest and any
overdue CTO Monthly Interest not
previously deposited in the
Interest Funding Account for such
Monthly Period and interest on any
overdue interest amounts will be
deposited in the Interest Funding
Account;
(iv) an amount equal to the Monthly
Servicing Fee plus any Monthly
Servicing Fee that was due but not
paid on any prior business day will
be paid to the Servicer;
(v) an amount equal to the Series
Default Amount on such business day
and, to the extent not previously
paid, the Series Default Amount for
each prior business day in such
Monthly Period will be (a) during
the Revolving Period, treated as
Shared Principal Collections and
(b) during the Amortization Period,
treated as Available Investor
Principal Collections for the
benefit of the Securities;
(vi) an amount equal to the Series
1998-2 Percentage of any Adjustment
Payment which the Transferor is
required but fails to make pursuant
to the Pooling and Servicing
Agreement will be (a) during the
Revolving Period, treated as Shared
Principal Collections and (b)
during the Amortization Period,
treated as Available Investor
Principal Collections for the benefit
of the Securities;
(vii) an amount equal to unreimbursed
Class A Charge-Offs on such
business day will be (a) during the
Revolving Period, treated as Shared
Principal Collections and (b)
during the Amortization Period,
treated as Available Investor
Principal Collections for the
benefit of the Securities;
(vii) an amount equal to the accrued and
unpaid interest on the outstanding
aggregate principal amount of the
Class B Securities not previously
deposited in the Interest Funding
Account for such Monthly Period
will be deposited in the Interest
Funding Account;
(ix) an amount equal to the accrued and
unpaid interest on the outstanding
aggregate principal amount of the
Collateralized Trust Obligations
not previously deposited in the
Interest Funding Account for such
Monthly Period will be deposited in
the Interest Funding Account;
(x) an amount equal to unreimbursed
Class B Charge-Offs on such
business day will be (a) during the
Revolving Period, treated as Shared
Principal Collections and (b)
during the Amortization Period,
treated as Available Investor
Principal Collections for the
benefit of the Securities;
(xi) an amount equal to unreimbursed CTO
Charge-Offs on such business day
will be (a) during the Revolving
Period, treated as Shared Principal
Collections and (b) during the
Amortization Period, treated as
Available Investor Principal
Collections for the benefit of the
Securities;
(xii) an amount equal to unreimbursed
Class D Charge-Offs on such
business day will be (a) during the
Revolving Period, treated as Shared
Principal Collections and (b)
during the Amortization Period,
treated as Available Investor
Principal Collections for the
benefit of the Securities;
(xiii) an amount equal to any required
funding of a reserve account for
the benefit of the Collateralized
Trust Obligations will be deposited
in such reserve account;
(xiv) on and after the Reserve Account
Funding Date, but prior to the date
on which the Accumulation Period
Reserve Account terminates, an
amount equal to the excess, if any,
of the Required Reserve Account
Amount over the Available Reserve
Account Amount will be deposited in
the Accumulation Period Reserve
Account;
(xv) the amount designated by the
Transferor in writing in its
instructions to the Trustee to be
deposited in the Payment Reserve
Account will be deposited in the
Payment Reserve Account; and
(xvi) the remainder will be treated as
Excess Finance Charge Collections
or Transferor Retained Finance
Charge Collections, as applicable.
Transferor Retained Finance Charge
Collections will be applied on each
Default Recognition Date to the
payment of the Series Default
Amount in accordance with clause
(v) above. See "Description of the
Offered Securities--Application of
Collections."
On each Transfer Date all investment
income (net of investment losses and
expenses) on funds on deposit in the
Pre-Funding Account, the Principal
Funding Account and the Accumulation
Period Reserve Account will be
applied as if such amounts were
Available Series Finance Charge
Collections on the last business day
of the preceding Monthly Period.
Coverage of Interest
Shortfalls from Transferor
Finance Charge Collections.... To the extent that any amounts are on
deposit in the Excess Funding Account
or the Pre-Funding Account on any
business day, the Servicer will
determine the amount (the "Negative
Carry Amount"), if any, equal to the
excess of (x) the product of (a) the
Base Rate and (b) the product of (i)
the sum of the amounts on deposit in
the Excess Funding Account and the
Pre-Funding Account and (ii) 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 the Cash
Equivalents in which funds on deposit
in the Excess Funding Account or the
Pre-Funding Account are invested. The
Servicer will apply an amount equal
to the lesser of (i) the Series
1998-2 Percentage of the Finance
Charge Collections allocable to the
Exchangeable Transferor Security
("Transferor Finance Charge
Collections") on such business day
and (ii) the Negative Carry Amount
for such business day in the manner
specified for application of
Available Series Finance Charge
Collections.
Coverage of Interest Shortfalls
from Accumulation Period
Reserve Account............... All amounts in the Principal Funding
Account will be invested at the
direction of the Servicer by the
Trustee in certain Cash Equivalents.
Investment earnings (net of
investment losses and expenses) on
funds on deposit in the Principal
Funding Account (the "Principal
Funding Account Investment Proceeds")
during the Accumulation Period will
be applied on each Transfer Date to
the extent of the Covered Amount as
if such amount were Available Series
Finance Charge Collections on the
last business day of the preceding
Monthly Period. If, for any Interest
Accrual Period, the Principal Funding
Account Investment Proceeds are less
than an amount equal to, for such
Interest Accrual Period, of the
product of (a) a fraction the
numerator of which is the actual
number of days in such Interest
Accrual Period and the denominator of
which is 360, (b) the weighted
average of the Class A Interest Rate,
the Class B Interest Rate and the CTO
Interest Rate for such Interest
Accrual Period and (c) the Principal
Funding Account Balance as of the
last day of the Monthly Period
preceding the Monthly Period in which
such Interest Accrual Period ends
(the "Covered Amount"), the amount of
such deficiency will be paid from the
Accumulation Period Reserve Account
to the extent of the Available
Reserve Account Amount and will be
applied on the applicable Transfer
Date as if such amount were Available
Series Finance Charge Collections on
the last business day of the
preceding Monthly Period.
Sharing of Excess Finance
Charge Collections............ Finance Charge Collections on any
business day in excess of the amounts
necessary to make required payments
on such business day will be applied
to cover any shortfalls with respect
to amounts payable from Finance
Charge Collections allocable to any
other Series then outstanding, pro
rata based upon the amount of the
shortfall, if any, with respect to
such other Series. Any Excess Finance
Charge Collections remaining after
covering shortfalls with respect to
all outstanding Series will be paid
to the Servicer to cover certain
costs and expenses and then to the
Transferor.
Series Default Amount;
Investor Charge-Off........... A portion of all Receivables in Defaulted
Accounts (the "Series Default
Amount") will be allocated to the
Securityholders in an amount equal to
the product of the Floating
Percentage applicable during the
related Monthly Period and the
principal amount of Receivables in
Defaulted Accounts for such Monthly
Period. If on any Determination Date
the aggregate Series Default Amount
and Series 1998-2 Percentage of
unpaid Adjustment Payments, if any,
for the preceding Monthly Period
exceeds the aggregate amount of
Available Series Finance Charge
Collections applied to the payment
thereof as described in clauses (v)
and (vi) of "Distribution of
Available Series Finance Charge
Collections Allocable to
Securityholders" above, and the
amount of (w) Transferor Finance
Charge Collections, (x) Excess
Finance Charge Collections, in each
case to the extent applied to the
payment thereof as described in
"Coverage of Interest Shortfalls from
Transferor Finance Charge
Collections" and "Sharing of Excess
Finance Charge Collections,"
respectively, (y) any Redirected
Principal Collections applied with
respect thereto, and (z) any
Principal Funding Account Investment
Proceeds and amounts withdrawn from
the Accumulation Period Reserve
Account to be applied with respect
thereto, then the Class D Invested
Amount will be reduced to the extent
of such excess (but not in an amount
greater than the sum of the remaining
aggregate Series Default Amount and
the remaining Series 1998-2
Percentage of unpaid Adjustment
Payments for such Monthly Period) to
avoid a charge-off with respect to
the Class A Securities, the Class B
Securities or the Collateralized
Trust Obligations.
The Class D Invested Amount will
thereafter be increased (but not in
excess of the unpaid principal
balance of the Class D Securities) on
any business day by the amount of
Available Series Finance Charge
Collections allocated and available
for such purpose as described in
clause (xii) of "Distribution of
Available Series Finance Charge
Collections Allocable to
Securityholders." If the Class D
Invested Amount is reduced to zero, a
portion of the CTO Invested Amount
equal to the Amount by which such
insufficiency would have caused the
Class D Invested Amount to be reduced
below zero (but not in excess of the
sum of the remaining aggregate Series
Default Amount and the remaining
unpaid Adjustment Payments for such
Monthly Period) will be deducted from
the CTO Invested Amount ("CTO
Charge-Off") to avoid a charge-off
with respect to the Class A
Securities or the Class B Securities.
If and for so long as the Class D
Invested Amount is reduced to zero,
the CTO Invested Amount will be
reduced by an amount equal to the
amount by which such excess would
have caused the Class D Invested
Amount to be reduced below zero (but
not in excess of the sum of the
remaining aggregate Series Default
Amount and the remaining Series
1998-2 Percentage of unpaid
Adjustment Payments for such Monthly
Period).
The CTO Invested Amount will thereafter
be increased (but not in excess of
the unpaid principal amount of the
Collateralized Trust Obligations) on
any business day by the amount of
Available Series Finance Charge
Collections applied for that purpose
as described in clause (xi) of
"Distribution of Available Series
Finance Charge Collections Allocable
to Securityholders." If the CTO
Invested Amount is reduced to zero,
the Class B Invested Amount will be
reduced by an amount equal to the
amount by which such excess would
have caused the CTO Invested Amount
to be reduced below zero (but not in
excess of the sum of the remaining
aggregate Series Default Amount and
the remaining Series 1998-2
Percentage of unpaid Adjustment
Payments for such Monthly Period). If
and for so long as the CTO Invested
Amount is reduced to zero, the Class
B Securityholders will bear directly
the credit and other risks associated
with their undivided interest in the
Trust.
The Class B Invested Amount will
thereafter be increased (but not in
excess of the unpaid principal
balance of the Class B Securities) on
any business day by the amount of
Available Series Finance Charge
Collections allocated and available
for that purpose as described in
clause (x) of "Distribution of
Available Series Finance Charge
Collections Allocable to
Securityholders." If the Class B
Invested Amount is reduced to zero, a
portion of the Class A Invested
Amount equal to the amount by which
such insufficiency would have caused
the Class B Invested Amount to be
reduced below zero (but not in excess
of the sum of the remaining aggregate
Series Default Amount and the
remaining Series 1998-2 Percentage of
unpaid Adjustment Payments for such
Monthly Period) will be deducted from
the Class A Invested Amount and
allocated to the Class A Charge-Offs.
If and for so long as the Class B
Invested Amount is reduced to zero,
the Class A Securityholders will bear
directly the credit and other risks
associated with their undivided
interest in the Trust.
The Class A Invested Amount will
thereafter be increased (but not in
excess of the unpaid principal
balance of the Class A Securities) on
any business day by the amount of
Available Series Finance Charge
Collections allocated and available
for that purpose as described in
clause (vii) of "Distribution of
Available Series Finance Charge
Collections Allocable to
Securityholders." See "Description of
the Offered Securities--Investor
Charge-Offs."
Paired Series.................... Subject to satisfaction of the Rating
Agency Condition, the Securities may
be paired with one or more other
Series or a portion of one or more
other Series issued by the Trust
(each, a "Paired Series") at or after
the Amortization Period Commencement
Date but prior to the occurrence of a
Pay Out Event. If a Paired Series is
issued with respect to Series 1998-2,
following the issuance of such Paired
Series, as the Class A Adjusted
Invested Amount and the Class B
Adjusted Invested Amount and, if
applicable, the CTO Adjusted Invested
Amount and the Class D Invested
Amount are reduced, the Invested
Amount of the Paired Series would
increase by an amount that otherwise
would have increased the Transferor
Interest. Upon payment in full of
Series 1998-2, the increase in the
Invested Amount of the Paired Series
will be equal to the amount of the
Invested Amount paid to
Securityholders of Series 1998-2
since the issuance of such Paired
Series. If a Pay Out Event occurs
with respect to any such Paired
Series prior to the payment in full
of the Securities, the final payment
of principal to the Securityholders
may be delayed. See "Description of
the Offered Securities--Paired
Series."
Subordination of the Class B
Securities, the Collateralized
Trust Obligations and the Class
D Securities.................... The Class B Securities will be
subordinated to fund payments of
principal and interest on the Class A
Securities. The Collateralized Trust
Obligations will be subordinated to
the extent necessary to fund payments
of principal and interest on the
Class A Securities and the Class B
Securities. The Class D Securities
will be subordinated to the extent
necessary to fund payments of
principal and interest on the Class A
Securities, the Class B Securities
and the Collateralized Trust
Obligations. See "Description of the
Offered Securities--Subordination of
the Class B Securities,"
"--Redirection of Cash Flows" and
"--Redirected Principal Collections."
The Class B Invested Amount, the CTO
Invested Amount, and the Class D
Invested Amount will be subordinated
as described herein to the extent
necessary to fund certain payments
with respect to each Class of
Securities with an earlier
alphabetical designation as described
herein. If on any business day there
is a positive Class A Required
Amount, Class B Required Amount or
CTO Required Amount, certain
Principal Collections for such
business day will be used to fund
first the Class A Required Amount,
second the Class B Required Amount
and third the CTO Required Amount and
the Invested Amounts of the Class D
Securities, the Collateralized Trust
Obligations or the Class B Securities
may be reduced on the related
Distribution Date as more fully
described herein in "Description of
the Offered Securities--Redirected
Principal Collections." To the extent
the Class B Invested Amount, the CTO
Invested Amount or the Class D
Invested Amount is reduced, the
percentage of Finance Charge
Collections allocated to the Class B
Securityholders, the CTO
Securityholders, or the Class D
Securityholders, as applicable, in
subsequent Monthly Periods will be
reduced. Moreover, to the extent the
amount of such reduction in the Class
B Invested Amount, the CTO Invested
Amount, or the Class D Invested
Amount is not reimbursed, the amount
of principal distributable to the
Class B Securityholders, the CTO
Securityholders, or the Class D
Securityholders, as applicable, from
the Collection Account will be
reduced. Principal payments with
respect to the Class B Securities
will not be made until the final
payment of the Class A Invested
Amount has been made to the Class A
Securityholders. Principal payments
with respect to the Collateralized
Trust Obligations will not be made
until the final payment of the Class
A Invested Amount has been made to
the Class A Securityholders and the
final payment of the Class B Invested
Amount has been made to the Class B
Securityholders. During the
Accumulation Period, the Class D
Invested Amount will be reduced
concurrently with deposits to the
Principal Funding Account for the
benefit of the Offered Securities and
the Collateralized Trust Obligations
to an amount equal to the Stated
Class D Amount. See "Description of
the Offered Securities--Subordination
of the Class B Securities,"
"--Redirection of Cash Flows" and
"--Redirected Principal Collections."
Defeasance....................... On the date that the Transferor has
deposited (x) in the Principal
Funding Account an amount equal to
the sum of the outstanding principal
balances of the Class A Securities,
the Class B Securities and the
Collateralized Trust Obligations,
which amount shall be invested in
Cash Equivalents and (y) in the
Accumulation Period Reserve Account
an amount equal to or greater than
the Covered Amount, as estimated by
the Transferor, for the period from
the date of the deposit to the
Principal Funding Account through the
Expected Final Payment Date for the
Offered Securities and the
Collateralized Trust Obligations and
has satisfied certain other
conditions, the Securities will no
longer be entitled to the security
interest of the Trust in the
Receivables and other Trust assets
(except those set forth above), and
the percentages applicable to the
allocation to the Securityholders of
Principal Collections, Finance Charge
Collections and Defaulted Receivables
will be reduced to zero. Upon the
satisfaction of the foregoing
conditions, the Class D Invested
Amount will be reduced to zero. See
"Description of the Offered
Securities--Defeasance."
Optional Repurchase.............. The Invested Amount of the Class A
Securities, Class B Securities and
Collateralized Trust Obligations will
be subject to optional repurchase by
the Transferor on any Distribution
Date if on such Distribution Date the
sum of the Class A Invested Amount,
Class B Invested Amount and CTO
Invested Amount would be reduced to
an amount less than or equal to 10
percent of the sum of the highest
Class A Invested Amount, Class B
Invested Amount and CTO Invested
Amount since the Closing Date, if
certain conditions set forth in the
Pooling and Servicing Agreement are
met. The repurchase price will be
equal to the sum of the Class A
Invested Amount, Class B Invested
Amount and CTO Invested Amount that
would be remaining on such date after
giving effect to any payments on such
date plus accrued interest which
would otherwise remain unpaid on the
Class A Securities, Class B
Securities and Collateralized Trust
Obligations through the day preceding
the Distribution Date on which the
repurchase occurs. See "Description
of the Offered Securities--Final
Payment of Principal; Termination."
Tax Status....................... In the opinion of Special Tax Counsel,
the Class A Securities and the Class
B Securities will be characterized as
debt for federal income tax purposes.
Under the Pooling and Servicing
Agreement, the Transferor, the
Servicer, the Class A Securityholders
and the Class B Securityholders agree
to treat the Class A Securities and
the Class B Securities as debt for
federal, state, and other tax
purposes. See "Certain Federal Income
Tax Consequences" for additional
information concerning the
application of federal income tax
laws.
ERISA Considerations............. Under a regulation issued by the U.S.
Department of Labor (the "Plan Assets
Regulation"), the Trust's assets
would not be deemed "plan assets" of
an employee benefit plan holding an
interest in the Class A Securities or
Class B Securities if such Class of
Securities qualify as
"publicly-offered securities" within
the meaning of the Plan Assets
Regulation. To qualify as
"publicly-offered securities" within
the meaning of the Plan Assets
Regulation, certain conditions must
be met, including that interests in
such Class of Securities be held by
at least 100 persons independent of
the Transferor and each other upon
completion of the public offering
being made hereby. [The Class A
Underwriters expect, although no
assurance can be given, that the
Class A Securities will be held by at
least 100 such persons, and the
Transferor anticipates that the other
conditions of the "publicly-offered
security" exception contained in the
Plan Assets Regulation will be met
with respect to the Class A
Securities.] No monitoring or other
measures will be taken to ensure that
any such conditions will be met with
respect to the Class A Securities. If
the Trust's assets were deemed to be
"plan assets" of such a plan, there
is uncertainty whether existing
exemptions from the "prohibited
transaction" rules of the Employee
Retirement Income Security Act of
1974, as amended ("ERISA"), would
apply to all transactions involving
the Trust's assets. See "Employee
Benefit Plan Considerations."
[The Class B Underwriters do not expect
that the Class B Securities will be
held by 100 or more independent
investors and, therefore, do not
expect that the Class B Securities
will qualify as "publicly-offered
securities" under the Plan Assets
Regulation.] Accordingly, the Class B
Securities may not be acquired by
employee benefit plan investors
subject to Title I of ERISA or
Section 4975 of the Internal Revenue
Code of 1986, as amended (the
"Code"), including, but not limited
to, as applicable, an insurance
company general account. Each
Security Owner of a Class B Security,
by its acceptance thereof, will be
deemed to have represented and
warranted that it is not an employee
benefit plan investor subject to
Title I of ERISA or Section 4975 of
the Code. See "Employee Benefit Plan
Considerations."
Offered Securities Ratings....... It is a condition to the issuance of the
Class A Securities that they be rated
"AAA" or its equivalent by at least
one nationally recognized rating
agency.
It is a condition to the issuance of
the Class B Securities that they be
rated at least "A" or its equivalent
by at least one nationally recognized
rating agency.
Listing.......................... Application has been made to list the
Offered Securities on the Luxembourg
Stock Exchange.
RISK FACTORS
LIMITED LIQUIDITY
There is currently no market for the Offered Securities. Each
Underwriter intends to make a market in each Class of the Offered
Securities purchased by it from the Transferor, but is not obligated to do
so. There is no assurance that a secondary market will develop or, if it
does develop, that it will provide Security Owners with liquidity of
investment or that it will continue until the Offered Securities are paid
in full.
LIMITED OPERATING HISTORY OF DIRECT MERCHANTS BANK
The predecessor to Direct Merchants Bank began originating and
servicing credit card accounts in March 1995. Direct Merchants Bank has and
its predecessor had limited underwriting and servicing experience, and
limited delinquency, default and loss experience with respect to the
Accounts. See "Direct Merchants Credit Card Bank, National Association."
LIMITED HISTORY OF TRUST AND TRANSFEROR
The Trust and the Transferor were formed in May 1995. The Transferor
and the Trust have no substantial assets other than their respective
interests in the Receivables and the proceeds thereof as described herein.
LIMITED HISTORY OF PORTFOLIO
The Trust assets consist primarily of Receivables generated from
Accounts originated since March 1995. As of ________, 1998 approximately %
of the Accounts in the Trust Portfolio had been originated within the last
12 months and approximately % of the Accounts in the Trust Portfolio had
been originated within the last 24 months. As a result, the current
portfolio history may not be indicative of the portfolio performance as the
Receivables and Accounts mature. See the "Composition by Account Age--Trust
Portfolio" table in "The Receivables."
NON-RECOURSE TO METRIS, THE TRANSFEROR, DIRECT MERCHANTS BANK OR AFFILIATES
THEREOF
No Securityholder will have recourse for payment of its Securities to
any assets of Metris, the Transferor (other than the Exchangeable
Transferor Security and any Transferor Retained Class, to the extent
described herein), Direct Merchants Bank, or any affiliates thereof.
Consequently, Securityholders must rely solely upon payments on the
Receivables for the payment of principal of and interest on the Securities.
Furthermore, under the Pooling and Servicing Agreement, the Securityholders
have an interest in the Receivables and Collections only to the extent of
the Securityholders' Interest and, to the limited extent described herein,
the Transferor Interest. Should the Offered Securities not be paid in full
on a timely basis, Securityholders may not look to any assets of any of
Metris, the Transferor (other than the Exchangeable Transferor Security and
any Transferor Retained Class, to the extent described herein), Direct
Merchants Bank, the Utah Bank or any affiliates thereof to satisfy their
claims.
TRANSFER OF THE RECEIVABLES; INSOLVENCY RISK CONSIDERATIONS
Under the Purchase Agreements, Direct Merchants Bank has represented
and warranted to Metris and Metris has represented and warranted to the
Transferor, respectively, that the transfer of Receivables to Metris or the
Transferor, as applicable, is a valid sale and assignment. In addition,
Direct Merchants Bank, Metris and the Transferor have agreed that if,
notwithstanding their intent, the respective sales of Receivables to Metris
and the Transferor, are not treated as sales, the Purchase Agreements will
be deemed to create a security interest in the Receivables. In a
receivership or conservatorship of Direct Merchants Bank or in a bankruptcy
proceeding involving Metris, if the conveyance of the Receivables is not
treated as a sale, but is deemed to create a security interest in the
Receivables, Metris' or the Transferor's interest in the Receivables may be
subject to tax or other governmental liens relating to Direct Merchants
Bank or Metris, respectively, arising before the subject Receivables came
into existence and to certain administrative expenses of the receivership,
conservatorship or bankruptcy proceeding. Direct Merchants Bank and Metris
have taken or will take certain actions required to perfect the
Transferor's interest in the Receivables. If a bankruptcy trustee for
Metris, Metris as debtor-in-possession, or a creditor of Metris were to
take the view that Direct Merchants Bank or Metris and the Transferor
should be substantively consolidated or that the transfer of the
Receivables from Direct Merchants Bank to Metris or from Metris to the
Transferor, respectively, should be recharacterized as a pledge of such
Receivables, then delays in payments on the Offered Securities or (should
the bankruptcy court rule in favor of any such trustee,
debtor-in-possession or creditor) reductions in such payments on such
Securities could result.
A conservator or receiver would have the power under the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") to
repudiate contracts of, and to request a stay of up to 90 days of any
judicial action or proceeding involving, Direct Merchants Bank. However,
notwithstanding the insolvency of, or the appointment of a receiver or
conservator for, Direct Merchants Bank, subject to certain qualifications,
a valid perfected security interest of the Trust in the Receivables should
be enforceable (to the extent of the Trust's "actual direct compensatory
damages" (as described below)) and payments to the Trust with respect to
the Receivables (up to the amount of such damages) should not be subject to
an automatic stay of payment or to recovery by such a conservator or
receiver. If, however, the conservator or receiver were to assert that the
security interest was unperfected or unenforceable, or were to require the
Trust to establish its right to those payments by submitting to and
completing the administrative claims procedure established under FIRREA, or
the conservator or receiver were to request a stay of proceedings with
respect to Direct Merchants Bank as provided under FIRREA, delays in
payments to the Trust and on the Securities and possible reductions in the
amount of those payments could occur. In the event of a repudiation of
obligations by a conservator or receiver, FIRREA provides that a claim for
the repudiated obligation is limited to "actual direct compensatory
damages" determined as of the date of the appointment of the conservator or
receiver (which in most cases are expected to include the outstanding
principal on the Securities plus interest accrued thereon to the date of
payment). The FDIC has not adopted a formal policy statement on payment of
principal and interest on collateralized borrowings of banks that are
repudiated. On April 10, 1990, the Resolution Trust Corporation (the
"RTC"), formerly a sister agency of the FDIC, adopted a statement of policy
(the "RTC Policy Statement") with respect to the payment of interest on
collateralized borrowings. The RTC Policy Statement states that interest on
such borrowings will be payable at the contract rate up to the date of the
redemption or payment by the conservator, receiver, or the trustee of an
amount equal to the principal owed plus the contract rate of interest up to
the date of such payment or redemption, plus any expenses of liquidation if
provided for in the contract, to the extent secured by the collateral. In
one case involving the repudiation by the RTC of certain secured
zero-coupon bonds issued by a savings association, a United States federal
district court held that "actual direct compensatory damages" in the case
of a marketable security meant the value of the repudiated bonds as of the
date of repudiation. If that court's view were applied to determine the
Trust's "actual direct compensatory damages" in the event a conservator or
receiver of Direct Merchants Bank repudiated the Bank Purchase Agreement,
the amount paid to Securityholders could, depending upon circumstances
existing on the date of the repudiation, be less than the principal of the
Securities and the interest accrued thereon to the date of payment. See
"Certain Legal Aspects of the Receivables--Certain Matters Relating to
Bankruptcy or Receivership." In addition, in the event of a Servicer
Default, if a conservator or receiver is appointed for the Servicer, and no
Servicer Default other than such conservatorship or receivership exists,
the conservator or receiver may have the power to prevent either the
Trustee or the majority of the Securityholders from effecting a transfer of
servicing to a successor Servicer.
Although the Pooling and Servicing Agreement provides that the
Transferor will 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
securities issued by the Trust. It is possible that the risk of such
treatment may be increased by the retention by the Transferor of the
Exchangeable Transferor Security, the Class D Securities, a class of each
of the Previously Issued Series and any other class of Securities that may
be issued and retained by the Transferor. The Transferor 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. The Transferor 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 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 UCC, a tax or other governmental lien
on property of the Transferor arising before Receivables come into
existence may have priority over the Trust's interest in such Receivables.
In the event of the insolvency of the Transferor, certain administrative
expenses may also have priority over the Trust's interest in such
Receivables. See "Certain Legal Aspects of the Receivables--Transfer of
Receivables."
To the extent that the Transferor is deemed to have granted a
security interest in the Receivables to the Trust and such security
interest was validly perfected before any insolvency of the Transferor and
was not granted or taken in contemplation of insolvency or with the intent
to hinder, delay, or defraud the Transferor or its creditors, such security
interest should not be subject to avoidance in the event of insolvency or
receivership of the Transferor, and payments to the Trust with respect to
the Receivables should not be subject to recovery by a bankruptcy trustee
or receiver of the Transferor. If, however, such a bankruptcy trustee or
receiver were to assert a contrary position, delays in payments on the
Offered Securities and possible reductions in the amount of those payments
could occur.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.
1993), cert. denied, 114 S. Ct. 554 (1993), the United States Court of
Appeals for the 10th Circuit suggested that even where a transfer of
accounts from a seller to a buyer constitutes a "true sale," the accounts
would nevertheless constitute property of the seller's estate in a
bankruptcy of the seller. If Metris or the Transferor were to become
subject to a bankruptcy proceeding or if Direct Merchants Bank were to
become subject to a receivership and a court were to follow the 10th
Circuit's reasoning, Securityholders might experience delays in payment or
possibly losses in their investment in the Securities. Counsel to the
Transferor has advised the Transferor that the facts of Octagon are
distinguishable from those in the sale transactions between Direct
Merchants Bank and Metris, Metris and the Transferor and the Transferor and
the Trust and the reasoning of the 10th Circuit appears to be inconsistent
with established precedent and the UCC. See "Certain Legal Aspects of the
Receivables--Certain Matters Relating to Bankruptcy or Receivership."
If a bankruptcy trustee or receiver were appointed for the
Transferor, Direct Merchants Bank or Metris, 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. If a bankruptcy trustee were appointed for the Transferor, the
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 percent of the principal amount of each class of each Series,
excluding any class or portion thereof held by the Transferor, and the
holders of any Supplemental Securities or any other interest in the
Exchangeable Transferor Securities other than the Transferor instruct
otherwise), thereby causing early termination of the Trust and a loss to
the Securityholders if the net proceeds allocable to the Securityholders
from such sale, if any, were insufficient to pay the Securityholders 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 this
Series will first be used to pay amounts due to the Class A
Securityholders, will thereafter be used to pay amounts due to the Class B
Securityholders, will thereafter be used to pay amounts due to the CTO
Securityholders, and will thereafter be used to pay amounts due to the
Class D Securityholders. If the only Pay Out Event to occur is either the
insolvency of the Transferor or the appointment of a bankruptcy trustee or
receiver for the Transferor, the bankruptcy trustee or receiver may have
the power to continue to require the Transferor 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. In addition, a bankruptcy trustee or receiver for the
Transferor may have the power to cause early payment of the Securities. In
the event of an early payment of principal on the Securities,
Securityholders may realize a lower yield on their reinvestment of such
early payment and may be required to incur costs associated with
reinvesting such funds. See "Certain Legal Aspects of the
Receivables--Certain Matters Relating to Bankruptcy or Receivership."
CONSUMER AND DEBTOR PROTECTION LAWS
The Accounts and the Receivables are subject to numerous federal and
state consumer protection laws that impose requirements related to offering
and extending credit. The United States Congress and the states may enact
laws and amendments to existing laws to regulate further the credit card
industry or to reduce finance charges or other fees or charges applicable
to credit card and other consumer revolving loan accounts. Such laws, as
well as any new laws or rulings which may be adopted, may adversely affect
the Servicer's ability to collect on the Receivables or maintain previous
levels of periodic rate finance charges and other fees and charges with
respect to the Accounts. Any failure by the Servicer, Direct Merchants
Bank, or other Credit Card Originators to comply with such legal
requirements also could adversely affect the Trust's ability to collect the
full amount of the Receivables. Although the Transferor will make certain
representations and warranties relating to the validity and enforceability
of the Receivables, the Trustee will 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. In the event of a breach of
certain representations and warranties, the Transferor may be obligated to
accept the reassignment and transfer of the entire Trust Portfolio. See
"Description of the Offered Securities--Representations and Warranties" and
"Certain Legal Aspects of the Receivables--Consumer Protection Laws."
Application of federal and state bankruptcy and debtor relief laws to
the obligations represented by the Receivables could adversely affect the
interests of the holders of the Offered Securities in the Receivables, if
such laws result in any Receivables being written off as uncollectible. See
"Description of the Offered Securities--Defaulted Receivables; Dilution."
PAYMENTS AND MATURITY
The Receivables may be paid at any time and there is no assurance
that there will be additional Receivables created or that any particular
pattern of repayments will occur. A significant decline in the amount of
Receivables generated could result in the occurrence of a Pay Out Event and
the commencement of the Early Amortization Period if, as a result, the
Transferor Interest were reduced below the Minimum Transferor Interest or
amounts in the Pre- Funding Account or the Excess Funding Account result in
significant Negative Carry Amounts. See "Maturity Considerations" and
"Description of the Offered Securities--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 Offered
Securities may be significantly reduced. There can be no assurance in that
event that the holders of the Offered Securities would be able to reinvest
any accelerated distributions on account of such Offered Securities in
other suitable investments having a comparable yield.
EFFECT OF SUBORDINATION OF CLASS B SECURITIES; PRINCIPAL PAYMENTS
The Class B Securities will be subordinated in right of payment of
principal to the payment of principal and interest on the Class A
Securities. Payments of principal in respect of the Class B Securities will
not commence until after the final principal payment with respect to the
Class A Securities has been made and the Class A Invested Amount has been
paid in full. Moreover, the Class B Invested Amount is subject to reduction
on any Distribution Date if Collections of Principal Receivables allocable
to the Class B Securities are redirected to cover the Class A Required
Amount or if the aggregate Series Default Amount and unpaid Adjustment
Payments, if any, for each business day in the preceding Monthly Period
exceeds the aggregate Available Series Finance Charge Collections applied
to the payment thereof and is not funded from Excess Finance Charge
Collections, Transferor Finance Charge Collections, Redirected CTO
Principal Collections or Redirected Class D Principal Collections and is
not assessed against the CTO Invested Amount or the Class D Invested
Amount. If the Class B Invested Amount suffers such a reduction, Finance
Charge Collections applicable to the Securityholders' Interest in future
Monthly Periods will be reduced. Moreover, to the extent the amount of such
reduction in the Class B Invested Amount is not reimbursed, the amount of
principal distributable to the Class B Securityholders will be reduced. See
"Description of the Offered Securities--Allocation Percentages,"
"--Redirected Principal Collections," "--Investor Charge-Offs" and
"--Subordination of the Class B Securities."
EFFECT OF ADDITION OF TRUST ASSETS ON CREDIT QUALITY
The Transferor intends to designate, and in some cases will be
obligated to designate, Supplemental Accounts, the Receivables in which
will be conveyed to the Trust. In addition, upon the satisfaction of
certain conditions, the Transferor may elect to automatically designate on
and after a specified date all Additional Accounts, the Receivables in
which will be conveyed to the Trust. Such Supplemental Accounts or
Additional Accounts may include accounts originated using criteria
different from those which were applied to the Accounts existing on the
Closing Date related to the Trust or to previously-designated Supplemental
Accounts or Additional Accounts, because such accounts were originated at a
different date or were purchased or otherwise acquired from one or more
Credit Card Originators. Consequently, there can be no assurance that
Supplemental Accounts or Additional Accounts designated in the future will
be of the same credit quality as previously-designated Accounts. In
addition, such Supplemental Accounts or Additional Accounts may consist of
consumer revolving credit card accounts or other consumer revolving credit
accounts that have different terms or characteristics than the Accounts,
Supplemental Accounts and the Additional Accounts previously included in
the Trust, including lower periodic rate finance charges and other fees and
charges, or different payment rates and higher loss or delinquency
experience, which may have the effect of reducing the average yield on the
portfolio of accounts included in the Trust. The designation of
Supplemental Accounts will be subject to the satisfaction of certain
conditions described herein under "Description of the Offered
Securities--Addition of Trust Assets," including that the Transferor shall
have received written notice from each Rating Agency that such designation
will not cause a Ratings Event to occur; however, there is no mechanism to
assure consistent credit quality from time to time.
NEGATIVE CARRY
Any amounts deposited in the Excess Funding Account, the Pre-Funding
Account and the Principal Funding Account subsequent to the Closing Date
may result in a reduction of Portfolio Yield to the extent that the Cash
Equivalents in which such amounts are invested earn a rate which is less
than the effective yield from Finance Charge Receivables.
BASIS RISK
The Accounts in the Trust generally have finance charges set at a
variable rate above a designated prime rate or other designated index. The
Class A Interest Rate, the Class B Interest Rate and the CTO Interest Rate
are each based on LIBOR. If there is a decline in such prime rate or other
designated index which does not coincide with a decline in LIBOR, the
amount of collections of Finance Charge Receivables on such Accounts may be
reduced, whereas the amounts payable as interest on such Securities and
other amounts required to be funded out of collections of Finance Charge
Receivables with respect to such Series may not be similarly reduced.
COMPETITION IN THE CREDIT CARD INDUSTRY
The credit card industry is highly competitive and operates in a
legal and regulatory environment increasingly focused on the cost of
services charged for credit cards. As new credit card issuers enter the
market and all issuers seek to expand their share of the market, there is
increased use of advertising, target marketing and pricing competition. The
Trust will be dependent upon the Transferor's continued ability to purchase
new Receivables. If the rate at which new Receivables are purchased
declines significantly and the Transferor is unable to designate
Supplemental Accounts or Additional Accounts, a Pay Out Event could occur,
in which case the Early Amortization Period would commence. In the event of
an early payment of principal on the Securities, Securityholders may
realize a lower yield on their reinvestment of such early payment and may
be required to incur costs associated with reinvesting such early payment.
SOCIAL, TECHNOLOGICAL AND ECONOMIC FACTORS
Changes in purchase and payment patterns by Obligors may result from
a variety of social, technological, and economic factors. Social factors
include potential changes in consumers' attitudes toward financing
purchases with debt. Technological factors include new methods of payment,
such as debit cards. Economic factors include the rate of inflation,
unemployment levels and relative interest rates. Cardholders with respect
to the Accounts generally have billing addresses in all 50 states, the
District of Columbia and other United States territories and possessions.
There is no basis, however, to predict whether, or to what extent, social,
technological, or economic factors will affect future use of credit or
repayment patterns.
BOOK-ENTRY REGISTRATION
Each Class of the Offered Securities initially will be represented by
one or more securities registered in the name of Cede & Co., the nominee
for DTC, and will not be registered in the names of the Security Owners or
their nominees. Unless and until Definitive Securities are issued, Security
Owners will not be recognized by the Trustee as Securityholders, as that
term is used in the Pooling and Servicing Agreement. Hence, until such
time, Security Owners will only be able to receive payments from, and
exercise the rights of Securityholders indirectly through DTC and its
participating organizations and, unless a Security Owner requests a copy of
any such report from the Trustee, will receive reports and other
information provided for under the Pooling and Servicing Agreement only if,
when and to the extent provided to Security Owners by DTC and its
participating organizations. In addition, the ability of Security Owners to
pledge Securities to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such Securities, may be
limited due to the lack of physical securities for such Securities. See
"Description of the Offered Securities--Book-Entry Registration" and
"--Definitive Securities."
ABILITY OF SERVICER TO CHANGE PAYMENT TERMS
Pursuant to the Pooling and Servicing Agreement, the Transferor will
not be transferring to the Trust the Accounts but only the Receivables
arising in the Accounts. As owner of the Accounts, Direct Merchants Bank
will have the right to determine the annual percentage rates and the fees
which will be applicable from time to time to the Accounts, to alter the
minimum monthly payment required under the Accounts and to change various
other terms with respect to the Accounts. A decrease in the annual
percentage rates or a reduction in fees would decrease the effective yield
on the Accounts and could result in the occurrence of a Pay Out Event with
respect to the Series. An alteration of payment terms may result in fewer
payments on Receivables being made in any month. Under the Bank Purchase
Agreement, Direct Merchants Bank agrees that, unless required by law or
unless it deems it necessary in its sole discretion to maintain on a
competitive basis its credit card business, it will not at any time reduce
the annual percentage rates of the Periodic Finance Charges assessed on the
Receivables or other fees charged on any of the Accounts if, as a result of
any such reduction, either (i) Direct Merchants Bank's reasonable
expectation is that such reduction will cause a Pay Out Event to occur so
long as there are securities of any Series outstanding or (ii) such
reduction is not also applied to any comparable segment of consumer
revolving credit card accounts owned by Direct Merchants Bank that have
characteristics the same as, or substantially similar to, such Accounts.
In addition, the Servicer will have the right to change the terms of
the Contracts relating to the Accounts or its policies and procedures with
respect to the servicing thereof (including the amount or timing of
charge-offs and the Periodic Finance Charges and other fees to be assessed
on the Accounts) if (i) (if the Servicer owns a comparable segment of
consumer revolving credit card accounts) such change is made applicable to
such comparable segment of consumer revolving credit card accounts owned by
the Servicer that have characteristics the same as, or substantially
similar to, the Accounts that are subject to such change and (ii) (if the
Servicer does not own a comparable segment of receivables) it will not make
any such change with the intent to materially benefit the Servicer over
Metris, except as otherwise restricted by any endorsement, sponsorship or
other agreement between the Servicer and an unrelated third party or by the
terms of the Contracts. The Purchase Agreement contains parallel covenants
of Metris. 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 the Servicer to take actions which would change the
payment or other Account terms. Except as specified above, there are no
restrictions in the Bank Purchase Agreement or the Pooling and Servicing
Agreement on the ability of the Servicer to change the terms of the
Accounts. While the Servicer has no current intention of taking actions
which would change the payment or other terms of the Accounts other than in
accordance with its customary and usual procedures, there can be no
assurances that changes in the marketplace or prudent business practice
might not result in a determination to do so.
CONTROL
Subject to certain exceptions, the investor securityholders of each
Series may take certain actions, or direct certain actions to be taken,
under the Pooling and Servicing Agreement or the related Supplement. In
determining whether the required percentage of Securityholders have given
their approval or consent, except as otherwise specified, the Class A
Securityholders, the Class B Securityholders and the CTO Securityholders
will be treated as a single Series. Accordingly, the Class A
Securityholders will have the power to determine whether any such action is
taken without regard to the position or interests of the Class B
Securityholders or the CTO Securityholders relating to such action. Neither
the Class B Securityholders nor the CTO Securityholders will have similar
power. However, under certain circumstances the consent or approval of a
specified percentage of the aggregate invested amount of all Series
outstanding or of the invested amount of each class of each Series may be
required to direct certain actions, including requiring the appointment of
a successor Servicer following a Servicer Default, amending the Pooling and
Servicing Agreement in certain circumstances, directing the Servicer not to
sell the Receivables upon the occurrence of an Insolvency Event and
directing a repurchase of all outstanding Series upon the breach of certain
representations and warranties by the Transferor.
MASTER TRUST CONSIDERATIONS
In addition to the Securities, the Trust, as a master trust, has
issued the Previously Issued Series and is expected to issue additional
Series from time to time. See "Annex I: Other Series." While the Principal
Terms of any Series will be specified in a Supplement, the provisions of a
Supplement and, therefore, the terms of any additional Series, will not be
subject to the prior review or consent of holders of the securities 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
securities (including subordinated classes of securities), provisions
subordinating such Series to another Series (if the Supplement relating to
such Series so permits) or another Series to such 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 such
Series. See "Description of the Offered Securities--Exchanges." In
addition, the provisions of any Supplement may give the holders of the
securities issued pursuant thereto consent, approval, or other rights that
could result in such holders having the power to cause the Transferor, the
Servicer, or the Trustee to take or refrain from taking certain actions,
including, without limitation, 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 securityholders of any
other Series. Similar rights may also be given to the provider of any
Enhancement for any Series. It is a condition precedent to issuance of any
additional Series that each Rating Agency that has rated any outstanding
Series deliver written confirmation to the Trustee that the Exchange will
not result in such Rating Agency reducing or withdrawing its rating on any
outstanding Series. There can be no assurance, however, 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 a Securityholder or the value of Securities even if
there is no change in the rating of any outstanding Series. See
"Description of the Offered Securities--Exchanges."
SECURITY RATING
It is a condition to issuance of the Class A Securities that they be
rated "AAA" or its equivalent by at least one nationally recognized rating
agency. It is a condition to issuance of the Class B Securities that they
be rated "A" or its equivalent by at least one nationally recognized rating
agency. The ratings assigned to the Offered Securities by a Rating Agency
will reflect such Rating Agency's assessment of the likelihood that
Securityholders of such Class will receive the payments of interest and
principal required to be made under the Pooling and Servicing Agreement, in
the case of principal on or prior to the Termination Date, and in the case
of interest, as required under the Pooling and Servicing Agreement. The
ratings will be based primarily on an assessment of the Receivables in the
Trust (including the eligibility criteria for the transfer of Receivables
in Additional Accounts to the Trust), of the amounts held in any trust
account for the benefit of the Offered Securities (including in the
Pre-Funding Account and the Excess Funding Account, if any) and the
subordination of the Class B Securities, Collateralized Trust Obligations
and the Class D Securities for the benefit of the Class A Securities and
the subordination of the Collateralized Trust Obligations and the Class D
Securities for the benefit of the Class B Securities. However, any such
rating will not address the possibility of the occurrence of a Pay Out
Event with respect to the Offered Securities, the possibility of the
imposition of United States withholding tax with respect to non-U.S.
Securityholders or the likelihood that the principal of, or interest on,
the Offered Securities will be paid by the Expected Final Payment Date. It
is a condition to issuance of the Collateralized Trust Obligations that
they be rated "BBB" or its equivalent by at least one nationally recognized
rating agency. The Class D Securities will not be rated. The ratings are
not a recommendation to purchase, hold, or sell the Class A Securities, the
Class B Securities or the Collateralized Trust Obligations, inasmuch as
such ratings do not comment as to the market price or suitability for a
particular investor. There can be no assurance that the ratings will remain
in effect for any given period of time or that the rating of each Class
will not be lowered or withdrawn by any Rating Agency if in its judgment
circumstances so warrant.
The Transferor will request a rating of the Offered Securities by at
least one nationally recognized rating agency. There can be no assurance as
to whether any rating agency not requested to rate the Offered Securities
will nonetheless issue a rating with respect to any Class of the Offered
Securities, and, if so, what such rating would be. A rating assigned to any
Class of the Offered Securities by a rating agency that has not been
requested by the Transferor to do so may be lower than the ratings assigned
by the Rating Agencies pursuant to the Transferor's request.
PRE-FUNDING ACCOUNT AND THE FUNDING PERIOD
The Invested Amount will be increased during the Funding Period (but
not in excess of the Full Invested Amount) to the extent amounts are (x)
withdrawn from the Pre-Funding Account and paid to the Transferor in
connection with the addition of Receivables to the Trust or (y) deposited
in the Excess Funding Account. It is anticipated that Receivables will be
added to the Trust in an amount necessary to increase the Invested Amount
to an amount equal to the Full Invested Amount by the end of the ________
Monthly Period; however, there can be no assurance that a sufficient amount
of Receivables will be available for such purpose. Should the Pre-Funded
Amount be greater than zero at the end of the Funding Period, the amounts
remaining on deposit in the Pre-Funding Account will be deposited into the
Excess Funding Account. If there is a decline in the balance of the
Receivables during the Funding Period, funds otherwise payable to the
Transferor may be deposited in the Excess Funding Account. Amounts on
deposit in the Excess Funding Account are invested in Cash Equivalents and
are treated as assets of the entire Trust allocated to all Series then
outstanding and to the Exchangeable Transferor Security, and will be
applied as described in "Description of the Offered Securities--Excess
Funding Account." Such funds may be released to holders of securities of
other Series in connection with a reduction of the principal balance of the
securities of such other Series. To the extent that the net investment
income earned on amounts on deposit in the Pre-Funding Account during the
Funding Period or in the Excess Funding Account is less than the Base Rate,
the Servicer will apply Transferor Finance Charge Collections to the extent
available to cover any related Negative Carry Amount. If Transferor Finance
Charge Collections are not sufficient to cover such Negative Carry Amount,
there will be a decline in the excess of the Portfolio Yield over the Base
Rate which could result in a Pay Out Event. See "--Payments and Maturity"
for a discussion of certain effects of a Pay Out Event.
THE TRUST
The Trust was formed, in accordance with the laws of the State of
Delaware, pursuant to the Pooling and Servicing Agreement. The Trust was
formed for the transactions described herein and similar transactions, as
contemplated by the Pooling and Servicing Agreement, and prior to formation
had no assets or obligations. The Trust has not engaged, and will not
engage, in any business activity, other than as described herein, but
rather will only acquire and hold the Receivables (and related assets),
issue (or cause to be issued) the Securities, the Exchangeable Transferor
Security, and securities representing additional Series and engage in
related activities (including, with respect to any Series, entering into
any Enhancement and Enhancement agreement relating thereto) and make
payments thereon. As a consequence, the Trust is not expected to have any
need for additional capital resources.
METRIS COMPANIES INC.
Metris Companies Inc. ("Metris") is an information-based direct
marketer of consumer credit products, fee-based services and extended
service plans primarily to moderate income consumers. Metris' consumer
credit products are primarily unsecured credit cards issued by its
subsidiary, Direct Merchants Credit Card Bank, National Association
("Direct Merchants Bank"). Metris' customers and prospects include existing
customers of an affiliate, Fingerhut ("Fingerhut Customers"), and
individuals who are not Fingerhut Customers but for whom credit bureau
information is available ("External Prospects"). Metris markets its
fee-based services, including debt waiver programs, card registration,
extended service plans, third party insurance and membership clubs, to its
credit card customers, Fingerhut Customers, and customers of third parties.
Metris had net income of $11.2 million for the first three months of 1998
and net income of $38.1 million for the year ended December 31, 1997.
Metris is a Delaware corporation incorporated on August 20, 1996, and
is currently an 83 percent owned indirect subsidiary of Fingerhut
Companies, Inc. ("FCI"). Metris became a publicly held company in October
1996 after completing an initial public offering. Metris' principal
subsidiaries are Direct Merchants Bank, Metris Direct, Inc. ("Metris
Direct"), Metris Funding Co., Metris Receivables, Inc. and Metris Direct
Services, Inc. Prior to the initial public offering, Metris' business was
operated as a division of FCI.
On October 9, 1997, FCI announced that its Board of Directors had
approved the filing of an application with the Internal Revenue Service
(the "IRS") for a ruling on a tax-free distribution of FCI's stock of
Metris (the "Spin Off"). FCI filed the ruling request with the IRS on
October 23, 1997. The proposed Spin Off of Metris would be subject to
receipt of a favorable ruling from the IRS, approval of FCI's Board of
Directors and market conditions. If approved, the Spin Off would be
expected to be completed during the third quarter of 1998. There are no
assurances that the Spin Off will be consummated.
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems
can accommodate the date value "2000." Many existing application software
products were designed to only accommodate a two digit date position which
represents the year (e.g., the number "95" is stored on the system and
represents the year 1995). As a result, the year 1999 (i.e., "99") is the
maximum date value many systems will be able to accurately process. Metris
has developed plans to address potential problems posed by this development
to assure that Metris is prepared for year 2000. Most of Metris' existing
information systems are less than three years old and were originally
designed for year 2000 compliance. Metris has identified financial and
operational systems that may be impacted by the year 2000 issues and is
actively working to address those issues. However, if plans to deal with
year 2000 issues are not completed on a timely basis or are not fully
effective, such issues may have a material adverse effect on Metris'
operations.
In addition, Metris is dependent on databases maintained by FCI and
card and statement generation, among other services, provided by a credit
card processor, First Data Resources, Inc. ("FDR"). Metris has ongoing
meetings with FCI to determine where Metris' and FCI's systems overlap and
to determine what steps are necessary to ensure compliance. Metris has also
been in frequent periodic contact with FDR with respect to FDR's programs
for year 2000. Metris believes that FDR will address year 2000 problems on
a timely basis. Although Metris cannot ensure compliance by all of its
vendors on a timely basis, Metris believes that it is taking appropriate
steps to identify exposure to year 2000 problems and to address them on a
timely basis.
THE TRANSFEROR
Metris Receivables, Inc., formerly known as Fingerhut Financial
Services Receivables, Inc. (the "Transferor"), was incorporated under the
laws of the State of Delaware on May 23, 1995. All of its outstanding
capital stock is owned by Metris Direct. The Transferor was organized for
the limited purpose of purchasing, holding, owning and selling receivables
and any activities incidental to and necessary or convenient for the
accomplishment of such purposes, and has no material assets other than such
receivables. Neither Metris Direct, as stockholder of the Transferor, nor
the Transferor's board of directors, intends to change its business
purpose. The Transferor's executive offices are located at 600 South
Highway 169, Suite 300, St. Louis Park, Minnesota 55426. The Transferor's
telephone number is (612) 417-5645.
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION
Direct Merchants Credit Card Bank, National Association ("Direct
Merchants Bank" or the "Bank"), a wholly owned subsidiary of Metris, is a
special-purpose credit card bank, established under Section 2(c)(2)(F) of
the Bank Holding Company Act of 1956, as amended by the Competitive
Equality Banking Act of 1987, as amended. Direct Merchants Credit Card
Bank, National Association, located in Salt Lake City, Utah (the "Utah
Bank") was chartered as a national banking association on February 14,
1995. On July 13, 1998, the Utah Bank was merged into Interim National
Bank, a national banking association located in Phoenix, Arizona, and an
indirect subsidiary of Metris. The name of the surviving entity was changed
to Direct Merchants Credit Card Bank, National Association. Its principal
executive offices are located in Phoenix, Arizona, with a mailing address
at 6909 East Greenway Parkway, Scottsdale, Arizona 85254, telephone number
(602) 718-4600. Any references to Direct Merchants Credit Card Bank,
National Association, prior to July 13, 1998 are references to the Utah
Bank.
FINGERHUT CORPORATION
Fingerhut Corporation ("Fingerhut"), a wholly owned subsidiary of
FCI, has been in the direct marketing business for over 46 years and is one
of the largest consumer catalog marketers in the United States. Fingerhut
sells a broad range of general merchandise products and services to
moderate income consumers, using catalogs and other direct marketing
solicitations, and had 1997 net sales of approximately $1.8 billion.
Fingerhut makes substantially all of its sales using proprietary private
label credit. As customers make payments and order new products, Fingerhut
enters a variety of payment, behavioral and other data into its database
(the "Fingerhut Database").
The Fingerhut Database. The Fingerhut Database contains information
on more than 31 million individuals, including approximately 8 million
customers who have made a purchase from Fingerhut within the past 24
months. This database contains up to 3,500 potential data items in a
customer record, including names, addresses, behavioral characteristics,
general demographic information and information provided by the customer.
Fingerhut uses information in the Fingerhut Database, along with
sophisticated proprietary credit scoring models, to produce proprietary
credit scores (the "Fingerhut Scores") for Fingerhut Customers. The
Fingerhut Database also includes a "suppress" file (the "Suppress File"),
which contains information on approximately 11.4 million individuals about
whom it has information relating to fraud and other similar indicators of
unacceptably high risk. Fingerhut periodically updates the information in
the Fingerhut Database. Fingerhut does not report its credit information to
the credit bureaus, which means this information is not publicly available.
Direct Merchants Bank currently has agreements to use the information in
the Fingerhut Database for marketing general purpose credit cards to
Fingerhut Customers. These agreements generally expire in 2003, but may
expire earlier upon certain events of default or bankruptcy. In addition,
in the event that a Person or group other than Fingerhut acquires 25% or
more of the voting stock of Metris or Direct Merchants Bank in a
transaction other than the Spin Off during the term of one of these
agreements, Fingerhut or FCI, as the case may be, has the right to
terminate these agreements. Although the Transferor believes that, to the
extent that it is desirable to do so, Direct Merchants Bank will be able to
extend the term of these agreements, there can be no assurance that Direct
Merchants Bank will be able to do so on terms favorable to Direct Merchants
Bank or at all.
DIRECT MERCHANTS BANK'S CREDIT CARD ACTIVITIES
GENERAL
The Receivables conveyed to the Trust have been and will be generated
from transactions made by holders of co-branded and other MasterCard(R)
credit card and VISA(R) credit card accounts and, subject to the
satisfaction of the Rating Agency Condition, may also include, although
they do not currently include, receivables generated from transactions made
by holders of other general purpose credit card accounts originated or
acquired by Direct Merchants Bank. Certain data processing, administrative
and other functions associated with the servicing of the Receivables are
performed on behalf of Direct Merchants Bank through FDR, whose principal
executive offices are located in Omaha, Nebraska. See "--Description of
FDR." In addition, the collection and management of delinquent accounts are
performed by Metris Direct. As of March 31, 1998, Direct Merchants Bank had
approximately 2.2 million credit card accounts and approximately $3.6
billion in managed loans; Fingerhut Customers represented approximately 40%
of the accounts and approximately 40% of the managed loans.
GROWING CREDIT CARD PORTFOLIO BY PORTFOLIO ACQUISITIONS
In September 1997, Direct Merchants Bank acquired an approximately
$317 million credit card portfolio consisting of approximately 260,000
accounts from Key Bank USA, National Association, of which approximately
197,000 accounts are active accounts. In addition, in October 1997 Direct
Merchants Bank acquired an approximately $405 million credit card portfolio
consisting of approximately 460,000 accounts from Mercantile Bank National
Association, of which approximately 240,000 accounts are active accounts.
In June 1998, Direct Merchants Bank acquired an approximately $100 million
credit card portfolio consisting of approximately 42,000 accounts from
Huntington National Bank. None of these accounts has been designated as an
Account and while the Transferor does not in the near future intend to add
such accounts to the Accounts designated to have their Receivables
transferred to the Trust, such a determination may be made in the future.
Direct Merchants Bank also acquired in the first quarter of 1997 a
credit card portfolio from a California based credit union which, as of
August 31, 1997, had approximately 18,500 accounts with balances of
approximately $36 million. Such accounts have been designated as
Supplemental Accounts the Receivables of which have been transferred to the
Trust.
NEW ACCOUNT UNDERWRITING
Direct Merchants Bank targets moderate income consumers whom it
believes are underserved by traditional providers of consumer credit.
"Moderate income" refers to those households in the United States that have
annual incomes of between $15,000 and $35,000 (approximately 31 million
households according to a 1994 U.S. Census Bureau report).
Prior to July 1997, substantially all of the Accounts were generated
under a license from MasterCard International Inc. and were originated or
purchased by Direct Merchants Bank. Direct Merchants Bank is a member of
MasterCard International Inc. MasterCard International Inc. licenses its
mark permitting financial institutions to issue credit cards to their
customers. In addition, MasterCard International Inc. provides clearing
services facilitating exchange of payments among member institutions and
networks linking members' credit authorization systems. MasterCard credit
cards are issued as part of the worldwide MasterCard International Inc.
systems, and the transactions creating the receivables through the use of
the credit cards are processed through the MasterCard International Inc.
authorization and settlement systems. The MasterCard(R) credit cards from
which the Accounts were established may be used to purchase goods and
services, to obtain cash advances and to consolidate and transfer account
balances from other credit cards. Cardholders make purchases when using a
credit card to buy goods or services. A cash advance is made when a credit
card is used to obtain cash from a financial institution, an automated
teller machine, or by a draft drawn on an account. Amounts due with respect
to purchases, cash advances and transfers of account balances will be
included in the Receivables. Direct Merchants Bank is also a member of VISA
USA Incorporated. With the first quarter, 1997 acquisition of the
California Credit Union portfolio, Direct Merchants Bank acquired
approximately 20,000 VISA(R) credit card accounts. Beginning in July 1997,
the Bank began originating accounts under the VISA license.
Credit Scoring. Direct Merchants Bank requests a Fingerhut Score for
prospective customers in the Fingerhut Database. Direct Merchants Bank also
requests credit bureau information for all Fingerhut Customers, including
risk scores provided by Fair, Isaacs & Company, a third party provider of
risk scorecards ("FICO scores"). For those Fingerhut Customers who have
FICO scores, Direct Merchants Bank uses the Fingerhut Score to further
segment Fingerhut Customers into narrower ranges within each FICO score
subsegment, allowing it to better evaluate individual credit risk and to
tailor its risk-based pricing accordingly. Additionally, the Fingerhut
Score is used to target individuals who have no, or limited, credit bureau
information and consequently no FICO scores, allowing the Bank to target
Fingerhut Customers who would not typically be solicited by other credit
card issuers.
Direct Merchants Bank has developed a proprietary modeling system for
External Prospects (the "Proprietary Modeling System"). The Proprietary
Modeling System consists of sophisticated models which produce a credit
risk score (a "Proprietary Score") for each prospect. The Proprietary
Score, like the Fingerhut Score, segments External Prospects into narrower
ranges within each FICO score subsegment, allowing Direct Merchants Bank to
better evaluate individual credit risk and to tailor its risk-based pricing
accordingly. Direct Merchants Bank also uses this segmentation to exclude
certain individuals from its marketing solicitations.
Direct Merchants Bank generates External Prospects from lists
directly obtained from the major credit bureaus based on criteria
established by Direct Merchants Bank. Direct Merchants Bank establishes the
range of FICO scores that it plans to target for a specific campaign, and
receives files from the credit bureaus which contain individual credit
records of the External Prospects who fall within this range. The files are
incorporated into the Proprietary Modeling System, which further segments
External Prospects based upon their Proprietary Scores. The mailing lists
generated from the Proprietary Modeling System are then checked against the
Suppress File and any matching names are excluded. Direct Merchants Bank
currently does not solicit External Prospects who do not have FICO scores.
Solicitation. Prospects for solicitation include both Fingerhut
Customers and External Prospects. They are contacted on a nationwide basis
generally through pre-screened direct mail and telephone solicitations.
Direct Merchants Bank receives responses to its pre-screened solicitations,
performs fraud screening, verifies name and address changes, and obtains
any information which may be missing from the application. Applications are
then sent to third party data entry providers, which key the application
information and process the applications based on the criteria provided by
Direct Merchants Bank. Applications are approved, denied or referred to
Direct Merchants Bank for exception processing. Direct Merchants Bank
processes exceptions for, among other things, derogatory credit bureau
information and fraud warnings. Exception applications are processed
manually by a credit analyst based on policies approved by the Bank's
credit committee.
Pricing. Direct Merchants Bank's pricing strategy is to price for the
risk associated with its credit card customer. The specific pricing for a
credit card offer is primarily based on the prospect's risk profile prior
to solicitation. Each prospect is evaluated to determine credit needs,
credit risk, and existing credit availability. A customized offer is
developed that includes the most appropriate product, brand, pricing, and
credit line. Direct Merchants Bank currently offers over 100 different
pricing structures on its credit card products, with a range of annual fees
and variable annual percentage rates based on floating rates of interest,
primarily the prime rate. After credit card accounts are opened, the
customer's internal and external credit performance is actively monitored
and their behavior and risk scores are periodically recalculated. As
customers evolve through the credit lifecycle and are regularly rescored,
the lending relationship can evolve to include more competitive (or more
restrictive) pricing and product configurations.
The Adaptive Control System. Direct Merchants Bank uses FDR's
adaptive control system (the "Adaptive Control System") which uses
statistical models and basic account financial information to automatically
and regularly assign credit line increases and decreases to individual
customers, as well as to determine the systematic collection steps to be
taken at the various stages of delinquency. The Adaptive Control System
manages the authorization of each transaction; in addition, it implements
the collections strategies determined by Metris to be used for
non-delinquent accounts that have balances above their assigned credit line
(referred to as "overlimit" accounts).
Credit Lines. Once an account is approved, an initial credit line is
established based on the individual's risk profile using automated
screening and credit scoring techniques. This process results in a
portfolio (excluding portfolio acquisitions) with average credit lines that
are below the industry average due to the higher average risk elements
inherent in Direct Merchants Bank's target market. Direct Merchants Bank
may elect, at any time and without prior notice to the cardholder, to
preclude or restrict further credit card use by the cardholder, usually as
a result of poor payment performance or the Bank's concern over the
creditworthiness of the cardholder. Credit lines are managed based on the
results of the behavioral scoring analysis in accordance with criteria
established by Direct Merchants Bank.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such agreements, Direct Merchants
Bank reserves the right to change or terminate certain terms, conditions,
services, or features of the account (including periodic finance charges,
late fees, returned check charges and any other charges or the minimum
payment), subject to the conditions set forth in the account agreement.
Direct Merchants Bank may change its credit standards or screening
criteria and methods at any time.
SERVICING, BILLING AND PAYMENTS
Direct Merchants Bank has established a relationship with FDR for
cardholder processing services. FDR is a provider of information processing
and related services including cardholder processing (services for
financial institutions which issue credit cards to cardholders), and
merchant processing (services for financial institutions which make
arrangements with merchants for the acceptance of credit cards as methods
of payment). Applications processing and back office support for mail
inquiries and fraud management are handled internally by Direct Merchants
Bank.
Direct Merchants Bank generally assesses periodic finance charges on
an account if the cardholder has not paid the balance in full from the
previous billing cycle. These finance charges are based upon the average
daily balance outstanding on the account during the monthly billing cycle.
Payments by cardholders on the accounts are processed and applied first to
any billed and unpaid fees, next to billed and unpaid finance charges and
then to billed and unpaid transactions in the order determined by Direct
Merchants Bank. If a payment in full is not received prior to 25 days after
the statement cycle date (the "Payment Date"), finance charges are imposed
on all purchases from the date of the transaction to the statement cycle
date. Finance charges are also imposed on each cash advance from the day
such advance is made until the advance is paid in full. The finance charge
is applied to the average daily balance. The average daily balance is the
sum of the daily unpaid balances of purchases and cash advances on each day
of the monthly billing cycle divided by the number of days in such monthly
billing cycle. Such unpaid balances are determined by deducting payments
and credits, adding any unpaid finance charges and late charges and adding
new purchases, cash advances and other charges, in each case as of the date
of the transaction. For most cardholders, if the entire balance on the
account is paid by the due date, a finance charge is not imposed.
Direct Merchants Bank generally assesses an annual fee on its
accounts. Direct Merchants Bank may waive the annual membership fees, or a
portion thereof, in connection with the solicitation of new accounts
depending on the credit terms offered, which are determined by the
prospect's risk profile prior to solicitation or when it determines a
waiver to be necessary in order to be competitive. In addition to the
annual fee, Direct Merchants Bank may charge accounts certain other fees
including: (i) a late fee with respect to any unpaid monthly payment if it
does not receive the required minimum monthly payment by the Payment Date,
(ii) a cash advance fee for each cash advance, (iii) a fee with respect to
each check submitted by a cardholder in payment of an account which is not
honored by the cardholder's bank, and (iv) an overlimit charge if, at any
time during the billing cycle, the total amount owed exceeds the
cardholder's credit line by at least $30 due to transaction activity.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such agreements, Direct Merchants
Bank reserves the right to change or terminate certain terms, conditions,
services and features of the account (including periodic finance charges,
late fees, returned check charges and any other charges or the minimum
payment), subject to the conditions set forth in the account agreement.
Monthly billing statements are sent to cardholders by FDR on behalf
of Direct Merchants Bank. Direct Merchants Bank uses third party processors
to process certain cardholder payments. When an account is established, it
is assigned a billing cycle. Currently, there are 20 billing cycles and
each such cycle has a separate monthly billing date based on the respective
business day the cycle represents in each calendar month. On a set billing
date each month, a statement is sent to all accounts with an outstanding
balance greater than $1.00. Cardholders must make a minimum monthly payment
of the greatest of $10.00, 2.0 percent of the outstanding balance, the
finance charge or the balance of the account if the balance is less than
$10. If the minimum payment is not collected within 25 days after the
statement cycle date, the account is considered delinquent.
Most merchant transactions by cardholders are authorized online by
FDR. The remaining transactions generally are low dollar amounts, typically
below $50.00.
DESCRIPTION OF FDR
FDR provides data processing, credit card reissuance, statementing,
inbound customer service telephone calls and interbank settlement for
Direct Merchants Bank. Direct Merchants Bank believes that its relationship
with FDR allows it to achieve operational efficiencies while remaining
flexible enough to handle additional growth. Furthermore, Direct Merchants
Bank's agreement with FDR allows Direct Merchants Bank to internalize
specific operational functions if Direct Merchants Bank desires. If FDR
were to fail to perform its services for Direct Merchants Bank or become
insolvent, delays in processing and recovery of information with respect to
charges incurred by the respective cardholders could occur, and the
replacement of the services FDR currently provides to Direct Merchants Bank
could be time-consuming. As a result, delays in payment to Securityholders
could occur.
FDR provides computer data processing services primarily to the
bankcard industry. FDR is a subsidiary of First Data Corp.
DELINQUENCY, COLLECTIONS AND CHARGE-OFFS
Direct Merchants Bank considers an account delinquent if a payment
due thereunder is not received within 25 days from the closing date of the
statements. Collection procedures are determined with the assistance of the
Adaptive Control System, which continually monitors all delinquent
accounts. The collections function is handled internally primarily through
collection facilities in Tulsa, Oklahoma, and Baltimore, Maryland. The
Tulsa facility employs approximately 300 collection personnel, and the
Baltimore facility employs approximately 400 collection personnel with the
ability to expand to approximately 800 employees. Through these facilities,
customers with delinquent accounts are called as early as the first day of
delinquency and generally within the first week of delinquency, based upon
the customer's behavior score and prior credit history. Metris Direct's
collections department generates letters through a proprietary letter
system when appropriate. Delinquent customers receive automatic collection
letters at various stages in their delinquency, from 5-90 days past due.
Metris Direct's collections personnel attempt a minimum of two contacts in
each 30-day delinquency cycle, unless special arrangements have been made
with the customer. Accounts that become 60 days contractually delinquent
are closed but not necessarily charged off. Accounts are charged off and
taken as a loss either after formal notification of bankruptcy or at the
end of the month during which they become contractually 180 days past due.
Accounts identified as fraud losses are immediately reserved for and
charged off no later than 90 days after the last activity. Accounts
identified as deceased without a surviving, contractually liable individual
or an estate large enough to pay the debt in full are charged off
immediately upon notification. Charged-off accounts are referred to Direct
Merchants Bank's recovery unit in Baltimore, Maryland, for coordination of
collection efforts to recover the amounts owed. When appropriate, accounts
are placed with external collection agencies or attorneys.
The Federal Financial Institutions Examination Counsel on June 30,
1998 proposed a revised policy statement on the classification of retail
credit. If adopted, the revised policy statement could establish, effective
January 1, 2001, a uniform charge-off period of 150 days past due from the
contractual date for open-end and closed-end credit, including credit card
receivables. The revised policy statement could also, effective January 1,
1999, provide guidance for loans affected by bankruptcy, fraudulent
activity, and death; establish standards for re-aging, extending,
deferring, or rewriting of past due accounts; and broaden the circumstances
under which partial payments are recognized as full payments for purposes
of determining that a loan is no longer delinquent.
Direct Merchants Bank uses FDR's fraud protection system to improve
the rate of early detection of fraudulent activity on a cardholder account.
The system also provides work flow management that is used to investigate
potentially fraudulent transactions and to take prompt immediate action to
reduce further losses. A fraud score is established based on the details of
the authorization request and the previous behavior pattern of the
cardholder. This score is used in the determination of actions to be taken
for potentially fraudulent transactions.
Direct Merchants Bank reserves the right to cancel charge privileges
at any time, usually as a result of violating the contractual terms
(delinquency, overlimit, etc.) of the credit account. Activity on lost,
stolen, or fraudulent accounts is blocked immediately upon notification by
the cardholder or upon determination by FDR that a card is lost or stolen
or being used fraudulently.
DELINQUENCY AND LOSS EXPERIENCE
The following tables set forth the delinquency and loss experience
for each of the periods shown for the portfolio of credit card accounts
serviced by Direct Merchants Bank (the "Direct Merchants Bank Portfolio").
There can be no assurance that the delinquency and loss experience for the
Trust Portfolio will be similar to the historical experience set forth
below because, among other things, economic and financial conditions
affecting the ability of cardholders to make payments may be different from
those that have prevailed during the periods reflected below and many of
the Accounts have been originated in the last twelve months.
DELINQUENCY EXPERIENCE FOR THE DIRECT MERCHANTS BANK PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
As of As of As of
, 1998 March 31, 1998 December 31, 1997
-----------------------------------------------------------------------------
Percentage Percentage Percentage
of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Receivables
Outstanding(2) 100.0% $2,982,652 100.0 $2,863,430 100.0%
Receivables
Delinquent:
30-59 Days $69,178 2.3% $64,547 2.3%
60-89 Days 50,644 1.7 44,115 1.5
90 or More Days 105,024 3.5 89,601 3.1
---------------------------------------------------------------------------
Total ______ ___ $224,846 7.5% $198,263 6.9%
===========================================================================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
As of As of As of
September 30, 1997 June 30, 1997 March 31, 1997
-----------------------------------------------------------------------------
Percentage Percentage Percentage
of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(2) $2,381,403 100.0 $2,124,821 100.0 $1,816,653 100.0%
Receivables
Delinquent:
30-59 Days $56,955 2.4% $41,650 2.0% $37,466 2.1%
60-89 Days 37,217 1.6 27,400 1.3 24,820 1.4
90 or More Days 70,208 2.9 55,794 2.6 46,418 2.5
-------------------------------------------------------------------------
Total $164,380 6.9% $124,844 5.9% $108,704 6.0%
=========================================================================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
As of As of As of
December 31, 1996 September 30, 1996 June 30, 1996
-----------------------------------------------------------------------------
Percentage Percentage Percentage
of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(2) $1,615,940 100.0 $1,276,687 100.0 $1,068,018 100.0%
Receivables
Delinquent:
30-59 Days $32,114 2.0% $26,800 2.1% $14,882 1.4%
60-89 Days 20,398 1.2 15,782 1.3 7,332 0.7
90 or More Days 36,857 2.3 23,195 1.8 13,750 1.3
------------------------------------------------------------------------------
Total $89,369 5.5% $65,777 5.2% $35,964 3.4%
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
As of As of As of
March 31, 1996 December 31, 1995 September 30, 1995
-----------------------------------------------------------------------------
Percentage Percentage Percentage
of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(2) $676,974 100.0% $543,619 100.0% $298,920 100.0%
Receivables
Delinquent:
30-59 Days $9,677 1.4% $7,546 1.4% $5,142 1.7%
60-89 Days 5,879 0.9 4,952 0.9 3,039 1.0
90 or More Days 10,046 1.5 8,996 1.7 2,288 0.8
------------------------------------------------------------------------
Total $25,602 3.8% $21,494 4.0% $10,469 3.5%
========================================================================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
As of
June 30, 1995
----------------------------
Percentage
of Total
Receivables Receivables
----------------------------
Receivables
Outstanding(2) $190,069 100.0%
Receivables
Delinquent:
30-59 Days $320 0.2%
60-89 Days 1 0.0
90 or More Days -- --
---------------------
Total $321 0.2%
=====================
- -------------------------------------
(1) The amounts and percentages presented for the Direct Merchants Bank
Portfolio do not include the Key Bank USA, National Association or
Mercantile Bank National Association acquired accounts or the Direct
Merchants Bank's minor secured card portfolio.
(2) The Receivables Outstanding on the accounts consist of all amounts
due from cardholders as posted to the accounts as of the date shown.
LOSS EXPERIENCE FOR THE DIRECT MERCHANTS BANK PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
______ Quarter Ended Year Quarter Ended Year
Ended, -------------- Ended -------------------------------------------------- Ended
_____, March 31, Dec. 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
1998 1998 1997 1997 1997 1997 1997 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(2) $2,957,963 $2,126,677.75 $2,587,665 $2,274,934 $1,939,623 $1,704,489 $1,017,236
Total Gross Charge-Offs (3) $73,931.00 $194,506.00 $61,561 $51,070.00 $45,522 $36,353 $64,453
Total Gross Charge-Offs as a
Percentage of Average
Receivables Outstanding 2.50% 9.15% 2.38% 2.24% 2.35% 2.13% 6.34%
(Annualized) 10.14% 9.15% 9.44% 8.91% 9.41% 8.65% 6.34%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Quarter Ended
----------------------------------------------- Ended ----------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Dec. 31, Sept. 30, June 30,
1996 1996 1996 1996 1995 1995 1995 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(2) $1,401,552 $1,185,070 $872,529 $609,792 $242,694 $394,610 $248,788 $84,685
Total Gross Charge-
offs(3) $26,445 $17,042 $12,020 $8,946 $4,046 $3,206 $840 --
Total Gross Charge-Offs
as a Percentage of Average
Receivables Outstanding 1.89% 1.44% 1.38% 1.47% 1.67% 0.81% 0.34% --
(Annualized) 7.51% 5.72% 5.54% 5.90% 2.21% 3.22% 1.34% --
</TABLE>
- ---------------------
(1) The amounts and percentages presented for the Direct Merchants
Bank Portfolio do not include the Key Bank USA, National
Association or Mercantile Bank National Association acquired
accounts or the Direct Merchants Bank's minor secured card
portfolio.
(2) Average Receivables Outstanding is calculated by determining the
daily average of outstanding account balances for each month and
then dividing the sum of such daily averages for such months by
the number of months in such period.
(3) Gross Charge-Offs are Total Principal Charge-Offs before
recoveries and do not include the amount of any reductions in
Average Receivables Outstanding due to fraud, returned goods,
customer disputes or other miscellaneous credit adjustments.
RECOVERIES
Pursuant to the terms of the Pooling and Servicing Agreement, the
Servicer will be required to transfer all Recoveries to the Trust. In the
event of any sale or other disposition of Receivables in Defaulted Accounts
as provided in the Pooling and Servicing Agreement, Recoveries will not
include amounts received by the purchaser or transferee of such Receivables
but will be limited to amounts received by the Servicer from the purchaser
or transferee. Collections of Recoveries will be treated as Collections of
Finance Charge Receivables.
YIELD CONSIDERATIONS
The Portfolio Yield on the Direct Merchants Bank Portfolio is set
forth in the following table. The Portfolio Yields in the table are
calculated and reported on a billed basis. The Portfolio Yields on
Receivables included in the Trust are calculated and reported on a cash
basis. Portfolio Yields calculated on a billed basis may differ from
Portfolio Yields calculated on a cash basis due to (a) a lag between when
finance charges and fees are billed to cardholder accounts and when such
finance charges and fees are collected, (b) finance charges and fees that
are not ultimately collected from the cardholder and (c) growth in the
Direct Merchants Bank Portfolio.
The Portfolio Yield calculated on both a billed and a cash basis will
also be affected by numerous factors, including changes in the monthly
interest rate, variations in the rate of payments and new borrowings on the
Accounts, the amount of the annual membership fee and other fees, changes
in the delinquency and loss rates on the Receivables, and the percentage of
cardholders who pay their balances in full each month and, except in the
case of cash advances, do not incur periodic finance charges, which may in
turn be caused by a variety of factors including seasonal variations, the
availability of other sources of credit and general economic conditions.
See "Maturity Considerations." The interchange fees are not included in the
Trust assets and are not included in the yield numbers for the Direct
Merchants Bank Portfolio in the following table.
YIELD EXPERIENCE FOR THE DIRECT MERCHANTS BANK PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
______ Quarter Ended Quarter Ended Year
Ended -------------------------------------------------------------------- Ended
_____, Mar. 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
1998 1998 1997 1997 1997 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Receivables $2,957,963 $2,587,665 $2,274,934 $1,939,623 $1,704,489 $1,017,236
Outstanding (2)
Total Finance Charges $181,651 $154,670 $133,870 $124,378 $107,395 $269,298
and Fees Billed (3)(4)
Average Revenue Yield 24.91% 23.71% 23.35% 25.72% 25.55% 26.47%
(Annualized)
</TABLE>
Quarter Ended
------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31,
1996 1996 1996 1996
-------------------------------------------------------
Average Receivables $1,401,552 $1,185,070 $872,529 $609,792
Outstanding (2)
Total Finance Charges $93,506 $75,252 $58,727 $41,813
and Fees Billed (3)(4)
Average Revenue Yield 26.54% 25.26% 27.07% 27.58%
(Annualized)
(RESTUBBED TABLE CONTINUED FROM ABOVE)
Year Quarter Ended
Ended -------------------------------------
Dec. 31, Dec. 31, Sept. 30, June 30,
1995 1995 1995 1995
-------------------------------------------------
Average Receivables
Outstanding (2) $242,694 $394,610 $248,788 $84,685
Total Finance
Charges
and Fees Billed
(3)(4) $49,021 $23,071 $21,671 $4,279
Average Revenue
Yield (Annualized) 26.81% 23.20% 34.56% 20.27%
- ----------------------------------
(1) The amounts and percentages presented for the Direct Merchants Bank
Portfolio do not include the Key Bank USA, National Association or
Mercantile Bank National Association acquired accounts or the Direct
Merchants Bank's minor secured card portfolio.
(2) Average Receivables Outstanding is calculated by determining the
daily average of outstanding account balances for each month and then
dividing the sum of such daily averages for such months by the number
of months in such period.
(3) Total Finance Charges and Fees Billed include finance charges, cash
advance fees, annual membership fees, late fees, and other charges.
It does not include interchange fee.
(4) Total Finance Charges and Fees Billed are presented net of
adjustments made pursuant to the Bank's normal servicing procedures,
including removal of incorrect or disputed finance charges and
reversal of finance charges accrued on charged-off accounts.
THE RECEIVABLES
The Accounts had, as of , 1998, an average Principal Receivable
balance of $ and an average credit limit of $ . The percentage
of the total Receivable balance to the aggregate total credit limit, as of
, 1998, was percent.
The following tables summarize the Receivables which have been
conveyed to the Trust (the "Trust Portfolio") by various criteria as of the
close of business on ______, 1998. Because the future composition of the
Trust Portfolio may change over time, these tables are not necessarily
indicative of the composition of the Trust Portfolio at any subsequent
time. The Transferor will add to the Trust, in compliance with the
provisions of the Pooling and Servicing Agreement, Receivables in
Additional Accounts and Supplemental Accounts in addition to those
reflected in the tables below.
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Credit Limit Range Accounts Accounts Outstanding Outstanding
---------------------------------------------------
$ 0.00 -$ 500.00
$ 500.01 -$1,000.00
$1,000.01 -$1,500.00
$1,500.01 -$3,000.00
$3,000.01 -$5,000.00
$5,000.01 -$10,000.00
$10,000.01 & Greater
Total ----------------------------------------------------
====================================================
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
Percentage Percentage
Period of Delinquency of Total of Total
(Days Contractually Number of Number of Receivables Receivables
Delinquent) Accounts Accounts Outstanding Outstanding
--------------------------------------------------
Current
1 -29 Days
30 -59 Days
60 -89 Days
90 -119 Days
120 -149 Days
150 Days or More
---------------------------------------------------
Total 100.0% 100.0%
===================================================
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Balance Range Accounts Accounts Outstanding Outstanding
---------------------------------------------------
Credit Balance
No Balance
$ 0.01 -$ 500.00
$ 500.01 -$1,000.00
$1,000.01 -$1,500.00
$1,500.01 -$3,000.00
$3,000.01 -$5,000.00
$5,000.01 & Greater
-----------------------------------------------------
Total 100.0% 100.0%
=====================================================
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Age Accounts Accounts Outstanding Outstanding
--------------------------------------------------
Not more than 6 Months
Over 6 Months to 12 Months
Over 12 Months to 24 Months
Over 24 Months
--------------------------------------------------
Total 100.0%
==================================================
COMPOSITION BY GEOGRAPHIC DISTRIBUTION
TRUST PORTFOLIO
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Location Accounts Accounts Outstanding Outstanding
---------------------------------------------------
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Other
----------------------------------------------------
Total 100.0% 100.0%
===================================================
MATURITY CONSIDERATIONS
The Pooling and Servicing Agreement provides that the Class A
Securityholders and the Class B Securityholders are scheduled to receive
payments of principal on the Expected Final Payment Date, which is the
Distribution Date, but may receive principal payments earlier in the event
of a Pay Out Event which results in the commencement of the Early
Amortization Period. The Class B Securityholders will not begin to receive
payments of principal until the Class A Invested Amount has been paid in
full.
During the Accumulation Period, an amount equal to, for each Monthly
Period, the least of (a) the Available Investor Principal Collections, (b)
the applicable "Controlled Deposit Amount," which is equal to the sum of
the applicable Controlled Accumulation Amount for such Monthly Period and
the applicable Accumulation Shortfall, if any, and (c) the ABC Adjusted
Invested Amount (prior to any deposits on such day) will be deposited in
the Principal Funding Account until the amount on deposit in the Principal
Funding Account (the "Principal Funding Account Balance") equals the sum of
the Class A Invested Amount, the Class B Invested Amount and the CTO
Invested Amount.
Although it is anticipated that Available Investor Principal
Collections will be available during each Monthly Period in the
Accumulation Period to make a deposit to the Principal Funding Account of
the applicable Controlled Deposit Amount and that on the Expected Final
Payment Date the Class A Invested Amount will be paid to the Class A
Securityholders, the Class B Invested Amount will be paid to the Class B
Securityholders and the CTO Invested Amount will be paid to the CTO
Securityholders, no assurance can be given in that regard. If the amount
required to pay the Class A Invested Amount, the Class B Invested Amount or
the CTO Invested Amount in full is not available in the Principal Funding
Account on the Expected Final Payment Date, or if a Pay Out Event occurs
during the Accumulation Period, the Early Amortization Period will commence
and any amount on deposit in the Principal Funding Account will be paid to
the Class A Securityholders on the next Distribution Date and an amount
equal to the Available Investor Principal Collections will be paid to the
Class A Securityholders on each succeeding Distribution Date until the
earlier of the Distribution Date on which the Class A Invested Amount has
been paid in full and the Termination Date. After the Class A Invested
Amount has been paid in full, Available Investor Principal Collections will
be paid to the Class B Securityholders on each Distribution Date until the
earlier of the date on which the Class B Invested Amount has been paid in
full and the Termination Date.
A "Pay Out Event" occurs, either automatically or after specified
notice, upon (a) the failure of the Transferor to make certain payments or
transfers of funds for the benefit of the Securityholders or to observe or
perform in any material respect certain other covenants within the time
periods stated in the Pooling and Servicing Agreement, (b) material
breaches of certain representations, warranties, or covenants of the
Transferor which remain uncured after the grace periods specified in the
Pooling and Servicing Agreement, (c) certain bankruptcy or insolvency
events relating to Metris, the Transferor or Direct Merchants Bank, (d) the
occurrence of a Servicer Default that would have a material adverse effect
on the Securityholders, (e) (w) the Transferor Interest being less than the
Minimum Transferor Interest, (x) (i) the sum of the amount on deposit in
the Pre-Funding Account plus the Series 1998-2 Percentage of the sum of the
total amount of Principal Receivables plus amounts on deposit in the Excess
Funding Account being less than (ii) the sum of the aggregate outstanding
principal amounts of the Class A Securities, the Class B Securities, the
Collateralized Trust Obligations and the Class D Securities, (y) the total
amount of Principal Receivables and the amounts on deposit in the Excess
Funding Account and the Principal Funding Account being less than the
Minimum Aggregate Principal Receivables (z) the Retained Percentage being
equal to or less than 2 percent, in each case as of any Determination Date,
(f) the Trust becoming subject to regulation as an "investment company"
within the meaning of the Investment Company Act, or (g) a reduction in the
average of the Portfolio Yields for any three consecutive Monthly Periods
to a rate which is less than the weighted average of the Base Rates for
such three consecutive Monthly Periods. See "Description of the Offered
Securities--Pay Out Events." In the event of an early payment of principal
on the Offered Securities, Securityholders may realize a lower yield on
their reinvestment of such early payment and may be required to incur costs
associated with reinvesting such funds.
The "Base Rate" means, with respect to any Monthly Period, the sum of
(i) the weighted average of the Class A Interest Rate, the Class B Interest
Rate and the CTO Interest Rate as of the last day of such Monthly Period
(weighted based on the Class A Invested Amount, the Class B Invested Amount
and the CTO Invested Amount, respectively, as of the last day of such
Monthly Period) plus (ii) the product of 2 percent per annum and the
percentage equivalent of a fraction the numerator of which is the Adjusted
Invested Amount and the denominator of which is the Invested Amount, each
as of the last day of such Monthly Period. The term "Portfolio Yield"
means, with respect to any Monthly Period, the annualized percentage
equivalent of a fraction, the numerator of which is the sum of the
aggregate amount of Available Series Finance Charge Collections for such
Monthly Period (not including the amounts on deposit in the Payment Reserve
Account and Adjustment Payments made by the Transferor with respect to
Adjustment Payments required to be made but not made in prior Monthly
Periods, if any) plus the Principal Funding Account Investment Proceeds,
investment earnings on amounts on deposit in the Pre-Funding Account and
amounts withdrawn from the Accumulation Period Reserve Account with respect
to such Monthly Period calculated on a cash basis after subtracting the
Series Default Amount and the Series 1998-2 Percentage of any Adjustment
Payments which the Transferor is required but fails to make pursuant to the
Pooling and Servicing Agreement for such Monthly Period, and the
denominator of which is the average daily Invested Amount plus the
Pre-Funded Amount during the preceding Monthly Period; provided, however,
that Excess Finance Charge Collections applied for the benefit of the
Securityholders may be added to the numerator if the Rating Agency
Condition is satisfied. See "Description of the Offered Securities--Pay Out
Events."
Payment Rates. The following table sets forth the highest and lowest
cardholder monthly payment rates for the Receivables during any month in
the period shown and the average cardholder monthly payment rates for all
months during the period shown, in each case calculated as a percentage of
the previous month's total statement balance. 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
(total payments).
CARDHOLDER MONTHLY PAYMENT RATES FOR THE DIRECT MERCHANTS BANK PORTFOLIO(1)
______ Quarter Ended
Ended ----------------------------------
------, March 31, Dec. 31, Sept. 30,
1998 1998 1997 1997
----------------------------------------------
Highest Month 7.2% 6.6% 7.0%
Lowest Month 6.3% 6.0% 6.2%
Monthly Average (2) 6.6% 6.3% 6.6%
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------
June March Dec. Sept. June March Dec. Sept. June
30, 31, 31, 30, 30, 31, 31, 30, 30,
1997 1997 1996 1996 1996 1996 1995 1995 1995
------------------------------------ -------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Highest Month 7.2% 7.6% 7.5% 8.4% 8.8% 8.5% 8.7% 12.7% 64.7%
Lowest Month 6.8% 6.6% 6.8% 6.4% 8.0% 8.0% 7.9% 8.5% 19.7%
Monthly 7.0% 7.1% 7.1% 7.5% 8.3% 8.3% 8.3% 10.5% 42.2%
Average (2)
</TABLE>
(1) The amounts and percentages presented for the Direct Merchants Bank
Portfolio do not include the Key Bank USA, National Association or
Mercantile Bank National Association acquired accounts or the Direct
Merchants Bank's minor secured card portfolio.
(2) Monthly Averages shown are expressed as an arithmetic average of the
payment rate for each month for the period indicated.
The amount of collections of Receivables may vary from month to month
due to various factors, including seasonal variations, general economic
conditions, economic and financial conditions affecting the payment habits
of individual cardholders, the Credit Card Originator's minimum monthly
payment requirements, and acts of God. There can be no assurance that
collections with respect to the Trust, and thus the rate at which the
Securityholders could expect to receive payments of principal on their
Securities during the Amortization Period, will be similar to the
historical experience set forth above. If a Pay Out Event occurs, the
average life and maturity of the Offered Securities could be significantly
reduced.
Because the actual payment rate at the end of the Revolving Period
may be less than the payment rate used to determine the Controlled
Accumulation Amount, or a Pay Out Event may occur which would initiate the
Early Amortization Period, there can be no assurance that the actual number
of months elapsed from the date of issuance of the Offered Securities to
the Expected Final Payment Date will equal the expected number of months
for such period. See "Risk Factors--Payments and Maturity." As described
under "Description of the Offered Securities--Postponement of Accumulation
Period," the Servicer may shorten the Accumulation Period and, in such
event, there can be no assurance that the duration of the Accumulation
Period will be sufficient for the accumulation of all amounts necessary to
pay the Class A Invested Amount and the Class B Invested Amount on the
Expected Final Payment Date, especially if a pay out event were to occur
with respect to one or more other Series thereby limiting the amount of
Shared Principal Collections allocable to the Offered Securities.
USE OF PROCEEDS
The Transferor will apply the net proceeds received from the sale of
the Offered Securities, which is expected to be approximately $__________,
to repay principal of classes of the Series 1998-1 Variable Funding
Securities, to fund the Pre-Funding Account to the extent of the Pre-Funded
Amount, to pay the purchase price of Receivables and to make a deposit to
the Interest Funding Account for the payment of Class A Monthly Interest on
the first Distribution Date.
DESCRIPTION OF THE OFFERED SECURITIES
The Offered Securities will be issued pursuant to the Pooling and
Servicing Agreement and the Series 1998-2 Supplement. Pursuant to the
Pooling and Servicing Agreement, the Transferor and the Trustee previously
executed the Supplements with respect to the Previously Issued Series and
may execute additional Supplements in order to issue additional Series.
GENERAL
The Offered Securities will represent interests in certain assets of
the Trust, including the right to the Investor Percentage of all Obligor
payments on the Receivables in the Trust. Each Class A Security and Class B
Security represents the right to receive payments of interest at the Class
A Interest Rate or the Class B Interest Rate, as the case may be, funded
from Available Series Finance Charge Collections and the right to receive
payments of principal on the Expected Final Payment Date or such earlier
date following the occurrence of a Pay Out Event funded from Principal
Collections allocated to the Class A Securityholders' Interest or the Class
B Securityholders' Interest, as the case may be. With respect to the
Accumulation Period, principal payments will be made to the Class A
Securityholders and the Class B Securityholders on the Expected Final
Payment Date.
The Transferor will own the Exchangeable Transferor Security and the
Class D Securities. The Exchangeable Transferor Security will represent an
undivided interest in the Trust, including the right to the Transferor
Percentage of all Obligor payments on the Receivables in the Trust equal to
100 percent minus the sum of the applicable investor allocation percentages
(which shall not exceed 100 percent) for all Series of securities then
outstanding. See "--Certain Matters Regarding the Transferor and the
Servicer." During the Revolving Period, following the Funding Period, the
amount of the Invested Amount in the Trust will remain constant except
under certain limited circumstances. See "--Defaulted Receivables;
Dilution." The amount of Principal Receivables in the Trust, however, will
vary each day as new Principal Receivables are transferred to the Trust and
others are paid. The amount of the Transferor Interest (or the amount in
the Excess Funding Account) will fluctuate each day, therefore, to reflect
the changes in the amount of the Principal Receivables in the Trust unless
and to the extent that the Previously Issued Series or another Series
absorb such change. During the Accumulation Period, the Adjusted Invested
Amount will decline as Obligor payments of Principal Receivables are
collected and held in the Principal Funding Account for distribution to the
Securityholders. During the Early Amortization Period, the Invested Amount
will decline as Obligor payments of Principal Receivables are collected and
distributed to Securityholders. As a result, unless and to the extent that
the Previously Issued Series or another Series absorb such increase, the
Transferor Interest will generally increase each month during the
Accumulation Period or the Early Amortization Period to reflect the
reductions in the Adjusted Invested Amount or the Invested Amount of the
Securities and will also change to reflect the variations in the amount of
the Principal Receivables in the Trust. The Transferor Interest may be
reduced as the result of an Exchange. See "--Exchanges."
Each Class of Offered Securities initially will be represented by
securities registered in the name of the nominee of DTC (together with any
successor depository selected by the Transferor, the "Depository"), except
as set forth below. Beneficial interests in each Class of Offered
Securities will be available for purchase in minimum denominations of
$1,000 and in integral multiples of $1,000 in excess thereof in book-entry
form only. The Transferor has been informed by DTC that DTC's nominee will
be Cede & Co. Accordingly, Cede & Co. is expected to be the holder of
record of the Offered Securities. Unless and until Definitive Securities
are issued under the limited circumstances described herein, no Security
Owner acquiring an interest in any Class of Offered Securities will be
entitled to receive a certificate representing such Security Owner's
interest in such Securities. Until such time, all references herein to
actions by Securityholders of any Class of Offered Securities will refer to
actions taken by the Depository upon instructions from its participating
organizations ("Participants") and all references herein to distributions,
notices, reports and statements to Securityholders of any Class of Offered
Securities will refer to distributions, notices, reports and statements to
the Depository or its nominee, as the registered holder of the Offered
Securities of such Class, for distribution to Security Owners of such Class
in accordance with the Depository's procedures. See "--Book-Entry
Registration" and "--Definitive Securities."
BOOK-ENTRY REGISTRATION
With respect to each Class of Offered Securities in book-entry form,
Securityholders may hold their Securities through DTC (in the United
States) or Cedel or Euroclear (in Europe), which in turn hold through DTC,
if they are participants of such systems, or indirectly through
organizations that are participants in such systems.
Cede & Co., as nominee for DTC, will hold the global securities.
Cedel and Euroclear will hold omnibus positions on behalf of the Cedel
Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective depositaries (collectively, the "Depositaries")
which in turn will hold such positions in customers' securities accounts in
the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities for its Participants ("DTC
Participants") and facilitates the clearance and settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities.
Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. Indirect
access to the DTC system is also available to others such as securities
brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or
indirectly through Cedel Participants or Euroclear Participants, on the
other, will be effected in DTC in accordance with DTC rules on behalf of
the relevant European international clearing system by its Depositary;
however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to
effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedel
Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time-zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a DTC Participant will
be made during the subsequent securities settlement processing, dated the
business day following the DTC settlement date, and such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Cedel Participant or Euroclear Participant on such
business day. Cash received in Cedel or Euroclear as a result of sales of
securities by or through a Cedel Participant or a Euroclear Participant to
a DTC Participant will be received with value on the DTC settlement date
but will be available in the relevant Cedel or Euroclear cash account only
as of the business day following settlement in DTC.
Purchases of Securities under the DTC system must be made by or
through Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual Security Owner is in
turn to be recorded on the DTC Participants' and Indirect Participants'
records. Security Owners will not receive written confirmation from DTC of
their purchase, but Security Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC Participant or Indirect
Participant through which the Security Owner entered into the transaction.
Transfers of ownership interests in the Securities are to be accomplished
by entries made on the books of DTC Participants acting on behalf of
Security Owners. Security Owners will not receive Securities representing
their ownership interest in Securities, except in the event that use of the
book-entry system for the Securities is discontinued.
To facilitate subsequent transfers, all Securities deposited by DTC
Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Securities with DTC and their
registration in the name of Cede & Co. effects no change in beneficial
ownership. DTC has no knowledge of the actual Security Owners of the
Securities; DTC's records reflect only the identity of the DTC Participants
to whose accounts such Securities are credited, which may or may not be the
Security Owners. The DTC Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC
Participants, by DTC Participants to Indirect Participants, and by DTC
Participants and Indirect Participants to Security Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date, which assigns Cede &
Co.'s consenting or voting rights to those Participants to whose accounts
the Securities are credited on the record date (identified in a listing
attached thereto). Principal and interest payments on the Securities will
be made to DTC. DTC's practice is to credit Participants' accounts on the
Distribution Date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive
payment on the Distribution Date. Payments by Participants to Security
Owners will be governed by standing instructions and customary practices,
as is the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
Participant and not of DTC, the Trustee or the Transferor, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the
Trustee, disbursement of such payments to Participants shall be the
responsibility of DTC, and disbursement of such payments to the Security
Owners shall be the responsibility of Participants and Indirect
Participants.
DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to
the Transferor or the Trustee. Under such circumstances, in the event that
a successor securities depository is not obtained, Definitive Securities
are required to be printed and delivered. The Transferor may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor securities depository). In that event, Definitive Securities will
be printed and delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Transferor believes to be
reliable, but the Transferor takes no responsibility for the accuracy
thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws
of Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel
Participants through electronic book-entry changes in accounts of Cedel
Participants, thereby eliminating the need for physical movement of
securities. Transactions may be settled by Cedel in any of 36 currencies,
including United States dollars. Cedel provides to its Cedel Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedel interfaces with domestic markets in several countries. As
a professional depository, Cedel is subject to regulations by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers
and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the underwriters of any Series of
Securities. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Cedel Participant, either directly or
indirectly.
The Euroclear System (the "Euroclear System") was created in 1968 to
hold securities for participants of the Euroclear System ("Euroclear
Participants") and to clear and settle transactions between Euroclear
Participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of securities
and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 34 currencies, including United
States dollars. The Euroclear System includes various other services,
including securities lending and borrowing and interfaces with domestic
markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. The Euroclear System is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company
of New York, (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries and may include the underwriters of any Series of
Securities. Indirect access to the Euroclear System is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission. Securities clearance accounts and cash accounts
with the Euroclear Operator are governed by the Terms and Conditions
Governing Use of Euroclear and the related Operating Procedures of the
Euroclear System and applicable Belgian law (collectively, the "Terms and
Conditions"). The Terms and Conditions govern transfers of securities and
cash within the Euroclear System, withdrawal of securities and cash from
the Euroclear System, and receipts of payments with respect to securities
in the Euroclear System. All securities in the Euroclear System are held on
a fungible basis without attribution of specific securities to specific
securities clearance accounts. The Euroclear Operator acts under the Terms
and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Securities held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions
will be subject to tax reporting in accordance with relevant United States
tax laws and regulations. Cedel or the Euroclear Operator, as the case may
be, will take any other action permitted to be taken by a Securityholder
under the Pooling and Servicing Agreement on behalf of a Cedel Participant
or a Euroclear Participant only in accordance with its relevant rules and
procedures and subject to its Depositary's ability to effect such actions
on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among
participants of DTC, Cedel and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
DEFINITIVE SECURITIES
The Offered Securities of each Class will be issued in fully
registered, certificated form to the Security Owners of such Class or their
nominees ("Definitive Securities"), rather than to the Depository or its
nominee, only if (i) the Transferor advises the Trustee in writing that the
Depository is no longer willing or able to discharge properly its
responsibilities as Depository with respect to the Securities of such
Class, and the Trustee or the Transferor is unable to locate a qualified
successor, (ii) the Transferor, at its option, advises the Trustee in
writing that it elects to terminate the book-entry system through the
Depository, or (iii) after the occurrence of a Servicer Default, Security
Owners representing not less than 50 percent of the Invested Amount of such
Class advise the Trustee and the Depository through Participants in writing
that the continuation of a book-entry system through the Depository is no
longer in the best interest of the Security Owners of such Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Depository is required to notify all Participants
of the availability through the Depository of Definitive Securities. Upon
surrender by the Depository of the definitive certificate representing the
Securities of the affected Class and instructions for registration, the
Trustee will issue the Securities of such Class as Definitive Securities,
and thereafter the Trustee will recognize the holders of such Definitive
Securities as Securityholders under the Pooling and Servicing Agreement.
Distribution of principal and interest on the Offered Securities will
be made by the Trustee directly to Securityholders in accordance with the
procedures set forth herein and in the Pooling and Servicing Agreement.
Interest payments and any principal payments on each Distribution Date will
be made to Securityholders in whose names the Definitive Securities were
registered at the close of business on the related Record Date.
Distributions will be made by check mailed to the address of such
Securityholder as it appears on the register maintained by the Trustee. The
final payment on any Offered Security, however, will be made only upon
presentation and surrender of such Security at the office or agency
specified in the notice of final distribution to Securityholders. The
Trustee will provide such notice to registered Securityholders mailed not
later than the fifth day of the month of such final distributions.
Definitive Securities will be transferable and exchangeable at the
offices of the transfer agent and registrar, which initially will be the
Trustee (in such capacity, the "Transfer Agent and Registrar"). No service
charge will be imposed for any registration of transfer or exchange, but
the Transfer Agent and Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith.
The Transfer Agent and Registrar will not be required to register the
transfer or exchange of Definitive Securities for the period from the
Record Date preceding the due date for any payment to the Distribution Date
with respect to such Definitive Securities.
STATUS OF THE SECURITIES
Upon issuance, the Securities will rank pari passu with all other
outstanding Series. Payments on the Class B Securities are subordinated to
the Class A Securities as described herein.
INTEREST PAYMENTS
Interest will accrue on the outstanding principal balance of the
Class A Securities at the Class A Interest Rate and on the outstanding
principal balance of the Class B Securities at the Class B Interest Rate,
in each case from the Closing Date. Interest will be distributed on , 1998,
and on each Distribution Date thereafter to Securityholders of each Class
in an amount equal to the product of (i) the actual number of days in the
related Interest Accrual Period divided by 360, (ii) the Class A Interest
Rate or Class B Interest Rate, as applicable, and (iii) the applicable
outstanding principal balance as of the preceding Record Date, (or in the
case of the first Distribution Date, an amount equal to the product of (a)
the initial Invested Amount of such Class, (b) ___divided by 360 and (c)
the Class A Interest Rate or Class B Interest Rate, as applicable,
determined on _______, 1998. Interest payments on the Class A Securities on
any Distribution Date will be funded from Available Series Finance Charge
Collections with respect to the preceding Monthly Period (and with respect
to the first Distribution Date, the amount of the initial deposit to the
Interest Funding Account to be made on the Closing Date) and from certain
other funds allocated as set forth in the Pooling and Servicing Agreement
to the respective Classes of the Securities and deposited on each business
day during such Monthly Period in the Interest Funding Account. Subject to
the prior payment of interest on the Class A Securities, interest payments
on the Class B Securities on any Distribution Date will be funded from
Available Series Finance Charge Collections with respect to the preceding
Monthly Period and from certain other funds allocated as set forth in the
Pooling and Servicing Agreement to the Class B Securities and deposited on
each business day during such Monthly Period in the Interest Funding
Account.
The Class A Securities will bear interest at the rate equal to % per
annum above LIBOR determined as set forth below for the period from the
Closing Date through , 1998 and each Interest Accrual Period thereafter.
The Class B Securities will bear interest at the rate equal % per annum
above LIBOR determined as set forth below for the period from the Closing
Date through , 1998 and each Interest Accrual Period thereafter.
The Trustee will determine LIBOR for the period from the Closing Date
through , 1998 on , 1998 and for each Interest Accrual Period
thereafter on the second business day prior to the Distribution Date on which
such Interest Accrual Period commences (each, a "LIBOR Determination Date").
For purposes of calculating LIBOR, a business day is any day on which banks in
London and New York are open for the transaction of international business.
"LIBOR" means, as of any LIBOR Determination Date, the rate for
deposits in United States dollars for one month (commencing on the first
day of the relevant Interest Accrual Period) which appears on Telerate Page
3750 as of 11:00 a.m., London time, on the LIBOR Determination Date for
such Interest Accrual Period. If such rate does not appear on Telerate Page
3750, the rate for such LIBOR Determination Date will be determined on the
basis of the rates at which deposits in United States dollars are offered
by the Reference Banks at approximately 11:00 a.m., London time, on such
LIBOR Determination Date to prime banks in the London interbank market for
a period equal to one month (commencing on the first day of the relevant
Interest Accrual Period). The Trustee will request the principal London
office of each such bank to provide a quotation of its rate. If at least
two such quotations are provided, the rate for such LIBOR Determination
Date will be the arithmetic mean of the quotations. If fewer than two
quotations are provided as requested, the rate for such LIBOR Determination
Date will be the arithmetic mean of the rates quoted by four major banks in
New York City, selected by the Trustee, at approximately 11:00 a.m., New
York City time, on that LIBOR Determination Date for loans in United States
dollars to leading European banks for a period equal to one month
(commencing on the first day of the relevant Interest Accrual Period).
The Class A Interest Rate and the Class B Interest Rate applicable to
the then current and immediately preceding Interest Accrual Period may be
obtained by telephoning the Trustee at its Corporate Trust Office at (302)
451-2500.
Interest on the Securities will be calculated on the basis of the
actual number of days in the Interest Accrual Period and a 360 day year.
PRINCIPAL PAYMENTS
During the Revolving Period (the period from and including the
Closing Date to but excluding the earlier of (a) the commencement of the
Accumulation Period and (b) the commencement of the Early Amortization
Period), Principal Collections allocable to the Invested Amount, subject to
certain limitations, including the allocation of any Redirected Principal
Collections with respect to the related Monthly Period to pay the Class A
Required Amount and the Class B Required Amount, will be treated as Shared
Principal Collections.
With respect to each Monthly Period during the Accumulation Period,
the Trustee will deposit in the Principal Funding Account an amount equal
to the least of (a) the Available Investor Principal Collections with
respect to the preceding Monthly Period, (b) the applicable Controlled
Deposit Amount and (c) the ABC Adjusted Invested Amount prior to any such
deposit. Amounts in the Principal Funding Account up to the Class A
Invested Amount will be paid to the Class A Securityholders on the Expected
Final Payment Date. After payment in full of the Class A Invested Amount,
amounts remaining in the Principal Funding Account will be paid to the
Class B Securityholders on the Expected Final Payment Date. After payment
in full of the Class A Invested Amount and the Class B Invested Amount,
amounts remaining in the Principal Funding Account will be paid to the CTO
Securityholders on the Expected Final Payment Date. During the Accumulation
Period, concurrently with deposits to the Principal Funding Account for the
benefit of the Class A Securities, Class B Securities and Collateralized
Trust Obligations, the Class D Invested Amount will be reduced to an amount
equal to the Stated Class D Amount. During the Accumulation Period, the
portion of Available Investor Principal Collections not required to be
deposited in the Principal Funding Account will generally be treated as
Shared Principal Collections.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (i) an amount equal to the
Fixed/Floating Percentage of all Principal Collections (less the amount of
Redirected Principal Collections) received during such Monthly Period, (ii)
any amount on deposit in the Excess Funding Account or the Pre-Funding
Account allocated to the Securities with respect to such Monthly Period,
(iii) the aggregate Series Default Amount and the Series 1998-2 Percentage
of any unpaid Adjustment Payments paid from Available Series Finance Charge
Collections, Transferor Finance Charge Collections, Excess Finance Charge
Collections or Redirected Principal Collections with respect to such
Monthly Period and any reimbursements from Available Series Finance Charge
Collections, Transferor Finance Charge Collections, Excess Finance Charge
Collections or Redirected Principal Collections of unreimbursed Class A
Charge-Offs, Class B Charge-Offs, CTO Charge-Offs and Class D Charge-Offs
and (iv) Shared Principal Collections allocated to the Securities.
On each Distribution Date following the Monthly Period in which the
Early Amortization Period commences, the Class A Securityholders will be
entitled to receive Available Investor Principal Collections for the
preceding Monthly Period in an amount up to the Class A Invested Amount
until the earlier of the date the Class A Invested Amount is paid in full
and the Termination Date. In addition, if a Pay Out Event occurs during the
Accumulation Period, the Early Amortization Period will commence and any
amount on deposit in the Principal Funding Account will be paid to the
Securityholders of each Class of Securities, sequentially, in alphabetical
order, on the Distribution Date following the Monthly Period in which the
Early Amortization Period commences. After payment in full of the Class A
Invested Amount, the Class B Securityholders will be entitled to receive
Available Investor Principal Collections on each Distribution Date during
the Early Amortization Period until the earlier of the date the Class B
Invested Amount is paid in full and the Termination Date. After payment in
full of the Class B Invested Amount, the CTO Securityholders will be
entitled to receive Available Investor Principal Collections on each
Distribution Date until the earlier of the date the CTO Invested Amount is
paid in full and the Termination Date. See "--Pay Out Events" below for a
discussion of events which might lead to the commencement of the Early
Amortization Period.
In the event of a sale of the Receivables and an early termination of
the Trust due to a Trigger Event, the breach of certain representations and
warranties, an optional repurchase of the Receivables by the Transferor, a
repurchase of the Receivables in connection with a Servicer Default or a
sale of the Receivables in connection with the Termination Date (each as
described under "--Pay Out Events," "--Servicer Default," and "--Final
Payment of Principal; Termination"), distributions of principal will be
made to the Securityholders upon surrender of their Securities. The
proceeds of any such sale or repurchase of Receivables will be allocated
first to pay amounts due with respect to the Class A Securities, then to
pay amounts due with respect to the Class B Certificates, then to pay
amounts due with respect to the Collateralized Trust Obligations and then
to pay amounts due with respect to the Class D Securities as described
herein.
POSTPONEMENT OF ACCUMULATION PERIOD
Upon written notice to the Trustee, the Servicer may elect to
postpone the commencement of the Accumulation Period, and extend the length
of the Revolving Period, subject to certain conditions including those set
forth below. The Servicer may make such election only if the Accumulation
Period Length (determined as described below) is less than twelve months.
On each Determination Date, until the Accumulation Period begins, the
Servicer will determine the "Accumulation Period Length," which is the
number of months expected to be required to fully fund the Principal
Funding Account no later than the end of the Monthly Period preceding the
Expected Final Payment Date, based on (a) the monthly collections of
Principal Receivables expected to be distributable to the securityholders
of all Series (unless Shared Principal Collections from any such other
Series are not allocated to be shared with the Securities), assuming a
principal payment rate no greater than the lowest monthly principal payment
rate on the Receivables for the preceding twelve months and (b) the amount
of principal expected to be distributable to securityholders of Series
(which may exclude certain other Series) which are not expected to be in
their revolving periods during the Accumulation Period. If the Accumulation
Period Length is less than twelve months, the Servicer may, at its option,
postpone the commencement of the Accumulation Period such that the number
of months included in the Accumulation Period will be equal to or exceed
the Accumulation Period Length. The effect of the foregoing calculation is
to permit the reduction of the length of the Accumulation Period based on
(i) the invested amounts of certain other Series which are scheduled to be
in their revolving periods during the Accumulation Period and (ii)
increases in the principal payment rate occurring after the Closing Date.
The length of the Accumulation Period will not be less than one month. If
the Accumulation Period is postponed in accordance with the foregoing, and
if a Pay Out Event occurs after the date originally scheduled as the
commencement date of the Accumulation Period, it is probable that
Securityholders would receive some of their principal later than if the
Accumulation Period had not been so postponed.
SUBORDINATION OF THE CLASS B SECURITIES
The Class B Securities will be subordinated to the extent necessary
to fund certain payments with respect to the Class A Securities. To the
extent the Class B Invested Amount is reduced, the percentage of Finance
Charge Collections allocated to the Class B Securityholders in subsequent
Monthly Periods will be reduced. Moreover, to the extent the amount of such
reduction in the Class B Invested Amount is not reimbursed, the amount of
principal distributable to the Class B Securityholders will be reduced.
The Collateralized Trust Obligations will be subordinated to the
extent necessary to fund certain payments with respect to the Class A
Securities and the Class B Securities. To the extent the CTO Invested
Amount is reduced, the percentage of Finance Charge Collections allocated
to the CTO Securityholders in subsequent Monthly Periods will be reduced.
Moreover, to the extent the amount of such reduction in the CTO Invested
Amount is not reimbursed, the amount of principal distributable to the CTO
Securityholders will be reduced.
If, on any Determination Date, the aggregate Series Default Amount
and the unpaid Adjustment Payments, if any, for each business day in the
preceding Monthly Period exceeds (a) the aggregate amount of Available
Series Finance Charge Collections applied to the payment thereof as
described in clauses (v) and (vi) of "--Application of Collections--Payment
of Fees, Interest and Other Items," (b) the amount of Transferor Finance
Charge Collections and Excess Finance Charge Collections allocated thereto
as described in "--Redirection of Cash Flows," and (c) the amount of
Redirected Principal Collections allocated with respect thereto as
described in "--Redirected Principal Collections," the Class D Invested
Amount (following the reduction thereof in an amount equal to the amount of
any Redirected Principal Collections to be applied on the related
Distribution Date) will be reduced by the amount by which the sum of the
aggregate Series Default Amount and the unpaid Adjustment Payments exceeds
the amount applied with respect thereto during the preceding Monthly
Period. Such reductions of the Class D Invested Amount will thereafter be
reimbursed and the Class D Invested Amount increased on each business day
by the amount, if any, of Available Series Finance Charge Collections and
Excess Finance Charge Collections allocated and available for that purpose.
In the event that any such reduction of the Class D Invested Amount
would cause the Class D Invested Amount to be a negative number, the Class
D Invested Amount will be reduced to zero and the CTO Invested Amount will
be reduced by the amount by which the Class D Invested Amount would have
been reduced below zero, but not more than the sum of the remaining
aggregate Series Default Amount and the remaining unpaid Adjustment
Payments for such Monthly Period. Such reductions of the CTO Invested
Amount will thereafter be reimbursed and the CTO Invested Amount increased
on each business day by the amount, if any, of Available Series Finance
Charge Collections and Excess Finance Charge Collections for such business
day allocated and available for that purpose.
In the event that any such reduction of the CTO Invested Amount would
cause the CTO Invested Amount to be a negative number, the CTO Invested
Amount will be reduced to zero and the Class B Invested Amount will be
reduced by the amount by which the CTO Invested Amount would have been
reduced below zero, but not more than the sum of the remaining aggregate
Series Default Amount and the remaining unpaid Adjustment Payments for such
Monthly Period. Such reductions of the Class B Invested Amount will
thereafter be reimbursed and the Class B Invested Amount increased on each
business day by the amount, if any, of Available Series Finance Charge
Collections and Excess Finance Charge Collections for such business day
allocated and available for that purpose. If the Class B Invested Amount is
reduced to zero, the Class A Invested Amount will be reduced by the amount
by which the Class B Invested Amount would have been reduced below zero,
but not more than the sum of the remaining aggregate Series Default Amount
and the remaining unpaid Adjustment Payments for such Monthly Period. Such
reductions of the Class A Invested Amount will thereafter be reimbursed and
the Class A Invested Amount increased on each business day by the amount,
if any, of Available Series Finance Charge Collections and Excess Finance
Charge Collections allocated and available for that purpose. See
"--Redirection of Cash Flows," "--Redirected Principal Collections" and
"--Investor Charge-Offs."
TRANSFER AND ASSIGNMENT OF RECEIVABLES
On or about May 30, 1995 (the "Initial Closing Date"), the Transferor
transferred and assigned to the Trust all of its right, title, and interest
in and to the Receivables outstanding as of the Initial Closing Date, all
of the Receivables thereafter created and the proceeds of all of the
foregoing. Prior to such transfer and assignment and pursuant to the
Purchase Agreement, FCI (as predecessor to Metris under the Purchase
Agreement) contributed and sold to the Transferor all its right, title and
interest in and to the Receivables existing as of the Initial Closing Date,
all the Receivables thereafter created and all FCI's interest in the Bank
Purchase Agreement with respect to the Receivables. Prior to such sale and
contribution and pursuant to the Bank Purchase Agreement, Direct Merchants
Bank sold to FCI (as predecessor to Metris under the Bank Purchase
Agreement) all its right, title and interest in and to the Receivables
existing as of the date of such agreement and all the Receivables arising
from time to time thereafter. In connection with the realignment of FCI's
subsidiaries in September 1996, FCI assigned to Metris all of FCI's rights
and Metris assumed all of FCI's obligations under the Bank Purchase
Agreement and the Purchase Agreement.
Direct Merchants Bank for itself and as Servicer has identified in
its computer files that the Receivables are Receivables as defined herein.
Direct Merchants Bank, as initial Servicer, retains and will not deliver to
the Trustee any other records or agreements relating to the Receivables.
The records and agreements relating to the Receivables will not be
segregated from those relating to other accounts and receivables of Direct
Merchants Bank and the physical documentation relating to Receivables will
not be stamped or marked to reflect the transfer of Receivables to the
Trust. The Trustee will have reasonable access to such records and
agreements as required by applicable law or to enforce the rights of the
Securityholders. Direct Merchants Bank has filed one or more UCC-1
financing statements in accordance with the UCC to perfect the interest of
FCI (as predecessor to Metris) in the Receivables and a UCC-3 financing
statement reflecting FCI's assignment of such interest in the Receivables
to Metris. FCI (as predecessor to Metris under the Purchase Agreement) has
filed one or more UCC-1 financing statements in accordance with the UCC to
perfect the Transferor's interest in the Receivables. The Transferor, in
turn, has filed one or more UCC-1 financing statements in accordance with
applicable state law to perfect the Trust's interest in the Receivables.
See "Certain Legal Aspects of the Receivables."
EXCHANGES
The Pooling and Servicing Agreement provides for the Trustee to issue
two types of securities: (i) Investor Securities in one or more Series of
securities, each of which may have one or more classes of securities of
which one or more such classes may be transferable, and (ii) the
Exchangeable Transferor Security. The Exchangeable Transferor Security
evidences the Transferor Interest, is held by the 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 holder of the Exchangeable Transferor Security may
tender the Exchangeable Transferor Security and the securities evidencing
any Series of securities, to the Trustee in exchange for one or more new
Series and a reissued Exchangeable Transferor Security. Under the Pooling
and Servicing Agreement, the holder of the Exchangeable Transferor Security
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 interest 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 of allocating Principal Collections for such Series
and the method by which the principal amount of Investor Securities of such
Series will amortize or accrue and the method for allocating Finance Charge
Collections; (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 securities 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 for such Series; (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
securityholders of 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 Exchangeable Transferor Security that have been
transferred to the holders of such Series, if any; (xxi) the pool factor;
(xxii) the Minimum Aggregate Principal Receivables; (xxiii) whether such
Series will be part of a group or subject to being paired with any other
prefunded Series; (xxiv) whether such Series will be prefunded; and (xxv)
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 (all such terms, the "Principal Terms" of such Series).
None of the Transferor, the Servicer, the Trustee, or the Trust is required
or intends to obtain the consent of any Securityholder 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
Exchangeable Transferor Security will deliver to the Trustee written
confirmation that the Exchange will not result in any Rating Agency
reducing or withdrawing its rating of any outstanding Series, including the
Offered Securities. 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 Transferor currently intends to offer, from time to time,
additional Series.
The Pooling and Servicing Agreement provides that the holder of the
Exchangeable Transferor Security 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 that is available only to such
Series. Under the Pooling and Servicing Agreement, the 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 Exchangeable Transferor Security may deliver a different
form of Enhancement agreement. The Pooling and Servicing Agreement also
provides that the holder of the Exchangeable Transferor Security 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 Receivables not used to pay interest on the
securities, 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
Exchangeable Transferor Security 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. The Series 1998-2 Supplement does not permit the
subordination of the Securities to any other Series that may be issued by
the Trust (except to the limited extent described herein with respect to
Shared Principal Collections and Excess Finance Charge Collections). 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.
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 Transferor
Security may perform an Exchange by notifying the 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), (ii) its interest 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 Trustee will authenticate any
such Series only upon delivery to the Trustee of the following: (i) a
Supplement specifying the Principal Terms of such Series, (ii) an opinion
of counsel to the effect that the securities 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 (a "Tax Opinion"), (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's reducing or withdrawing
its rating on any then outstanding Series rated by it, (v) the existing
Exchangeable Transferor Security and, if applicable, the securities
representing the Series to be exchanged, and (vi) an officer's certificate
of the Transferor stating that, after giving effect to such Exchange, (a)
the Transferor Interest would be at least equal to the Minimum Transferor
Interest and (b) the Retained Interest (as defined in the Pooling and
Servicing Agreement) equals or exceeds the Minimum Retained Interest.
Under the Pooling and Servicing Agreement, the Transferor may also
exchange the Exchangeable Transferor Security for a newly issued
Exchangeable Transferor Security and a second security (a "Supplemental
Security") the terms of which will be defined in a Supplement upon the
satisfaction of certain conditions provided in the Pooling and Servicing
Agreement.
REPRESENTATIONS AND WARRANTIES
Pursuant to the Pooling and Servicing Agreement, the Transferor
represents and warrants that, among other things, subject to specified
exceptions and limitations (i) the Transferor is duly organized, validly
existing, and in good standing under the laws of the State of Delaware and
has the corporate power and authority to execute, deliver, and perform its
obligations under the Pooling and Servicing Agreement, the Series 1998-2
Supplement, and the Purchase Agreement, (ii) the Transferor is duly
qualified to do business and in good standing (or is exempt from such
requirement) in any state required in order to conduct its business and has
obtained all necessary licenses and approvals required under federal and
Delaware law, provided, however, that no representation or warranty is made
with respect to any qualifications, licenses or approvals which the Trustee
would have to obtain to do business in any state in which the Trustee seeks
to enforce any Receivable, (iii) the execution and delivery of the Pooling
and Servicing Agreement, the Series 1998-2 Supplement, and the Purchase
Agreement, and the consummation of the transactions provided for therein,
have been duly authorized by the Transferor by all necessary corporate
action on its part, (iv) each of the Pooling and Servicing Agreement, the
Series 1998-2 Supplement, and the Purchase Agreement constitutes a legal,
valid, and binding obligation of the Transferor, and (v) the transfer of
Receivables by it to the Trust under the Pooling and Servicing Agreement
constitutes either a valid transfer and assignment to the Trust of all
right, title, and interest of the Transferor in and to the Receivables and
the proceeds thereof and amounts in any of the accounts established for the
benefit of securityholders free and clear of any lien of any person
claiming through or under the Transferor or any of its affiliates (except
for Permitted Liens and certain rights of the Transferor) or the grant of a
first priority security interest in such Receivables and the proceeds
thereof (including amounts in any of the accounts established for the
benefit of securityholders). In the event of a breach of any of the
representations and warranties described in this paragraph with respect to
any Series, either the Trustee or the holders of securities evidencing
undivided interests in the Trust aggregating more than 50 percent of the
invested amount of such Series, by written notice to the Transferor (and to
the Trustee and the Servicer if given by the securityholders of such
Series), may direct the Transferor to accept reassignment of an amount of
Principal Receivables equal to the invested amount to be reassigned (as
described below) within 60 days of such notice, or within such longer
period specified in such notice. The Transferor will thereupon be obligated
to accept reassignment of such Receivables on a Distribution Date occurring
within such applicable period. Such reassignment will not be required to be
made, however, if at any time during such applicable period, or such longer
period, the representations and warranties shall then be true and correct
in all material respects. The amount to be deposited by the Transferor for
distribution to securityholders in connection with such reassignment will
be equal to the invested amount for all Series of securities other than
Variable Funding Securities required to be reassigned on the last day of
the Monthly Period preceding the Distribution Date on which the
reassignment is scheduled to be made, and, with respect to the Variable
Funding Securities, the invested amount as of the Distribution Date on
which the reassignment is scheduled to be made, less the amount, if any,
previously allocated for payment of principal to such securityholders on
such Distribution Date, plus an amount equal to all interest accrued but
unpaid on such securities at the applicable interest rate through the last
day of the related Interest Accrual Period, less the amount transferred to
the Distribution Account from the Interest Funding Account in respect of
interest on such securities for the month ending on such last day of the
Monthly Period. The payment of the reassignment deposit amount and the
transfer of all other amounts deposited for the preceding month in the
Distribution Account will be considered a payment in full of the investor
interest for all Series of securities required to be repurchased and will
be distributed upon presentation and surrender of the securities for each
such Series. If the Trustee or securityholders give a notice as provided
above, the obligation of the Transferor to make any such deposit will
constitute the sole remedy available to the Trustee and the securityholders
with respect to any breach of the Transferor's representations and
warranties.
Pursuant to the Pooling and Servicing Agreement, the Transferor also
represents and warrants that, among other things, subject to specified
exceptions and limitations, (i) the execution and delivery of the Pooling
and Servicing Agreement, the Series 1998-2 Supplement, and the Purchase
Agreement, and the performance of the transactions contemplated thereby, do
not contravene the Transferor's charter or by-laws, violate any material
provision of law applicable to it or require any filing (except for filing
under the UCC), registration, consent, or approval under any such law
except for such filings, registrations, consents, or approvals as have
already been obtained and are in full force and effect, (ii) except as
described in the Purchase Agreement, the Transferor and each prior owner of
the Receivables has filed all material tax returns required to be filed and
has paid or made adequate provision for the payment of all material taxes,
assessments, and other governmental charges due from the Transferor or such
prior owner or is contesting any such tax, assessment or other governmental
charge in good faith through appropriate proceedings, (iii) there are no
proceedings or investigations pending or, to the best knowledge of the
Transferor, threatened against the Transferor, before any court, regulatory
body, administrative agency, or other tribunal or governmental
instrumentality asserting the invalidity of the Pooling and Servicing
Agreement, the Series 1998-2 Supplement, and the Purchase Agreement,
seeking to prevent the consummation of any of the transactions contemplated
thereby, seeking any determination or ruling that would materially and
adversely affect the performance by the Transferor of its obligations
thereunder, or seeking any determination or ruling that would materially
and adversely affect the validity or enforceability thereof or of the tax
attributes of the Trust, (iv) each Receivable is or will be an account
receivable arising out of the performance by the applicable Credit Card
Originator in accordance with the terms of the Contract giving rise to such
Receivable, (v) each Account classified as an Eligible Account in any
document or report delivered pursuant to the Pooling and Servicing
Agreement satisfies the definition of Eligible Account and the Transferor
has no knowledge of any fact which should have led it to expect at the time
of the classification of any Receivable as an Eligible Receivable that such
Receivable would not be paid in full when due, and each Receivable
classified as an Eligible Receivable by the Transferor in any document or
report delivered under the Pooling and Servicing Agreement satisfies the
requirements of eligibility contained in the definition of Eligible
Receivable set forth in the Pooling and Servicing Agreement, (vi) the
Transferor is not an "investment company" within the meaning of the
Investment Company Act (or is exempt from all provisions of such Act),
(vii) the Transferor is not insolvent and (viii) the Transferor is the
legal and beneficial owner of all right, title and interest in and to each
Receivable conveyed to the Trust by the Transferor pursuant to the Pooling
and Servicing Agreement, and each such Receivable has been or will be
transferred to the Trust free and clear of any lien other than Permitted
Liens and in compliance in all material respect with all requirements of
law applicable to the Transferor. If any representation or warranty made by
the Transferor in the Pooling and Servicing Agreement or the Series 1998-2
Supplement proves to have been incorrect in any material respect when made,
and as a result the interests of the Securityholders are materially
adversely affected, and such representation or warranty continues to be
incorrect for 60 days after notice to the Transferor by the Trustee or to
the Transferor and the Trustee by more than 50 percent of the Invested
Amount and the Securityholders' Interest continues to be materially
adversely affected during such period, then the Trustee or 50 percent of
the Securityholders' Interest of any Class may give notice to the
Transferor (and to the Trustee in the latter instance) declaring that a Pay
Out Event has occurred, thereby commencing the Early Amortization Period;
provided, however, that a Pay Out Event will not be deemed to have occurred
as aforesaid if the Transferor has accepted a reassignment of the affected
Receivables during such period in accordance with the Pooling and Servicing
Agreement. See "--Pay Out Events."
It is not required or anticipated that the Trustee will make any
initial or periodic general examination of the Receivables or any records
relating to the Receivables for the purpose of establishing the presence or
absence of defects or compliance with the Transferor's representations and
warranties or for any other purpose. The Servicer, however, will deliver to
the Trustee on or before March 31 of each year an opinion of counsel with
respect to the validity of the security interest of the Trust in and to the
Receivables and certain other components of the Trust.
CERTAIN COVENANTS
Pursuant to the Pooling and Servicing Agreement, the Transferor
covenants that, among other things, subject to specified exceptions and
limitations, (i) it will take no action to cause any Receivable to be
evidenced by any instruments or to be anything other than an account,
general intangible, or chattel paper, except in connection with the
enforcement or collection of a Receivable, (ii) except for the conveyances
under the Pooling and Servicing Agreement, it will not sell any Receivable
or grant a lien (other than a Permitted Lien) on any Receivable, (iii) in
the event it receives a collection on any Receivables, it will deposit such
collections to the Collection Account within two business days, (iv) it
will notify the Trust promptly after becoming aware of any lien on any
Receivable other than Permitted Liens, (v) it will take all actions
necessary to enforce its rights and claims under the Purchase Agreement,
(vi) it will promptly provide the Trustee any notices, reports or
certificates given or delivered under the Purchase Agreement and (vii)
except as permitted by the Pooling and Servicing Agreement, it will not
commingle its assets with those of Direct Merchants Bank or Metris or any
affiliate thereof.
ELIGIBLE ACCOUNTS
As of the Initial Closing Date (or, with respect to Additional
Accounts, on the date the Credit Card Originator acquires rights therein,
or, with respect to Supplemental Accounts, as of the date the Receivables
arising in such Accounts are designated for inclusion in the Trust), each
revolving credit consumer credit card account owned by a Credit Card
Originator and having the following characteristics shall be an Eligible
Account (each, an "Eligible Account"): (a) which is payable in United
States dollars, (b) the Obligor on which has provided, as its initial
billing address, an address located in the United States or its territories
or possessions or a United States military address, (c) which has not been
identified by a Credit Card Originator in its computer files as stolen or
lost, (d) which is not at the time of transfer to the Trust sold or pledged
to any other party and which does not have Receivables which, at the time
of transfer to the Trust, are sold or pledged to any other party (provided
that Receivables which were sold or pledged prior to the Closing Date, but
were repurchased free of all liens or where all liens were released prior
to the sale hereunder, shall not be disqualified under this clause (d)),
and (e) the Receivables in which the Credit Card Originator has not charged
off in its customary and usual manner for charging off Receivables in such
Accounts as of the Initial Closing Date (or, with respect to Additional
Accounts, as of the date the Receivables of such Accounts are first
designated for inclusion in the Trust) unless such Account is subsequently
reinstated.
ELIGIBLE RECEIVABLES
Each Receivable that satisfies each of the following criteria shall
be an Eligible Receivable (each, an "Eligible Receivable"): (a) it arises
under an Account, (b) it is not sold or pledged to any other party, (c) it
constitutes an "account," "chattel paper" or a "general intangible" as each
is defined in Article 9 of the UCC as then in effect in each Relevant UCC
State, (d) it is at the time of its transfer to the Trust the legal, valid
and binding obligation of, or is guaranteed by, a Person who is competent
to enter into a contract and incur debt and is enforceable against such
Person in accordance with its terms, (e) it was created or acquired in
compliance, in all material respects, with all Requirements of Law
applicable to the Credit Card Originator and pursuant to a Contract that
complies, in all material respects, with all Requirements of Law applicable
to the Credit Card Originator (including without limitation, laws, rules
and regulations relating to truth in lending, usury, fair credit billing,
fair credit reporting, equal credit opportunity and fair debt collection
practices), (f) 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 related Contract have been duly
obtained or given and are in full force and effect as of the date of the
creation of such Receivables and (g) immediately prior to giving effect to
the sale, the Transferor or the Trust will have good and marketable title
free and clear of all liens and security interests arising under or through
the Transferor (other than Permitted Liens).
ADDITION OF TRUST ASSETS
During the period from the Initial Closing Date through May 31, 1996
and during the period from June 7, 1996 through November 5, 1996 all
accounts which met the definition of Additional Accounts were automatically
included as Accounts (such accounts, "Automatic Additional Accounts") from
and after the date upon which such Automatic Additional Accounts were
created and all Receivables in such Automatic Additional Accounts, whether
such Receivables were then existing or thereafter created, were transferred
automatically to the Trust upon purchase by the Transferor. The Transferor
has elected to suspend the automatic inclusion in Accounts of Automatic
Additional Accounts until a date (the "Restart Date") to be identified in
writing by the Transferor, at its option, to the Trustee, the Servicer and
each Rating Agency at least ten days prior to such Restart Date. On and
prior to the Restart Date, the Transferor may, by giving ten business days'
notice to the Trustee and each Rating Agency, but will not be obligated to,
designate from time to time additional credit card accounts ("Supplemental
Accounts") to be included as Accounts. The Transferor has periodically
designated Supplemental Accounts to be included as Accounts and intends,
although no assurance can be given, to continue to designate additional
Supplemental Accounts to be included as Accounts. In addition, prior to the
Restart Date, if (i) on the tenth business day prior to any Determination
Date, the Transferor Interest for the related Monthly Period is less than
the Minimum Transferor Interest, the Transferor is required to designate
Supplemental Accounts to be included as Accounts in a sufficient amount
such that the Transferor Interest as a percentage of the aggregate
Principal Receivables for such Monthly Period after giving effect to such
addition is at least equal to the Minimum Transferor Interest or (ii) on
any Record Date, the aggregate Principal Receivables are less than the
Minimum Aggregate Principal Receivables, the Transferor is required to
designate Supplemental Accounts to be included as Accounts in a sufficient
amount such that the aggregate Principal Receivables will be equal to or
greater than the Minimum Aggregate Principal Receivables. Receivables from
such Supplemental Accounts shall be transferred to the Trust on or before
the tenth business day following such Record Date. On any day on which the
Receivables in Supplemental Accounts are to be transferred to the Trust,
the Receivables in such Accounts shall be included as Eligible Receivables
if they satisfy the requirements of the definition of "Eligible
Receivables."
The Transferor has conveyed, and will continue to convey, to the
Trust all Receivables arising under the Accounts, including all
Supplemental Accounts and Automatic Additional Accounts, from time to time
until the termination of the Trust.
The Transferor agrees that any such transfer of Receivables from
Supplemental Accounts will be subject to the satisfaction of the following
conditions: (i) on or before the fifth business day prior to the Addition
Date with respect to required additions and on or before the twentieth
business day prior to the Addition Date with respect to optional additions
(as applicable, the "Notice Date"), the Transferor shall give the Trustee,
each Rating Agency and the Servicer written notice that such Supplemental
Accounts will be included, which notice will specify the approximate
aggregate amount of the Receivables to be transferred; (ii) on or before
the applicable Addition Date, the Transferor will have delivered to the
Trustee a written assignment (the "Assignment") and the Transferor will
have indicated in its computer files that the Receivables created in
connection with the Supplemental Accounts have been transferred to the
Trust and, within five business days thereafter, the Transferor will have
delivered to the Trustee or the bailee of the Trustee a computer file or
microfiche list containing a true and complete list of all Supplemental
Accounts, identified by account number and the Principal Receivables in
such Supplemental Accounts, as of the Addition Date, which computer file or
microfiche list will be as of the date of such Assignment incorporated into
and made a part of such Assignment; (iii) the Transferor will represent and
warrant that (x) no selection procedure that is materially adverse to the
interests of holders of the Investor Securities was used in selecting the
Supplemental Accounts and (y) as of the applicable Addition Date, the
Transferor is not insolvent and will not be rendered insolvent upon the
transfer of Receivables to the Trust; (iv) the Transferor will represent
and warrant that, as of the Addition Date, the Assignment constitutes
either (x) a valid transfer and assignment to the Trust of all right, title
and interest of the Transferor in and to the Receivables then existing and
thereafter created and arising in connection with the Accounts and any
accounts that meet the definition of Additional Accounts, and the proceeds
thereof or (y) a grant of a security interest (as defined in the UCC as in
effect in the Relevant UCC State) in such property to the Trust, which is
enforceable with respect to the then existing Receivables of the
Supplemental Accounts and the proceeds thereof upon the conveyance of such
Receivables to the Trust, and which will be enforceable with respect to the
Receivables thereafter created in respect of Supplemental Accounts conveyed
on such Addition Date and the proceeds thereof upon such creation, and (z)
if the Assignment constitutes the grant of a security interest to the Trust
in such property, upon the filing of a financing statement with respect to
such Supplemental Accounts and in the case of the Receivables thereafter
created in such Supplemental Accounts and the proceeds thereof, upon such
creation, the Trust will have a first priority perfected security interest
in such property, except for Permitted Liens; (v) the Transferor will
deliver to the Trustee an officer's certificate confirming the items set
forth in clause (ii) above; (vi) the Transferor will deliver to the Trustee
an opinion of counsel with respect to the Trust's security interest in the
Receivables in the Supplemental Accounts (with a copy to the Rating
Agencies); and (vii) the Transferor will have received written notice from
each Rating Agency that the inclusion of such accounts as Supplemental
Accounts will not result in the reduction or withdrawal of its then
existing rating of any class of any Series of Investor Securities then
issued and outstanding and will have delivered such notice to the Trustee.
On or after the Restart Date, Automatic Additional Accounts will be
deemed to be Accounts the Receivables of which will be designated for
inclusion in the Trust if, unless each Rating Agency otherwise consents,
the following conditions are met: the number of Accounts the Receivables of
which are automatically designated to be included in the Trust since (x)
the first day of the eleventh preceding Monthly Period minus the number of
Accounts of the type described in clause (ii) of the definition of
"Approved Account" which have been added on the initial day of the addition
of such type of Account pursuant to such clause (ii) since the first day of
such eleventh preceding Monthly Period will not exceed 20 percent of the
number of Accounts on the first day of such eleventh preceding Monthly
Period, and (y) the first day of the second preceding Monthly Period minus
the number of Accounts of the type described in clause (ii) of the
definition of "Approved Accounts" which have been added on the initial day
of the addition of such type of Account pursuant to such clause (ii) since
the first day of such second preceding Monthly Period will not exceed 15
percent of the number of Accounts on the first day of such second preceding
Monthly Period. The automatic addition of Receivables in new Accounts may
be subject to additional conditions specified from time to time by the
Rating Agencies.
The Transferor may designate revolving credit consumer credit card
accounts which would otherwise be Additional Accounts as Excluded Accounts
by the Transferor delivering to the Trustee a written notice clearly
identifying such excluded accounts. If such designation is made after the
Trust acquires rights in such Accounts, such designation will only occur in
accordance with the provisions for removals of accounts set forth in the
Pooling and Servicing Agreement.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer is
responsible for servicing, enforcing, and administering the Receivables and
collecting payments due thereunder in accordance with its customary and
usual servicing procedures and the Credit and Collection Policy. Servicing
functions to be performed by the Servicer with respect to the Receivables
include statement processing and mailing, collecting and recording
payments, investigating payment delinquencies, and communicating with
cardholders. See "Direct Merchants Bank's Credit Card
Activities--Delinquency, Collections and Charge-offs." Managerial functions
to be performed by the Servicer on behalf of the Trust include maintaining
books and records with respect to the foregoing and other matters pertinent
to the Receivables, assisting the Trustee with any inspections of such
books and records by the Trustee pursuant to the Pooling and Servicing
Agreement, preparing and delivering the monthly and annual statements
described in "--Reports to Securityholders," and causing a firm of
independent public accountants to prepare and deliver the annual reports
described in "--Evidence as to Compliance."
DISCOUNT OPTION
Pursuant to the Pooling and Servicing Agreement, the Transferor may
designate a specified fixed or floating percentage (the "Discount
Percentage") (initially zero percent) of the amount of Receivables arising
in the Accounts on and after the date of such designation that would
otherwise be treated as Principal Receivables to be treated as Finance
Charge Receivables (the "Discount Option Receivables"). The circumstances
under which the Transferor may exercise its option to discount Principal
Receivables may include a time when the Portfolio Yield is declining and
Principal Receivables are available in sufficient quantity to allow for
such discounting. The Transferor may, without notice to or consent of the
Securityholders, from time to time, increase (subject to the limitations
described below), reduce or eliminate the Discount Percentage for Discount
Option Receivables arising in the Accounts on and after the date of such
change. The Transferor must provide 15 days' prior written notice to the
Servicer, the Trustee and each Rating Agency of any such increase,
reduction or elimination, and such increase, reduction or elimination will
become effective on the date specified therein only if (a) the Transferor
reasonably believes that such increase, reduction or elimination will not
at the time of its occurrence cause a Pay Out Event, or an event which with
notice or the lapse of time would constitute a Pay Out Event, to occur with
respect to any Series and (b) the Transferor and the Trustee shall have
received written notice from each Rating Agency that such change will not
cause such Rating Agency to reduce or withdraw its then current rating of
the Investor Securities. After the date on which the Transferor's exercise
of its discount option takes effect and with respect to Receivables
generated on and after such date, Collections in an amount equal to the
product of (i) a fraction the numerator of which is the amount of Discount
Option Receivables and the denominator of which is the amount of all of the
Principal Receivables (including Discount Option Receivables) at the end of
the prior date of processing, (ii) Collections of Principal Receivables,
prior to any reduction for Finance Charge Receivables which are Discount
Option Receivables, received on such date of processing, and (iii) a
fraction the numerator of which is the aggregate amount of Principal
Receivables arising on each date of processing falling on or after the date
on which the Transferor exercises its discount option and the denominator
of which is the aggregate Principal Receivables on such date of processing,
will be deemed Collections of Finance Charge Receivables and will be
applied accordingly. Any such designation would result in an increase in
the amount of Finance Charge Receivables and a corresponding increase in
the Portfolio Yield, a reduction in the amount of Principal Receivables in
the Trust and a reduction in the Transferor Interest and therefore the
effect on Securityholders will be to decrease the likelihood of a Pay Out
Event based upon a reduction of the average Portfolio Yield for any
designated period to a rate below the average Base Rate for such period
while increasing the likelihood that the Transferor will be required to add
Principal Receivables to the Trust and, because of the reduction in the
aggregate amount of Principal Receivables which, if additional Principal
Receivables were not available at such time, could cause the occurrence of
a Pay Out Event. Unless otherwise specified, all references herein to
Principal Receivables or Finance Charge Receivables, or Collections with
respect thereto, are references to such Receivables, or Collections with
respect thereto, as defined above after application of the Discount
Percentage.
PREVIOUSLY ISSUED SERIES
The Trust has previously issued the Series 1998-1 Variable Funding
Securities, the Series 1997-2 Asset Backed Certificates, the Series 1997-1
Asset Backed Certificates and the Series 1996-1 Asset Backed Certificates
bearing the various rates of interest and having the outstanding principal
amounts set forth in "Annex I: Other Series."
TRUST ACCOUNTS
The Trustee has established and maintains with a Qualified
Institution in the name of the Trust, for the benefit of the
Securityholders, three separate accounts, each in a segregated trust
account, consisting of an "Interest Funding Account," and a "Principal
Account" and a "Payment Reserve Account" (collectively, the "Trust
Accounts"). The Trustee has also established a "Distribution Account" for
the benefit of the securityholders of each Series which is a non-interest
bearing segregated demand deposit account established with a Qualified
Institution. The Servicer has established and maintains, in the name of the
Trust, for the benefit of securityholders of all Series, a "Collection
Account," which is a segregated account established by and maintained by
the Servicer with a Qualified Institution. A "Qualified Institution" is a
depository institution, which may include the Trustee, organized under the
laws of the United States or any one of the states thereof, which at all
times has a short-term deposit rating of P-1 by Moody's and of A-1+ by
Standard & Poor's or long-term unsecured debt obligation (other than such
obligation the rating of which is based on collateral or on the credit of a
Person other than such institution or trust company) rating of at least Aaa
by Moody's and of AAA by Standard & Poor's and deposit insurance provided
by the FDIC, or a depository institution, which may include the Trustee,
which is acceptable to the Rating Agencies; provided, however, that no such
rating shall be required of an institution which shall have corporate trust
powers and which maintains the Collection Account, any principal account,
any interest funding account or any other account maintained for the
benefit of Securityholders as a fully segregated trust account with the
trust department of such institution which is rated at least Baa3 by
Moody's. Funds in the Trust Accounts will be invested in (a) negotiable
instruments or securities represented by instruments in bearer or
registered form which evidence (i) obligations of or fully guaranteed by
the United States of America; (ii) time deposits, promissory notes, or
securities of deposit of any depository institution or trust company;
provided, however, that at the time of the Trust's investment or
contractual commitment to invest therein, the securities of deposit or
short-term deposits of such depository institution or trust company shall
have a credit rating from Standard & Poor's of A-1+ and from Moody's of
P-1; (iii) commercial paper having, at the time of the Trust's investment
or contractual commitment to invest therein, a rating from Standard &
Poor's of A-1+ and from Moody's of P-1; (iv) banker's acceptances issued by
any depository institution or trust company described in clause (a)(ii)
above; and (v) investments in money market funds rated AAA-m or AAA-mg by
Standard & Poor's and Aaa by Moody's or otherwise approved in writing by
Moody's and Standard & Poor's; (b) time deposits and demand deposits in the
name of the Trust or the Trustee in any depository institution or trust
company referred to in clause (a)(ii) above; (c) securities not represented
by an instrument that are registered in the name of the Trustee or its
nominee (which may not be Metris or an affiliate) upon books maintained for
that purpose by or on behalf of the issuer thereof and identified on books
maintained for that purpose by the Trustee as held for the benefit of the
Trust or the Securityholders, and consisting of (x) shares of an open end
diversified investment company which is registered under the Investment
Company Act which (i) invests its assets exclusively in obligations of or
guaranteed by the United States of America or any instrumentality or agency
thereof having in each instance a final maturity date of less than one year
from their date of purchase or other Cash Equivalents, (ii) seeks to
maintain a constant net asset value per share, (iii) has aggregate net
assets of not less than $100,000,000 on the date of purchase of such shares
and (iv) which each Rating Agency designates in writing will not result in
a withdrawal or downgrading of its then current rating of any Series rated
by it or (y) Eurodollar time deposits of a depository institution or trust
company that are rated A-1+ by Standard & Poor's and P-1 by Moody's;
provided, however, that at the time of the Trust's investment or
contractual commitment to invest therein, the Eurodollar deposits of such
depository institution or trust company shall have a credit rating from
Standard & Poor's of A-1+ and P-1 by Moody's; (d) a guaranteed investment
contract (guaranteed as to timely payment) which each Rating Agency
designates in writing will not result in a withdrawal or downgrading of its
then current rating of any Series rated by it; (e) repurchase agreements
transacted with either (i) an entity subject to the Bankruptcy Code,
provided, however, that (A) the term of the repurchase agreement is
consistent with the requirements with regard to the maturity of Cash
Equivalents specified herein or in the applicable Supplement for the
applicable account or is due on demand, (B) the Trustee or a third party
acting solely as agent for the Trustee has possession of the collateral,
(C) the Trustee on behalf of the Trust has a perfected first priority
security interest in the collateral, (D) the market value of the collateral
is maintained at the requisite collateral percentage of the obligation in
accordance with standards of the Rating Agencies, (E) the failure to
maintain the requisite collateral level will obligate the Trustee to
liquidate the collateral as promptly as practicable upon instructions from
the Servicer, (F) the securities subject to the repurchase agreement are
either obligations of, or fully guaranteed as to principal and interest by,
the United States of America or any instrumentality or agency thereof,
securities of deposit or banker's acceptances and (G) the securities
subject to the repurchase agreement are free and clear of any third party
lien or claim, or (ii) a financial institution insured by the FDIC, or any
broker-dealer with "retail-customers" that is under the jurisdiction of the
Securities Investors Protection Corporation ("SIPC"), provided, however,
that (A) the market value of the collateral is maintained at the requisite
collateral percentage of the obligation in accordance with the standards of
the Rating Agencies, (B) the Trustee or a third party (with a rating from
Moody's and Standard & Poor's of P-1 and A-1+, respectively) acting solely
as agent for the Trustee has possession of the collateral, (C) the
collateral is free and clear of third party liens and, in the case of an
SIPC broker, was not acquired pursuant to a repurchase or reverse
repurchase agreement and (D) the failure to maintain the requisite
collateral percentage will obligate the Trustee to liquidate the collateral
upon instructions from the Servicer; provided, however, that at the time of
the Trust's investment or contractual commitment to invest in any
repurchase agreement the short-term deposits or commercial paper of such
entity or institution in subclauses (i) and (ii) above shall have a credit
rating of P-1 or A-1+ or their equivalent from each Rating Agency; and (f)
any other investment if each Rating Agency confirms in writing that such
investment will not adversely affect its then current rating of the
Investor Securities (such investments, "Cash Equivalents"). Any earnings
(net of losses and investment expenses) on funds in the Interest Funding
Account and the Principal Account will be paid to the Transferor. The
Servicer has the revocable power to withdraw funds from the Collection
Account, and to instruct the Trustee to make withdrawals and payments from
the Interest Funding Account and the 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 agent making payments to the
Securityholders (the "Paying Agent") has the revocable power to withdraw
funds from the Distribution Account for the purpose of making distributions
to Securityholders. The Paying Agent initially will be The Bank of New
York.
PRINCIPAL FUNDING ACCOUNT
Pursuant to the Series 1998-2 Supplement, the Servicer will establish
and maintain with a Qualified Institution a principal funding account as a
segregated trust account held for the benefit of the Securityholders (the
"Principal Funding Account"). During the Accumulation Period, the Trustee
at the direction of the Servicer will transfer from the Principal Account
to the Principal Funding Account Collections in respect of Principal
Receivables (other than Redirected Principal Collections) and Shared
Principal Collections from other Series, if any, allocated to the
Securities as described below under "--Application of Collections."
Funds on deposit in the Principal Funding Account will be invested by
the Trustee at the direction of the Servicer in Cash Equivalents maturing
no later than the following Transfer Date. Investment earnings (net of
investment losses and expenses) on funds on deposit in the Principal
Funding Account (the "Principal Funding Account Investment Proceeds")
during the Accumulation Period will be applied on each Transfer Date to the
extent of the Covered Amount as if such amount were Available Series
Finance Charge Collections on the last business day of the preceding
Monthly Period. If, for any Interest Accrual Period, the Principal Funding
Account Investment Proceeds are less than an amount equal to the Covered
Amount, the amount of such deficiency will be paid from the Accumulation
Period Reserve Account to the extent of the Available Reserve Account
Amount and applied on the applicable Transfer Date as if such amount were
Available Series Finance Charge Collections on the last business day of the
preceding Monthly Period.
EXCESS FUNDING ACCOUNT
The Trustee has established and will maintain in the name of the
Trust, for the benefit of the securityholders of all Series, an "Excess
Funding Account" which is a segregated account established by and
maintained by the Servicer with a Qualified Institution. At any time during
which no Series is in an amortization period (including any accumulation
period or early amortization period), or for a Series in amortization, the
principal account, if any, is fully funded for an applicable period, and
the Transferor Interest does not exceed the Minimum Transferor Interest,
funds (to the extent available therefor as described herein) otherwise
payable to the Transferor will be deposited in the Excess Funding Account
on any business day until the Transferor Interest is at least equal to the
Minimum Transferor Interest. Funds on deposit in the Excess Funding Account
may, at the option of the Transferor, be withdrawn and paid to the
Transferor to the extent that on any day the Transferor Interest exceeds
the Minimum Transferor Interest as a result of the addition of new
Receivables to the Trust. Such deposits in and withdrawals from the Excess
Funding Account may be made on a daily basis.
Any funds on deposit in the Excess Funding Account at the beginning
of an Amortization Period will be deposited in the Principal Account as
part of Class A Principal, Class B Principal, or CTO Principal, as
applicable, for any Distribution Date. In the event that more than one
Series begins its accumulation period or amortization period at the same
time, amounts on deposit in the Excess Funding Account will be paid out to
each such Series pro rata based on the aggregate invested amount of each
such Series. In addition, no funds allocated to Investor Securities will be
deposited in the Excess Funding Account during any amortization period
(including any accumulation period or early amortization period) for any
Series until the Principal Funding Account for such Series for such
Distribution Date has been fully funded or the Investor Securities of such
Series have been paid in full.
Funds on deposit in the Excess Funding Account will be invested by
the Trustee at the direction of the Transferor in Cash Equivalents. On each
Distribution Date, all net investment income earned on amounts in the
Excess Funding Account since the preceding Distribution Date will be
withdrawn from the Excess Funding Account and treated as Finance Charge
Collections.
PRE-FUNDING ACCOUNT
The Servicer will establish and maintain in the name of the Trustee,
on behalf of the Trust, the Pre-Funding Account. The Pre-Funding Account
will be established and maintained with the trust department of The Bank of
New York. Funds on deposit in the Pre-Funding Account will be withdrawn and
paid to the Transferor to the extent of any increases in the Invested
Amount during the Funding Period as a result of an increase in the amount
of Receivables in the Trust in accordance with the Series 1998-2
Supplement. Following the occurrence of a Pay Out Event during the Funding
Period, the amounts remaining on deposit in the Pre-Funding Account, will
be payable as principal first to the Class A Securityholders until the
Class A Invested Amount is paid in full and then to the Class B
Securityholders until the Class B Invested Amount is paid in full and then
to the CTO Securityholders until the CTO Invested Amount is paid in full.
Should the Pre-Funded Amount be greater than zero on the first day of the
Monthly Period, such amount will be deposited in the Excess Funding
Account. The percentage of the assets of the Trust represented by amounts
on deposit in the Pre-Funding Account and the percentage of the assets of
the Trust represented by amounts on deposit in the Pre-Funding Account
allocated to any Class of the Securities will not exceed 25 percent. The
underwriting standards for Receivables transferred to the Trust during the
period in which the Pre-Funding Account is funded will be the same as those
described in "Direct Merchants Bank's Credit Card Activities--New Account
Underwriting."
All amounts on deposit in the Pre-Funding Account will be invested by
the Trustee at the direction of the Servicer in Cash Equivalents that would
not require registration of the Trust as an investment company under the
Investment Company Act. On each Transfer Date with respect to the Funding
Period, all investment income (net of investment losses and expenses)
earned on funds on deposit in the Pre-Funding Account since the preceding
Transfer Date will be applied as if such amount were Available Series
Finance Charge Collections on the last business day of the preceding
Monthly Period.
ACCUMULATION PERIOD RESERVE ACCOUNT
Pursuant to the Series 1998-2 Supplement, the Servicer will establish
and maintain with a Qualified Institution an accumulation period reserve
account as a segregated trust account held for the benefit of the
Securityholders (the "Accumulation Period Reserve Account"). The
Accumulation Period Reserve Account is established to assist with the
subsequent distribution of interest on the Class A Securities, Class B
Securities and Collateralized Trust Obligations during the Accumulation
Period. On each business day from and after the Reserve Account Funding
Date, but prior to the termination of the Accumulation Period Reserve
Account, the Trustee, acting pursuant to the Servicer's instructions, will
apply Available Series Finance Charge Collections allocated to the
Securities (to the extent described below under "--Application of
Collections--Payment of Fees, Interest and Other Items") to increase the
amount on deposit in the Accumulation Period Reserve Account (to the extent
such amount is less than the Required Reserve Account Amount). The "Reserve
Account Funding Date" will be the first day of the third Monthly Period
prior to the commencement of the Accumulation Period, or such earlier date
as the Servicer may determine. The "Required Reserve Account Amount" for
any date on or after the Reserve Account Funding Date will be equal to (a)
0.5 percent of the sum of the Class A Invested Amount, the Class B Invested
Amount and the CTO Invested Amount or (b) any other amount designated by
the Transferor; provided, that if such designation is of a lesser amount,
the Transferor shall have provided the Servicer and the Trustee with
evidence that the Rating Agency Condition has been satisfied and the
Transferor shall have delivered to the Trustee a certificate of an
authorized officer to the effect that, based on the facts known to such
officer at such time, in the reasonable belief of the Transferor, such
designation will not cause a Pay Out Event or an event that, after giving
of notice or the lapse of time, would cause a Pay Out Event to occur with
respect to Series 1998-2.
Provided that the Accumulation Period Reserve Account has not
terminated as described below, all amounts on deposit in the Accumulation
Period Reserve Account on any Transfer Date (after giving effect to any
deposits to, or withdrawals from, the Accumulation Period Reserve Account
to be made on such Transfer Date) will be invested by the Trustee at the
direction of the Servicer in Cash Equivalents maturing no later than the
following Transfer Date. The interest and other investment income (net of
investment expenses and losses) earned on such investments will be retained
in the Accumulation Period Reserve Account (to the extent the amount on
deposit therein is less than the Required Reserve Account Amount) or
applied on each Transfer Date as if such amount were Available Series
Finance Charge Collections on the last business day of the preceding
Monthly Period.
On or before each Transfer Date with respect to the Accumulation
Period and on the first Transfer Date with respect to the Early
Amortization Period, a withdrawal will be made from the Accumulation Period
Reserve Account, and the amount of such withdrawal will be applied as if
such amount were Available Series Finance Charge Collections on the last
business day of the preceding Monthly Period, in an amount equal to the
lesser of (a) the Available Reserve Account Amount with respect to such
Transfer Date and (b) the excess, if any, of (i) the product of (x) a
fraction the numerator of which is the actual number of days in the related
Interest Accrual Period and the denominator of which is 360, (y) the
weighted average of the Class A Interest Rate, the Class B Interest Rate
and the CTO Interest Rate (in effect for the related Interest Accrual
Period) and (z) the Principal Funding Account Balance as of the last day of
the Monthly Period preceding the Monthly Period in which such Interest
Accrual Periods ends (the "Covered Amount") over (ii) the Principal Funding
Account Investment Proceeds with respect to such Transfer Date. On each
Transfer Date, the amount available to be withdrawn from the Accumulation
Period Reserve Account (the "Available Reserve Account Amount") will be
equal to the lesser of the amount on deposit in the Accumulation Period
Reserve Account (before giving effect to any withdrawal from the
Accumulation Period Reserve Account on such Transfer Date) and the Required
Reserve Account Amount for such Transfer Date.
The Accumulation Period Reserve Account will be terminated following
the earliest to occur of (a) the termination of the Trust pursuant to the
Pooling and Servicing Agreement, (b) the date on which the Invested Amount
is paid in full, (c) if the Accumulation Period has not commenced, the
occurrence of a Pay Out Event with respect to the Securities and (d) if the
Accumulation Period has commenced, the earlier of the first Transfer Date
with respect to the Early Amortization Period and the Expected Final
Payment Date. Upon the termination of the Accumulation Period Reserve
Account, all amounts on deposit therein (after giving effect to any
withdrawal from the Accumulation Period Reserve Account on such date as
described above) will be applied as if they were Available Series Finance
Charge Collections.
ALLOCATION PERCENTAGES
Pursuant to the Pooling and Servicing Agreement, during each Monthly
Period the Servicer will allocate among the Class A Securityholders'
Interest, the Class B Securityholders' Interest, the CTO Securityholders'
Interest, the Class D Securityholders' Interest, the interest of the
holders of the Previously Issued Series, the Transferor Interest and the
holders of the other Series issued and outstanding from time to time
pursuant to the Pooling and Servicing Agreement and applicable Supplements
all Finance Charge Collections and all Principal Collections and the amount
of all Defaulted Receivables. Finance Charge Collections will be allocated
prior to the commencement of an Early Amortization Period and the amount of
Defaulted Receivables will be allocated at all times, and Principal
Collections will be allocated during the Revolving Period to the Class A
Securityholders' Interest, the Class B Securityholders' Interest, the CTO
Securityholders' Interest and the Class D Securityholders' Interest, based
on the percentage equivalent of a fraction the numerator of which is the
Class A Adjusted Invested Amount, the Class B Adjusted Invested Amount, the
CTO Adjusted Invested Amount, or the Class D Invested Amount, respectively,
at the end of the preceding business day and the denominator of which is
the greater of (a) the sum of the aggregate amount of Principal Receivables
and amounts on deposit in the Excess Funding Account as of the end of the
preceding business day and (b) the sum of the numerators for all classes of
all Series then outstanding used to calculate the applicable allocation
percentage (the "Class A Floating Percentage," the "Class B Floating
Percentage," the "CTO Floating Percentage" and the "Class D Floating
Percentage," respectively; the sum of all such percentages, the "Floating
Percentage"). During the Revolving Period, all Principal Collections
allocable to the Securities will be allocated and paid to the Transferor
(except for Collections applied as Redirected Principal Collections and
Shared Principal Collections paid to the holders of securities of other
Series, if any, and except for funds deposited in the Excess Funding
Account). On any business day on or after the Amortization Period
Commencement Date, Principal Collections will be allocated to the
Securityholders' Interest based on the percentage equivalent of a fraction
the numerator of which is the Class A Invested Amount, the Class B Invested
Amount, the CTO Invested Amount or the Class D Invested Amount,
respectively, at the end of the last day of the Revolving Period and the
denominator of which is the greater of (a) the sum of the aggregate amount
of Principal Receivables and the amounts on deposit in the Excess Funding
Account at the end of the preceding business day and (b) the sum of the
numerators used to calculate the allocation percentages with respect to
Principal Collections for all Series (the "Class A Fixed/Floating
Percentage," the "Class B Fixed/Floating Percentage," the "CTO
Fixed/Floating Percentage," and the "Class D Fixed/Floating Percentage,"
respectively; the sum of all such percentages the "Fixed/Floating
Percentage"). Finance Charge Collections will be allocated on and after the
date on which a Pay Out Event is deemed to occur to the Securityholders'
Interest based on the Fixed/Floating Percentage. On and after the date on
which a Defeasance occurs with respect to the Securities, each of the
allocation percentages specified above with respect to the Securities will
be zero. See "--Defeasance."
The term "Transferor Percentage" means (a) when used with respect to
(i) Principal Collections during the Revolving Period and (ii) Finance
Charge Collections and the amount of Defaulted Receivables at all times,
100 percent minus the sum of the Floating Percentage and the floating
percentages for all other Series and (b) when used with respect to
Principal Collections during the Amortization Period, 100 percent minus the
sum of the Fixed/Floating Percentage and the allocation percentages used
with respect to Principal Collections for all other Series.
As used herein: (i) the term "Class A Invested Amount" means an
amount equal to (a) the Class A Initial Invested Amount less the Class A
Percentage of the initial deposit to the Pre-Funding Account plus the Class
A Percentage of any withdrawals from the Pre-Funding Account during the
Funding Period in connection with the addition of Receivables to the Trust
and the deposit of the amounts in the Pre-Funding Account at the end of the
Funding Period into the Excess Funding Account, minus (b) the aggregate
amount of principal payments (except principal payments made from the
Pre-Funding Account) made to Class A Securityholders through and including
such date, and minus (c) the aggregate amount of Class A Charge-Offs for
all prior Distribution Dates, equal to the amount by which the Class A
Invested Amount has been reduced to fund the Series Default Amount and the
unpaid Adjustment Payments on all prior Distribution Dates as described
under "--Investor Charge-Offs," and plus (d) the aggregate amount of
Available Series Finance Charge Collections, Transferor Finance Charge
Collections, Excess Finance Charge Collections and Redirected Principal
Collections applied on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clause (c),
provided, however, that the Class A Invested Amount may not be reduced
below zero; (ii) the term "Class A Adjusted Invested Amount," for any date
of determination, means an amount not less than zero equal to the then
current Class A Invested Amount, minus the sum of the amount then on
deposit in the Principal Account and the Principal Funding Account Balance
on such date; (iii) the term "Class B Invested Amount" for any date means
an amount equal to (a) the Class B Initial Invested Amount less the Class B
Percentage of the initial deposit to the Pre-Funding Account plus the Class
B Percentage of any withdrawals from the Pre-Funding Account during the
Funding Period in connection with the addition of Receivables to the Trust
and the deposit of the amounts in the Pre-Funding Account at the end of the
Funding Period into the Excess Funding Account, minus (b) the aggregate
amount of principal payments (except principal payments made from the
Pre-Funding Account) made to Class B Securityholders through and including
such date, minus (c) the aggregate amount of Class B Charge-Offs for all
prior Distribution Dates, equal to the amount by which the Class B Invested
Amount has been reduced to fund the Series Default Amount and the unpaid
Adjustment Payments on all prior Distribution Dates as described under
"--Investor Charge-Offs," minus (d) the aggregate amount of Redirected
Class B Principal Collections for which neither the Class D Invested Amount
nor the CTO Invested Amount has been reduced for all prior Distribution
Dates, and plus (e) the aggregate amount of Available Series Finance Charge
Collections, Transferor Finance Charge Collections, Excess Finance Charge
Collections, Redirected CTO Principal Collections, Redirected Class D
Principal Collections and certain other amounts applied on all prior
Distribution Dates for the purpose of reimbursing amounts deducted pursuant
to the foregoing clauses (c) and (d); provided, however, that the Class B
Invested Amount may not be reduced below zero; (iv) the term "Class B
Adjusted Invested Amount," for any date of determination, means an amount
not less than zero equal to the then current Class B Invested Amount minus
the excess, if any, of the sum of the amount then on deposit in the
Principal Account and the Principal Funding Account Balance over the Class
A Invested Amount on such date of determination; (v) the term "CTO Invested
Amount" for any date means an amount equal to (a) the CTO Initial Invested
Amount less the CTO Percentage of the initial deposit to the Pre-Funding
Account plus the CTO Percentage of any withdrawals from the Pre-Funding
Account during the Funding Period in connection with the addition of
Receivables to the Trust and the deposit of the amounts in the Pre-Funding
Account at the end of the Funding Period into the Excess Funding Account,
minus (b) the aggregate amount of principal payments (except principal
payments made from the Pre-Funding Account) made to CTO Securityholders
through and including such date, minus (c) the aggregate amount of CTO
Charge-Offs for all prior Distribution Dates, equal to the amount by which
the CTO Invested Amount has been reduced to fund the Series Default Amount
and the unpaid Adjustment Payments on all prior Distribution Dates as
described under "--Investor Charge-Offs," minus (d) the aggregate amount of
Redirected CTO Principal Collections and Redirected Class B Principal
Collections for which the Class D Invested Amount has not been reduced for
all prior Distribution Dates, and plus (e) the aggregate amount of
Available Series Finance Charge Collections, Transferor Finance Charge
Collections, Excess Finance Charge Collections, Redirected Class D
Principal Collections, and certain other amounts as may be available
applied on all prior Distribution Dates for the purpose of reimbursing
amounts deducted pursuant to the foregoing clauses (c) and (d), provided,
however, that the CTO Invested Amount may not be reduced below zero; (vi)
the term "CTO Adjusted Invested Amount," for any date of determination,
means an amount not less than zero equal to the then current CTO Invested
Amount minus the excess, if any, of the sum of the amount then on deposit
in the Principal Account and the Principal Funding Account Balance over the
sum of the Class A Invested Amount and the Class B Invested Amount on such
date of determination; (vii) the term "Class D Invested Amount" means an
amount equal to (a) the initial principal balance of the Class D
Securities, minus (b) the aggregate amount of principal payments made to
Class D Securityholders through and including such date, minus (c) the
aggregate amount of Class D Charge-Offs for all prior Distribution Dates,
equal to the amount by which the Class D Invested Amount has been reduced
to fund the Series Default Amount and the unpaid Adjustment Payments on all
prior Distribution Dates as described under "--Investor Charge-Offs," minus
(d) the aggregate amount of Redirected Principal Collections for all prior
Distribution Dates, and plus (e) the aggregate amount of Finance Charge
Collections, Transferor Finance Charge Collections, Excess Finance Charge
Collections and certain other amounts applied on all prior Distribution
Dates for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c) and (d), provided, however, that the Class D Invested
Amount may not be reduced below zero; (viii) the term "Stated Class D
Amount" means the greater of (a) zero and (b) a number rounded to the
nearest dollar equal to ____ percent of the ABC Adjusted Invested Amount;
provided, however, that in no event shall the Stated Class D Amount be less
than $______ except that if the ABC Adjusted Invested Amount is equal to
zero the "Stated Class D Amount" will be zero; and provided further that
during the Early Amortization Period the Stated Class D Amount shall be
equal to the Stated Class D Amount immediately preceding the commencement
of the Early Amortization Period; and (ix) the term "Invested Amount" means
the sum of the Class A Invested Amount, the Class B Invested Amount, the
CTO Invested Amount and the Class D Invested Amount.
As a result of the Floating Percentage, Finance Charge Collections
and the portion of Defaulted Receivables allocated to the Securityholders
will change each business day based on the relationship of the Class A
Adjusted Invested Amount, the Class B Adjusted Invested Amount, the CTO
Adjusted Invested Amount, and Class D Invested Amount to the total amount
of Principal Receivables and amounts on deposit in the Excess Funding
Account on the preceding business day. The numerator of the allocation
percentages of Collections of Principal Receivables allocable to the Class
A Securityholders, the Class B Securityholders, the CTO Securityholders and
the Class D Securityholders, however, will remain fixed during the
Amortization Period. Collections of Principal Receivables allocable to the
Class B Securities are subject to possible redirection for the benefit of
the Class A Securityholders; collections of Principal Receivables allocable
to the CTO Invested Amount are subject to possible redirection for the
benefit of the Class A Securityholders and the Class B Securityholders and
collections of Principal Receivables allocable to the Class D Invested
Amount are subject to possible reallocation for the benefit of the Class A
Securityholders, the Class B Securityholders and the CTO Securityholders.
See "--Redirected Principal Collections" below.
REDIRECTED CASH FLOWS
To the extent that any amounts are on deposit in the Excess Funding
Account or the Pre-Funding Account on any business day, the Servicer will
determine the Negative Carry Amount, if any. The Servicer will apply an
amount equal to the lesser of (i) the Transferor Finance Charge Collections
on such business day, and (ii) the Negative Carry Amount for such business
day in the manner specified for application of Available Series Finance
Charge Collections.
On each business day the Servicer will determine the Required Amount.
To the extent of any Required Amount, the Servicer will apply all or a
portion of the Excess Finance Charge Collections of other Series with
respect to such business day allocable to the Series 1998-2 Securities in
an amount equal to the remaining Required Amount. Excess Finance Charge
Collections from other Series allocable to the Series 1998-2 Securities for
any business day will be 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 business
day (as reduced by amounts applied pursuant to the preceding paragraph) and
the denominator of which is the aggregate amount of shortfalls in required
amounts or other amounts to be paid from available Finance Charge
Collections for all Series for such business day.
REDIRECTED PRINCIPAL COLLECTIONS
On each business day, the Servicer will apply or cause the Trustee to
apply an amount, not to exceed the Class D Invested Amount, equal to the
product of (a)(i) during the Revolving Period, the Class D Floating
Percentage or (ii) during an Amortization Period, the Class D
Fixed/Floating Percentage and (b) the amount of Principal Collections with
respect to such business day to the following amounts in the following
priority (such collections applied in accordance with clause (a) below are
called "Redirected Class D Principal Collections"):
(a) an amount equal to the sum of (i) the Class A Required
Amount with respect to such business day, (ii) the Class B Required
Amount with respect to such business day and (iii) the CTO Required
Amount with respect to such business day will be applied first to the
components of the Class A Required Amount, then to the components of
the Class B Required Amount and then to the components of the CTO
Required Amount in the same priority as such components are applied
from Available Series Finance Charge Collections as described in
"--Application of Collections--Payment of Fees, Interest and Other
Items"; and
(b) any such collections not applied in the foregoing manner
(and therefore not constituting Redirected Class D Principal
Collections) will, on business days with respect to the Revolving
Period, be applied as Shared Principal Collections and on business
days with respect to an Amortization Period will be included in
Available Investor Principal Collections.
On each business day, the Servicer will apply or cause the Trustee to
apply an amount, not to exceed the CTO Invested Amount, equal to the
product of (a)(i) during the Revolving Period, the CTO Floating Percentage
or (ii) during an Amortization Period, the CTO Fixed/Floating Percentage
and (b) the amount of Principal Collections with respect to such business
day to the following amounts in the following priority (such collections
applied in accordance with clause (a) below are called "Redirected CTO
Principal Collections"):
(a) an amount equal to the sum of (i) the excess, if any, of
the Class A Required Amount with respect to such business day over
the amount of Redirected Class D Principal Collections applied with
respect thereto for such business day and (ii) the excess, if any, of
the Class B Required Amount with respect to such business day over
the amount of Redirected Class D Principal Collections applied with
respect thereto for such business day will be applied first to the
remaining components of the Class A Required Amount and then to the
remaining components of the Class B Required Amount in the same
priority as such components are applied from Available Series Finance
Charge Collections as described in "--Application of
Collections--Payment of Fees, Interest and Other Items"; and
(b) any such collections not applied in the foregoing manner
(and therefore not constituting Redirected CTO Principal Collections)
will, on business days with respect to the Revolving Period, be
applied as Shared Principal Collections and on business days with
respect to an Amortization Period will be included in Available
Investor Principal Collections.
On each business day, the Servicer will apply or cause the Trustee to
apply an amount, not to exceed the Class B Invested Amount, equal to the
product of (a)(i) during the Revolving Period, the Class B Floating
Percentage or (ii) during an Amortization Period, the Class B
Fixed/Floating Percentage and (b) the amount of Principal Collections with
respect to such business day to the following amounts in the following
priority (such collections applied in accordance with clause (a) below are
called "Redirected Class B Principal Collections" and the sum of Redirected
Class D Principal Collections, Redirected CTO Principal Collections and
Redirected Class B Principal Collections is called "Redirected Principal
Collections"):
(a) an amount equal to the excess, if any, of the Class A
Required Amount with respect to such business day over the sum of the
amount of Redirected Class D Principal Collections and Redirected CTO
Principal Collections applied with respect thereto for such business
day will be applied to the remaining components of the Class A
Required Amount in the same priority as such components are applied
from Available Series Finance Charge Collections as described in
"--Application of Collections--Payment of Fees, Interest and Other
Items"; and
(b) any such collections not applied in the foregoing manner
(and therefore not constituting Redirected Class B Principal
Collections) will, on business days with respect to the Revolving
Period, be applied as Shared Principal Collections and on business
days with respect to an Amortization Period will be included in
Available Investor Principal Collections.
On each Distribution Date the Class D Invested Amount will be reduced
by the amount of unreimbursed Redirected Principal Collections for the
related Monthly Period. In the event that such reduction would cause the
Class D Invested Amount to be a negative number, the Class D Invested
Amount will be reduced to zero and the CTO Invested Amount will be reduced
by the amount by which the Class D Invested Amount would have been reduced
below zero. In the event that the amount of unreimbursed Redirected
Principal Collections for such Distribution Date would cause the CTO
Invested Amount to be a negative number, the CTO Invested Amount will be
reduced to zero and the Class B Invested Amount will be reduced by the
amount by which the CTO Invested Amount would have been reduced below zero.
In the event that the redirection of Principal Collections would cause the
Class B Invested Amount to be a negative number on any Distribution Date,
the amount of Redirected Class B Principal Collections on such Distribution
Date will be an amount not to exceed the amount which would cause the Class
B Invested Amount to be reduced to zero.
APPLICATION OF COLLECTIONS
Allocations. Obligors make payments on the Receivables to the
Servicer, who deposits all such payments in the Collection Account no later
than the second business day following the date of processing. On the day
on which any deposit to the Collection Account is available, the Servicer
will make the deposits and payments to the accounts and parties as
indicated below; provided, however, that for as long as Direct Merchants
Bank or any affiliate of Direct Merchants Bank remains the Servicer under
the Pooling and Servicing Agreement, then the Servicer 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 been made had the
conditions of this proviso not applied if (a)(i) the Servicer provides to
the Trustee a letter of credit or other form of Enhancement rated in the
highest rating category by the Rating Agencies covering the risk of
collection of the Servicer and (ii) the Transferor shall not have received
a notice from either Rating Agency that making payments monthly rather than
daily would result in the lowering of such Rating Agency's then-existing
rating of any Series of securities then outstanding or (b) the Servicer has
and maintains a short-term credit rating of P-1 by Moody's and A-1 by
Standard & Poor's.
If clause (a) or clause (b) set forth in the proviso to the
immediately preceding paragraph is satisfied, payments on the Receivables
collected by the Servicer will not be segregated from the assets of the
Servicer. Until such payments on the Receivables collected by the Servicer
are deposited into the Collection Account, such funds may be used by the
Servicer for its own benefit, and the proceeds of any short-term investment
of such funds will accrue to the Servicer. During such times as the
Servicer holds funds representing payments on the Receivables collected by
the Servicer and is permitted to use such funds for its own benefit, the
Securityholders are subject to risk of loss, including risk resulting from
the bankruptcy or insolvency of the Servicer. The Servicer pays no fee to
the Trust or any Securityholder for any use by the Servicer of funds
representing Collections on the Receivables.
The Servicer will withdraw the following amounts from the Collection
Account for application on each business day as indicated:
(i) an amount equal to the Transferor Percentage of the
aggregate amount of Principal Collections will be paid to the
Transferor to the extent such funds are not allocated to any series
to cover a negative carry amount;
(ii) an amount equal to the Transferor Percentage of the
aggregate amount of Finance Charge Collections will be paid to the
holder of the Exchangeable Transferor Security to the extent such
funds are not allocated to any Series as set forth in the applicable
Supplement;
(iii) an amount equal to the sum of (a) prior to the occurrence
of a Pay Out Event the Floating Percentage, and on and after the
occurrence of a Pay Out Event the Fixed/Floating Percentage, of the
sum of the aggregate amount of Finance Charge Collections and the
amount of Adjustment Payments made by the Transferor with respect to
Adjustment Payments required to be made but not made in a prior
Monthly Period, (b) certain Transferor Finance Charge Collections
allocable to the Securities and (c) Excess Finance Charge Collections
of other Series allocable to such Series, will be allocated and paid
as described below in "--Payment of Fees, Interest and Other Items;"
(iv) during the Revolving Period, an amount equal to the
Floating Percentage of Principal Collections (less the amount thereof
which may be applied as Redirected Principal Collections) will be
applied as Shared Principal Collections;
(v) during the Amortization Period, an amount equal to the
Fixed/Floating Percentage of Principal Collections (less the amount
thereof applied as Redirected Principal Collections), any amount on
deposit in the Excess Funding Account and any amount on deposit in
the Pre-Funding Account allocated to the holders of Series 1998-2
Securities, any amounts to be paid in respect of the Series Default
Amount, unpaid Adjustment Payments, Class A Charge-Offs, Class B
Charge-Offs and CTO Charge-Offs and any amount of Shared Principal
Collections allocated to the Securities on such business day, up to
(a) during the Accumulation Period, the Controlled Deposit Amount or
(b) during the Early Amortization Period, the Invested Amount, will
be deposited in the Principal Account;
(vi) Shared Principal Collections will be allocated to each
outstanding Series pro rata based on any shortfalls with respect to
principal payments with respect to any Series which is in its
amortization period, and then, at the option of the Transferor, to
make payments of principal with respect to the Variable Funding
Securities. The Servicer will pay any remaining Shared Principal
Collections on such business day to the holder of the Exchangeable
Transferor Security; and
(vii) Excess Finance Charge Collections will be allocated as
set forth below in paragraph (xvi) of "--Payment of Fees, Interest
and Other Items."
Any Shared Principal Collections and other amounts described above as
being payable to the Transferor will not be paid to the Transferor if the
Transferor Interest on any date, 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 the Transferor, does not exceed the Minimum
Transferor Interest. Any such amounts otherwise payable to the Transferor,
together with any Adjustment Payments, as described below, will be
deposited into and held in the Excess Funding Account, and on the
Amortization Period Commencement Date with respect to any Series, such
amounts will be deposited in the principal account of such Series to the
extent specified in the related Supplement until the applicable principal
account of such Series has been funded in full or the holders of securities
of such Series have been paid in full. See "--Excess Funding Account."
On each business day the Transferor, at its discretion, will direct
that amounts on deposit in the Payment Reserve Account will be retained
therein, applied as Available Series Finance Charge Collections or released
to the Transferor.
Payment of Fees, Interest and Other Items. On each business day
during a Monthly Period, the Servicer will determine the sum of (a) prior
to the date on which a Pay Out Event is deemed to occur, the Floating
Percentage of the sum of Finance Charge Collections and the amount of
Adjustment Payments made by the Transferor with respect to Adjustment
Payments required to be made but not made in a prior Monthly Period or, on
and after the date on which a Pay Out Event is deemed to occur, the
Fixed/Floating Percentage of the sum of Finance Charge Collections and the
amount of Adjustment Payments made by the Transferor with respect to
Adjustment Payments required to be made but not made in a prior Monthly
Period and (b) amounts on deposit in the Payment Reserve Account, if any,
if and to the extent the Transferor designates that such amounts are to be
so applied (the "Available Series Finance Charge Collections", provided,
that with respect to the Closing Date the amount of the initial deposit by
the Transferor to the Interest Funding Account will also constitute
Available Series Finance Charge Collections) and will distribute such
amount in the following priority:
(i) an amount equal to the lesser of (A) the Available Series
Finance Charge Collections and (B) the excess of (a) the sum of (1)
the Class A Monthly Interest, (2) the amount of any Class A Monthly
Interest previously due but not deposited in the Interest Funding
Account in prior Monthly Periods, and (3) any additional interest (to
the extent permitted by applicable law) at the Class A Interest Rate
with respect to interest amounts that were due but not paid in a
prior Monthly Period over (b) the amount which has already been
deposited in the Interest Funding Account with respect thereto in the
current Monthly Period, will be deposited in the Interest Funding
Account for distribution on the next succeeding Distribution Date to
the Class A Securityholders;
(ii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) the excess of (a) the
sum of (1) the Class B Monthly Interest, (2) the amount of any Class
B Monthly Interest previously due but not deposited in the Interest
Funding Account in prior Monthly Periods, and (3) any additional
interest (to the extent permitted by applicable law) at the Class B
Interest Rate with respect to Class B Monthly Interest amounts that
were due but not paid in a prior Monthly Period over (b) the amount
which has already been deposited in the Interest Funding Account with
respect thereto in the current Monthly Period, will be deposited in
the Interest Funding Account for distribution on the next succeeding
Distribution Date to the Class B Securityholders;
(iii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) the excess of (a) the
sum of (1) the CTO Monthly Interest, (2) the amount of any CTO
Monthly Interest previously due but not deposited in the Interest
Funding Account in prior Monthly Periods, and (3) any additional
interest (to the extent permitted by applicable law) at the CTO
Interest Rate with respect to CTO Monthly Interest amounts that were
due but not paid in a prior Monthly Period over (b) the amount which
has already been deposited in the Interest Funding Account with
respect thereto in the current Monthly Period, will be deposited in
the Interest Funding Account for distribution on the next succeeding
Distribution Date to the CTO Securityholders;
(iv) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) the portion of the
Monthly Servicing Fee for the current month that has not been
previously paid to the Servicer plus any prior Monthly Servicing Fee
that was due but not previously paid to the Servicer will be
distributed to the Servicer;
(v) an amount equal to the lesser of (A) the sum of any
Available Series Finance Charge Collections remaining and, if such
day is a Default Recognition Date, an amount equal to the aggregate
Transferor Retained Finance Charge Collections for each prior
business day during the related Monthly Period and (B) the sum of (1)
the aggregate Series Default Amount for such business day and (2) the
unpaid Series Default Amount for any prior business day during the
then-current Monthly Period, will be (w) during the Revolving Period,
treated as Shared Principal Collections and (x) during the
Amortization Period, treated as Available Investor Principal
Collections for the benefit of the Securities;
(vi) an amount equal to the Series 1998-2 Percentage of any
Adjustment Payment which the Transferor is required but fails to make
pursuant to the Pooling and Servicing Agreement will be (a) during
the Revolving Period, treated as Shared Principal Collections and (b)
during the Amortization Period, treated as Available Investor
Principal Collections for the benefit of the Securities;
(vii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) unreimbursed Class A
Charge-Offs, if any, will be applied to reimburse Class A Charge-
Offs and (w) during the Revolving Period, be treated as Shared
Principal Collections and (x) during the Amortization Period, be
treated as Available Investor Principal Collections for the benefit
of the Securities;
(viii) an amount equal to the lesser of (A) any Available
Series Finance Charge Collections remaining and (B) the sum of (1)
the amount of interest which has accrued with respect to the
outstanding aggregate principal amount of the Class B Securities at
the Class B Interest Rate but has not been deposited in the Interest
Funding Account will be deposited in the Interest Funding Account and
(2) any additional interest (to the extent permitted by applicable
law) at the Class B Interest Rate with respect to such interest
amounts that were due but not deposited in the Interest Funding
Account in any previous Monthly Period, will be deposited in the
Interest Funding Account for distribution on the next succeeding
Distribution Date to Class B Securityholders;
(ix) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) the sum of (1) the
amount of interest which has accrued with respect to the outstanding
aggregate principal amount of the Collateralized Trust Obligations at
the CTO Interest Rate but has not been deposited in the Interest
Funding Account will be deposited in the Interest Funding Account,
and (2) any additional interest (to the extent permitted by
applicable law) at the CTO Interest Rate with respect to such
interest amounts that were due but not deposited in the Interest
Funding Account in any previous Monthly Period, will be deposited in
the Interest Funding Account for distribution on the next succeeding
Distribution Date to CTO Securityholders;
(x) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) unreimbursed Class B
Charge-Offs, if any, will be applied to reimburse Class B Charge-Offs
and (w) during the Revolving Period, be treated as Shared Principal
Collections and (x) during the Amortization Period, be treated as
Available Investor Principal Collections for the benefit of the
Securities;
(xi) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) unreimbursed CTO
Charge-Offs, if any, will be applied to reimburse CTO Charge-Offs and
(w) during the Revolving Period, be treated as Shared Principal
Collections and (x) during the Amortization Period, be treated as
Available Investor Principal Collections for the benefit of the
Securities;
(xii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining and (B) unreimbursed Class D
Charge-Offs, if any, will be applied to reimburse Class D Charge-Offs
and (w) during the Revolving Period, be treated as Shared Principal
Collections and (x) during the Amortization Period, be treated as
Available Investor Principal Collections for the benefit of the
Securities;
(xiii) an amount equal to the lesser of any Available Series
Finance Charge Collections remaining and any required funding of a
reserve account for the benefit of the Collateralized Trust
Obligations will be deposited in such reserve account;
(xiv) on and after the Reserve Account Funding Date, but prior
to the date on which the Accumulation Period Reserve Account
terminates, an amount equal to the lesser of any Available Series
Finance Charge Collections remaining and the excess, if any, of the
Required Reserve Account Amount over the Available Reserve Account
Amount will be deposited in the Accumulation Period Reserve Account;
(xv) an amount equal to the lesser of any remaining Available
Series Finance Charge Collections and the amount designated by the
Transferor in writing in its instructions to the Trustee to be
deposited in the Payment Reserve Account; and
(xvi) any Available Series Finance Charge Collections remaining
after making the above described distributions will be treated as
Excess Finance Charge Collections which will be available to cover
shortfalls, if any, in amounts payable from Finance Charge
Collections to securityholders of other Series, then to pay any
unpaid commercially reasonable costs and expenses of a successor
Servicer, if any, and then on each business day other than the
Default Recognition Date to be paid to the Transferor to be treated
as "Transferor Retained Finance Charge Collections." On the Default
Recognition Date any remaining Excess Finance Charge Collections
which are not so used will be paid to the Transferor.
On each Transfer Date all investment income (net of investment losses
and expenses) on funds on deposit in the Pre-Funding Account, the Principal
Funding Account and the Accumulation Period Reserve Account will be applied
as if such amounts were Available Series Finance Charge Collections on the
last business day of the preceding Monthly Period.
"Class A Monthly Interest" with respect to any Distribution Date will
equal the product of (i) the Class A Interest Rate for the related Interest
Accrual Period, (ii) the outstanding principal balance of the Class A
Securities at the close of business on the first day of the related
Interest Accrual Period or, with respect to any Distribution Date related
to the Funding Period, the outstanding principal balance of the Class A
Securities at the close of business on the first day of the related
Interest Accrual Period and (iii) a fraction the numerator of which is the
actual number of days in such Interest Accrual Period and the denominator
of which is 360 (or in the case of the initial Distribution Date, an amount
equal to the product of (x) the Class A Initial Invested Amount, (y) _____
divided by 360 and (z) the Class A Interest Rate for the initial Interest
Accrual Period ).
"Class B Monthly Interest" with respect to any Distribution Date will
equal the product of (i) the Class B Interest Rate for the related Interest
Accrual Period, (ii) the Class B Invested Amount at the close of business
on the first day of the related Interest Accrual Period or, with respect to
any Distribution Date related to the Funding Period, the outstanding
principal balance of the Class B Securities at the close of business on the
first day of the related Interest Accrual Period and (iii) a fraction the
numerator of which is the actual number of days in such Interest
Accrual Period and the denominator of which is 360 (or in the case of the
initial Distribution Date, an amount equal to the product of (x) the Class
B Initial Invested Amount, (y) _____ divided by 360 and (z) the Class B
Interest Rate for the initial Interest Accrual Period).
"CTO Monthly Interest" with respect to any Distribution Date will
equal the product of (i) the CTO Interest Rate for the related Interest
Accrual Period, (ii) the CTO Invested Amount at the close of business on
the first day of the related Interest Accrual Period or, with respect to
any Distribution Date related to the Funding Period, the outstanding
principal balance of the Collateralized Trust Obligations at the close of
business on the first day of the related Interest Accrual Period and (iii)
a fraction the numerator of which is the actual number of days in the
related Interest Accrual Period and the denominator of which is 360 (or in
the case of the initial Distribution Date, an amount equal to the product
of (x) the CTO Initial Invested Amount, (y) divided by 360, and (z) the CTO
Interest Rate for the initial Interest Accrual Period).
"Required Amount" means on any business day the amount, if any, by
which the full amount to be paid pursuant to clauses (i)-(xiv) above
exceeds the portion of the Available Series Finance Charge Collections and
Transferor Finance Charge Collections, if any, applied to the payment of
the amounts described in such clauses.
"Pre-Funded Amount" for any Distribution Date with respect to the
Funding Period will equal the amount deposited in the Pre-Funding Account
on the Closing Date, less the amount of any increases in the Invested
Amount pursuant to the Series 1998-2 Supplement in connection with the
addition of Receivables to the Trust.
Any amounts remaining on deposit in the Pre-Funding Account at the
end of the Funding Period will be deposited in the Excess Funding Account.
Payment of Principal. On each business day during the Revolving
Period, the Trustee, acting in accordance with instructions from the
Servicer, will treat the amount described in clause (iv) of "--Allocations"
as Shared Principal Collections which will be applied as described in
clause (vi) of "--Allocations." On each Transfer Date during the
Amortization Period, the Trustee, acting in accordance with instructions
from the Servicer, will apply Principal Collections on deposit in the
Principal Account in the following priority:
(i) an amount equal to the Class A Principal will be
deposited on each Transfer Date in the Principal Funding
Account for distribution to the Class A Securityholders
on the Expected Final Payment Date (with respect to the
Accumulation Period) or distributed to the Class A
Securityholders on each Distribution Date until the Class
A Invested Amount is paid in full (with respect to the
Early Amortization Period);
(ii) on the Transfer Date related to the Class B Principal
Payment Commencement Date and on each Transfer Date
thereafter, an amount equal to the Class B Principal will
be deposited in the Principal Funding Account for
distribution to the Class B Securityholders on the
Expected Final Payment Date (with respect to the
Accumulation Period) or distributed to the Class B
Securityholders on each Distribution Date until the Class
B Invested Amount is paid in full (with respect to the
Early Amortization Period);
(iii) on the Transfer Date related to the CTO Principal Payment
Commencement Date and on each Transfer Date thereafter,
an amount equal to the CTO Principal will be deposited in
the Principal Funding Account for distribution to the CTO
Securityholders on the Expected Final Payment Date (with
respect to the Accumulation Period) or distributed to the
CTO Securityholders on each Distribution Date until the
CTO Invested Amount is paid in full (with respect to the
Early Amortization Period); and
(iv) on each Transfer Date with respect to the Accumulation
Period, the balance of Available Investor Principal
Collections not applied pursuant to (i) through (iii)
above, if any, may be applied to the payment of principal
to the Class D Securityholders to the extent that the
Class D Invested Amount exceeds the Stated Class D Amount
and any remaining excess on each Transfer Date with
respect to the Accumulation Period and the Early
Amortization Period will be treated as Shared Principal
Collections and applied as described in clause (vi) of
"--Allocations."
"Class A Principal" with respect to any Transfer Date relating to the
Accumulation Period or the Early Amortization Period, prior to the payment
in full of the Class A Invested Amount, will equal the least of (i) the
Available Investor Principal Collections on deposit in the Principal
Account with respect to such Transfer Date, (ii) for each Transfer Date
with respect to the Accumulation Period, prior to the payment in full of
the Class A Invested Amount and on or prior to the Expected Final Payment
Date, the applicable Controlled Deposit Amount for such Transfer Date and
(iii) the Class A Adjusted Invested Amount on such Transfer Date.
"Class B Principal" with respect to each Transfer Date relating to
the Accumulation Period or the Early Amortization Period beginning with the
Transfer Date first preceding the Class B Principal Payment Commencement
Date, prior to the payment in full of the Class B Invested Amount, will
equal the least of (i) the Available Investor Principal Collections
remaining on deposit in the Principal Account with respect to such Transfer
Date after application thereof to Class A Principal, if any, (ii) for each
Transfer Date with respect to the Accumulation Period, on or prior to the
Expected Final Payment Date, the applicable Controlled Deposit Amount for
such Transfer Date (minus the Class A Principal with respect to such
Transfer Date) and (iii) the Class B Adjusted Invested Amount on such
Transfer Date.
"CTO Principal" with respect to each Transfer Date relating to the
Accumulation Period or the Early Amortization Period beginning with the
Transfer Date first preceding the Distribution Date on which the Class B
Invested Amount is deposited in full in the Principal Funding Account or
paid in full, prior to the payment in full of the CTO Invested Amount, will
equal the least of (i) the Available Investor Principal Collections
remaining on deposit in the Principal Account with respect to such Transfer
Date after applications thereof to Class A Principal and Class B Principal,
if any, (ii) for each Transfer Date with respect to the Accumulation
Period, on or prior to the Expected Final Payment Date, the applicable
Controlled Deposit Amount for such Transfer Date (minus the Class A
Principal and the Class B Principal with respect to such Transfer Date) and
(iii) the CTO Adjusted Invested Amount on such Transfer Date.
"Controlled Accumulation Amount" means for any Transfer Date with
respect to the Accumulation Period, prior to the payment in full of the sum
of the Class A Invested Amount, the Class B Invested Amount and the CTO
Invested Amount, $________; provided, however, that if the commencement of
the Accumulation Period is delayed as described above under "--Postponement
of Accumulation Period," the Controlled Accumulation Amount may be higher
than the amount stated above for each Transfer Date with respect to the
Accumulation Period and will be determined by the Servicer in accordance
with the Pooling and Servicing Agreement based on the principal payment
rates for the Accounts and on the invested amounts of other Series (other
than certain excluded Series) which are scheduled to be in their revolving
periods during the Accumulation Period.
"Accumulation Shortfall" initially means zero and thereafter means,
with respect to any Monthly Period during the Accumulation Period, the
excess, if any, of the Controlled Deposit Amount for the previous Monthly
Period over the amount deposited into the Principal Funding Account with
respect to the Securities for the previous Monthly Period.
COVERAGE OF INTEREST SHORTFALLS
To the extent of any shortfall in the amount of Available Series
Finance Charge Collections due to the accumulation of principal in the
Excess Funding Account or the Pre-Funding Account, the Transferor Finance
Charge Collections will be made available to cover such Negative Carry
Amount.
Finance Charge Collections allocable to any Series in excess of the
amounts necessary to make required payments with respect to such Series
("Excess Finance Charge Collections") will be applied to cover any
shortfalls with respect to amounts payable from Finance Charge Collections
allocable to any other Series, pro rata based upon the amounts of the
shortfalls, if any, with respect to such other Series. Any Excess Finance
Charge Collections remaining after covering shortfalls with respect to all
outstanding Series during a Monthly Period will be paid to the successor
Servicer, if any, to cover certain costs and expenses and then to the
holder of the Exchangeable Transferor Security.
DEFAULTED RECEIVABLES; DILUTION
Receivables in Defaulted Accounts are charged off as uncollectible in
accordance with the Servicer's customary and usual Servicing procedures and
the Credit and Collection Policy (a "Defaulted Receivable"). See "Direct
Merchants Bank's Credit Card Activities--Delinquency, Collections and
Charge-offs" and "--Delinquency and Loss Experience." On each business day,
the Servicer will allocate to the Securityholders a portion of all
Defaulted Receivables in an amount (the "Series Default Amount") equal to
(i) on any business day other than a Default Recognition Date, an amount
equal to the product of (a) the Floating Percentage applicable on such
business day and (b) the aggregate principal amount of Defaulted
Receivables identified since the prior reporting date and (ii) on any
Default Recognition Date, an amount equal to the product of (a) the Default
Recognition Percentage applicable on such Default Recognition Date and (b)
the aggregate principal amount of Defaulted Receivables with respect to
such Default Recognition Date.
If on any business day the Servicer adjusts downward the amount of
any Principal Receivable without receiving collections therefor or charging
off such amount as uncollectible (any such downward adjustment, a
"Dilution"), then the amount of the Transferor Interest in the Trust will
be reduced, on a net basis, by the amount of the adjustment on such
business day. In the event the Transferor Interest would be reduced below
the Minimum Transferor Interest, the Transferor will be required to pay to
the Trust the amount of such Dilution (an "Adjustment Payment") out of its
own funds or, to the extent not paid by the Transferor, out of Available
Series Finance Charge Collections, Transferor Finance Charge Collections,
Excess Finance Charge Collections or Redirected Principal Collections
designated for such purpose. To the extent that such amounts are not
sufficient to cover the portion of the unpaid Adjustment Payments allocated
to Series 1998-2, there will be an Investor Charge-Off as described below.
INVESTOR CHARGE-OFFS
If on the second business day preceding each Distribution Date (the
"Determination Date"), the aggregate Series Default Amount and the Series
1998-2 Percentage of unpaid Adjustment Payments, if any, for all business
days in the preceding Monthly Period exceeds the aggregate amount of the
Available Series Finance Charge Collections, Transferor Finance Charge
Collections, Excess Finance Charge Collections, Redirected Principal
Collections, Principal Funding Account Investment Proceeds, Pre-Funding
Account investment proceeds and amounts withdrawn from the Accumulation
Period Reserve Account and applied with respect to the Series Default
Amount and the Series 1998-2 Percentage of unpaid Adjustment Payments with
respect to such Monthly Period, then the Class D Invested Amount will be
reduced by the aggregate amount of such excess, but not more than the sum
of the remaining aggregate Series Default Amount and the remaining Series
1998-2 Percentage of unpaid Adjustment Payments for such Monthly Period (a
"Class D Charge-Off"). The Class D Invested Amount thereafter will be
increased (but not in excess of the unpaid principal balance of the Class D
Securities) on any business day by the amounts allocated and available for
that purpose as described under clause (xii) of "--Application of
Collections--Payment of Fees, Interest and Other Items."
In the event that any such reduction of the Class D Invested Amount
would cause the Class D Invested Amount to be a negative number, the Class
D Invested Amount will be reduced to zero, and the CTO Invested Amount will
be reduced by the aggregate amount of such excess, but not more than the
sum of the remaining aggregate Series Default Amount and the remaining
Series 1998-2 Percentage of unpaid Adjustment Payments for such Monthly
Period (a "CTO Charge-Off"), which will have the effect of slowing or
reducing the return of principal to the CTO Securityholders. The CTO
Invested Amount will thereafter be increased (but not in excess of the
unpaid principal balance of the Collateralized Trust Obligations) on any
business day by the amounts allocated and available for that purpose as
described under clause (xi) of "--Application of Collections--Payment of
Fees, Interest and Other Items."
In the event that any such reduction of the CTO Invested Amount would
cause the CTO Invested Amount to be a negative number, the CTO Invested
Amount will be reduced to zero, and the Class B Invested Amount will be
reduced by the aggregate amount of such excess, but not more than the sum
of the remaining aggregate Series Default Amount and the remaining Series
1998-2 Percentage of unpaid Adjustment Payments for such Monthly Period (a
"Class B Charge-Off"), which will have the effect of slowing or reducing
the return of principal to the Class B Securityholders. The Class B
Invested Amount will thereafter be increased (but not in excess of the
unpaid principal balance of the Class B Securities) on any business day by
the amounts allocated and available for that purpose as described under
clause (x) of "--Application of Collections--Payment of Fees, Interest and
Other Items."
In the event that any such reduction of the Class B Invested Amount
would cause the Class B Invested Amount to be a negative number, the Class
B Invested Amount will be reduced to zero, and the Class A Invested Amount
will be reduced by the amount by which the Class B Invested Amount would
have been reduced below zero, but not more than the sum of the remaining
aggregate Series Default Amount and the remaining Series 1998-2 Percentage
of unpaid Adjustment Payments for such Monthly Period (a "Class A
Charge-Off") which will have the effect of slowing or reducing the return
of principal to the Class A Securityholders. The Class A Invested Amount
will thereafter be increased (but not in excess of the unpaid principal
balance of the Class A Securities) on any business day by the amounts
allocated and available for that purpose as described under clause (vii) of
"--Application of Collections--Payment of Fees, Interest and Other Items."
PAIRED SERIES
Subject to the satisfaction of the Rating Agency Condition, prior to
the commencement of the Early Amortization Period the Securities may be
paired with one or more other Series or a portion of one or more other
Series issued by the Trust (each, a "Paired Series"). Each Paired Series
either will be pre-funded with an initial deposit to a pre-funding account
in an amount up to the initial principal balance of such Paired Series and
primarily from the proceeds of the sale of such Paired Series or will have
a variable principal amount. Any such pre-funding account will be held for
the benefit of such Paired Series and not for the benefit of the
Securityholders. As amounts are deposited in the Principal Funding Account
for the benefit of the Class A Securityholders, Class B Securityholders and
CTO Securityholders, either (i) in the case of a pre-funded Paired Series,
an equal amount of funds on deposit in any pre-funding account for such
pre-funded Paired Series will be released (which funds will be distributed
to the Transferor) or (ii) in the case of a Paired Series having a variable
principal amount, an interest in such variable Paired Series in an equal or
lesser amount may be sold by the Trust (and the proceeds thereof will be
distributed to the Transferor) and, in either case, the invested amount in
the Trust of such Paired Series will increase by up to a corresponding
amount. Upon payment in full of the Securities, assuming that there have
been no unreimbursed charge-offs with respect to any related Paired Series,
the aggregate invested amount of such related Paired Series will have been
increased by an amount up to an aggregate amount equal to the Invested
Amount paid to the Securityholders since the issuance of such Paired
Series. The issuance of a Paired Series will be subject to the conditions
described under "--Exchanges." There can be no assurance, however, that the
terms of any Paired Series might not have an impact on the timing or amount
of payments received by a Securityholder. In particular, the denominator of
the Fixed/Floating Percentages for the Class A Securities and the Class B
Securities may be increased upon the occurrence of a Pay Out Event with
respect to a Paired Series resulting in a possible reduction of the
percentage of Collections of Principal Receivables and Finance Charge
Receivables allocated to Series 1998-2 if such event required reliance by
Series 1998-2 on clause (b) of the denominator of the applicable
Fixed/Floating Percentages and, in the case of Principal Collections,
allowed payment of principal at such time to the Paired Series. See
"--Allocation Percentages."
DEFEASANCE
On the date that the following conditions shall have been satisfied:
(i) the Transferor shall have deposited (x) in the Principal Funding
Account an amount equal to the sum of the outstanding principal balances of
the Class A Securities, the Class B Securities and the Collateralized Trust
Obligations, which amount shall be invested in Cash Equivalents and (y) in
the Accumulation Period Reserve Account an amount equal to or greater than
the Covered Amount, as estimated by the Transferor, for the period from the
date of the deposit to the Principal Funding Account through the Expected
Final Payment Date; (ii) the Transferor shall have delivered to the Trustee
an opinion of counsel to the effect that such deposit and termination of
obligations will not result in the Trust being required to register as an
"investment company" within the meaning of the Investment Company Act and
an opinion of counsel to the effect that following such deposit none of the
Trust, the Accumulation Period Reserve Account or the Principal Funding
Account will be deemed to be an association (or publicly traded
partnership) taxable as a corporation; (iii) the Transferor shall have
delivered to the Trustee a certificate of an officer of the Transferor
stating that the Transferor reasonably believes that such deposit and
termination of its obligations will not constitute a Pay Out Event or any
event that, with the giving of notice or the lapse of time, would cause a
Pay Out Event to occur; and (iv) a Ratings Event will not occur as a result
of such events; then, the Securities will no longer be entitled to the
security interest of the Trust in the Receivables and, except those set
forth in clause (i) above, other Trust assets ("Defeasance"), and the
percentages applicable to the allocation to the Securityholders of
Principal Collections, Finance Charge Collections and Defaulted Receivables
will be reduced to zero. Upon the satisfaction of the foregoing conditions,
the Class D Invested Amount will be reduced to zero.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Class A Securities, the Class B Securities and the Collateralized
Trust Obligations will each be subject to optional repurchase by the
Transferor on any Distribution Date if on such Distribution Date the sum of
the Class A Invested Amount, the Class B Invested Amount and the CTO
Invested Amount would be reduced to an amount less than or equal to 10
percent of the sum of the highest Class A Invested Amount, Class B Invested
Amount and CTO Invested Amount since the Closing Date, if certain
conditions set forth in the Pooling and Servicing Agreement are satisfied.
The repurchase price will be equal to (i) the unpaid Class A Invested
Amount plus accrued and unpaid interest on the Class A Securities, (ii) the
unpaid Class B Invested Amount plus accrued and unpaid interest on the
Class B Securities, and (iii) the unpaid CTO Invested Amount plus accrued
and unpaid interest on the Collateralized Trust Obligations, in each case
after giving effect to any payments on such date. In each case interest
will accrue through the day preceding the Distribution Date on which the
repurchase occurs.
The Securities will be retired on the day following the Distribution
Date on which the final payment of principal is scheduled to be made to the
Securityholders, whether as a result of optional reassignment to the
Transferor or otherwise. Subject to prior termination as provided above,
the Pooling and Servicing Agreement provides that the final distribution of
principal and interest on the Offered Securities will be made on the
Distribution Date (the "Termination Date"), except to the extent provided
below. In the event that the Invested Amount is greater than zero,
exclusive of any Class held by the Transferor, on the Termination Date, the
Trustee will sell or cause to be sold (and apply the proceeds first to the
Class A Securities until paid in full, then to the Class B Securities until
paid in full, then to the Collateralized Trust Obligations until paid in
full, and finally to the Class D Securities to the extent necessary to pay
such remaining amounts to all Securityholders pro rata within each Class as
final payment of the Securities) interests in the Receivables or certain
Receivables, as specified in the Pooling and Servicing Agreement and the
Series 1998-2 Supplement, in an amount up to percent of the Invested Amount
at the close of business on such date (but not more than the total amount
of Receivables allocable to the Securities in accordance with the Pooling
and Servicing Agreement). If the sale contemplated by the preceding
sentence has not occurred by the Termination Date, the affected
Securityholders 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 Invested Amount plus accrued
interest due on the Securities, will be paid on the Termination Date first
to Class A Securityholders until the Class A Invested Amount is paid in
full, then to the Class B Securityholders until the Class B Invested Amount
is paid in full, then to the CTO Securityholders until the CTO Invested
Amount is paid in full, and then to the Class D Securityholders until the
Class D Invested Amount is paid in full.
Unless the Servicer and the holder of the Exchangeable Transferor
Security instruct the Trustee otherwise, the Trust will terminate 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 securityholders sufficient to pay in full the aggregate investor
interest of all Series outstanding plus interest thereon at the applicable
interest rates to the next Distribution Date and (b) a date which shall not
be later than . Upon the termination of the Trust and the surrender of the
Exchangeable Transferor Security, the Trustee will convey to the holder of
the Exchangeable Transferor Security 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 above, the Revolving Period will continue until the
commencement of the Accumulation Period, unless a Pay Out Event occurs
prior to such date. A "Pay Out Event" refers to any of the following
events:
(i) failure on the part of the Transferor (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); (b) to perform in all material
respects the Transferor's covenant not to sell, pledge, assign, or
transfer to any person, or grant any unpermitted lien on, any
Receivable; or (c) to observe or perform in any material respect any
other covenants or agreements of the Transferor set forth in the
Pooling and Servicing Agreement, the Purchase Agreement or the Series
1998-2 Supplement, which failure has a material adverse effect on the
Securityholders 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 the Transferor by the Trustee, or
to the Transferor and the Trustee by the Securityholders representing
more than 50 percent of the Invested Amount and continues to
materially and adversely affect the interests of the Securityholders
for such period;
(ii) any representation or warranty made by the Transferor in
the Pooling and Servicing Agreement proves to have been incorrect in
any material respect when made, and as a result the interests of the
Securityholders are materially adversely affected, and such
representation or warranty continues to be incorrect for 60 days
after notice to the Transferor by the Trustee or to the Transferor
and the Trustee by more than 50 percent of the Invested Amount and
the Securityholders' Interest continues to be materially adversely
affected during such period; provided, however, that a Pay Out Event
pursuant to this subparagraph (ii) will not be deemed to occur
thereunder if the Transferor has accepted reassignment of the related
Receivable or all such Receivables, if applicable, during such period
(or such longer period as the Trustee may specify) in accordance with
the provisions thereof;
(iii) certain events of bankruptcy or insolvency relating to
the Transferor, Direct Merchants Bank or Metris;
(iv) any reduction of the average of the Portfolio Yields for
any three consecutive Monthly Periods to a rate which is less than
the weighted average Base Rates for such three consecutive Monthly
Periods;
(v) the Trust shall become subject to regulation by the
Commission as an "investment company" within the meaning of the
Investment Company Act;
(vi) (a) the Transferor Interest shall be less than the Minimum
Transferor Interest, (b) (I) the sum of the amount on deposit in the
Pre-Funding Account plus the Series 1998-2 Percentage of the sum of
the total amount of Principal Receivables plus amounts on deposit in
the Excess Funding Account shall be less than (II) the sum of the
aggregate outstanding principal amounts of the Class A Securities,
the Class B Securities, the Collateralized Trust Obligations and the
Class D Securities, (c) the total amount of Principal Receivables and
the amounts on deposit in the Excess Funding Account and the
Principal Funding Account shall be less than the Minimum Aggregate
Principal Receivables or (d) the Retained Percentage shall be equal
to or less than 2 percent, in each case as of any Determination Date;
or
(vii) any Servicer Default (as defined below) shall occur which
would have a material adverse effect on the Securityholders.
In the case of any event described in clause (i), (ii), or (vii)
above, a Pay Out Event will be deemed to have occurred with respect to the
Securities only if, after any applicable grace period, the Securityholders
evidencing undivided interests aggregating more than 50 percent of the
Invested Amount, by written notice to the Transferor and the Servicer
declare that a Pay Out Event has occurred with respect to the Securities as
of the date of such notice. In the case of any event described in clause
(iii) or (v) above, a Pay Out Event with respect to all Series then
outstanding, and in the case of any event described in clause (iv) or (vi),
a Pay Out Event with respect only to the Securities, will be deemed to have
occurred without any notice or other action on the part of the Trustee or
the Securityholders or all securityholders, as appropriate, immediately
upon the occurrence of such event. On the date on which a Pay Out Event is
deemed to have occurred, the Early Amortization Period will commence. In
such event, distributions of principal to the Securityholders will begin on
the first Distribution Date following the month in which such Pay Out Event
occurred. If, because of the occurrence of a Pay Out Event, the Early
Amortization Period begins, Securityholders will begin receiving
distributions of principal earlier than they otherwise would have, which
may shorten the average life and maturity of the Securities.
In addition to the consequences of a Pay Out Event discussed above,
if, pursuant to certain provisions of federal law, the Transferor or Metris
voluntarily enters liquidation or a trustee-in-bankruptcy is appointed for
the Transferor or Metris (an "Insolvency Event"), the Transferor will
immediately cease to transfer Principal Receivables to the Trust and
promptly give notice to the Trustee of such event. If an Insolvency Event
occurs or, at any time the Retained Percentage is equal to or less than 2
percent (a "Trigger Event"), the Pooling and Servicing Agreement and the
Trust shall be terminated, and within 15 days of notice to the Trustee, the
Trustee will publish a notice of the Insolvency Event or Trigger Event,
stating that the Trustee intends to sell, dispose of, or otherwise
liquidate the Receivables in a commercially reasonable manner. With respect
to each Series outstanding at such time, (or, if any such Series has more
than one class, of each class of such Series excluding any class or portion
thereof held by the Transferor), unless otherwise instructed within a
specified period by securityholders representing undivided interests
aggregating more than 50 percent of the invested amount of such Series (or
class excluding any class or portion thereof held by the Transferor) and
the holders of any Supplemental Securities or any other interest in the
Exchangeable Transferor Security other than the Transferor, the 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 of the Receivables allocable to such Securityholders and will
be distributed to the applicable Securityholders as provided above in
"--Application of Collections."
If the only Pay Out Event to occur is either the bankruptcy or
insolvency of the Transferor or the appointment of a bankruptcy trustee or
receiver for the Transferor, the bankruptcy trustee or receiver may have
the power to prevent the early sale, liquidation, or disposition of the
Receivables and the commencement of the Early Amortization Period. In
addition, a bankruptcy trustee or receiver may have the power to cause the
early sale of the Receivables and the early retirement of the Securities.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and
reimbursement for its expenses will take the form of the payment to it of a
servicing fee in an amount for any Monthly Period (the "Monthly Servicing
Fee") equal to the product of (i) a fraction the numerator of which is the
actual number of days in such Monthly Period and the denominator of which
is 365 or 366, (ii) the applicable Series Servicing Fee Percentage and
(iii) the Adjusted Invested Amount as of the beginning of the day on the
first day of such Monthly Period, or, in the case of the first Distribution
Date, the Initial Invested Amount. The Monthly Servicing Fee will be funded
from Finance Charge Collections allocated to the Securityholders' Interest,
and will be paid 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 will
be allocable to the Transferor Interest and the investor interests of other
Series. Neither the Trust nor the Securityholders will have any obligation
to pay such portion of the servicing fee.
The Servicer will pay from its servicing compensation certain
expenses incurred in connection with servicing the Receivables, including
without limitation payment of the fees and disbursements of the Trustee and
independent 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 Securityholders other than federal, state, and local
income and franchise taxes, if any, of the Trust.
CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
The Servicer 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 Trustee or a successor to the
Servicer has assumed the Servicer's responsibilities and obligations under
the Pooling and Servicing Agreement. The Servicer may delegate some or all
of its servicing duties; provided, however, such delegation will not
relieve the Servicer of its obligation to perform such duties in accordance
with the Pooling and Servicing Agreement. In addition, any affiliate of
Direct Merchants Bank may be substituted in all respects for Direct
Merchants Bank as Servicer, provided that such affiliate expressly assumes
the performance of every covenant and obligation of the Servicer under the
Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that the Servicer will
indemnify the Trust and the 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 the Servicer with
respect to the activities of the Trust or the Trustee; provided, however,
that the Servicer will not indemnify (a) the Trustee for liabilities
imposed by reason of fraud, gross negligence, or willful misconduct by the
Trustee in the performance of its duties under the Pooling and Servicing
Agreement, (b) the Trust, the Securityholders, or the Security Owners for
liabilities arising from actions taken by the Trustee at the request of
Securityholders, (c) the Trust, the Securityholders, or the Security Owners
for any losses, claims, damages, or liabilities incurred by any of them in
their capacities as investors, including without limitation, losses
incurred as a result of Defaulted Receivables or Dilution, or (d) the
Trust, the Securityholders, or the Security Owners for any liabilities,
costs, or expenses of the Trust, the Securityholders, or the Security
Owners arising under any tax law, including without limitation 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, the Securityholders or the Security Owners 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, the Transferor will indemnify the Trust and
the 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 by the Pooling and Servicing
Agreement as though the Pooling and Servicing Agreement created a
partnership under the Delaware Uniform Partnership Law in which the
Transferor is a general partner.
The Pooling and Servicing Agreement provides that, except for the
foregoing indemnities, neither the Transferor nor the Servicer nor any of
their respective directors, officers, employees, or agents will be under
any liability to the Trust, the Securityholders, or any other person for
any action taken, or for refraining from taking any action pursuant to the
Pooling and Servicing Agreement. Neither the Transferor nor the Servicer
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 gross negligence of the
Transferor, the Servicer, 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 the Servicer is not under any obligation to appear in,
prosecute, or defend any legal action that 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.
Under the Pooling and Servicing Agreement, the Transferor will be
liable directly to an injured party for the entire amount of any losses,
claims, damages or liabilities (other than those incurred by a
Securityholder in the capacity of an investor in the Securities) arising
out of or based on the arrangement created by the Pooling and Servicing
Agreement or the actions of the Servicer taken pursuant to the Pooling and
Servicing Agreement as though the Pooling and Servicing Agreement created a
partnership under the Delaware Uniform Partnership Act in which the
Transferor is a general partner. The Transferor will also pay, indemnify
and hold harmless each Securityholder for any such losses, claims, damages
or liabilities (other than those incurred by a Securityholder in the
capacity of an investor in the Securities) except to the extent that they
arise from any action by any Securityholder. In the event of a Service
Transfer, the successor Servicer will indemnify the Transferor for any
losses, claims, damages and liabilities of the Transferor as described in
this paragraph arising from the actions or omissions of such successor.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the
Trustee or securityholders representing undivided interests aggregating
more than 50 percent of the aggregate investor interests for all
outstanding Series, by written notice to the Servicer (and to the Trustee
if given by the securityholders), may terminate all of the rights and
obligations of the Servicer as servicer under the Pooling and Servicing
Agreement and in and to the Receivables and the proceeds thereof and the
Trustee may appoint a new Servicer (a "Service Transfer"). The rights and
interest of the Transferor under the Pooling and Servicing Agreement and in
the Transferor Interest will not be affected by such termination. Upon such
termination, the Trustee will as promptly as possible appoint a successor
Servicer. If no such Servicer has been appointed and has accepted such
appointment by the time the Servicer ceases to act as Servicer, all
authority, power and obligations of the Servicer under the Pooling and
Servicing Agreement will pass to and be vested in the Trustee. If the
Trustee is unable to obtain any bids from eligible servicers and the
Servicer delivers an officer's certificate to the effect that it cannot in
good faith cure the applicable Servicer Default, and if the Trustee is
legally unable to act as a successor Servicer, then the Trustee will give
the Transferor the right to accept reassignment of all of the Receivables
on terms equivalent to the best purchase offer as determined by the
Trustee.
A "Servicer Default" refers to any of the following events:
(i) failure by the Servicer to make any payment, transfer, or
deposit, or to give instructions to the Trustee to make certain
payments, transfers, or deposits within five business days after the
date the Servicer is required to do so under the Pooling and
Servicing Agreement or any Supplement; provided, however, that any
such failure caused by a nonwillful act of the Servicer shall not
constitute a Servicer Default if the Servicer promptly remedies such
failure within five business days after receiving notice of such
failure or otherwise becoming aware of such failure;
(ii) failure on the part of the Servicer duly to observe or
perform in any respect any other covenants or agreements of the
Servicer which has a material adverse effect on the securityholders
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 the Servicer by the
Trustee, or to the Servicer and the Trustee by holders of Securities
evidencing undivided interests aggregating not less than 50 percent
of the Invested Amount of any Series materially adversely affected
thereby and continues to have a material adverse effect on the
securityholders of any Series then outstanding for such period; or
the delegation by the Servicer of its duties under the Pooling and
Servicing Agreement, except as specifically permitted thereunder;
(iii) any representation, warranty, or certification made by
the Servicer 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 securityholders 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 the
Servicer by the Trustee, or to the Servicer and Trustee by the
holders of Securities evidencing undivided interests aggregating not
less than 50 percent of the Invested Amount of any Series materially
adversely affected thereby and continues to have a material adverse
effect on such securityholders for such period; or
(iv) the occurrence of certain events of bankruptcy, insolvency
or receivership of the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in clause (i) above for a period of five business days, or
referred to under clause (ii) or (iii) for a period of 60 business days,
will not constitute a Servicer Default if such delay or failure could not
be prevented by the exercise of reasonable diligence by the Servicer and
such delay or failure was caused by an act of God or other similar
occurrence. Upon the Servicer becoming aware of any such event, the
Servicer 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 the Servicer will provide the Trustee, any
provider of Enhancement, the Transferor and the holders of securities 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 were appointed for the Servicer and no Servicer Default other than
such bankruptcy or receivership or the insolvency of the Servicer exists,
the bankruptcy trustee or receiver may have the power to prevent either the
Trustee or the majority of the securityholders from effecting a Service
Transfer.
REPORTS TO SECURITYHOLDERS
On each Distribution Date, the Paying Agent will forward to each
Securityholder of record a statement prepared by the Servicer setting forth
with respect to such Series: (a) the total amount distributed, (b) the
amount of the distribution allocable to principal on the Class A
Securities, the Class B Securities, the Collateralized Trust Obligations
and the Class D Securities, (c) the amount of such distribution allocable
to interest on the Class A Securities, the Class B Securities and the
Collateralized Trust Obligations, (d) the amount of Principal Collections
processed during the related Monthly Period and allocated in respect of the
Class A Securities, the Class B Securities, the Collateralized Trust
Obligations and the Class D Securities, respectively, (e) the amount of
Finance Charge Collections processed during the preceding Monthly Period
and allocated in respect of the Class A Securities, the Class B Securities,
the Collateralized Trust Obligations and the Class D Securities,
respectively, (f) the aggregate amount of Principal Receivables, the
Invested Amount, the Class A Invested Amount, the Class B Invested Amount,
the CTO Invested Amount, the Class D Invested Amount, the Pre-Funded
Amount, the Floating Percentage, and during the Amortization Period, the
Fixed/Floating Percentage with respect to the Principal Receivables in the
Trust as of the close of business on the Record Date, (g) the aggregate
outstanding balance of Receivables which are current, 30-59, 60-89 and 90
days and over contractually delinquent as of the end of the day on the
Record Date, (h) the aggregate Series Default Amount for the related
Monthly Period, (i) the aggregate amount of Class A Charge-Offs, Class B
Charge-Offs, CTO Charge-Offs and Class D Charge-Offs for the preceding
Monthly Period, (j) the amount of the Monthly Servicing Fee for the
preceding Monthly Period, (k) the aggregate amount of funds in the Excess
Funding Account as of the last day of the Monthly Period immediately
preceding the Distribution Date, (l) the number of new Accounts added to
the Trust during the related Monthly Period and (m) the Class A Interest
Rate, the Class B Interest Rate and the CTO Interest Rate for the Interest
Accrual Period.
The Paying Agent will furnish to each person who at any time during
the preceding calendar year was a Securityholder of record a statement
prepared by the Servicer containing the information required to be
contained in the regular monthly report to Securityholders, as set forth in
clauses (a), (b), and (c) above aggregated for such calendar year or the
applicable portion thereof during which such person was a Securityholder,
together with, on or before January 31 of each year, beginning in 1999,
such customary information (consistent with the treatment of the Securities
as debt) as the Servicer or Trustee deems necessary or desirable for tax
reporting purposes.
Following the listing of the Offered Securities on the Luxembourg
Stock Exchange, the Trustee will publish or will cause to be published
following each Distribution Date in a daily newspaper in Luxembourg
(expected to be the Luxemburger Wort) a notice to the effect that the
information set forth in the second preceding paragraph will be available
for review at the main office of the listing agent of the Trust in
Luxembourg, Luxembourg. Following the listing of the Offered Securities on
the Luxembourg Stock Exchange and prior to each Distribution Date with
respect to the Amortization Period, the Luxembourg Stock Exchange will be
advised of the principal amount of the Class A Securities and the Class B
Securities that will be outstanding after the principal distribution to be
made on such Distribution Date.
Following the listing of the Offered Securities on the Luxembourg
Stock Exchange, notices to Securityholders will be given by publication in
a daily newspaper in Luxembourg, which is expected to be the Luxemburger
Wort. In the event that Definitive Securities are issued, notices to
Securityholders will also be given by mail to the addresses of such holders
as they appear in the security register.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that within 100 days of
the end of each fiscal year the Servicer will cause a firm of independent
public accountants to furnish to the Trustee on an annual basis a report to
the effect that such firm has compared the amounts and percentages set
forth in four of the monthly settlement statements for the Monthly Periods
covered by such report with the computer reports (which may include
personal computer generated reports that summarize data from the computer
reports generated by either the Transferor, the Servicer or FDR which are
used to prepare daily reports) which were the source of such amounts and
percentages and that, on the basis of such comparison, such amounts and
percentages are in agreement, except as shall be set forth in such report.
A copy of such report will be sent by the Trustee to each Securityholder.
The Pooling and Servicing Agreement provides that within 100 days of
the end of each fiscal year, the Servicer will cause a firm of nationally
recognized independent public accountants to furnish a report to the effect
that such firm has applied certain procedures, as agreed upon between such
firm and the Servicer, which would re-perform certain accounting procedures
performed by the Servicer pursuant to certain documents and records
relating to the servicing of the Accounts. Each report shall set forth the
agreed upon procedures performed and the results of such procedures.
The Pooling and Servicing Agreement also provides for delivery to the
Trustee on an annual basis, within 100 days of the end of the fiscal year,
of a statement signed by an officer of the Servicer to the effect that the
Servicer has, or has caused to be, fully performed its obligations in all
material respects under the Pooling and Servicing Agreement throughout the
preceding year or, if there has been a default in the performance of any
such obligation, specifying the nature and status of the default. A copy of
such statement may be obtained by any Securityholder upon the submission of
a written request therefor addressed to the Trustee's Corporate Trust
Office.
AMENDMENTS
The Pooling and Servicing Agreement and the Series 1998-2 Supplement
may be amended by the Transferor, the Servicer and the Trustee, without the
consent of Securityholders, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Pooling
and Servicing Agreement and the Series 1998-2 Supplement or of modifying in
any manner the rights of such Securityholders; provided that (i) the
Servicer shall have provided an officer's certificate to the effect that
such action will not adversely affect in any material respect the interests
of such Securityholders, (ii) except in the case of any amendment for the
sole purpose of curing any ambiguity or correcting or supplementing any
inconsistent provision of the Pooling and Servicing Agreement or revising
any schedule thereto (other than the list of Receivables), the Rating
Agencies shall have been notified of such amendment and shall have provided
written confirmation that they would not lower the rating of the Class A
Securities, the Class B Securities or the Collateralized Trust Obligations,
and (iii) such action will not, in the opinion of counsel satisfactory to
the Trustee, result in certain adverse tax consequences. In addition, the
Pooling and Servicing Agreement and the Series 1998-2 Supplement may be
amended from time to time by the Transferor, the Servicer, and the Trustee,
without the consent of Securityholders, to add to or change any of the
provisions of the Pooling and Servicing Agreement to provide that bearer
securities issued with respect to any other Series may be registrable as to
principal, to change or eliminate any restrictions on the payment of
principal of or any interest on such bearer securities, to permit such
bearer securities to be issued in exchange for registered securities or
bearer securities of other authorized denominations or to permit the
issuance of uncertificated securities. Securityholders by purchase of their
Securities will be deemed to have consented to a modification to the
bankruptcy and insolvency Pay Out Event specified in the Pooling and
Servicing Agreement such that it will be as specified in clause (iii) in
"--Pay Out Events" above.
The Pooling and Servicing Agreement and the Series 1998-2 Supplement
may be amended by the Transferor, the Servicer, and the Trustee with the
consent of the holders of securities evidencing undivided interests
aggregating not less than 66 2/3 percent of the investor interests of each
and every Series adversely affected, for the purpose of adding any
provisions to, changing in any manner or eliminating any of the provisions
of the Pooling and Servicing Agreement, or any Supplement or of modifying
in any manner the rights of securityholders of any then outstanding Series.
No such amendment, however, may (a) reduce in any manner the amount of, or
delay the timing of, distributions required to be made on any such Series,
(b) change the definition of or the manner of calculating the interest of
any securityholder of such Series, or (c) reduce the aforesaid percentage
of investor interests the holders of which are required to consent to any
such amendment, in each case without the consent of all securityholders of
all Series adversely affected. Promptly following the execution of any
amendment to the Pooling and Servicing Agreement, the Trustee will furnish
written notice of the substance of such amendment to each Securityholder.
Any Supplement and any amendments regarding the addition or removal of
Receivables from the Trust will not be considered an amendment requiring
securityholder consent under the provisions of the Pooling and Servicing
Agreement and any Supplement.
Additionally, upon the receipt by the Transferor, the Servicer and
the Trustee of a Tax Opinion reasonably satisfactory to each of them, the
Pooling and Servicing Agreement and the Series 1998-2 Supplement may be
amended by the Transferor, the Servicer and the Trustee without the consent
of any of the Securityholders (i) to add, modify or eliminate such
provisions as may be necessary or advisable in order to enable all or a
portion of the Trust to qualify as, and to permit an election to be made to
cause all or a portion of the Trust to be treated as, a "financial asset
securitization investment trust" as described in the provisions of the
FASIT legislation (see "Certain Federal Income Tax Consequences--Recent
Legislation"), or to enable all or a portion of the Trust to qualify and an
election to be made for similar treatment under such comparable subsequent
federal income tax provisions as may ultimately be enacted into law, and
(ii) in connection with any such election, to modify or eliminate existing
provisions of the Pooling and Servicing Agreement and any Supplement
relating to the intended federal income tax treatment of the Securities and
the Trust in the absence of the election.
Promptly following the execution of any amendment to the Pooling and
Servicing Agreement requiring Securityholder consent, the Trustee will
furnish written notice of the substance of such amendment to each
Securityholder. Following the listing of the Offered Securities on the
Luxembourg Stock Exchange, such notice will be published in a daily
newspaper in Luxembourg, which is expected to be the Luxemburger Wort. Any
Supplement and any amendments regarding the addition or removal of
Receivables from the Trust will not be considered an amendment requiring
Securityholder consent under the provisions of the Pooling and Servicing
Agreement and any Supplement.
LIST OF SECURITYHOLDERS
Upon written request of Securityholders representing undivided
interests in the Trust aggregating not less than 10 percent of the Invested
Amount, the Trustee after having been adequately indemnified by such
Securityholders for its costs and expenses, and having given the Servicer
notice that such request has been made, will afford such Securityholders
access during business hours to the current list of Securityholders of the
Trust for purposes of communicating with other Securityholders with respect
to their rights under the Pooling and Servicing Agreement. See
"--Book-Entry Registration" and "--Definitive Securities."
THE TRUSTEE
The Bank of New York (Delaware) is the Trustee under the Pooling and
Servicing Agreement. The Trustee's Corporate Trust Office is located at
White Clay Center, Route 273, Newark, Delaware 19711. The Transferor, the
Servicer, and their respective affiliates may from time to time enter into
normal banking, lending and trustee relationships with the Trustee and its
affiliates. The Trustee, the Transferor, the Servicer, and any of their
respective affiliates may hold Securities in their own names. In addition,
for purposes of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint a co-trustee or
separate 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 Trustee by the Pooling and Servicing Agreement will be
conferred or imposed upon the Trustee and such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who will exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time. The Transferor may also remove
the Trustee if the Trustee ceases to be eligible to continue as such under
the Pooling and Servicing Agreement or if the Trustee becomes insolvent.
The Trustee at all times must not be a Related Person. In such
circumstances, the Transferor will be obligated to appoint a successor
Trustee. Any resignation or removal of the Trustee and appointment of a
successor Trustee does not become effective until acceptance of the
appointment by the successor Trustee.
If the Trustee fails to perform any of its obligations under the
Pooling and Servicing Agreement, and a securityholder delivers written
notice of such failure to the Trustee, and the Trustee shall not have
corrected such failure for 60 days thereafter, then the holders of Investor
Securities representing more than 50 percent of the aggregate invested
amount of all Series (including related commitments) shall have the right
to remove the Trustee and (with the consent of the Transferor, which shall
not be unreasonably withheld) promptly appoint a successor Trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor Trustee.
DESCRIPTION OF THE PURCHASE AGREEMENTS
PURCHASES OF RECEIVABLES
Bank Purchase Agreement. Pursuant to the Bank Purchase Agreement,
Direct Merchants Bank sells to Metris, all of its right, title and interest
in and to (i) the Receivables existing on the date of such agreement and
thereafter created and arising in connection with the Accounts and any
accounts that meet the definition of Additional Accounts, including,
without limitation, all accounts, general intangibles, chattel paper and
other obligations of any Obligor with respect to the Receivables, then or
thereafter existing, whether or not arising out of or in connection with
the sale or lease of goods or the rendering of services, but, excluding any
accounts that are designated as "excluded accounts" pursuant to the Bank
Purchase Agreement, (ii) all monies and investments due or to become due
with respect thereto (including, without limitation, the right to any
Finance Charge Receivables, including any recoveries) and (iii) all
proceeds of such Receivables.
Purchase Agreement. The Transferor purchases Receivables on an
ongoing basis from Metris pursuant to the Purchase Agreement. Pursuant to
the Purchase Agreement, the Transferor purchases from Metris all
Receivables arising from time to time until the Purchase Termination Date
(as defined below in "--Purchase Termination Date"). On each business day
prior to the Purchase Termination Date, Metris will deliver all of its
Receivables to the Transferor. Pursuant to the Pooling and Servicing
Agreement, such Receivables are thereafter transferred immediately by the
Transferor to the Trust, and the Transferor has assigned its rights in, to
and under the Purchase Agreement and the Bank Purchase Agreement with
respect to such Receivables to the Trust.
REPRESENTATIONS AND WARRANTIES
Bank Purchase Agreement. In the Bank Purchase Agreement, Direct
Merchants Bank represents and warrants to Metris that, among other things,
(a) Direct Merchants Bank is a national banking association validly
existing and in good standing under the laws of the United States, and has
full corporate power, authority and legal right to execute, deliver and
perform its obligations under the Bank Purchase Agreement, (b) the Bank
Purchase Agreement constitutes a valid and binding obligation of Direct
Merchants Bank, enforceable against Direct Merchants Bank in accordance
with its terms, subject to customary bankruptcy- and equity-related
exceptions, (c) Direct Merchants Bank is the legal and beneficial owner of
all right, title and interest in and to each Receivable conveyed to Metris
pursuant to the Bank Purchase Agreement, and each such Receivable has been
or will be transferred to Metris free and clear of any lien other than
Permitted Liens, (d) Direct Merchants Bank has the full right, power and
authority to transfer the Receivables pursuant to the Bank Purchase
Agreement, (e) the Bank Purchase Agreement constitutes a valid transfer and
assignment to Metris of all right, title and interest of Direct Merchants
Bank in and to the Receivables, all monies due or to become due and all
proceeds related thereto, or an absolute sale of such property and the
proceeds thereof and (f) each Account classified as an "Eligible Account"
by Direct Merchants Bank in any document or report delivered under the Bank
Purchase Agreement will satisfy the requirements contained in the
definition of Eligible Account and each Receivable classified as an
"Eligible Receivable" by Direct Merchants Bank in any document or report
delivered under the Bank Purchase Agreement will satisfy the requirements
contained in the definition of Eligible Receivable.
Purchase Agreement. Pursuant to the Purchase Agreement, Metris
represents and warrants to the Transferor that, among other things, subject
to specified exceptions and limitations, Metris is duly organized, validly
existing, and in good standing under the laws of Delaware, Metris is duly
qualified to do business and in good standing (or is exempt from such
requirement) in any state required in order to conduct its business and has
obtained all necessary licenses and approvals required under applicable
law, and Metris has the requisite corporate power and authority to perform
its obligations under the Purchase Agreement.
Pursuant to the Purchase Agreement, Metris additionally represents
and warrants that, among other things, subject to specified exceptions and
limitations, (i) the execution and delivery of the Purchase Agreement and
the consummation of the transactions provided for in the Purchase Agreement
have been duly authorized by Metris by all necessary corporate action on
its part, (ii) the execution and delivery of the Purchase Agreement and the
performance of the transactions contemplated thereby do not contravene
Metris' charter or by-laws, violate any material provision of law
applicable to it, require any filing (except for filings under the UCC),
registration, consent, or approval under any such law except for such
filings, registrations, consents, or approvals as have already been
obtained and are in full force and effect, (iii) except as described in the
Purchase Agreement, Metris has filed all tax returns required to be filed
and has paid or made adequate provision for the payment of all taxes,
assessments, and other governmental charges due from Metris or is
contesting any such tax, assessment or other governmental charge in good
faith through appropriate proceedings, (iv) there are no proceedings or
investigations pending or, to the best knowledge of Metris, threatened
against Metris before any court, regulatory body, administrative agency, or
other tribunal or governmental instrumentality asserting the invalidity of
the Purchase Agreement, seeking to prevent the consummation of any of the
transactions contemplated by the Purchase Agreement, seeking any
determination or ruling that would materially and adversely affect the
performance by Metris of its obligations thereunder or seeking any
determination or ruling that would materially and adversely affect the
validity or enforceability thereof, (v) Metris has no knowledge of any fact
that should have led it to expect at the time of the classification of any
Receivable as an Eligible Receivable that such Receivable would not be paid
in full when due, and each Receivable classified as an Eligible Receivable
by Metris in any document or report delivered under the Purchase Agreement
satisfies the requirements of eligibility contained in the definition of
Eligible Receivable set forth in the Purchase Agreement, (vi) the Purchase
Agreement constitutes the legal, valid, and binding obligation of Metris,
(vii) Metris is not insolvent, (viii) Metris is not an "investment company"
within the meaning of the Investment Company Act (or is exempt from all
provisions of such Act), (ix) Metris is the legal and beneficial owner of
all right, title and interest in and to each Receivable conveyed to the
Transferor by Metris pursuant to the Purchase Agreement, and each such
Receivable has been or will be transferred to the Transferor free and clear
of any lien other than Permitted Liens and in compliance in all material
respects with all requirements of law applicable to Metris and (x) the
transfer of Receivables by it to the Transferor under the Purchase
Agreement constitutes a valid sale, transfer, assignment, set-over and
conveyance to the Trust of all right, title and interest of Metris in and
to the Receivables whether existing as of the Initial Closing Date or
thereafter created (except for Permitted Liens).
If certain of the representations or warranties described above are
not true with respect to any Receivable at the time such representation or
warranty was made or any Receivable becomes an Ineligible Receivable, then
Metris will be obligated to pay to the Transferor an amount equal to the
principal amount of such Receivable.
The Pooling and Servicing Agreement (i) requires the Transferor to
make a demand on Metris to repurchase Receivables in such cases where the
Transferor is required under the Pooling and Servicing Agreement to
repurchase Receivables from the Trust and (ii) permits the Transferor to
consent to the sale of Receivables to a third party only in such
circumstances where the Transferor may remove Receivables from the Trust
under the Pooling and Servicing Agreement.
CERTAIN COVENANTS
Bank Purchase Agreement. It is the intention of Direct Merchants Bank
and Metris that the conveyance of the Receivables by Direct Merchants Bank
to Metris contemplated by the Bank Purchase Agreement be construed as an
absolute sale of the Receivables by Direct Merchants Bank to Metris. It is
not intended that such conveyance be deemed a pledge of the Receivables by
Direct Merchants Bank to Metris to secure a debt or other obligation of
Direct Merchants Bank, but the Bank Purchase Agreement shall also be deemed
to be a security agreement within the meaning of Article 9 of the UCC and
the conveyance provided for in the Bank Purchase Agreement shall be deemed
to be a grant by Direct Merchants Bank to Metris of a "security interest"
within the meaning of Article 9 of the UCC in all of Direct Merchants
Bank's right, title and interest in and to the Receivables.
In the Bank Purchase Agreement, Direct Merchants Bank covenants that,
among other things, except as required by law or as Direct Merchants Bank
may determine to be appropriate and subject to specified exceptions and
limitations, (i) it will take no action to cause any Receivable to be
anything other than an account, general intangible or chattel paper, (ii)
except for the conveyances under the Bank Purchase Agreement, it will not
sell any Receivable or grant a lien (other than a Permitted Lien) on any
Receivable, (iii) except as it deems necessary to maintain its credit card
business on a competitive basis, it will not reduce the annual percentage
rates of the Periodic Finance Charges assessed on the Receivables or other
fees charged on the Accounts if, as a result of any such reduction, either
a Pay Out Event would occur or such reduction is not also applied to any
comparable segment of accounts owned by it similar to the Accounts, (iv) it
will comply with and perform its obligations under the Contracts relating
to the Accounts and the Credit and Collection Policy and that it will not
change the terms of such agreements or policies if any such change would,
in either case, materially and adversely affect the rights of the Trust or
the securityholders, and that it will not enter into any amendment to the
Bank Purchase Agreement that would cause a Ratings Event to occur so long
as any securities under any Series are outstanding, and (v) in the event it
receives a collection on any Receivable, it will pay such collection to the
Transferor as soon as practicable.
Purchase Agreement. It is the intention of Metris and the Transferor
that the conveyance of the Receivables by Metris be construed as an
absolute sale of the Receivables by Metris to the Transferor. It is not
intended that such conveyance be deemed a pledge of the Receivables by
Metris to the Transferor to secure a debt or other obligation of Metris,
but the Purchase Agreement shall also be deemed to be a security agreement
within the meaning of Article 9 of the UCC and the conveyance provided for
in the Purchase Agreement shall be deemed to be a grant by Metris to the
Transferor of a "security interest" within the meaning of Article 9 of the
UCC in all of Metris' right, title and interest in and to the Receivables.
Pursuant to the Purchase Agreement, Metris covenants that, among other
things, subject to specified exceptions and limitations, (i) it will take
no action to cause any Receivable to be anything other than an account,
general intangible or chattel paper, (ii) except for the conveyances under
the Purchase Agreement, it will not sell any Receivable or grant a lien
(other than a Permitted Lien) on any Receivable, (iii) except as it deems
necessary to maintain its credit card business on a competitive basis, it
will not reduce the annual percentage rates of the Periodic Finance Charges
assessed on the Receivables or other fees charged on the Accounts if, as a
result of any such reduction, either a Pay Out Event would occur or such
reduction is not also applied to any comparable segment of accounts owned
by it similar to the Accounts, (iv) it will comply with and perform its
obligations under the Contracts relating to the Accounts and the Credit and
Collection Policy and that it will not change the terms of such agreements
or policies if any such change would, in either case, materially and
adversely affect the rights of the Trust or the securityholders, and that
it will not enter into any amendment to the Bank Purchase Agreement that
would cause a Ratings Event to occur so long as any securities under any
Series are outstanding, (v) in the event it receives a collection on any
Receivable, it will pay such collection to the Transferor as soon as
practicable, (vi) it will not convey or transfer any Receivable, except as
otherwise provided in the Purchase Agreement, and (vii) it will take all
actions reasonably necessary to maintain its rights under all Contracts to
which it is a party.
PURCHASE TERMINATION DATE
Bank Purchase Agreement. If Direct Merchants Bank becomes insolvent,
Metris' obligations under the Bank Purchase Agreement will automatically be
terminated. In addition, if Metris becomes insolvent, or shall become
unable for any reason to purchase Receivables from Direct Merchants Bank in
accordance with the provisions of the Bank
Purchase Agreement, Metris' obligations under the Bank Purchase Agreement
as to Direct Merchants Bank will automatically be terminated
Purchase Agreement. If Metris becomes insolvent, the Transferor's
obligations under the Purchase Agreement will automatically be terminated.
In addition, if the Transferor becomes insolvent or shall become unable for
any reason to purchase Receivables from Metris in accordance with the
provisions of the Purchase Agreement, the Transferor's obligations under
the Purchase Agreement as to Metris will automatically be terminated. The
date of any such termination will be the "Purchase Termination Date."
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor has represented and warranted 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 the Transferor in and to the Receivables,
except for Permitted Liens and the interest of the Transferor as holder of
the Exchangeable Transferor Security and any other Investor Security of any
Series then held by it, or the grant to the Trust of a security interest in
the Receivables. The Transferor has also represented and warranted in the
Pooling and Servicing Agreement that, in the event the transfer of
Receivables by the Transferor to the Trust is deemed to create a security
interest under the UCC, there will exist 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. For a discussion of the Trust's rights
arising from a breach of these warranties, see "Description of the Offered
Securities--Representations and Warranties."
The Transferor has represented that the Receivables are "accounts,"
"general intangibles" or "chattel paper" as each is defined in Article 9 of
the UCC as then in effect in each Relevant UCC State. Both the sale of
accounts and chattel paper and the transfer of accounts 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
the filing of an appropriate financing statement will perfect the security
interest of the Trust. If a transfer of general intangibles is deemed to
constitute the creation of a security interest, rather than a sale, Article
9 of the UCC applies and the filing of one or more appropriate financing
statements is also required in order to perfect 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
under the UCC.
If the transfer of Receivables constituting general intangibles is
deemed to be a sale, then the UCC is not applicable and no further action
is required to protect the Trust's interest from third parties. Although
the priority of future generated general intangibles is not as clear as the
priority of interests governed by the UCC, Direct Merchants Bank, Metris
and the Transferor believe that it would be inconsistent for a court to
afford the Trust less favorable treatment if the transfer of the
Receivables is deemed to be a sale than if it were deemed to be a security
interest and that a court should conclude that a sale of Receivables
consisting of general intangibles would be deemed to have occurred as of
the Initial Closing Date or, as applicable, the relevant date of
designation for inclusion in the Trust.
There are certain limited circumstances under the UCC in which a
prior or subsequent transferee of Receivables coming into existence after
the Initial Closing Date could have an interest in such Receivables with
priority over the Trust's interest. Under the Pooling and Servicing
Agreement, however, the Transferor has represented and warranted that it
transferred the Receivables to the Trust free and clear of the lien of any
third party. In addition, the Transferor has covenanted that it will not
sell, pledge, assign, transfer, or grant any lien (other than a Permitted
Lien) on any Receivable (or any interest therein) other than a Permitted
Lien. A tax or other governmental lien on property of the Transferor
arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivable. There is a
significant possibility that the Trust may not have a perfected security
interest in any of the Receivables created after the filing of a petition
for relief by or against Metris or the Transferor under the Bankruptcy Code
or after the appointment of a receiver or conservator with respect to
Direct Merchants Bank. Nevertheless, it is anticipated that the Trust will
either own or have a perfected security interest in Receivables existing on
the date of filing a petition by or against Metris or the Transferor under
the Bankruptcy Code or after the date of appointment of a receiver or
conservator with respect to Direct Merchants Bank and will be able to make
payments in respect of principal and interest on the Offered Securities,
although there can be no assurance that any of such payments would be
timely. Because the Trust's interest in the Receivables is dependent upon
the Transferor's interest in the Receivables, which is dependent upon
Metris' or Direct Merchants Bank's interest in the Receivables, any adverse
change in the priority or perfection of the Transferor's or Metris'
security interest would correspondingly affect the Trust's interest in the
affected Receivables. In addition, if a receiver or conservator were
appointed for Direct Merchants Bank, certain administrative expenses of the
receiver or conservator also may have priority over the interest of the
Trust in such Receivables. While Direct Merchants Bank is the Servicer,
certain cash collections on the Receivables may be held by Direct Merchants
Bank and commingled with its funds for brief periods, and if an Insolvency
Event occurs, the Trust may not have a perfected interest in such
commingled collections.
CERTAIN MATTERS RELATING TO BANKRUPTCY OR RECEIVERSHIP
The Transferor will not engage in any activities except purchasing
accounts receivable from Metris or any affiliate of Metris, forming trusts,
transferring such accounts receivable to such trusts and engaging in
activities incident to, or necessary or convenient to accomplish, the
foregoing. The Transferor has no intention of filing a voluntary petition
under the United States federal bankruptcy code or any similar applicable
state law so long as the Transferor is solvent and does not reasonably
foresee becoming insolvent.
The voluntary or involuntary application for relief under the
Bankruptcy Code or any similar applicable state law with respect to Metris
should not necessarily result in a similar voluntary application with
respect to the Transferor so long as the Transferor is solvent and does not
reasonably foresee becoming insolvent either by reason of Metris'
insolvency or otherwise. Counsel has advised Metris and the Transferor that
(i) the assets and liabilities of the Transferor would not be substantively
consolidated with the assets and liabilities of Metris in the event of a
petition for relief under the Bankruptcy Code with respect to Metris and
(ii) the sale of Receivables by Metris would constitute a valid sale and,
therefore, such Receivables would not be property of Metris in the event of
the filing of an application for relief by or against Metris under the
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
Metris, Metris as debtor-in-possession, or a creditor of Metris were to
take the view that Metris and the Transferor should be substantively
consolidated or that the transfer of the Receivables from Metris to the
Transferor should be recharacterized as a pledge of such Receivables, then
delays in payments on the Offered Securities and the Collateralized Trust
Obligations or (should the bankruptcy court rule in favor of any such
trustee, debtor-in-possession or creditor) reductions in such payments on
such Securities could result.
The Pooling and Servicing Agreement provides that, upon the
bankruptcy or appointment of a receiver for the Transferor, Direct
Merchants Bank or Metris, the Transferor will promptly give notice thereof
to the Trustee, and a Pay Out Event with respect to all Series will occur,
and under the Pooling and Servicing Agreement, no new Principal Receivables
will be transferred to the Trust. Upon the bankruptcy of the Transferor,
unless otherwise instructed within a specified period by the
securityholders representing undivided interests aggregating more than 50
percent of the aggregate invested amount of each Series (and, with respect
to Series 1998-2, the holders of more than 50 percent of each of the Class
A Securities, the Class B Securities and the Collateralized Trust
Obligations), the 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 would then be treated by the Trustee as collections on the
Receivables. If the only Pay Out Event to occur is either the insolvency of
the Transferor or the appointment of a bankruptcy trustee or receiver for
the Transferor, the receiver or bankruptcy trustee for the Transferor may
have the power to continue to require the Transferor 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 Offered Securities--Pay
Out Events."
Direct Merchants Bank has represented and warranted to Metris and
Metris has represented and warranted to the Transferor, in the Purchase
Agreements, respectively, that the sale of the Receivables to Metris or the
Transferor, respectively, is a valid sale of the Receivables to Metris or
the Transferor, respectively. In addition, Direct Merchants Bank, Metris
and the Transferor have treated and will treat the transaction described in
the Purchase Agreements as sales of the Receivables to Metris and the
Transferor, respectively, and Metris has taken or will take all actions
that are required under the UCC to perfect Metris' and the Transferor's
ownership interest, respectively, in the Receivables. Notwithstanding the
foregoing, if Metris were to become a debtor in a bankruptcy case and a
creditor or trustee-in-bankruptcy of such debtor or such debtor itself were
to take the position that the sale of Receivables from Metris to the
Transferor, should be recharacterized as a pledge of such Receivables to
secure a borrowing from such debtor, then delays in payments of collections
of Receivables to the Transferor (and therefore to the Trust and to
Securityholders) could occur and (should the court rule in favor of any
such trustee, debtor-in-possession or creditor) reductions in the amount of
such payments could result.
The Federal Deposit Insurance Act ("FDIA"), as amended by FIRREA,
which became effective August 9, 1989, sets forth certain powers that the
FDIC could exercise if it were appointed as conservator or receiver of
Direct Merchants Bank. Among other things, the FDIA grants such a
conservator or receiver the power to repudiate contracts of, and to request
a stay of up to 90 days of any judicial action or proceeding involving,
Direct Merchants Bank.
To the extent that (i) Direct Merchants Bank granted a security
interest in the Receivables to Metris, Metris granted a security interest
in the Receivables to the Transferor and the Transferor granted a security
interest in the Receivables to the Trust, (ii) the interest was validly
perfected before Direct Merchants Bank's insolvency, (iii) each such
interest was not taken or granted in contemplation of Direct Merchants
Bank's insolvency or with the intent to hinder, delay or defraud Direct
Merchants Bank or its creditors, (iv) each of the Purchase Agreements and
the Pooling and Servicing Agreement is continuously a record of Direct
Merchants Bank, and (v) each of the Purchase Agreements and the Pooling and
Servicing Agreement represents a bona fide and arm's length transaction
undertaken for adequate consideration in the ordinary course of business,
such valid perfected security interest of the Trust should be enforceable
(to the extent of the Trust's "actual direct compensatory damages")
notwithstanding the insolvency of, or the appointment of a receiver or
conservator for, Direct Merchants Bank and payments to the Trust with
respect to the Receivables (up to the amount of such damages) should not be
subject to an automatic stay of payment or to recovery by the FDIC as
conservator or receiver of Direct Merchants Bank. If, however, the FDIC
were to assert that the security interest was unperfected or unenforceable
or were to require the Trust to establish its right to those payments by
submitting to and completing the administrative claims procedure
established under FIRREA, or the conservator or receiver were to request a
stay of proceedings with respect to Direct Merchants Bank as provided under
FIRREA, delays in payments to the Trust on the Securities and possible
reductions in the amount of those payments could occur. The FDIA does not
define the terms "actual direct compensatory damages." On April 10, 1990,
the RTC, formerly a sister agency of the FDIC, adopted the RTC Policy
Statement with respect to the payment of interest on collateralized
borrowings. The RTC Policy Statement states that interest on such
borrowings will be payable at the contract rate up to the date of the
redemption or payment by the conservator, receiver, or the trustee of an
amount equal to the principal owed plus the contract rate of interest up to
the date of such payment or redemption, plus any expenses of liquidation if
provided for in the contract, to the extent secured by the collateral. The
FDIC, however, has not adopted a formal policy statement on payment of
"actual direct compensatory damages" with respect to collateralized
borrowings of banks that are repudiated, and may not follow the approach of
the RTC. In addition, in a 1993 case involving zero-coupon bonds, however,
a federal district court held that the RTC was instead obligated to pay
bondholders the fair market value of repudiated bonds as of the date of
repudiation.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.
1993), cert. denied, 114 S. Ct. 554 (1993), the United States Court of
Appeals for the 10th Circuit suggested that even where a transfer of
accounts from a seller to a buyer constitutes a "true sale," the accounts
would nevertheless constitute property of the seller's bankruptcy estate in
a bankruptcy of the seller. If Metris or the Transferor were to become
subject to a bankruptcy proceeding or if Direct Merchants Bank were to
become subject to a receivership and a court were to follow the 10th
Circuit's reasoning, Securityholders might experience delays in payment or
possibly losses in their investment in the Securities. Counsel to the
Transferor has advised the Transferor that the facts of the Octagon case
are distinguishable from those in the sale transactions between Direct
Merchants Bank and Metris, Metris and the Transferor and the Transferor and
the Trust and that the reasoning of the 10th Circuit appears to be
inconsistent with established precedent and the UCC.
The occurrence of certain events of insolvency, conservatorship or
receivership with respect to the Servicer will result in a Servicer
Default, which Servicer Default, in turn, could result in a Pay Out Event.
If no other Servicer Default other than the commencement of such bankruptcy
or similar event exists, a conservator or receiver of the Servicer may have
the power to prevent the Trustee and the Securityholders from appointing a
successor Servicer.
CONSUMER PROTECTION LAWS
The Accounts and Receivables are subject to numerous federal and
state consumer protection laws that impose requirements related to offering
and extending credit. Any failure by a Credit Card Originator or the
Servicer to comply with such legal requirements also could adversely affect
the Servicer's ability to collect the full amount of the Receivables. The
United States Congress and the states may enact laws and amendments to
existing laws to further regulate consumer credit or to reduce finance
charges or other fees or charges applicable to credit card and other
consumer revolving loan accounts. Such laws, as well as any new laws or
rulings which may be adopted, may adversely affect the Servicer's ability
to collect on the Receivables or maintain previous levels of collections.
The relationship of the Obligor and credit card issuer is extensively
regulated by federal and state consumer protection and related laws. With
respect to credit cards issued by Direct Merchants Bank, the most
significant laws include the federal Truth-in-Lending Act, Fair Credit
Billing Act, Fair Debt Collection Practices Act, Equal Credit Opportunity
Act, Fair Credit Reporting Act, Electronic Funds Transfer Act and National
Bank Act, as well as applicable state laws. Claims may be brought under
these statutes by private consumers as well as federal and state
regulators. These statutes impose disclosure requirements when a credit
card account is advertised, when it is opened, at the end of monthly
billing cycles and at year end and, in addition, prohibit certain
discriminatory practices in extending credit and impose certain limitations
on the type of account related charges that may be assessed. Federal law
requires credit card issuers to disclose to consumers the interest rates,
cardholder fees, grace periods and balance calculation methods associated
with their credit card accounts. In addition, cardholders are entitled
under current laws to have payments and credits applied to the credit card
account promptly, to receive prescribed notices and to require billing
errors to be resolved promptly. Certain laws, including the laws described
above, may limit Direct Merchants Bank's ability to collect amounts owing
with respect to the Receivables regardless of any act or omission on the
part of Direct Merchants Bank. These laws further provide that in certain
cases cardholders cannot be held liable for, or the cardholder's liability
is limited with respect to, charges to the credit card account that result
from unauthorized use of the credit card.
Additional consumer protection laws may be enacted that would impose
requirements on the making, enforcement and collection of consumer credit
loans. Any new laws or rulings that may be adopted, and existing consumer
protection laws, may adversely affect the ability to collect on the
Receivables. In addition, failure of the Servicer to comply with such
requirements could adversely affect the Servicer's ability to enforce the
Receivables.
Certain jurisdictions may attempt to require out-of-state credit card
issuers to comply with such jurisdictions' consumer protection laws
(including laws limiting the charges imposed by such credit card issuers)
in connection with their operations in such jurisdictions. If it were
determined that out-of-state credit card issuers must comply with a
jurisdiction's laws limiting the charges imposed by credit card issuers,
such actions could have an adverse impact on Direct Merchants Bank's credit
card operations. Application of federal and state bankruptcy and debtor
relief laws (including the Soldiers' and Sailors' Civil Relief Act of 1940)
would affect the interests of the holders of the Securities if the
protection provided to debtors under such laws result in any Receivables of
the Trust being written off as uncollectible.
The Trust may be liable for certain violations of consumer protection
laws that apply to the Receivables transferred to it, either as assignee
from the Transferor with respect to obligations arising before the transfer
or as a party directly responsible for obligations arising after the
transfer. In addition, a cardholder may be entitled to assert such
violations by way of set-off against such cardholder's obligation to pay
the amount of Receivables owing. The Transferor will warrant to the Trust
in the Pooling and Servicing Agreement that all Receivables transferred to
the Trust have been and will be created in compliance with the requirements
of such laws. For discussion of the Trust's rights arising from the breach
of these warranties, see "Description of the Offered
Securities--Representations and Warranties."
CLAIMS AND DEFENSES OF CARDHOLDERS AGAINST THE TRUST
The UCC provides that (a) unless an Obligor has made an enforceable
agreement not to assert defenses or claims arising out of a transaction,
the rights of the Trust, as assignee, are subject to all the terms of the
Contract between the Credit Card Originator and such Obligor and any
defense or claim arising therefrom, to rights of set-off and to any other
defense or claim of such Obligor against the Credit Card Originator that
accrues before such Obligor receives notification of the assignment and (b)
any such Obligor is authorized to continue to pay the Credit Card
Originator until (i) the Obligor receives notification, reasonably
identifying the rights assigned, that the amount due or to become due has
been assigned and that payment is to be made to the Trustee or successor
Servicer and (ii) if requested by the Obligors, the Trustee or successor
Servicer has furnished reasonable proof of assignment. No such agreement
not to assert defenses has been entered into and no notice of the
assignment of the Receivables to the Trust will be sent to the cardholders
obligated on the Accounts in connection with the transfer of the
Receivables to the Trust.
CERTAIN LITIGATION
Metris has developed and implemented compliance functions to monitor
its operations to ensure that Metris complies with all applicable laws.
However, Metris is a party to various legal proceedings resulting from
ordinary business activities relating to the operations of Metris. One of
these actions, in Alabama, seeks damages in an amount that cannot be
ascertained and purports to be a class action, although no class has been
certified. The Alabama case generally alleges a fraudulent sale of credit
protection insurance without consent. Although the Metris subsidiary that
is a party to the Alabama case believes it has substantive legal defenses
to this claim and is prepared to defend this case vigorously, should the
subsidiary's case settle or otherwise be resolved, Metris believes that the
amount, in the aggregate, will not be material to the operations of Metris.
Due to the uncertainties in litigation and other factors, there is no
assurance that Metris will ultimately prevail. Metris believes that it has
meritorious defenses to this action and any adverse decision should not
materially affect the consolidated financial condition of Metris and its
affiliates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL; SCOPE OF FEDERAL INCOME TAX OPINION
Set forth below is a general discussion of the material United States
federal income tax consequences of the purchase, ownership and disposition
of the Offered Securities which are anticipated to be relevant to most
categories of investors and has been prepared or reviewed by Skadden, Arps,
Slate, Meagher & Flom LLP, special federal income tax counsel to the
Transferor ("Special Tax Counsel"). Special Tax Counsel is of the opinion
that this discussion is correct in all material respects. As more fully
described below, Special Tax Counsel will render its opinion, subject to
the analysis and assumptions contained therein, that the Offered Securities
will be characterized as indebtedness secured by the Receivables for
federal income tax purposes and that the Trust will not be subject to
federal income tax at the entity level. Except as expressly provided below,
Special Tax Counsel will render no other opinions to the Transferor with
respect to the Offered Securities. This discussion is intended as an
explanatory discussion of the possible effects of the classification of the
Offered Securities as indebtedness on investors generally and of related
tax matters affecting investors generally, but does not purport to furnish
information in the level of detail or with the attention to an investor's
specific tax circumstances that would be provided by an investor's tax
advisor. This discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury regulations ("Treasury Regulations") thereunder, current
administrative rulings, judicial decisions and other applicable authorities
in effect as of the date hereof, all of which are subject to change,
possibly with retroactive effect. There are no cases or Internal Revenue
Service ("IRS") rulings on similar transactions involving instruments
issued by a trust with terms similar to those of the Offered Securities. As
a result, there can be no assurance that the IRS will not challenge the
conclusions reached herein, and no ruling from the IRS has been or will be
sought on any of the issues discussed below. Furthermore, legislative,
judicial or administrative changes may occur, perhaps with retroactive
effect, which could affect the accuracy of the statements and conclusions
set forth herein as well as the tax consequences to Securityholders.
This summary does not address all aspects of federal income taxation
that may be relevant to the Security Owners in light of their personal
investment circumstances nor, except for certain limited discussions of
particular topics, to certain types of holders subject to special treatment
under the federal income tax laws (e.g., financial institutions,
broker-dealers, life insurance companies and tax-exempt organizations).
This information is directed to prospective purchasers who purchase Offered
Securities in the initial distribution thereof, who are citizens or
residents of the United States, including domestic corporations and
partnerships, and who hold the Offered Securities as "capital assets"
within the meaning of Section 1221 of the Code. Taxpayers and preparers of
tax returns (including those filed by any partnership or other entity)
should be aware that under applicable Treasury Regulations a provider of
advice on specific issues of law is not considered an income tax return
preparer unless the advice (i) is given with respect to events that have
occurred at the time the advice is rendered and is not given with respect
to the consequences of contemplated actions, and (ii) is directly relevant
to the determination of an entry on a tax return. Accordingly, taxpayers
should consult their respective tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. EACH PROSPECTIVE
INVESTOR SHOULD CONSULT WITH ITS TAX ADVISOR AS TO THE FEDERAL, STATE,
LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF OFFERED SECURITIES SPECIFIC TO SUCH PROSPECTIVE
INVESTOR.
CHARACTERIZATION OF THE OFFERED SECURITIES AS INDEBTEDNESS
The Transferor, the Servicer and each Security Owner will express in
the Pooling and Servicing Agreement the intent that, for federal, state and
local income and franchise tax purposes, the Offered Securities will be
indebtedness secured by the Receivables. The Transferor, by initially
entering into, and the Servicer, by accepting the assignment of, the
Pooling and Servicing Agreement, and each Security Owner, by acquiring an
interest in an Offered Security, will agree to treat the Offered Securities
as indebtedness for federal, state and local income and franchise tax
purposes (except to the extent that different treatment is explicitly
required under state or local tax statutes). However, because different
criteria are used in determining the non-tax accounting treatment of the
transaction, the Transferor will treat the Pooling and Servicing Agreement,
for financial accounting purposes and certain other non-tax purposes, as
effecting a transfer of an ownership interest in the Receivables and not as
creating a debt obligation.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured
by the property, is a question of fact, the resolution of which is based
upon the economic substance of the transaction rather than its form or the
manner in which it is labeled. While the IRS and the courts have set forth
several factors to be taken into account in determining whether the
substance of a transaction is a sale of property or a secured indebtedness
for federal income tax purposes, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or
other economic burdens relating to the property and has obtained the
benefits of ownership thereof. Based upon its analysis of such factors,
Special Tax Counsel is of the opinion that the Transferor will be treated
as the owner of the Receivables for federal income tax purposes and,
accordingly, the Class A Securities and the Class B Securities will be
characterized for federal income tax purposes as indebtedness that is
secured by the Receivables. Furthermore, Special Tax Counsel is of the
opinion that the Trust will not be subject to federal income tax at the
entity level.
Although, in some instances, courts have held that a taxpayer is
bound by a particular form it has chosen for a transaction, even if the
substance of the transaction does not accord with its form, Special Tax
Counsel is of the opinion that the rationale of those cases do not apply to
the transaction evidenced by the Offered Securities, because the form of
the transaction, as reflected in the operative provisions of the documents,
either is not inconsistent with the characterization of the Offered
Securities as debt for federal income tax purposes or otherwise makes the
rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME TO SECURITYHOLDERS
The following discussion is based in part upon Treasury Regulations
interpreting the original issue discount ("OID") provisions of Sections
1271 through 1275 of the Code which were adopted as final on January 27,
1994 (the "OID Regulations"). The OID Regulations are, however, subject to
varying interpretations and do not address all issues that could affect
Security Owners.
Stated Interest. It is not expected that any of the Offered
Securities will be issued with OID. Based upon the foregoing opinions, and
assuming that all of the Offered Securities are treated as debt, the stated
interest on Offered Securities will be taxable as ordinary income for
federal income tax purposes when received or accrued in accordance with a
Securityholder's method of tax accounting.
OID. The Offered Securities may be issued at a discount from their
principal amounts, thereby creating the possibility of OID. In a case where
OID exists, all or a portion of the taxable income to be recognized with
respect to the Offered Securities would be includible in income of Security
Owners as OID. Any amount treated as OID would not, however, be includible
again when the interest is actually received. If the yield on a Class of
Offered Securities were not materially different from its coupon, this
treatment would have no significant effect on Security Owners using the
accrual method of accounting. However, cash method Security Owners may be
required to report income with respect to the Offered Securities in advance
of the receipt of cash attributable to such income.
While it is not anticipated that the Offered Securities will be
issued at a discount from their stated principal amount that is greater
than a de minimis amount, under Treasury Regulations the Offered Securities
may nevertheless be deemed to have been issued with OID. This could be the
case, for example, if interest payments are not deemed to be payments of
"qualified stated interest" because (i) no reasonable legal remedies exist
to compel timely payment of such interest payments and (ii) the Offered
Securities do not have terms and conditions that make the likelihood of
late payment (other than a late payment that occurs within a reasonable
grace period) or nonpayment a remote contingency. As a result, if the OID
Regulations were to apply, all of the taxable income to be recognized with
respect to the Offered Securities would be includible in income as OID but
would not be includible again when the interest is actually received. In
addition, the OID Regulations provide that in determining whether interest
is unconditionally payable, the possibility of nonpayment due to default,
insolvency, or similar circumstances is ignored. Accordingly, the
Transferor intends to take the position that interest payments constitute
payments of "qualified stated interest" with respect to the Offered
Securities if they are issued at a price that is less than a de minimis
discount from their stated principal amount.
If the Offered Securities are in fact issued at a greater than de
minimis discount, the following rules will apply. The excess of the "stated
redemption price at maturity" of an Offered Security (generally equal to
its principal amount as of the date of issuance plus all interest other
than "qualified stated interest" payable prior to or at maturity) over the
original issue price (in this case, the initial offering price at which a
substantial amount of the Offered Securities are sold to the public) will
constitute OID. A Security Owner must include OID in income as interest
over the term of the Offered Security under a constant yield method. In
general, OID must be included in income in advance of the receipt of cash
representing that income. In the case of a debt instrument as to which the
repayment of principal may be accelerated as a result of the prepayment of
other obligations securing the debt instrument (a "Prepayable Instrument"),
the periodic accrual of OID is determined by taking into account both the
prepayment assumptions used in pricing the debt instrument and the
prepayment experience. If this provision applies to the Offered Securities
(which is not clear), the amount of OID which will accrue in any given
"accrual period" may either increase or decrease depending upon the actual
prepayment rate. Accordingly, each Securityholder should consult its tax
advisor regarding the impact to such Securityholder of the OID rules if the
Offered Securities are issued with OID. An Offered Security issued with de
minimis OID must include such OID in income proportionately as principal
payments are made on such Offered Security.
Discount and Premium. A subsequent holder who purchases an Offered
Security at a discount may be subject to the "market discount" rules of
Section 1276 of the Code. These rules provide, in part, for the treatment
of gain attributable to accrued market discount as ordinary income upon the
receipt of partial principal payments or on the sale or other disposition
of the Offered Security, and for the deferral of interest deductions with
respect to debt incurred to acquire or carry the market discount Offered
Security. A Security Owner may, however, elect to include market discount
in gross income as it accrues and, if such election is made, is not subject
to the deferral of interest deductions provision. Any such election will
apply to all debt instruments acquired by the taxpayer on or after the
first day of the first taxable year to which such election applies.
Further, the adjusted tax basis of an Offered Security subject to such
election will be increased to reflect market discount included in gross
income, thereby reducing any gain or increasing any loss on a sale or
taxable disposition.
A subsequent holder who purchases an Offered Security at a premium
may elect to amortize and deduct this premium over the remaining term of
the Offered Security in accordance with rules set forth in Section 171 of
the Code.
Optional Election. As an alternative to the above treatments, accrual
method holders may elect to include in gross income all interest with
respect to an Offered Security, including stated interest, acquisition
discount, OID, de minimis OID, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium, using the constant yield method described above.
Treatment of Losses. OID, if any (in excess of de minimis OID), must
be reported by all Offered Securityholders, and other interest income must
be reported by Offered Securityholders that report income on the accrual
method, as it accrues, whether or not such Offered Securityholder has
received cash equivalent to such income and without giving effect to delays
or reductions in distributions attributable to defaults and delinquencies
on the Receivables, except to the extent it can be established that such
amounts are uncollectible. As a result, if there were in excess of de
minimis OID, the amount of income reported by an Offered Securityholder in
any period could exceed the amount of cash distributed to such holder in
that period. An Offered Securityholder generally will realize a loss where
either principal or previously accrued interest are determined to be
uncollectible with respect to the Offered Security, although the timing and
character of such losses (or reductions in income) are uncertain, and the
deductibility of such losses may be subject to limitations.
DISPOSITION OF OFFERED SECURITIES
Generally, capital gain or loss will be recognized on a sale or other
taxable disposition of Offered Securities in an amount equal to the
difference between the amount realized (other than amounts attributable to,
and taxable as, accrued interest) and the seller's tax basis in the Offered
Securities. A Security Owner's tax basis in an Offered Security will
generally equal such Security Owner's cost increased by any OID, market
discount and gain previously included by such Security Owner in income with
respect to the Offered Security and decreased by any bond premium
previously amortized and any principal payments previously received by such
Security Owner with respect to the Offered Security. Subject to the market
discount rules of the Code discussed above under "--Taxation of Interest
Income to Securityholders--Discount and Premium", any such gain or loss
will be capital gain or loss if the Offered Security was held as a capital
asset (except, however, with regard to Prepayable Instruments, in which
case in the event of a prepayment or redemption thereof such gain is
ordinary income to the extent of any not yet accrued OID). Capital gain or
loss will be long-term if the Offered Security was held by the holder for
more than one year and otherwise will be short-term. (Under the Taxpayer
Relief Act of 1997 the maximum rates on long-term capital gains will be
reduced further in the year 2001 and thereafter for certain individual
taxpayers who meet specified conditions). Each prospective investor should
consult its tax advisor concerning these tax law changes.)
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will be required to report annually to the IRS, and to
each Securityholder, the amount of interest paid on the Offered Securities
(and the amount withheld for federal income taxes, if any) for each
calendar year, except as to exempt recipients (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,
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
Securityholder fail to provide the required certification, the Trustee will
be required to withhold (or cause to be withheld) 31 percent of the
interest otherwise payable to the holder, and remit the withheld amounts to
the IRS as a credit against the holder's federal income tax liability.
FASIT LEGISLATION
Legislation passed by Congress and signed into law by the President
on August 20, 1996 added Sections 860H through 860L to the Code (the "FASIT
Provisions") which provide for a new type of entity for federal income tax
purposes known as a "financial asset securitization investment trust" (a
"FASIT"). Although the legislation providing for the new FASIT entity
became effective on September 1, 1997, many technical issues are to be
addressed in Treasury Regulations which have not yet been issued. In
general, the FASIT legislation enables trusts such as the Trust to be
treated as a pass-through entity not subject to federal entity-level income
tax (except with respect to certain prohibited transactions) and to issue
securities that would be treated as debt for federal income tax purposes.
Transition rules provided for by the FASIT legislation contemplate that
entities in existence on August 31, 1997 may elect to be taxed under the
FASIT Provisions. However, how such election is made and how outstanding
interests of such entity are to be treated subsequent to the election is
not explained in the FASIT legislation.
OTHER POSSIBLE CHARACTERIZATIONS OF THE POOLING AND SERVICING AGREEMENT
Although, as described above, it is the opinion of Special Tax
Counsel that the Class A Securities and Class B Securities will properly be
characterized as indebtedness, and that the Collateralized Trust
Obligations (not offered hereby) should be classified as indebtedness (or,
if not, would be classified as an interest in a partnership), for federal
income tax purposes, such opinion is not binding on the IRS and thus no
assurance can be given that such characterization will prevail. As set
forth above, in the opinion of Special Tax Counsel, if the IRS were to
contend successfully that the Collateralized Trust Obligations were not
debt for federal income tax purposes (assuming that neither the Class A or
Class B Securities, nor securities of any other outstanding series, were
also recharacterized) the arrangement among the Transferor and the CTO
Securityholders would be classified as a partnership for federal income tax
purposes. If, however, the IRS were to contend successfully that either the
Class A or Class B Securities, or securities of any other outstanding
series, were not debt for federal income tax purposes, the arrangement
among the Security Owners, the Transferor, and security owners of such
other Series might be classified for federal income tax purposes as a
publicly traded partnership taxable as a corporation.
If the Collateralized Trust Obligations (and no Class of the Offered
Securities nor securities of any other outstanding Series) were treated as
interests in a partnership, it is Special Tax Counsel's opinion that the
partnership would not be treated as a publicly traded partnership because
it would qualify for an applicable "safe harbor" that the IRS has provided.
Therefore, the partnership would not be subject to federal income tax.
If, alternatively, the arrangement created by the Pooling and
Servicing Agreement were treated as a publicly traded partnership taxable
as a corporation, the resulting entity would be subject to federal income
taxes at corporate tax rates on its taxable income generated by ownership
of the Receivables. Moreover, distributions by the entity to all or some of
the Classes of Securityholders would probably not be deductible in
computing the entity's taxable income and all or part of distributions to
Securityholders would probably be treated as dividends. Such an
entity-level tax could result in reduced distributions to Securityholders
and the Securityholders could be liable for a share of such tax.
Because the Transferor will treat the Offered Securities as
indebtedness for federal income tax purposes, the Trustee will not comply
with the tax reporting requirements that would apply under the foregoing
alternative characterizations of the Offered Securities.
DEFEASANCE
The Securities are subject to Defeasance in certain circumstances. It
is not clear under the existing authorities whether Defeasance would, for
federal income tax purposes, result in a deemed taxable sale or exchange of
the Securities in exchange for the amounts deposited in the Principal
Funding Account and the Accumulation Period Reserve Account as a result of
the Defeasance; however, if such a sale or exchange were deemed to occur,
because of the short time period, the amount required to be deposited and
the nature of the assets in which such amount may be invested, such a
result would not be expected to have a material adverse effect on a
Securityholder for federal income tax purposes, notwithstanding that, if
such a sale or exchange were deemed to occur, each Securityholder would
thereafter be deemed to own its pro rata share of the assets in which such
amount is invested, and would be required to report its taxable income on
such basis.
TAX CONSEQUENCES TO FOREIGN INVESTORS
As noted above, Special Tax Counsel will render its opinion, subject
to the analysis and assumptions contained therein, that the Class A
Securities and Class B Securities will properly be characterized as
indebtedness secured by the Receivables, and that the Collateralized Trust
Obligations (not offered hereby) should be classified as indebtedness (or,
if not, would be classified as an interest in a partnership), for federal
income tax purposes. Based upon that opinion, the following information
describes the U.S. federal income tax treatment of investors in Offered
Securities that are not U.S. Persons (each, a "Foreign Person"). The term
"Foreign Person" means any person other than (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity
organized in or under the laws of the United States, or any political
subdivision thereof or the District of Columbia (unless in the case of a
partnership, Treasury Regulations provide otherwise), (iii) an estate the
income of which is includible in gross income for U.S. federal income tax
purposes, regardless of its source or, (iv) a trust whose administration is
subject to the primary supervision of a United States court and which has
one or more United States fiduciaries who have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence,
to the extent provided in Treasury Regulations, certain trusts in existence
on August 20, 1996, and treated as U.S. Persons under the Code, and
applicable Treasury Regulations thereunder prior to such date, that elect
to continue to be treated as U.S. Persons under the Code or applicable
Treasury Regulations thereunder will also be considered a U.S. Person.
(a) Interest paid or accrued to a Foreign Person that is not
effectively connected with the conduct of a trade or business within
the United States by the Foreign Person, will generally 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 the Transferor or a "controlled foreign corporation"
with respect to which the Transferor 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 Offered Security 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 the Trustee
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 income tax treaty.
(b) Any capital gain realized on the sale or other taxable
disposition of an Offered Security 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.
(c) If the interest, gain or income on an Offered Security 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.
If the IRS were to contend successfully that any of the Offered
Securities are interests in a partnership (not taxable as a corporation), a
Security Owner that is a Foreign Person might be required to file a United
States individual or corporate income tax return and pay tax on its share
of partnership income at regular United States rates including, in the case
of a corporate Security Owner, the branch profits tax (and would be subject
to withholding tax on its share of partnership income). If any of the
Offered Securities were recharacterized as interests in a "publicly traded
partnership" taxable as a corporation, to the extent distributions on such
Offered Securities were treated as dividends, a Foreign Person would
generally be subject to tax (and withholding) on the gross amount of such
dividends at a rate of 30 percent unless reduced or eliminated pursuant to
an applicable income tax treaty.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Department of the Treasury issued new
regulations (the "New Regulations") which make certain modifications to the
withholding, backup withholding and information reporting rules described
above. The New Regulations attempt to unify certification requirements and
modify reliance standards. The New Regulations will generally be effective
for payments made after December 31, 1999, subject to certain transition
rules. Prospective investors are urged to consult their own tax advisors
regarding the New Regulations.
CERTAIN STATE TAX CONSEQUENCES
Because of the differences in state tax laws and their applicability
to different investors, it is not possible to summarize the potential state
tax consequences of holding the Offered Securities. ACCORDINGLY, PURCHASERS
OF OFFERED SECURITIES SHOULD CONSULT THEIR RESPECTIVE TAX ADVISORS
REGARDING THE STATE TAX CONSEQUENCES OF PURCHASING ANY CLASS OF OFFERED
SECURITIES.
EMPLOYEE BENEFIT PLAN CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA), (b) plans described in Section
4975(e)(1) of the Code, including individual retirement accounts and Keogh
Plans, (c) any entities whose underlying assets include plan assets by
reason of a plan's investment in such entities (each of (a), (b) and (c), a
"Plan") and (d) persons who have certain specified relationships to such
Plans ("Parties in Interest" under ERISA and "Disqualified Persons" under
the Code). Moreover, based on the reasoning of the United States Supreme
Court in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank, 114 S. Ct. 517 (1993), an insurance company's general account may be
deemed to include assets of the Plans investing in the general account
(e.g., through the purchase of an annuity contract), and the insurance
company might be treated as a Party in Interest with respect to such Plans
by virtue of such investment. ERISA also imposes certain duties on persons
who are fiduciaries of Plans, and both ERISA and the Code prohibit certain
transactions involving "plan assets" between a Plan and Parties in Interest
or Disqualified Persons with respect to such Plans. Violation of these
rules may result in the imposition of an excise tax or penalty. Thus, a
Plan fiduciary considering an investment in the Offered Securities should
consider, among other things, whether such an investment might constitute
or give rise to a prohibited transaction under ERISA, the Code or any
substantially similar federal, state or local law.
Neither ERISA nor the Code defines the term "plan assets." Under
Section 2510.3-101 of the United States Department of Labor ("DOL")
regulations (the "Plan Assets Regulation"), a Plan's assets may be deemed
to include an interest in the underlying assets of an entity (such as a
trust) for certain purposes, including the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an "equity interest"
in such entity. Accordingly, an investment in the Offered Securities by a
Plan might result in the assets of the Trust being deemed to constitute
plan assets, which in turn could have the consequence that certain aspects
of such investment, including the operation of the Trust, might give rise
to or result in prohibited transactions under ERISA and the Code.
CLASS A SECURITIES
The Plan Assets Regulation contains an exception to the plan asset
rules that provides that if a Plan acquires a "publicly-offered security,"
the issuer of the security is not deemed to hold plan assets, regardless of
the fact that the security might otherwise represent an equity interest in
the issuer. A publicly-offered security is a security that is (i) freely
transferable, (ii) part of a class of securities that is "widely-held"
i.e., owned by 100 or more investors independent of the issuer and of one
another and (iii) either (A) part of a class of securities registered under
Section 12(b) or 12(g) of the Exchange Act or (B) sold to a Plan as part of
an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities
of which such security is a part is registered under the Exchange Act
within 120 days (or such later time as may be allowed by the Commission)
after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred. Under the Plan Assets Regulation, a
class of securities will not fail to be widely-held solely because
subsequent to the initial offering the number of independent investors
falls below 100 as a result of events beyond the control of the issuer.
The Class A Underwriters expect, although no assurance can be given,
that the Class A Securities will be held by at least 100 independent
investors at the conclusion of the offering and the Transferor anticipates
that the other conditions of the Plan Assets Regulation will be met with
respect to the Class A Securities. No monitoring or other measures will be
taken to ensure that any such conditions will be met with respect to the
Class A Securities. If the Trust's assets were deemed to be "plan assets"
of a Plan investor, there is uncertainty whether existing exemptions from
the "prohibited transaction" rules of ERISA, the Code and any substantially
similar federal, state or local law would apply to all transactions
involving the Trust's assets. Accordingly, Plan fiduciaries should consult
with counsel before making a purchase of Class A Securities.
CLASS B SECURITIES
The Class B Underwriters do not expect that the Class B Securities
will be held by 100 or more independent investors. Accordingly, the Class B
Securities may not be purchased by Plans subject to Title I of ERISA,
Section 4975 of the Code and any substantially similar federal, state or
local law.
Each Security Owner of a Class B Security, by its acceptance thereof,
will be deemed to have represented and warranted that it is not (i) an
employee benefit plan (as defined in Section 3(3) of ERISA) that is subject
to the provisions of Title I of ERISA, (ii) a plan described in Section
4975(e)(1) of the Code that is subject to Section 4975 of the Code, (iii) a
governmental plan, as defined in Section 3(32) of ERISA, subject to any
federal, state or local law which is, to a material extent, similar to the
provisions of Section 406 of ERISA or Section 4975 of the Code, (iv) an
entity whose underlying assets include plan assets (as defined in the Plan
Assets Regulation or otherwise under ERISA) by reason of a plan's
investment in the entity or (v) a Person investing plan assets of any such
plan (including for purposes of clause (iv) and this clause (v), as
applicable, an insurance company general account, but excluding any entity
registered under the Investment Company Act).
SPECIAL CONSIDERATIONS FOR INSURANCE COMPANY GENERAL ACCOUNTS
It should be noted that the Small Business Job Protection Act of 1996
added new Section 401(c) of ERISA relating to the status of the assets of
insurance company general accounts under ERISA and Section 4975 of the
Code. Pursuant to Section 401(c), the DOL is required to issue final
regulations (the "General Account Regulations") with respect to insurance
policies issued on or before December 31, 1998 that are supported by an
insurer's general account. The General Account Regulations are to provide
guidance on which assets held by the insurer constitute "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and Section
4975 of the Code. Section 401(c) also provides that, except in the case of
avoidance of the General Account Regulations and actions brought by the
Secretary of Labor relating to certain breaches of fiduciary duties that
also constitute breaches of state or federal criminal law, until the date
that is 18 months after the General Account Regulations become final, no
liability under the fiduciary responsibility and prohibited transaction
provisions of ERISA and Section 4975 of the Code may result on the basis of
a claim that the assets of the general account of an insurance company
constitute the plan assets of any Plan. The plan asset status of insurance
company separate accounts is unaffected by new Section 401(c) of ERISA, and
separate account assets continue to be treated as the plan assets of any
Plan invested in a separate account. Potential investors that are insurance
company general accounts should consult their legal advisors concerning the
effect of the General Account Regulations on such investment.
As of the date hereof, the DOL has issued proposed regulations
pursuant to Section 401(c) of ERISA. If adopted substantially in the form
in which proposed, the General Account Regulations may not exempt the
assets of an insurance company general account from treatment as "plan
assets" after December 31, 1998.
GENERAL INVESTMENT CONSIDERATIONS
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code and the potential consequences
of making an investment in the Offered Securities with respect to their
specific circumstances. Moreover, each Plan fiduciary should take into
account, among other considerations, whether the fiduciary has the
authority to make the investment; the composition of the Plan's portfolio
with respect to diversification by type of asset; the Plan's funding
objectives; the tax effects of the investment; and whether under the
general fiduciary standards of investment prudence and diversification an
investment in the Offered Securities is appropriate for the Plan, taking
into account the overall investment policy of the Plan and the composition
of the Plan's investment portfolio.
Certain employee benefit plans, such as governmental plans (as
defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA) are not subject to the provisions of Title I of
ERISA and Section 4975 of the Code. Accordingly, assets of such plans may,
subject to the provisions of any other applicable federal and state law
(including, without limitation, federal or state law which is, to a
material extent, similar to the provisions of Section 406 of ERISA or
Section 4975 of the Code), be invested in any class of Offered Securities
without regard to the ERISA considerations described herein. It should be
noted, however, that any such plan that is qualified and exempt from
taxation under Sections 401(a) and 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement") among the Transferor, Metris and
the Underwriters named below (the "Underwriters"), the Transferor has
agreed to sell to the Underwriters, and each of the Underwriters has
severally agreed to purchase, the principal amount of the Offered
Securities set forth opposite its name:
AMOUNT
OF CLASS A
CLASS A UNDERWRITERS SECURITIES
- -------------------- -----------
Chase Securities Inc. ...................................... $____________
Total................................................. $
=============
AMOUNT
OF CLASS B
CLASS B UNDERWRITERS SECURITIES
- -------------------- ----------
Chase Securities Inc. ...................................... $
In the Underwriting Agreement, the Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the
Offered Securities if any of the Offered Securities are purchased.
The Class A Underwriters named above (the "Class A Underwriters")
propose initially to offer the Class A Securities to the public at the
price set forth on the cover page hereof and to certain dealers at such
price less concessions not in excess of ____% of the principal amount of
the Class A Securities. The Class A Underwriters may allow, and such
dealers may reallow, concessions not in excess of ____% of the principal
amount of the Class A Securities to certain brokers and dealers. After the
initial public offering, the public offering price and other selling terms
may be changed by the Class A Underwriters.
The Class B Underwriters named above (the "Class B Underwriters")
propose initially to offer the Class B Securities to the public at the
price set forth on the cover page hereof and to certain dealers at such
price less concessions not in excess of ____% of the principal amount of
the Class B Securities. The Class B Underwriters may allow, and such
dealers may reallow, concessions not in excess of _____% of the principal
amount of the Class B Securities to certain brokers and dealers. After the
initial public offering, the public offering price and other selling terms
may be changed by the Class B Underwriters.
The Underwriting Agreement provides that the Transferor and Metris
will indemnify the Underwriters against certain liabilities, including
liabilities under applicable securities laws, or contribute to payments the
Underwriters may be required to make in respect thereof.
Chase Securities Inc., on behalf of the Underwriters, may engage in
over-allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids with respect to the Offered Securities in
accordance with Regulation M under the Exchange Act. Over-allotment
transactions involve syndicate sales in excess of the offering size
creating a syndicate short position. Stabilizing transactions permit bids
to purchase the Offered Securities so long as the stabilizing bids do not
exceed a specific maximum. Syndicate covering transactions involve
purchases of the Offered Securities in the open market after the
distribution has been completed in order to cover syndicate short
positions. Penalty bids permit __________ to reclaim a selling concession
from a syndicate member when the Offered Securities originally sold by such
syndicate member are purchased in a syndicate covering transaction. Such
over-allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids may cause prices of the Offered Securities to
be higher than they would otherwise be in the absence of such transactions.
Neither the Trust nor the Underwriters represent that the Underwriters will
engage in any such transactions nor that such transactions, once commenced,
will not be discontinued without notice.
Each Underwriter has represented and agreed that (a) it has only
issued or passed on and will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the Offered
Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 or who is a person to whom the document may otherwise lawfully be
issued or passed on, (b) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 of Great Britain
with respect to anything done by it in relation to the Offered Securities
in, from or otherwise involving the United Kingdom and (c) if that
Underwriter is an authorized person under the Financial Services Act 1986,
it has only promoted and will only promote (as that term is defined in
Regulation 1.02 of the Financial Services (Promotion of Unregulated
Schemes) Regulations 1991) to any person in the United Kingdom the scheme
described herein if that person is of a kind described either in Section
76(2) of the Financial Services Act 1986 or in Regulation 1.04 of the
Financial Services (Promotion of Unregulated Schemes) Regulations 1991.
In the ordinary course of business, several of the Underwriters or
their affiliates have engaged, and may engage in the future, in certain
investment banking or commercial banking transactions with Metris and its
affiliates.
LEGAL MATTERS
Certain legal matters relating to the Offered Securities will be
passed upon for Metris, the Transferor and Direct Merchants Bank by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Certain legal
matters relating to the Offered Securities will be passed upon for the
Underwriters by Brown & Wood LLP, New York, New York.
LISTING AND GENERAL INFORMATION
Application has been made to list the Offered Securities on the
Luxembourg Stock Exchange. In connection with the listing application, the
Certificate of Incorporation and By-laws of the Transferor, as well as
legal notice relating to the issuance of the Securities will be deposited
prior to listing with the Chief Registrar of the District Court of
Luxembourg, where copies thereof may be obtained upon request. Once the
Offered Securities have been so listed, trading of the Offered Securities
may be effected on the Luxembourg Stock Exchange. The Class A Securities
and the Class B Securities have been accepted for clearance through the
facilities of DTC, Cedel and Euroclear. The International Securities
Identification Numbers (ISIN) for the Class A Securities and the Class B
Securities are and , respectively; the Common Code numbers
for the Class A Securities and the Class B Securities are and ,
respectively.
The transactions contemplated in this Prospectus were authorized by
resolutions adopted by the Transferor on , 1998 and , 1998.
Copies of the Pooling and Servicing Agreement, the Series 1998-2
Supplement, all other Supplements, the Purchase Agreements and all
amendments thereto, the reports and statements described in "Description of
the Offered Securities--Evidence as to Compliance", each document listed
under "Available Information" and all of the reports referred to under
"Reports to Securityholders" and "Description of the Offered
Securities--Reports to Securityholders" in the Prospectus will be available
free of charge at the office of the listing agent of the Trust in
Luxembourg, whose address is . Financial information regarding Transferor
is included in the consolidated financial statements of Fingerhut
Companies, Inc. in its Annual Report and Form 10-K for the fiscal year
ended , 1997, also available at the office of the listing agent in
Luxembourg. For so long as the Offered Securities are outstanding, copies
of each Annual Report and Form 10-K for subsequent fiscal years and Form
10-Q for subsequent fiscal quarters will also be available at the office of
the listing agent in Luxembourg.
The Transferor confirms that there has been no material adverse
change in the performance of the Trust since , 1998, the date
of the information with respect to the Trust set forth in "the Receivables."
In the event that Definitive Securities are issued and the rules of
the Luxembourg Stock Exchange require a Luxembourg Transfer Agent, the
Luxembourg Paying Agent will be appointed as a Transfer Agent.
GLOSSARY OF TERMS
The following terms, which are used in this Prospectus, have the
meanings indicated:
"ABC Adjusted Invested Amount" means as of any business day the sum
of the Class A Invested Amount, the Class B Invested Amount and the CTO
Invested Amount minus the amount then on deposit in the Principal Funding
Account.
"Account" means each revolving credit consumer credit card account
established pursuant to a Contract between a Credit Card Originator and any
Person, which on the Initial Closing Date was an Eligible Account or, with
respect to accounts transferred to the Trust after the Initial Closing
Date, each Additional Account or Supplemental Account. The definition of
Account includes each Transferred Account but does not include any Accounts
containing Ineligible Receivables and reassigned to the Transferor pursuant
to the Pooling and Servicing Agreement. The term "Account" refers to an
Additional Account or Supplemental Account only from and after the Addition
Date with respect thereto, and the term "Account" refers to any Removed
Account only prior to the Removal Date with respect thereto.
"Accumulation Period" is defined at page 15 in "Prospectus
Summary--Revolving Period."
"Accumulation Period Length" is defined at page 61 in "Description of
the Offered Securities--Postponement of Accumulation Period."
"Accumulation Period Reserve Account" is defined at page 73 in
"Description of the Offered Securities--Accumulation Period Reserve
Account."
"Accumulation Shortfall" is defined at page 84 in "Description of
Offered Securities--Application of Collections--Payment of Principal."
"Adaptive Control System" is defined at page 41 in "Direct Merchants
Bank's Credit Card Activities--New Account Underwriting--The Adaptive
Control System."
"Addition Date" means each date as of which Receivables under
Additional Accounts or Supplemental Accounts are included in the Trust as
Accounts pursuant to the Pooling and Servicing Agreement.
"Additional Account" means (a) for the period from the Initial
Closing Date through the day preceding the Amendment Closing Date, each
revolving credit consumer credit card account owned by a Credit Card
Originator coming into existence after the Initial Closing Date which is an
Approved Account that the Transferor has not elected to exclude from the
Trust after June 7, 1996 and prior to the Amendment Closing Date or (b) on
and after the Amendment Closing Date, each revolving credit consumer credit
card account in which a Credit Card Originator acquires rights that is an
Approved Account and is not an Excluded Account; provided, however, that a
revolving credit consumer credit card account that does not satisfy the
definition of Approved Account on the date of its creation shall be an
Additional Account on the date that it satisfies the definition of Approved
Account. Any such election will be made by the Transferor or the Servicer
providing to the Trustee a written notice thereof clearly identifying such
excluded accounts.
"Adjusted Invested Amount" means, as of any business day, the
Invested Amount minus the sum of the amount then on deposit in the
Principal Account, the amount then on deposit in the Principal Funding
Account and the Series 1998-2 Percentage of the amount then on deposit in
the Excess Funding Account.
"Adjustment Payment" is defined at page 85 in "Description of the
Offered Securities--Defaulted Receivables;
Dilution."
"Amendment Closing Date" means July 30, 1998.
"Amortization Period" means the period commencing on the Amortization
Period Commencement Date and continuing until the earlier of (x) the
Invested Amount of the Securities being paid in full or (y) the Termination
Date.
"Amortization Period Commencement Date" means the earlier of the
first day of the Accumulation Period and the date on which a Pay Out Event
occurs or is deemed to have occurred.
"Approved Account" means each (i) Eligible Account that is a
MasterCard(R) or VISA(R) account or (ii) any other revolving credit
consumer credit card account the inclusion in the Trust of which would not
cause a Ratings Event.
"Assignment" is defined at page 68 in "Description of the Offered
Securities--Addition of Trust Assets."
"Automatic Additional Accounts" is defined at page 68 in "Description
of the Offered Securities--Addition of Trust Assets."
"Available Investor Principal Collections" is defined at page 60 in
"Description of the Offered Securities--Principal Payments."
"Available Reserve Account Amount" is defined at page 74 in
"Description of the Offered Securities--Accumulation Period Reserve
Account."
"Available Series Finance Charge Collections" is defined at page 80
in "Description of the Offered Securities--Application of
Collections--Payment of Fees, Interest and Other Items."
"Bank" means Direct Merchants Credit Card Bank, National Association.
"Bank Purchase Agreement" means that certain Amended and Restated
Bank Receivables Purchase Agreement dated as of July 30, 1998 between
Direct Merchants Bank and Metris, as such document may be amended from time
to time in accordance with its terms.
"Bankruptcy Code" means the United States federal bankruptcy code, as
amended.
"Base Rate" is defined at page 53 in "Maturity Considerations."
"Cash Equivalents" is defined at page 72 in "Description of the
Offered Securities--Trust Accounts."
"Cedel" is defined at page 57 in "Description of the Offered
Securities--Book-Entry Registration."
"Cedel Participants" is defined at page 57 in "Description of the
Offered Securities--Book-Entry Registration."
"Class" means any of the Class A Securities, the Class B Securities,
the Collateralized Trust Obligations or the Class D Securities.
"Class A Adjusted Invested Amount" is defined at page 75 in
"Description of the Offered Securities--Allocation Percentages."
"Class A Charge-Off" is defined at page 86 in "Description of the
Offered Securities--Investor Charge-Offs."
"Class A Fixed/Floating Percentage" is defined at page 75 in
"Description of the Offered Securities--Allocation Percentages."
"Class A Floating Percentage" means, with respect to any business
day, the percentage equivalent of the ratio that the amount of the Class A
Adjusted Invested Amount as of the end of the preceding business day bears
to the greater of (a) the sum of the aggregate amount of Principal
Receivables and amounts on deposit in the Excess Funding Account as of the
end of the preceding business day and (b) the sum of the numerators with
respect to all classes of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class A Initial Invested Amount" means $ .
"Class A Interest Rate" is defined at page 13 in "Prospectus
Summary--Interest."
"Class A Invested Amount" is defined at page 75 in "Description of
the Offered Securities--Allocation Percentages."
"Class A Monthly Interest" is defined at page 82 in "Description of
the Offered Securities--Application of Collections--Payment of Fees,
Interest and Other Items."
"Class A Percentage" means a fraction the numerator of which is the
Class A Initial Invested Amount and the denominator of which is the sum of
the Class A Initial Invested Amount, the Class B Initial Invested Amount
and the CTO Initial Invested Amount.
"Class A Principal" is defined at page 84 in "Description of the
Offered Securities--Application of Collections--Payment of Principal."
"Class A Required Amount" means for any business day during a Monthly
Period the amount, if any, by which the sum of (i) the Class A Monthly
Interest and any overdue Class A Monthly Interest on the related
Distribution Date (and additional interest thereon), (ii) the Class A
Floating Percentage of the Default Amount for such Monthly Period (to
date), (iii) if Direct Merchants Bank, or an affiliate of Direct Merchants
Bank, is no longer the Servicer, the Class A Floating Percentage of the
Monthly Servicing Fee for the related Monthly Period, (iv) the Class A
Percentage of the Series 1998-2 Percentage of the Adjustment Payment
required to be made by the Transferor but not made on the related Transfer
Date and (v) the amount by which the Class A Invested Amount has been
reduced on prior business days because of unreimbursed Class A Charge-Offs
exceed the Available Series Finance Charge Collections plus any Excess
Finance Charge Collections from other Series and any Transferor Finance
Charge Collections in each case allocated with respect thereto.
"Class A Securities" means the Floating Rate Asset Backed Securities,
Series 1998-2, Class A.
"Class A Securityholders" means the record holders of the Class A
Securities.
"Class A Securityholders' Interest" means the interest in the assets
of the Trust allocated to the Class A Securityholders.
"Class A Underwriters" are the Underwriters indicated at page 111 in
"Underwriting."
"Class B Adjusted Invested Amount" is defined at page 76 in
"Description of the Offered Securities--Allocation Percentages."
"Class B Charge-Off" is defined at page 86 in "Description of the
Offered Securities--Investor Charge-Offs."
"Class B Fixed/Floating Percentage" is defined at page 75 in
"Description of the Offered Securities--Allocation Percentages."
"Class B Floating Percentage" means, with respect to any business
day, the percentage equivalent of the ratio that the amount of the Class B
Adjusted Invested Amount as of the end of the preceding business day bears
to the greater of (a) the sum of the aggregate amount of Principal
Receivables and amounts on deposit in the Excess Funding Account as of the
end of the preceding business day and (b) the sum of the numerators with
respect to all classes of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class B Initial Invested Amount" means $ .
"Class B Interest Rate" is defined at page 13 in "Prospectus
Summary--Interest."
"Class B Invested Amount" is defined at page 75 in "Description of
the Offered Securities--Allocation Percentages."
"Class B Monthly Interest" is defined at page 82 in "Description of
the Offered Securities--Application of Collections--Payment of Fees,
Interest and Other Items."
"Class B Percentage" means a fraction the numerator of which is the
Class B Initial Invested Amount and the denominator of which is the sum of
the Class A Initial Invested Amount, the Class B Initial Invested Amount
and the CTO Initial Invested Amount.
"Class B Principal" is defined at page 84 in "Description of the
Offered Securities--Application of Collections--Payment of Principal."
"Class B Principal Payment Commencement Date" means the earlier of
(a) (i) with respect to the Accumulation Period, the Expected Final Payment
Date or (ii) during the Early Amortization Period, the first Distribution
Date on which the Class A Invested Amount is paid in full or, if there are
no Principal Collections allocable to Series 1998-2 remaining after
payments have been made to the Class A Securities on such Distribution
Date, the next succeeding Distribution Date and (b) the Distribution Date
following a sale or repurchase of the Receivables pursuant to the Pooling
and Servicing Agreement.
"Class B Required Amount" means for any business day during a Monthly
Period the amount, if any, by which the sum of (i) the Class B Monthly
Interest and any overdue Class B Monthly Interest on the related
Distribution Date (and additional interest thereon), (ii) the Class B
Floating Percentage of the Default Amount for such Monthly Period (to
date), (iii) if Direct Merchants Bank, or an affiliate of Direct Merchants
Bank, is no longer the Servicer, the Class B Floating Percentage of the
Monthly Servicing Fee for the related Monthly Period, (iv) the Class B
Percentage of the Series 1998-2 Percentage of the Adjustment Payment
required to be made by the Transferor but not made on the related Transfer
Date and (v) the unreimbursed amount by which the Class B Invested Amount
has been reduced on prior business days because of unreimbursed Class B
Charge-Offs and Redirected Class B Principal Collections exceed the
Available Series Finance Charge Collections plus any Excess Finance Charge
Collections from other Series and any Transferor Finance Charge Collections
in each case allocated with respect thereto.
"Class B Securities" means the Floating Rate Asset Backed Securities,
Series 1998-2, Class B.
"Class B Securityholders" means the record holders of the Class B
Securities.
"Class B Securityholders' Interest" means the interest in the assets
of the Trust allocated to the Class B Securityholders.
"Class B Underwriters" means the Underwriters indicated at page 111 in
"Underwriting."
"Class D Charge-Off" is defined at page 85 in "Description of the
Offered Securities--Investor Charge-Offs."
"Class D Fixed/Floating Percentage" is defined at page 75 in
"Description of the Offered Securities--Allocation Percentages."
"Class D Floating Percentage" means, with respect to any business
day, the percentage equivalent of the ratio that the amount of the Class D
Invested Amount as of the end of the preceding business day bears to the
greater of (a) the total amount of Principal Receivables and amounts on
deposit in the Excess Funding Account as of the end of the preceding
business day and (b) the sum of the numerators with respect to all classes
of all Series then outstanding used to calculate the applicable allocation
percentage.
"Class D Invested Amount" is defined at page 76 in "Description of
the Offered Securities--Allocation Percentages."
"Class D Principal Payment Commencement Date" means the earlier of
(a) during the Amortization Period, the first Distribution Date on which
the CTO Invested Amount is paid in full or, if there are no Principal
Collections allocable to Series 1998-2 remaining after payments have been
made to the Collateralized Trust Obligations on such Distribution Date, the
Distribution Date following the Distribution Date on which the CTO Invested
Amount is paid in full and (b) the Distribution Date following a sale or
repurchase of the Receivables pursuant to the Pooling and Servicing
Agreement.
"Class D Securities" means the Asset Backed Securities, Series 1998-2,
Class D.
"Class D Securityholders" means the record holders of the Class D
Securities.
"Class D Securityholders' Interest" means the interest in the assets
of the Trust allocated to the Class D Securityholders.
"Closing Date" means the date of the initial issuance of the Securities.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateralized Trust Obligations" means the Floating Rate Asset
Backed Collateralized Trust Obligations, Series 1998-2.
"Collection Account" means an account established by the Servicer for
the purpose of depositing all Collections of Receivables.
"Collections" is defined at page 8 in "Prospectus
Summary--Collections."
"Commission" means the Securities and Exchange Commission.
"Contract" means an agreement between a Credit Card Originator and
another person for the extension of revolving credit, including pursuant to
a credit card, or revolving credit agreement (but shall not include any
agreement or plan relating to the extension of credit on a closed-end
basis).
"Controlled Accumulation Amount" is defined at page 84 in
"Description of the Offered Securities--Application of Collections--Payment
of Principal."
"Controlled Deposit Amount" is defined at page 52 in "Maturity
Considerations."
"Cooperative" is defined at page 57 in "Description of the Offered
Securities--Book-Entry Registration."
"Covered Amount" is defined at page 74 in "Description of the Offered
Securities--Accumulation Period Reserve Account."
"Credit and Collection Policy" means the written policies and
procedures of the applicable Credit Card Originator relating to the
operation of its consumer revolving credit card business, including,
without limitation, the written policies and procedures for determining the
creditworthiness of credit card customers and relating to the maintenance
of credit card accounts and collection of receivables with respect thereto,
as such policies and procedures may be amended, modified or otherwise
changed from time to time.
"Credit Card Originator" means the Utah Bank and Direct Merchants
Bank and its successors or assigns under the Bank Purchase Agreement and/or
any transferee of the Accounts from Direct Merchants Bank or any other
originator of accounts which enters into a receivables purchase agreement
with Direct Merchants Bank or Metris (to the extent that rights therein are
granted to the Transferor directly or indirectly) or the Transferor in
accordance with the provisions of the Pooling and Servicing Agreement and
who has been identified in a prior written notice to each Rating Agency.
"CTO Adjusted Invested Amount" is defined at page 76 in "Description
of the Offered Securities--Allocation Percentages."
"CTO Charge-Off" is defined at page 81 in "Description of the Offered
Securities--Investor Charge-Offs."
"CTO Fixed/Floating Percentage" is defined at page 75 in "Description
of the Offered Securities--Allocation Percentages."
"CTO Floating Percentage" means, with respect to any business day,
the percentage equivalent of the ratio that the amount of the CTO Adjusted
Invested Amount as of the end of the preceding business day bears to the
greater of (a) the sum of the aggregate amount of Principal Receivables and
amounts on deposit in the Excess Funding Account as of the end of the
preceding business day and (b) the sum of the numerators with respect to
all classes of all Series then outstanding used to calculate the applicable
allocation percentage.
"CTO Initial Invested Amount" means $______.
"CTO Interest Rate" means the London interbank offered quotations for
one-month United States dollar deposits plus % per annum or such lesser
rate as specified in the Series 1998-2 Supplement.
"CTO Invested Amount" is defined at page 76 in "Description of the
Offered Securities--Allocation Percentages."
"CTO Monthly Interest" is defined at page 83 in "Description of the
Offered Securities--Application of Collections--Payment of Fees, Interest
and Other Items."
"CTO Percentage" means a fraction the numerator of which is the CTO
Initial Invested Amount and the denominator of which is the sum of the
Class A Initial Invested Amount, the Class B Initial Invested Amount and
the CTO Initial Invested Amount.
"CTO Principal" is defined at page 84 in "Description of the Offered
Securities--Application of Collections--Payment of Principal."
"CTO Principal Payment Commencement Date" means the earlier of (a)
(i) with respect to the Accumulation Period, the Expected Final Payment
Date or (ii) during the Early Amortization Period, the first Distribution
Date on which the Class B Invested Amount is paid in full or, if there are
no Principal Collections allocable to Series 1998-2 remaining after
payments have been made to the Class B Securities on such Distribution
Date, the next succeeding Distribution Date and (b) the Distribution Date
following a sale or repurchase of the Receivables pursuant to the Pooling
and Servicing Agreement.
"CTO Required Amount" means for any business day during a Monthly
Period the amount, if any, by which the sum (i) of the CTO Monthly Interest
and any overdue CTO Monthly Interest on the related Distribution Date (and
additional interest thereon), (ii) the CTO Floating Percentage of the
Default Amount for such Monthly Period (to date), (iii) if Direct Merchants
Bank, or an affiliate of Direct Merchants Bank is no longer the Servicer,
the CTO Floating Percentage of the Monthly Servicing Fee for the related
Monthly Period, (iv) the CTO Percentage of the Series 1998-2 Percentage of
the Adjustment Payment required to be made by the Transferor but not made
on the related Transfer Date and (v) the unreimbursed amount by which the
CTO Invested Amount has been reduced on prior business days because of
unreimbursed CTO Charge-Offs and Redirected CTO Principal Collections
exceed the Available Series Finance Charge Collections plus any Excess
Finance Charge Collections from other Series and any Transferor Finance
Charge Collections in each case allocated with respect thereto.
"CTO Securityholders" means the record holders of the Collateralized
Trust Obligations.
"CTO Securityholders' Interest" means the interest in the assets of
the Trust allocated to the CTO Securityholders.
"Default Amount" means, (i) on any business day other than the
Default Recognition Date, the aggregate amount of Principal Receivables in
Accounts which became Defaulted Accounts on such business day and (ii) on
any Default Recognition Date the aggregate amount of Principal Receivables
in Accounts which became Defaulted Accounts during the then current Monthly
Period (other than such Accounts which were included in clause (i)).
"Default Recognition Date" means the last day of each calendar month;
provided, however, that with respect to any Monthly Period the "related
Default Recognition Date" shall mean the Default Recognition Date occurring
closest to the last day of such Monthly Period and any amounts allocated or
applied on such Default Recognition Date shall be deemed to apply to the
related Monthly Period.
"Default Recognition Percentage" means, with respect to each Default
Recognition Date, the percentage equivalent of a fraction, the numerator of
which is the Weighted Average Invested Amount for the related Monthly
Period and the denominator of which is the Weighted Average Principal
Receivables in the Trust for the related Monthly Period.
"Defaulted Account" means each Account with respect to which, in
accordance with the Credit and Collection Policy or the Servicer's
customary and usual servicing procedures, the Servicer has charged off the
Receivables in such Account as uncollectible.
"Defaulted Receivable" is defined at page 85 in "Description of the
Offered Securities--Defaulted Receivables; Dilution."
"Defeasance" is defined at page 87 in "Description of the Offered
Securities--Defeasance."
"Definitive Securities" is defined at page 58 in "Description of the
Offered Securities--Definitive Securities."
"Depositaries" is defined at page 55 in "Description of the Offered
Securities--Book-Entry Registration."
"Depository" is defined at page 55 in "Description of the Offered
Securities--General."
"Determination Date" is defined at page 85 in "Description of the
Offered Securities--Investor Charge-Offs."
"Direct Merchants Bank" means Direct Merchants Credit Card Bank,
National Association.
"Direct Merchants Bank Portfolio" is defined at page 44 in "Direct
Merchants Bank's Credit Card Activities--Delinquency and Loss Experience."
"Discount Option Receivables" is defined at page 65 in "Description
of the Offered Securities--Discount Option."
"Discount Percentage" is defined at page 65 in "Description of the
Offered Securities--Discount Option."
"Distribution Account" is defined at page 66 in "Description of the
Offered Securities--Trust Accounts."
"Distribution Date" means , 1998 and the day of each
month thereafter, or if such day is not a business day, the next succeeding
business day.
"DOL" means the U.S. Department of Labor.
"Dollars" means United States dollars.
"DTC" means The Depository Trust Company.
"DTC Participants" is defined at page 56 in "Description of the Offered
Securities--Book-Entry Registration."
"Early Amortization Period" means the period beginning on the earlier
of (a) the day on which a Pay Out Event occurs or is deemed to have
occurred and (b) the Expected Final Payment Date if the Class A Invested
Amount, the Class B Invested Amount and the CTO Invested Amount have not
been paid in full on such date, and ending on the earlier of (i) the date
on which the Class A Invested Amount, the Class B Invested Amount, the CTO
Invested Amount and the Class D Invested Amount have been paid in full and
(ii) the Termination Date.
"Eligible Account" is defined at page 67 in "Description of the Offered
Securities--Eligible Accounts."
"Eligible Receivable" is defined at page 67 in "Description of the
Offered Securities--Eligible Receivables."
"Enhancement" means, with respect to any Series, any letter of
credit, cash collateral account, cash collateral guaranty, guaranty,
collateral invested amount, surety bond, guaranteed rate agreement,
maturity guaranty facility, tax protection agreement, interest rate cap,
interest rate swap, subordination of the rights of one class or one Series
to another, or other contract or agreement for the benefit of the
securityholders of such Series (or securityholders of a class within such
Series as designated in the applicable Supplement).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" is defined at page 57 in "Description of the Offered
Securities--Book-Entry Registration."
"Euroclear Operator" is defined at page 57 in "Description of the
Offered Securities--Book-Entry Registration."
"Euroclear Participants" is defined at page 57 in "Description of the
Offered Securities--Book-Entry Registration."
"Euroclear System" is defined at page 57 in "Description of the
Offered Securities--Book-Entry Registration."
"Excess Finance Charge Collections" means any Finance Charge
Collections allocable to any Series in excess of the amounts necessary to
make required payments with respect to such Series.
"Excess Funding Account" is defined at page 72 in "Description of the
Offered Securities--Excess Funding Account."
"Exchange" means any tender by the Transferor to the Trustee of the
Exchangeable Transferor Security, pursuant to any one or more Supplements
or, if provided in the relevant Supplement, securities representing any
Series and the Exchangeable Transferor Security, in exchange for one or
more new Series and a reissued Exchangeable Transferor Security.
"Exchangeable Transferor Security" means the security which evidences
the Transferor Interest.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Account" means on any date of determination (i) during any
period in which accounts are being automatically included as Accounts, any
revolving credit consumer credit card account which has been excluded from
addition to the Trust pursuant to the Pooling and Servicing Agreement or
any revolving credit consumer credit card account which the Transferor has
elected to exclude from the Trust and (ii) during any period following the
suspension of the automatic addition of accounts and prior to a Restart
Date, all revolving credit consumer credit card accounts other than
accounts that were Accounts on the automatic addition suspension date and
Supplemental Accounts previously added during such period.
"Expected Final Payment Date" means the Distribution
Date.
"External Prospects" is defined at page 37 in "Metris Companies Inc."
"FASIT" is defined at page 106 in "Certain Federal Income Tax
Consequences--Recent Legislation."
"FASIT Provisions" is defined at page 106 in "Certain Federal Income
Tax Consequences--Recent Legislation."
"FCI" means Fingerhut Companies, Inc., a Minnesota corporation.
"FDIA" means the Federal Deposit Insurance Act.
"FDIC" means the Federal Deposit Insurance Corporation.
"FDR" means First Data Resources, Inc.
"FICO scores" is defined at page 40 in "Direct Merchants Bank's
Credit Card Activities--New Account Underwriting--Credit Scoring."
"Finance Charge Collections" is defined at page 6 in "Prospectus
Summary--Trust."
"Finance Charge Receivables" is defined at page 8 in "Prospectus
Summary--Receivables."
"Fingerhut" means Fingerhut Corporation, a Minnesota corporation.
"Fingerhut Customers" is defined at page 37 in "Metris Companies Inc."
"Fingerhut Database" is defined at page 38 in "Fingerhut Corporation."
"Fingerhut Scores" is defined at page 38 in "Fingerhut Corporation."
"FIRREA" is defined at page 30 in "Risk Factors--Transfer of the
Receivables; Insolvency Risk Considerations."
"Fixed/Floating Percentage" is defined at page 75 in "Description of
the Offered Securities--Allocation Percentages."
"Floating Percentage" means the sum of the Class A Floating
Percentage, the Class B Floating Percentage, the CTO Floating Percentage
and the Class D Floating Percentage.
"Foreign Person" is defined at page 107 in "Certain Federal Income
Tax Consequences--Tax Consequences to Foreign Investors."
"Full Invested Amount" is defined at page 10 in "Prospectus
Summary--Allocation of Trust Assets."
"Funding Period" is defined at page 14 in "Prospectus
Summary--Funding Period."
"General Account Regulations" is defined at page 110 in "Employee
Benefit Plan Considerations--Special Considerations for Insurance Company
General Accounts."
"Global Securities" is defined at page B-1-1 in "Annex II."
"Governmental Authority" means the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Indirect Participants" is defined at page 56 in "Description of the
Offered Securities--Book-Entry Registration."
"Ineligible Receivable" means any receivable that does not satisfy the
definition of Receivable.
"Initial Closing Date" is defined at page 63 in "Description of the
Offered Securities--Transfer and Assignment of Receivables."
"Initial Invested Amount" is defined at page 10 in "Prospectus
Summary--Allocation of Trust Assets."
"Insolvency Event" is defined at page 89 in "Description of the Offered
Securities--Pay Out Events."
"Interest Accrual Period" means, with respect to a Distribution Date,
the period from and including the preceding Distribution Date to but
excluding such Distribution Date; provided, however, that the initial
Interest Accrual Period shall be the period from the Closing Date to but
excluding the initial Distribution Date.
"Interest Funding Account" is defined at page 70 in "Description of the
Offered Securities--Trust Accounts."
"Invested Amount" means the sum of the Class A Invested Amount, the
Class B Invested Amount, the CTO Invested Amount and the Class D Invested
Amount.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time.
"Investor Securities" means any securities of any Series.
"Investor Percentage" means, (a) with respect to Finance Charge
Collections prior to the commencement of the Early Amortization Period,
Receivables in Defaulted Accounts at any time and Principal Collections
during the Revolving Period, the Floating Percentage and (b) with respect
to Finance Charge Collections during the Early Amortization Period and
Principal Collections during the Amortization Period, the Fixed/Floating
Percentage, and with respect to any Series of securities, the percentage
specified in the related Supplement.
"IRS" means the Internal Revenue Service.
"LIBOR" is defined at page 59 in "Description of the Offered
Securities--Interest Payments."
"LIBOR Determination Date" is defined at page 59 in "Description of
the Offered Securities--Interest Payments."
"MasterCard International" means MasterCard International Inc.
"Metris" means Metris Companies Inc., a Delaware corporation.
"Metris Direct" means Metris Direct, Inc., a Minnesota corporation and
an affiliate of Direct Merchants
Bank.
"Metris Receivables, Inc." means Metris Receivables, Inc., a Delaware
corporation.
"Minimum Aggregate Principal Receivables" means, as of any date of
determination, the sum of the numerators used in the calculation of the
Investor Percentages for Principal Collections for all outstanding Series
on such date of determination.
"Minimum Retained Interest" means the product of the weighted average
Minimum Retained Percentages for all Series and the sum of the outstanding
principal amounts of all classes of all Series.
"Minimum Retained Percentage" means, for Series 1998-2, 2%.
"Minimum Transferor Interest" means the product of (i) the sum of (a)
the aggregate Principal Receivables and (b) the amounts on deposit in the
Excess Funding Account and (ii) the highest Minimum Transferor Percentage
for any Series.
"Minimum Transferor Percentage" means, for Series 1998-2, 0%;
provided, however that in certain circumstances such percentage may be
increased.
"Monthly Period" means the period from and including the first day of
each fiscal month of the Transferor to and including the last day of such
fiscal month except that the first Monthly Period with respect to the
Securities shall begin on and include the Closing Date and shall end on and
include , 1998.
"Monthly Servicing Fee" is defined at page 90 in "Description of the
Offered Securities--Servicing Compensation and Payment of Expenses."
"Moody's" means Moody's Investors Service, Inc.
"Negative Carry Amount" is defined at page 21 in "Prospectus
Summary--Coverage of Interest Shortfalls from Transferor Finance Charge
Collections."
"New Regulations" is defined at page 108 in "Certain Federal Income
Tax consequences--New Withholding Regulations."
"Notice Date" is defined at page 68 in "Description of the Offered
Securities--Addition of Trust Assets."
"Obligor" means a person or persons obligated to make payments with
respect to a Receivable arising under an Account pursuant to a Contract.
"Offered Securities" is defined at page 1.
"OID" means original issue discount.
"OID Regulations" is defined at page 104 in "Certain Federal Income
Tax Consequences--Taxation of Interest Income to Securityholders."
"Paired Series" is defined at page 86 in "Description of the Offered
Securities--Paired Series."
"Participants" is defined at page 55 in "Description of the Offered
Securities--General."
"Paying Agent" is defined at page 72 in "Description of the Offered
Securities--Trust Accounts."
"Payment Date" is defined at page 41 in "Direct Merchants Bank's
Credit Card Activities--Servicing, Billing and Payments."
"Payment Reserve Account" is defined at page 70 in "Description of the
Offered Securities--Trust Accounts."
"Pay Out Event" is defined at page 88 in "Description of the Offered
Securities--Pay Out Events."
"Periodic Finance Charge" has, with respect to any Account, the
meaning specified in the Contract applicable to such Account for finance
charges (due to periodic rate) or any similar term.
"Permitted Lien" means with respect to the Receivables: (i) liens in
favor of the Transferor created pursuant to the Purchase Agreement and
assigned to the Trustee pursuant to the Pooling and Servicing Agreement;
(ii) liens in favor of the Trustee pursuant to the Pooling and Servicing
Agreement; and (iii) liens which secure the payment of taxes, assessments
and governmental charges or levies, if such taxes are either (a) not
delinquent or (b) being contested in good faith by appropriate legal or
administrative proceedings and as to which adequate reserves in accordance
with generally accepted accounting principles shall have been established.
"Person" means any legal person, including any individual,
corporation, partnership, joint venture, association, joint stock company,
trust, unincorporated organization, governmental entity or other entity of
similar nature.
"Plan" is defined at page 109 in "Employee Benefit Plan
Considerations."
"Plan Assets Regulation" is defined at page 109 in "Employee Benefit
Plan Considerations."
"Pooling and Servicing Agreement" means the Amended and Restated
Pooling and Servicing Agreement, dated as of July 30, 1998, among the
Transferor, the Servicer, and the Trustee, as supplemented or amended in
accordance with its terms. Unless the context requires otherwise, the term
"Pooling and Servicing Agreement" refers to the Pooling and Servicing
Agreement as supplemented by the Series 1998-2 Supplement.
"Portfolio Yield" is defined at page 53 in "Maturity Considerations."
"Pre-Funded Amount" is defined at page 14 in "Prospectus
Summary--Funding Period."
"Pre-Funding Account" is defined at page 4 in "Prospectus
Summary--Funding Period."
"Prepayable Instrument" is defined at page 105 in "Certain Federal
Income Tax Consequences--Taxation of Interest Income to
Securityholders--OID."
"Previously Issued Series" means the Series 1998-1 Variable Funding
Securities, the Series 1997-2 Asset Backed Certificates, the Series 1997-1
Asset Backed Certificates and the Series 1996-1 Asset Backed Certificates.
"Principal Account" is defined at page 70 in "Description of the
Offered Securities--Trust Accounts."
"Principal Collections" means with respect to any business day
Collections received with respect to Principal Receivables.
"Principal Funding Account" is defined at page 72 in "Description of
the Offered Securities--Principal Funding Account."
"Principal Funding Account Balance" is defined at page 52 in "Maturity
Considerations."
"Principal Funding Account Investment Proceeds" is defined at page 72
in "Description of the Offered Securities--Principal Funding Account."
"Principal Receivables" means for any business day, the aggregate
amount shown on the Servicer's records as amounts payable by Obligors with
respect to Eligible Receivables other than such amounts that are Finance
Charge Receivables or (except as used in the definition of Series Default
Amount) Receivables in Defaulted Accounts and shall include, without
limitation, amounts payable for purchases of goods or services or cash
advances. A Receivable shall be deemed to have been created at the end of
the day on the date of processing of such Receivable. In calculating the
aggregate amount of Principal Receivables on any day, the amount of
Principal Receivables shall be reduced by the aggregate amount of credit
balances in the Accounts on such day.
"Principal Terms" is defined at page 64 in "Description of the Offered
Securities--Exchanges."
"Proprietary Modeling System" is defined at page 40 in "Direct
Merchants Bank's Credit Card Activities--New Account Underwriting--Credit
Scoring."
"Proprietary Score" is defined at page 40 in "Direct Merchants Bank's
Credit Card Activities--New Account Underwriting--Credit Scoring."
"Purchase Agreement" means that certain Amended and Restated
Receivables Purchase Agreement dated as of July 30, 1998 between Metris and
the Transferor, as such documents may be amended from time to time in
accordance with their terms.
"Purchase Agreements" means the Purchase Agreement and the Bank
Purchase Agreement.
"Purchase Termination Date" is defined at page 98 in "Description of
the Purchase Agreements--Purchase Termination Date."
"Qualified Institution" is defined at page 70 in "Description of the
Offered Securities--Trust Accounts."
"Rating Agencies" means Standard & Poor's and Moody's.
"Rating Agency Condition" means the notification in writing by each
Rating Agency to the Transferor, the Servicer and the Trustee that any
action will not result in any Rating Agency reducing or withdrawing its
then existing rating of the Investor Securities of any outstanding Series
or class with respect to which it is a Rating Agency.
"Ratings Event" shall mean, with respect to any class of any
outstanding Series rated by a Rating Agency, a reduction or withdrawal of
the rating of any such class by a Rating Agency.
"Receivable" means all of the indebtedness of any Obligor under an
Account, including the right to receive payment of any interest or finance
charges and other obligations of such Obligors with respect thereto. Each
receivable includes, without limitation, all rights of the Transferor under
the applicable Contract.
"Record Date" means, with respect to any Distribution Date, the
business day preceding such Distribution Date, except that, with respect to
any Definitive Securities, Record Date shall mean the fifth day of the then
current Monthly Period.
"Recoveries" means any amounts received by the Servicer with respect
to Receivables in Accounts that previously became Defaulted Accounts.
"Redirected Class B Principal Collections" is defined at page 78 in
"Description of the Offered Securities--Redirected Principal Collections."
"Redirected CTO Principal Collections" is defined at page 77 in
"Description of the Offered Securities--Redirected Principal Collections."
"Redirected Class D Principal Collections" is defined at page 77 in
"Description of the Offered Securities--Redirected Principal Collections."
"Redirected Principal Collections" is defined at page 78 in
"Description of the Offered Securities--Redirected Principal Collections."
"Reference Banks" means three major banks in the London interbank
market selected by the Servicer.
"Related Person" means an entity that is an affiliate of Metris, any
holder of an Investor Security, any provider of Enhancement, or any person
whose status would violate the conditions for a trustee contained in
Section (4)(i) of Rule 3a-7 under the Investment Company Act.
"Relevant UCC State" means each jurisdiction in which the filing of a
UCC financing statement is necessary to perfect the ownership interest and
security interest of the Transferor pursuant to the Purchase Agreement or
the ownership or security interest of the Trustee.
"Required Amount" is defined at page 83 in "Description of the
Offered Securities--Application of Collections--Payment of Fees, Interest
and Other Items."
"Required Reserve Account Amount" is defined at page 73 in
"Description of the Offered Securities--Accumulation Period Reserve
Account."
"Requirements of Law" means the certificate of incorporation or
articles of association and by-laws or other organizational or governing
documents of such Person, and any material law, treaty, rule or regulation
or determination of an arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which such Person is
subject.
"Reserve Account Funding Date" is defined at page 73 in "Description
of the Offered Securities--Accumulation Period Reserve Account."
"Restart Date" is defined at page 68 in "Description of the Offered
Securities--Addition of Trust Assets."
"Retained Interest" means, on any date of determination, the sum of
the Transferor Interest and the interest in the Trust represented by any
Transferor Retained Class of investor securities.
"Retained Percentage" means, on any date of determination, the
percentage equivalent of a fraction the numerator of which is the Retained
Interest and the denominator of which is the aggregate amount of Principal
Receivables at the end of the day immediately prior to such date of
determination plus all amounts on deposit in the Excess Funding Account
(but not including investment earnings on such amounts).
"Revolving Period" is defined at page 15 in "Prospectus
Summary--Revolving Period."
"RTC" means the Resolution Trust Corporation.
"RTC Policy Statement" is defined at page 30 in "Risk
Factors-Transfer of the Receivables; Insolvency Risk Considerations."
"Securities" or "Series 1998-2 Securities" means, collectively, the
Class A Securities, the Class B Securities, the Collateralized Trust
Obligations and the Class D Securities.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Security Owners" is defined at page 3 in "Reports to Securityholders."
"Securityholders" means the record holders of the Securities.
"Securityholders' Interest" means the interest in the assets of the
Trust allocated to the Securityholders.
"Series" means any series of securities issued by the Trust pursuant
to a Supplement, including the Series 1998-2 Securities.
"Series Default Amount" is defined at page 85 in "Description of the
Offered Securities--Defaulted Receivables; Dilution."
"Series 1996-1 Asset Backed Certificates" means those securities
issued by the Trust pursuant to the Series 1996-1 Supplement dated as of
April 23, 1996.
"Series 1997-1 Asset Backed Certificates" means those securities
issued by the Trust pursuant to the Series 1997-1 Supplement dated as of
May 8, 1997.
"Series 1997-2 Asset Backed Certificates" means those securities
issued by the Trust pursuant to the Series 1997-2 Supplement dated as of
_______, 1997.
"Series 1998-1 Variable Funding Securities" means those securities
issued by the Trust pursuant to the Series 1998-1 Supplement dated as of
July 30, 1998.
"Series 1998-2" is defined at page 2.
"Series 1998-2 Percentage" means, on any date of determination, the
percentage equivalent of a fraction the numerator of which is the Invested
Amount and the denominator of which is the sum of the Invested Amounts of
all Series then outstanding.
"Series 1998-2 Supplement" means the Supplement, dated as of the
Closing Date, among the Transferor, the Servicer and the Trustee relating
to the Series 1998-2 Securities.
"Service Transfer" is defined at page 91 in "Description of the Offered
Securities--Servicer Default."
"Servicer" means initially Direct Merchants Bank and thereafter any
Person appointed as successor as provided in the Pooling and Servicing
Agreement.
"Servicer Default" is defined at page 91 in "Description of the Offered
Securities--Servicer Default."
"Servicing Fee Percentage" means 2.00 percent per annum, or for so
long as Direct Merchants Bank is the Servicer, a lesser rate if so
specified in the Supplement.
"Shared Principal Collections" means the amount of Principal
Collections for any business day allocated by the Servicer to the Invested
Amount remaining after covering required deposits or payments to the
Securityholders and any similar amount remaining for any other Series.
"SIPC" is defined at page 71 in "Description of the Offered
Securities--Trust Accounts."
"Special Tax Counsel" means Skadden, Arps, Slate, Meagher & Flom LLP,
counsel to the Transferor or such other counsel reasonably acceptable to
the Trustee.
"Spin Off" is defined on page 37 in "Metris Companies Inc."
"Standard & Poor's" means Standard & Poor's, a Division of The
McGraw-Hill Companies, Inc.
"Stated Class D Amount" is defined at page 76 in "Description of the
Offered Securities--Allocation
Percentages."
"Supplement" means any Supplement to the Pooling and Servicing
Agreement.
"Supplemental Accounts" is defined at page 68 in "Description of the
Offered Securities--Addition of Trust
Assets."
"Supplemental Security" is defined at page 65 in "Description of the
Offered Securities--Exchanges."
"Suppress File" is defined at page 38 in "Fingerhut Corporation."
"Tax Certificate" is defined at page B-1-3 in "Annex II."
"Tax Opinion" is defined at page 64 in "Description of the Offered
Securities--Exchanges."
"Telerate Page 3750" means the display page currently so designated
on the Dow Jones Telerate Service (or such other page as may replace that
page on that service for the purpose of
displaying comparable rates or prices).
"Termination Date" means the ______ Distribution Date.
"Terms and Conditions" is defined at page 58 in "Description of the
Offered Securities--Book-Entry Registration."
"Transfer Agent and Registrar" is defined at page 59 in "Description
of the Offered Securities--Definitive Securities."
"Transfer Date" is defined at page 75 in "Description of the Offered
Securities--Application of Collections--Allocations."
"Transferor" means Metris Receivables, Inc., a Delaware corporation.
"Transferor Finance Charge Collections" is defined at page 21 in
"Prospectus Summary--Coverage of Interest Shortfalls from Transferor
Finance Charge Collections."
"Transferor Interest" means, on any date of determination, the
aggregate amount of Principal Receivables at the end of the day immediately
prior to such date of determination plus
all amounts on deposit in the Excess
Funding Account (but not including investment earnings on such amounts),
minus the aggregate invested amount of all Series at the end of such day.
"Transferor Percentage" is defined at page 75 in "Description of the
Offered Securities--Allocation Percentages."
"Transferor Retained Class" means any class of Investor Securities
which is retained by the Transferor.
"Transferor Retained Finance Charge Collections" is defined at page
82 in "Description of the Offered Securities--Application of
Collections--Payment of Fees, Interest and Other Items."
"Transferred Account" means an Account with respect to which a new
credit account number has been issued by the applicable Credit Card
Originator under circumstances resulting from a lost or stolen credit card
and not requiring standard application and credit evaluation procedures
under the Credit and Collection Policy.
"Treasury Regulations" is defined at page 103 in "Certain Federal
Income Tax Consequences--General; Scope of Federal Income Tax Opinion."
"Trigger Event" is defined at page 89 in "Description of the Offered
Securities--Pay Out Events."
"Trust" means the Metris Master Trust.
"Trust Accounts" is defined at page 70 in "Description of the Offered
Securities--Trust Accounts."
"Trust Portfolio" is defined at page 48 in "The Receivables."
"Trustee" means The Bank of New York (Delaware), a Delaware banking
corporation.
"Trustee's Corporate Trust Office" means the Trustee's office located
at White Clay Center, Route 273, Newark, Delaware 19711.
"UCC" means the Uniform Commercial Code as amended from time to time
as in effect in the applicable jurisdiction.
"Underwriters" is defined at page 111 in "Underwriting."
"Underwriting Agreement" means the underwriting agreement dated
__________, 1998 among the Transferor, Metris and the Underwriters.
"U.S. Person" is defined at page B-1-3 in "Annex II."
"Utah Bank" is defined at page 38 in "Direct Merchants Credit Card
Bank, National Association."
"Variable Funding Securities" means a series of Securities, in one or
more classes, issued pursuant to the Pooling and Servicing Agreement and
the Variable Funding Series Supplement relating thereto.
"Variable Funding Series Supplement" means the Series 1998-1
Supplement dated as of July 30, 1998 among the Transferor, the Servicer and
the Trustee relating to the Variable Funding Securities.
"Weighted Average Invested Amount" means with respect to any Monthly
Period the weighted average Adjusted Invested Amount based on the Adjusted
Invested Amount outstanding on each business day after giving effect to all
transactions on such business day from but excluding the Default
Recognition Date related to the preceding Monthly Period to and including
the Default Recognition Date with respect to such Monthly Period.
"Weighted Average Principal Receivables" means with respect to any
Monthly Period the weighted average sum of the total amount of Principal
Receivables and the amount on deposit in the Excess Funding Account on each
business day after giving effect to all transactions on such business day
from but excluding the Default Recognition Date related to the preceding
Monthly Period to and including the Default Recognition Date with respect
to such Monthly Period.
ANNEX I
OTHER SERIES
The table below sets forth the principal characteristics of the
Series 1996-1 Asset Backed Certificates, the Series 1997-1 Asset Backed
Certificates, the Series 1997-2 Asset Backed Certificates and the Series
1998-1 Variable Funding Securities, the only Series heretofore issued by
the Trust which remain outstanding. For more specific information with
respect to any Series, any prospective investor should contact the Servicer
at (612) 525-5094. The Servicer will provide, without charge, to any
prospective purchaser of the Securities, a copy of the disclosure documents
for any previous publicly issued Series.
SERIES 1996-1
<TABLE>
<CAPTION>
CLASS A CERTIFICATES
<S> <C>
Initial Invested Amount........................ $518,000,000
Interest Rate.................................. 6.45%
Commencement of Amortization Period............ First day of August 1998 Monthly Period
Annual Servicing Fee Percentage................ 2.00%
Enhancement.................................... Subordination of Class B Certificates, Class C
Certificates and Class D Certificates
Scheduled Series Termination Date.............. February 2002 Distribution Date
Series Issuance Date........................... April 23, 1996
CLASS B CERTIFICATES
Initial Invested Amount........................ $87,500,000
Interest Rate.................................. 6.80%
Annual Servicing Fee Percentage................ Same as above for Class A Certificates
Enhancement.................................... Subordination of Class A Certificates and Class D
Certificates
Scheduled Series Termination Date.............. Same as above for Class A Certificates
CLASS C CERTIFICATES
Initial Invested Amount........................ $50,000,000
Interest Rate.................................. LIBOR + 0.650%
Annual Servicing Fee Percentage................ Same as above for Class A Certificates
Enhancement.................................... Subordination of Class D Certificates and Class C
Reserve Account
Scheduled Series Termination Date.............. Same as above for Class A Certificates
CLASS D CERTIFICATES
Invested Amount................................ $44,500,000
Interest Rate.................................. None
Annual Servicing Fee Percentage................ Same as above for Class A Certificates
Scheduled Series Termination Date.............. Same as above for Class A Certificates
SERIES 1997-1
CLASS A CERTIFICATES
Initial Invested Amount........................ $616,250,000
Interest Rate.................................. 6.87%
Commencement of Accumulation Period............ Last day of March 2001 Monthly Period or later
date as determined in the Agreement
Annual Servicing Fee Percentage................ 2.00%
Enhancement.................................... Subordination of Class B Certificates, Class C
Certificates and Class D Certificates
Scheduled Series Termination Date.............. October 2005 Distribution Date
Series Issuance Date........................... May 8, 1997
CLASS B CERTIFICATES
Initial Invested Amount....................... $106,250,000
Interest Rate................................. 7.11%
Commencement of Accumulation Period........... Last day of March 2001 Monthly Period or later
date as determined in the Agreement
Annual Servicing Fee Percentage............... Same as above for Class A Certificates
Enhancement................................... Subordination of Class C Certificates and Class D
Certificates
Scheduled Series Termination Date............. Same as above for Class A Certificates
CLASS C CERTIFICATES
Initial Invested Amount....................... $72,250,000
Interest Rate................................. LIBOR + 0.850%
Commencement of Accumulation Period........... Last day of March 2001 Monthly Period or later
date as determined in the Agreement
Annual Servicing Fee Percentage............... Same as above for Class A Certificates
Enhancement................................... Subordination of Class D Certificates and Class C
Reserve Account
Scheduled Series Termination Date............. Same as above for Class A Certificates
CLASS D CERTIFICATES
Invested Amount............................... $55,250,000
Interest Rate................................. None
Annual Servicing Fee Percentage............... Same as above for Class A Certificates
Scheduled Series Termination Date............. Same as above for Class A Certificates
SERIES 1997-2
CLASS A CERTIFICATES
Initial Invested Amount....................... $455,000,000
Interest Rate................................. LIBOR + 0.20%
Commencement of Accumulation Period........... Last day of October 2001 Monthly Period or later
date as determined in the Agreement
Annual Servicing Fee Percentage............... 2.00%
Enhancement................................... Subordination of Class B Certificates, Class C
Certificates and Class D Certificates
Scheduled Series Termination Date............. May 2006 Distribution Date
Series Issuance Date.......................... November 20, 1997
CLASS B CERTIFICATES
Initial Invested Amount....................... $101,500,000
Interest Rate................................. LIBOR + 0.43%
Commencement of Accumulation Period........... Last day of October 2001 Monthly Period or later
date as determined in the Agreement
Annual Servicing Fee Percentage............... Same as above for Class A Certificates
Enhancement................................... Subordination of Class C Certificates and Class D
Certificates
Scheduled Series Termination Date............. Same as above for Class A Certificates
CLASS C CERTIFICATES
Initial Invested Amount....................... $98,000,000
Interests Rate................................ LIBOR + ____%
Commencement of Accumulation Period........... Last day of October 2001 Monthly Period or later
date as determined in the Agreement
Annual Servicing Fee Percentage............... Same as above for Class A Certificates
Enhancement................................... Subordination of Class D Certificates and Class C
Reserve Account
Scheduled Series Termination Date............. Same as above for Class A Certificates
CLASS D CERTIFICATES
Invested Amount............................... $55,250,000
Interest Rate................................. None
Annual Servicing Fee Percentage............... Same as above for Class A Certificates
Scheduled Series Termination Date............. Same as above for Class A Certificates
SERIES 1998-1
CLASS A SECURITIES
Invested Amount as of _____, 1998............. $
Expected Invested Amount as of Closing
Date (after application of proceeds)........ $
Maximum Permitted Invested Amount............. $600,000,000
Interest Rate................................. A1/P1 Commercial Paper/LIBOR + 0.75% Blended
Commencement of Amortization Period........... _________________ (extendible)
Annual Servicing Fee Percentage............... 2.00%
Enhancement................................... Subordination of Class B Securities, Collateralized
Trust Obligations and Class D Securities
Scheduled Series Termination Date............. _________________ (extendible)
Series Issuance Date.......................... July 30, 1998
CLASS B SECURITIES
Initial Invested Amount....................... $56,376,000
Interest Rate................................. LIBOR + 0.45%
Annual Servicing Fee Percentage............... Same as above for Class A Securities
Enhancement................................... Subordination of Collateralized Trust Obligations
and Class D Securities
Scheduled Series Termination Date............. Same as above for Class A Securities
COLLATERALIZED TRUST OBLIGATIONS
Initial Invested Amount....................... $96,645,000
Interest Rate................................. LIBOR + 0.85%
Annual Servicing Fee Percentage............... Same as above for Class A Securities
Enhancement................................... Subordination of Class D Securities
Scheduled Series Termination Date............. Same as above for Class A Securities
CLASS D SECURITIES
Invested Amount as of ___________, 1998....... $
Expected Invested Amount as of Closing
Date (after reduction of Class A
Invested Amount)............................ $
Maximum Permitted Invested Amount.............
Interest Rate................................. None
Annual Servicing Fee Percentage............... Same as above for Class A Securities
Scheduled Series Termination Date............. Same as above for Class A Securities
</TABLE>
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Metris Master Trust Asset Backed Trust Securities, Series 1998-2 (the
"Global Securities"), will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of The
Depository Trust Company ("DTC"), Cedel or Euroclear. The Global Securities
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global
Securities through Cedel and Euroclear will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global
Securities through DTC will be conducted according to the rules and
procedures applicable to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel
and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in
the name of Cede & Co. as nominee of DTC. Investors' interests in the
Global Securities will be represented through financial institutions acting
on their behalf as direct and indirect Participants in DTC. As a result,
Cedel and Euroclear will hold positions on behalf of their participants
through their respective Depositaries, which in turn will hold such
positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC
will follow the settlement practices applicable to conventional Eurobonds,
except that there will be not temporary global security and no "look-up" or
restricted period. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through Cedel
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in the same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is
important to establish at the time of the trade where both the purchaser's
and seller's accounts are located to ensure that settlement can be made on
the desired value date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to
conventional credit card security issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary
market trading between Cedel Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC
Participant to the accounts of a Cedel Participant or a Euroclear
Participant, the purchaser will send instructions to Cedel or Euroclear
through a Cedel Participant or Euroclear Participant at least one business
day prior to settlement. Cedel or Euroclear will instruct the respective
Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the
settlement date, on the basis of actual days elapsed and a 360 day year.
Payment will then be made by the respective Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to
the respective clearing system and by the clearing system, in accordance
with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The Global Securities credit will appear the next
day (European time) and the cash debit will be back-valued to, and the
interest on the Global Securities will accrue from, the value date (which
would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the Cedel or Euroclear cash debit will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing
lines of credit, as they would for any settlement occurring within Cedel or
Euroclear. Under this approach, they may take on credit exposure to Cedel
or Euroclear until the Global Securities are credited to their accounts one
day later.
As an alternative, if Cedel or Euroclear has extended a line of
credit to them, Cedel Participants or Euroclear Participants can elect not
to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, Cedel Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for
one day, assuming they cleared the overdraft when the Global Securities
were credited to their accounts. However, interest on the Global Securities
would accrue from the value date. Therefore, in many cases the investment
income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges,
although this result will depend on each Cedel Participant's or Euroclear
Participant's particular cost of funds.
Since the settlement is taking place during New York business
hours, DTC Participants can employ their usual procedures for sending
Global Securities to the respective Depositary for the benefit of Cedel
Participants or Euroclear Participants. The sale proceeds will be available
to the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between
two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due
to time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in
which Global Securities are to be transferred by the respective clearing
system, through the respective Depositary, to a DTC Participant. The seller
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. In
these cases, Cedel or Euroclear will instruct their respective Depositary,
as appropriate, to deliver the bonds to the DTC Participant's account
against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment date to and excluding
the settlement date on the basis of actual days elapsed and a 360 day year.
The payment will then be reflected in the account of the Cedel Participant
or Euroclear Participant the following day, and receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account
would be back-valued to the value date (which would be the preceding day,
when settlement occurred in New York). Should the Cedel Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed
on the intended value date (i.e., the trade fails), receipt of the cash
proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants
or Euroclear Participants should note that these trades would automatically
fail on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Cedel or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Cedel or Euroclear accounts) in accordance with the clearing
system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a
DTC Participant no later than one day prior to settlement, which
would give the Global Securities sufficient time to be reflected
in their Cedel or Euroclear account in order to settle the sale
side of the trade; or
(c) staggering the value dates for the buy and sell sides
of the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the
sale to the Cedel Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30 percent U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless (i) each clearing system,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Securities that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status) and a certificate under penalties of perjury (the "Tax
Certificate") that such beneficial owner is (i) not a controlled foreign
corporation (within the meaning of Section 957(a) of the Code) that is
related (within the meaning of Section 864(d)(4) of the Code) to the Trust
or the Transferor and (ii) not a 10 percent shareholder (within the meaning
of Section 871(h)(3)(B) of the Code) of the Trust or the Transferor. If the
information shown on Form W-8 or the Tax Certificate changes, a new Form
W-8 or Tax Certificate, as the case may be, must be filed within 30 days of
such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Security Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Security). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed
by the Security Owner or such Security Owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Security Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, such
Security Owner's agent, files by submitting the appropriate form to the
person through whom it holds (the clearing agency, in the case of persons
holding directly on the books of the clearing agency). Form W-8 and Form
1001 are effective for three calendar years and Form 4224 is effective for
one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the
United States, (ii) a corporation or partnership organized in or under the
laws of the United States, any state thereof or the District of Columbia
(unless, in the case of a partnership, Treasury Regulations provide
otherwise), (iii) an estate the income of which is includible in gross
income for United States tax purposes, regardless of its source or (iv) a
trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States Persons who
have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20, 1996, and treated as
U.S. Persons under the Code, and applicable Treasury Regulations thereunder
prior to such date, that elect to continue to be treated as U.S. Persons
under the Code or applicable Treasury Regulations thereunder will also be
considered a U.S. Person. This summary does not deal with all aspects of
U.S. Federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of
the Global Securities.
PRINCIPAL OFFICE OF
METRIS RECEIVABLES, INC.
600 South Highway 169
Suite 300
St. Louis Park, Minnesota 55426
SERVICER
for the Trust
Direct Merchants Credit Card Bank, National Association
6909 East Greenway Parkway
Scottsdale, Arizona 85254
TRUSTEE
The Bank of New York (Delaware)
White Clay Center
route 273
Newark, Delaware 19711
PAYING AGENTS AND TRANSFER AGENTS
The Bank of New York
White Clay Center
ROUTE 273
Newark, Delaware 19711
LISTING AGENT
LEGAL ADVISOR TO THE TRANSFEROR
as to United States Law
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
LEGAL ADVISOR TO THE UNDERWRITERS
as to United States Law
Brown & Wood LLP
One World Trade Center
New York, NY 10048-0557
INDEPENDENT ACCOUNTANTS TO THE TRANSFEROR
KPMG Peat Marwick LLP
4200 Norwest Center
90 South 7th Street
Minneapolis, Minnesota 55402-3900
================================== ====================================
NO DEALER, SALESMAN OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY METRIS MASTER TRUST
REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR $_____ FLOATING RATE
REPRESENTATIONS MUST NOT BE RELIED ASSET BACKED
UPON AS HAVING BEEN AUTHORIZED BY SECURITIES,
THE TRANSFEROR OR THE UNDERWRITERS. SERIES 1998-2, CLASS A
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF METRIS COMPANIES $_____ FLOATING RATE
INC., DIRECT MERCHANTS CREDIT CARD ASSET BACKED
BANK, NATIONAL ASSOCIATION, METRIS SECURITIES,
RECEIVABLES, INC. OR THE SERIES 1998-2, CLASS B
RECEIVABLES SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR SOLICITATION BY ANYONE
IN ANY STATE IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT METRIS
QUALIFIED TO DO SO OR TO ANYONE TO RECEIVABLES, INC.
WHOM IT IS UNLAWFUL TO MAKE SUCH Transferor
OFFER OR SOLICITATION.
--------------
TABLE OF CONTENTS
Page
Reports to Securityholders....... 3
Available Information............ 3 DIRECT MERCHANTS CREDIT
Incorporation of Certain CARD BANK, NATIONAL
Documents By Reference......... 3 ASSOCIATION
Other Information................ 4 Servicer
Prospectus Summary............... 5
Risk Factors.....................29
The Trust........................37
Metris Companies Inc.............37
The Transferor...................38
Direct Merchants Credit Card PROSPECTUS
Bank, National Association.....38
Fingerhut Corporation............38
Direct Merchants Bank's
Credit Card Activities.........39 UNDERWRITERS OF THE
The Receivables..................48 CLASS A SECURITIES
Maturity Considerations..........52
Use of Proceeds..................54
Description of the Offered
Securities.....................54
Description of the Purchase UNDERWRITERS OF THE
Agreements.....................95 CLASS B SECURITIES
Certain Legal Aspects of
the Receivables................98
Certain Federal Income Tax
Consequences..................102
Certain State Tax
Consequences..................108 , 1998
Employee Benefit Plan
Considerations................109
Underwriting....................111
Legal Matters...................112
Glossary of Terms...............113
=================================== ==================================
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Fee....................................................$295
Printing and Engraving...............................................*
Trustee's Fees.......................................................*
Legal Fees and Expenses..............................................*
Blue Sky Fees and Expenses...........................................*
Accountants' Fees and Expenses.......................................*
Rating Agency Fees...................................................*
Miscellaneous Fees.............................................______*
Total.................................................$
- ------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's certificate of incorporation and by-laws provide
for the indemnification of the directors, officers, employees, and agents
of the Registrant to the full extent that may be permitted by Delaware law
from time to time. Certain provisions of the Registrant's certificate of
incorporation protect the Registrant's directors against personal liability
for monetary damages resulting from breaches of their fiduciary duty of
care; however, the Registrant's directors remain liable for breaches of
their duty of loyalty to the Registrant, as well as for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, transactions from which a director derives improper
personal benefit and liability under section 174 of the Delaware General
Corporation Law, which makes directors personally liable for unlawful
dividends or unlawful stock repurchases or redemptions in certain
circumstances and expressly sets forth a negligence standard with respect
to such liability.
Under Section 145 of the Delaware General Corporation Law,
directors, officers, employees, and other individuals may be indemnified
against expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative, or investigative
(other than a "derivative action" by or in the right of the corporation) if
they acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful. A similar standard of care is applicable in the
case of a derivative action, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with defense or
settlement of such an action and Delaware law requires court approval
before there can be any indemnification of expenses where the person
seeking indemnification has been found liable to the corporation.
The Registrant's parent corporation currently maintains a policy
insuring, subject to certain exceptions, its directors and officers and the
directors and officers of its subsidiaries against liabilities which may be
incurred by such persons acting in such capacities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
Exhibits
1 --Form of Underwriting Agreement.*
3(a) --Amended and Restated Certificate of Incorporation of Metris
Receivables, Inc. (incorporated herein by reference to
Registration Statement No. 333-23045).
3(b) --By-laws of Metris Receivables, Inc. (incorporated herein by
reference to Registration Statement No. 33-99514).
4(a) --Amended and Restated Pooling and Servicing Agreement, dated
as of July 30, 1998 among the Transferor, the Servicer and
the Trustee.
4(b) --Form of Series 1998-2 Supplement.*
4(c) --Amended and Restated Bank Receivables Purchase Agreement
dated as of July 30, 1998 between Direct Merchants Bank and
Metris.
4(d) --Amended and Restated Receivables Purchase Agreement dated
as of July 30, 1988 between Metris and the Transferor.
5 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to legality.*
8 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to tax matters.*
24 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(Contained in Exhibits 5 and 8).*
25 --Power of Attorney (contained on the signature page).
- ------------
* To be filed by amendment.
b. Financial Statements
Inapplicable
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement securities in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 14 above, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of 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 registrants will, unless in the opinion of their
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the questions 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.
(c) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) under the Securities Act of 1933 shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(d) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus 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.
(e) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Trust's annual report pursuant
to Section 13(a) or 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the state of
Minnesota, city of St. Louis Park, on August 12, 1998.
METRIS RECEIVABLES, INC.
By: /s/ Robert W. Oberrender
-------------------------
Robert W. Oberrender
President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned does
hereby constitute and appoint both Robert W. Oberrender and Paul T. Runice
his or her true and lawful attorney-in-fact and agent, each with full power
of substitution, for him or her and on his or her behalf to sign, execute
and file this Registration Statement and any or all amendments (including,
without limitation, post-effective amendments and any amendment or
amendments increasing the amount of securities for which registration is
being sought) to this Registration Statement, with all exhibits and any and
all documents required to be filed with respect thereto, with the
Securities and Exchange Commission or any regulatory authority, granting
unto such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all
intents and purposes as he or she might or could do if personally present,
hereby ratifying and confirming all that such attorney-in-fact and agents
may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following
persons in the capacities indicated on August 12, 1998.
SIGNATURE TITLE
/s/ Robert W. Oberrender President and (Principal Executive Officer)
- ------------------------- Director
Robert W. Oberrender
/s/ Paul T. Runice Treasurer (Principal Financial Officer)
- -------------------------
Paul T. Runice
/s/ Jean C. Benson Controller (Principal Accounting Officer)
- -------------------------
Jean C. Benson
/s/ Jill B. Barclift Director
- -------------------------
Jill B. Barclift
/s/ Michael P. Sherman Director
- -------------------------
Michael P. Sherman
/s/ Ruth K. Lavelle Director
- -------------------------
Ruth K. Lavelle
_________________________ Director
James B. O'Neill
EXHIBIT INDEX
EXHIBIT
NO.
1 --Form of Underwriting Agreement.*
3(a) --Amended and Restated Certificate of Incorporation of
Metris Receivables, Inc. (incorporated herein by reference
to Registration Statement No. 333-23045).
3(b) --By-laws of Metris Receivables, Inc. (incorporated herein
by reference to Registration Statement No. 33-99514).
4(a) --Amended and Restated Pooling and Servicing Agreement
(incorporated herein by reference to Registration
Statement No. 33-99514).
4(b) --Form of Series 1998-2 Supplement.*
4(c) --Amended and Restated Bank Receivables Purchase Agreement
dated as of July 30, 1998 between Direct Merchants Bank
and Metris.
4(d) --Amended and Restated Receivables Purchase Agreement
dated as of July 30, 1998 between Metris and the
Transferor.
5 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to legality.*
8 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with
respect to tax matters.*
24 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(Contained in Exhibits 5 and 8).*
25 --Power of Attorney (contained on the signature page).
* To be filed by Amendment.
METRIS RECEIVABLES, INC.,
Transferor
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION,
Servicer
and
THE BANK OF NEW YORK (DELAWARE),
Trustee
on behalf of Securityholders
of the Metris Master Trust
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of July 30, 1998
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . . . . . . . . 21
ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF SECURITIES . . . . . . . . . . . 22
Section 2.1 Conveyance of Receivables . . . . . . . . . . . . . 23
Section 2.2 Acceptance by Trustee . . . . . . . . . . . . . . . 23
Section 2.3 Representations and Warranties of the Transferor . 24
Section 2.4 Representations and Warranties of the
Transferor Relating to the Agreement and the
Receivables . . . . . . . . . . . . . . . . . . . . 27
Section 2.5 Covenants of the Transferor . . . . . . . . . . . . 31
Section 2.6 Addition of Accounts . . . . . . . . . . . . . . . 32
Section 2.7 Removal of Accounts . . . . . . . . . . . . . . . . 37
Section 2.8 Discount Option . . . . . . . . . . . . . . . . . . 38
Section 2.9 Covenants of the Transferor with Respect to
the Purchase Agreement . . . . . . . . . . . . . . 38
Section 2.10. Receivables in Defaulted Accounts . . . . . . . . . 39
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES . . . . . . . . . . . . . 41
Section 3.1 Acceptance of Appointment and Other Matters
Relating to the Servicer . . . . . . . . . . . . . 41
Section 3.2 Servicing Compensation . . . . . . . . . . . . . . 42
Section 3.3 Representations and Warranties of the Servicer . . 43
Section 3.4 Reports and Records for the Trustee . . . . . . . . 45
Section 3.5 Annual Servicer's Certificate . . . . . . . . . . . 46
Section 3.6 Annual Independent Accountants' Servicing Report . 47
Section 3.7 Tax Treatment . . . . . . . . . . . . . . . . . . . 47
Section 3.8 Adjustments . . . . . . . . . . . . . . . . . . . . 48
Section 3.9 Notices to DMCCB . . . . . . . . . . . . . . . . . 48
ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS . . . . . . . . . 50
Section 4.1 Rights of Securityholders . . . . . . . . . . . . . 50
Section 4.2 Establishment of Accounts . . . . . . . . . . . . . 50
Section 4.3 Collections and Allocations . . . . . . . . . . . . 53
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY
SUPPLEMENT WITH RESPECT TO ANY SERIES] . . . . . . . 56
ARTICLE VI
THE SECURITIES . . . . . . . . . . . . . 57
Section 6.1 The Securities . . . . . . . . . . . . . . . . . . 57
Section 6.2 Authentication of Securities . . . . . . . . . . . 57
Section 6.3 Registration of Transfer and Exchange of
Securities . . . . . . . . . . . . . . . . . . . . 58
Section 6.4 Mutilated, Destroyed, Lost or Stolen Securities . . 61
Section 6.5 Persons Deemed Owners . . . . . . . . . . . . . . . 61
Section 6.6 Appointment of Paying Agent . . . . . . . . . . . . 62
Section 6.7 Access to List of Securityholders' Names
and Addresses . . . . . . . . . . . . . . . . . . . 63
Section 6.8 Authenticating Agent . . . . . . . . . . . . . . . 63
Section 6.9 Tender of Exchangeable Transferor Security . . . . 64
Section 6.10 Book-Entry Securities . . . . . . . . . . . . . . . 67
Section 6.11 Notices to Clearing Agency . . . . . . . . . . . . 68
Section 6.12 Definitive Securities . . . . . . . . . . . . . . . 68
Section 6.13 Global Security; Euro-Security Exchange Date . . . 69
Section 6.14 Meetings of Securityholders . . . . . . . . . . . . 69
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR . . . . . . 70
Section 7.1 Liability of the Transferor . . . . . . . . . . . . 70
Section 7.2 Merger or Consolidation of, or Assumption of
the Obligations of, the Transferor . . . . . . . . 70
Section 7.3 Limitation on Liability . . . . . . . . . . . . . . 71
Section 7.4 Liabilities . . . . . . . . . . . . . . . . . . . . 72
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER . . . . . . . . . . . . . 73
Section 8.1 Liability of the Servicer . . . . . . . . . . . . . 73
Section 8.2 Merger or Consolidation of, or Assumption of
the Obligations of, the Servicer . . . . . . . . . 73
Section 8.3 Limitation on Liability of the Servicer and
Others . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.4 Servicer Indemnification of the Transferor,
the Trust and the Trustee . . . . . . . . . . . . . 74
Section 8.5 The Servicer Not to Resign . . . . . . . . . . . . 75
Section 8.6 Access to Certain Documentation and
Information Regarding the Receivables . . . . . . . 75
Section 8.7 Delegation of Duties . . . . . . . . . . . . . . . 76
ARTICLE IX
PAY OUT EVENTS . . . . . . . . . . . . . 77
Section 9.1 Pay Out Events . . . . . . . . . . . . . . . . . . 77
Section 9.2 Additional Rights Upon the Occurrence of
Certain Events . . . . . . . . . . . . . . . . . . 77
ARTICLE X
SERVICER DEFAULTS . . . . . . . . . . . . 80
Section 10.1 Servicer Defaults . . . . . . . . . . . . . . . . . 80
Section 10.2 Trustee to Act; Appointment of Successor . . . . . 82
Section 10.3 Notification to Securityholders . . . . . . . . . . 84
Section 10.4 Waiver of Past Defaults . . . . . . . . . . . . . . 84
ARTICLE XI
THE TRUSTEE . . . . . . . . . . . . . . 85
Section 11.1 Duties of Trustee . . . . . . . . . . . . . . . . . 85
Section 11.2 Certain Matters Affecting the Trustee . . . . . . . 87
Section 11.3 Trustee Not Liable for Recitals in Securities . . . 88
Section 11.4 [Reserved] . . . . . . . . . . . . . . . . . . . . 88
Section 11.5 The Servicer to Pay Trustee's Fees and Expenses . . 88
Section 11.6 Eligibility Requirements for Trustee . . . . . . . 89
Section 11.7 Resignation or Removal of Trustee . . . . . . . . . 89
Section 11.8 Successor Trustee . . . . . . . . . . . . . . . . . 90
Section 11.9 Merger or Consolidation of Trustee . . . . . . . . 91
Section 11.10 Appointment of Co-Trustee or Separate Trustee . . . 91
Section 11.11 Tax Returns . . . . . . . . . . . . . . . . . . . . 92
Section 11.12 Trustee May Enforce Claims Without Possession
of Securities . . . . . . . . . . . . . . . . . . 92
Section 11.13 Suits for Enforcement . . . . . . . . . . . . . . . 93
Section 11.14 Rights of Securityholders to Direct Trustee . . . . 93
Section 11.15 Representations and Warranties of Trustee . . . . . 93
Section 11.16 Maintenance of Office or Agency . . . . . . . . . . 94
ARTICLE XII
TERMINATION . . . . . . . . . . . . . . 95
Section 12.1 Termination of Trust . . . . . . . . . . . . . . . 95
Section 12.2 Optional Termination . . . . . . . . . . . . . . . 96
Section 12.3 Final Payment with Respect to any Series . . . . . 97
Section 12.4 Termination Rights of Holder of Exchangeable
Transferor Security . . . . . . . . . . . . . . . 98
ARTICLE XIII
MISCELLANEOUS PROVISIONS . . . . . . . . . . 99
Section 13.1 Amendment . . . . . . . . . . . . . . . . . . . . . 99
Section 13.2 Protection of Right, Title and Interest to
Trust . . . . . . . . . . . . . . . . . . . . . . . 101
Section 13.3 Limitation on Rights of Securityholders . . . . . . 101
Section 13.4 Governing Law . . . . . . . . . . . . . . . . . . . 102
Section 13.5 Notices . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.6 Severability of Provisions . . . . . . . . . . . . 103
Section 13.7 Assignment . . . . . . . . . . . . . . . . . . . . 103
Section 13.8 Securities Non-Assessable and Fully Paid . . . . . 103
Section 13.9 Further Assurances . . . . . . . . . . . . . . . . 103
Section 13.10 No Waiver; Cumulative Remedies . . . . . . . . . . 104
Section 13.11 Counterparts . . . . . . . . . . . . . . . . . . . 104
Section 13.12 Third-Party Beneficiaries . . . . . . . . . . . . . 104
Section 13.13 Actions by Securityholders . . . . . . . . . . . . 104
Section 13.14 Rule 144A Information . . . . . . . . . . . . . . . 105
Section 13.15 Merger and Integration . . . . . . . . . . . . . . 105
Section 13.16 Headings . . . . . . . . . . . . . . . . . . . . . 105
SCHEDULES AND EXHIBITS
Schedule 1 Tax Returns and Payments
Exhibit A Form of Exchangeable Transferor Security
Exhibit B Form of Daily Report
Exhibit C Form of Settlement Statement
Exhibit D Form of Annual Servicer's Certificate
Exhibit E Form of Annual Opinion of Counsel
Exhibit F Form of Reconveyance of Receivables
Exhibit G Form of Agreed-Upon Procedures
Exhibit H Form of Assignment of Receivables in Supplemental Accounts
Exhibit I Form of Opinion of Counsel Regarding Supplemental Accounts
Exhibit J Form of Reassignment
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT, dated as of
July 30, 1998 (the "Pooling and Servicing Agreement") by and among METRIS
RECEIVABLES, INC., a corporation organized and existing under the laws of
the State of Delaware, as Transferor, DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION, a national banking organization organized and
existing under the laws of the United States of America, as Servicer, and
THE BANK OF NEW YORK (DELAWARE), a Delaware banking corporation organized
and existing under the laws of the State of Delaware, as Trustee.
WHEREAS, Direct Merchants Credit Card Bank, National Association,
a national banking association with its principal place of business in
Phoenix, Arizona is the successor by merger to Direct Merchants Credit Card
Bank, National Association, a national banking association with its
principal place of business in Salt Lake City, Utah (the "Predecessor
Servicer").
WHEREAS, Metris Receivables, Inc., as transferor (the
"Transferor"), the Predecessor Servicer, and The Bank of New York
(Delaware), as trustee (the "Trustee"), entered into a Pooling and
Servicing Agreement, dated as of May 26, 1995, as amended to the date
hereof (the "Previous Pooling and Servicing Agreement");
WHEREAS, Direct Merchants Credit Card Bank, National Association,
the Transferor and the Trustee previously entered into the Amendment and
Assumption Agreement (the "Assumption Agreement") dated as of July 13, 1998
(the "Assumption Date") in which the Direct Merchants Credit Card Bank,
National Association assumed all of the rights and obligations of the
Predecessor Servicer hereunder;
WHEREAS, Metris Receivables, Inc., as Transferor, Direct
Merchants Credit Card Bank, National Association, as Servicer and The Bank
of New York (Delaware), as Trustee desire to amend and restate the Pooling
and Servicing Agreement in accordance with the provisions of subsection
13.1(b) of the Pooling and Servicing Agreement to read in its entirety as
set forth below;
NOW, THEREFORE, pursuant to subsection 13.1(b) of the Pooling and
Servicing Agreement, the parties hereto hereby agree that effective on and
as of the date hereof, the Pooling and Servicing Agreement is hereby
amended to read in its entirety as follows:
In consideration of the mutual agreements herein contained, each
party agrees as follows for the benefit of the other parties and the
Securityholders:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this Agreement, the
following words and phrases shall have the following meanings:
"Account" shall mean each revolving credit consumer credit card
account established pursuant to a Contract between a Credit Card Originator
and any Person, which on the Initial Closing Date was an Eligible Account
or, with respect to accounts transferred to the Trust after the Initial
Closing Date, each Additional Account or Supplemental Account. The
definition of Account shall include each Transferred Account but shall not
include any Accounts containing Ineligible Receivables and reassigned to
the Transferor pursuant to Section 2.4. The term "Account" shall be deemed
to refer to an Additional Account or Supplemental Account only from and
after the Addition Date with respect thereto, and the term "Account" shall
be deemed to refer to any Removed Account only prior to the Removal Date
with respect thereto.
"Addition Date" shall mean each date as of which Receivables
under Additional Accounts or Supplemental Accounts are included in the
Trust as Accounts pursuant to Section 2.6.
"Additional Account" shall mean (a) for the period from the
Initial Closing Date through the day preceding the Amendment Closing Date,
each revolving credit consumer credit card account owned by a Credit Card
Originator coming into existence after the Initial Closing Date which is an
Approved Account that the Transferor has not elected to exclude from the
Trust after June 7, 1996 and prior to the Amendment Closing Date, or (b) on
and after the Amendment Closing Date, each revolving credit consumer credit
card account in which a Credit Card Originator acquires rights that is an
Approved Account and is not an Excluded Account; provided, however, that a
revolving credit consumer credit card account that does not satisfy the
definition of Approved Account on the date of its creation shall be an
Additional Account on the date that it satisfies the definition of Approved
Account. Any election to exclude certain Approved Accounts shall be made
by the Transferor or the Servicer providing to the Trustee a written notice
thereof clearly identifying such excluded accounts.
"Adjustment Payment" shall have the meaning specified in
subsection 3.8(a).
"Affiliate" means, with respect to a particular Person, any
Person that, directly or indirectly, is in control of, is controlled by, or
is under common control with, such Person.
"Aggregate Invested Amount" shall mean, as of any date of
determination, the sum of the Invested Amounts of all Series of Securities
issued and outstanding on such date of determination.
"Aggregate Investor Percentage" with respect to each of Principal
Collections, Finance Charge Collections and Defaulted Receivables, as the
case may be, shall mean, as of any date of determination, the sum of such
Investor Percentages of all Series of Securities issued and outstanding on
such date of determination; provided, however, that the Aggregate Investor
Percentage shall not exceed 100%.
"Aggregate Principal Receivables" shall mean, for any day, the
aggregate amount of Principal Receivables at the end of such day.
"Agreement" shall mean this Pooling and Servicing Agreement and
all amendments hereof and supplements hereto, including any Supplement.
"Amendment Closing Date" shall mean July 30, 1998.
"Amortization Period" shall mean, with respect to any Series, the
period following the Revolving Period for such Series, which shall be the
Amortization Period, the Early Amortization Period, or other amortization
or accumulation period, in each case as defined with respect to such Series
in the related Supplement.
"Amortization Period Commencement Date" shall mean with respect
to any Series, the date on which the Amortization Period commences with
respect thereto as set forth in the related supplement.
"Applicable Tax State" shall mean, as of any date of
determination, each state as to which any of the following is then
applicable: (a) a state in which the Trustee maintains its principal
corporate trust office, (b) a state in which the Transferor maintains its
principal executive offices, and (c) a state in which the Servicer
regularly conducts servicing and collection operations which are not
limited to ministerial activities and which relate to a material portion of
the Receivables.
"Applicants" shall have the meaning specified in Section 6.7.
"Appointment Day" shall have the meaning specified in subsection
9.2(a).
"Approved Account" shall mean each (i) Eligible Account that is a
MasterCard or VISA account or (ii) any other revolving credit consumer
credit card account the inclusion in the Trust of which would not cause a
Ratings Event.
"Authentication Agent" shall have the meaning specified in
Section 6.8.
"Authorized Newspaper" shall mean a newspaper of general
circulation in the Borough of Manhattan, The City of New York printed in
the English language and customarily published on each Business Day,
whether or not published on Saturdays, Sundays and holidays.
"Automatic Addition Suspension Date" shall mean the Business Day
specified in subsection 2.6(b).
"Automatic Addition Termination Date" shall mean the Business Day
specified by the Transferor pursuant to subsection 2.6(b) as of which new
open end credit card accounts designated by the Transferor shall cease to
become Additional Accounts.
"Bank Receivables Purchase Agreement" shall mean the Amended and
Restated Bank Receivables Purchase Agreement dated as of July 30, 1998 by
and among Metris, as purchaser, and DMCCB, as Seller, as amended from time
to time.
"Base Rate" shall mean, with respect to any outstanding Series,
the amount which the related Supplement specifies as the "Base Rate".
"Bearer Securities" shall have the meaning specified in Section
6.1.
"Bearer Rules" shall mean the provisions of the Internal Revenue
Code, in effect from time to time, governing the treatment of bearer
obligations, including sections 163(f), 871, 881, 1441, 1442 and 4701, and
any regulations thereunder including, to the extent applicable to any
Series, proposed or temporary regulations of the Internal Revenue Service.
"Benefit Plan" shall mean (i) an employee benefit plan (as
defined in Section 3(3) of ERISA that is subject to the provisions of Title
I of ERISA, (ii) a plan described in Section 4975(e)(1) of the Code or
(iii) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan").
"Book-Entry Securities" shall mean securities evidencing a
beneficial interest in the Investor Securities, ownership and transfers of
which shall be made through book entries by a Clearing Agency as described
in Section 6.10; provided, that after the occurrence of a condition
whereupon book-entry registration and transfer are no longer authorized and
Definitive Securities are to be issued to the Security Owners, such
securities shall no longer be "Book-Entry Securities."
"Business Day" shall mean any day other than a Saturday, a Sunday
or a day on which banking institutions in New York, Minnesota, Arizona,
Nebraska, Oklahoma or Delaware (or, with respect to any Series, any
additional city or state specified in the related Supplement) are
authorized or obligated by law or executive order to be closed, and such
other days in each year designated by the Servicer in writing to the
Trustee by the first day of December in the preceding year.
"Cash Equivalents" shall mean, unless otherwise provided in the
Supplement with respect to any Series, (a) negotiable instruments or
securities represented by instruments in bearer or registered form which
evidence (i) obligations of or fully guaranteed by the United States of
America; (ii) time deposits, promissory notes, or certificates of deposit
of any depositary institution or trust company; provided, however, that at
the time of the Trust's investment or contractual commitment to invest
therein, the certificates of deposit or short-term deposits of such
depositary institution or trust company shall have a credit rating from
Standard & Poor's of A-1+ and from Moody's of P-1; (iii) commercial paper
having, at the time of the Trust's investment or contractual commitment to
invest therein, a rating from Standard & Poor's of A-1+ and from Moody's of
P-1; (iv) bankers acceptances issued by any depositary institution or trust
company described in clause (a)(ii) above; and (v) investments in money
market funds rated AAA-m or AAA-mg by Standard & Poor's and Aaa by Moody's
or otherwise approved in writing by Moody's and Standard & Poor's; (b) time
deposits and demand deposits in the name of the Trust or the Trustee in any
depositary institution or trust company referred to in clause (a)(ii)
above; (c) securities not represented by an instrument that are registered
in the name of the Trustee or its nominee (which may not be Metris or an
Affiliate) upon books maintained for that purpose by or on behalf of the
issuer thereof and identified on books maintained for that purpose by the
Trustee as held for the benefit of the Trust or the Securityholders, and
consisting of (x) shares of an open end diversified investment company
which is registered under the Investment Company Act which (i) invests its
assets exclusively in obligations of or guaranteed by the United States of
America or any instrumentality or agency thereof having in each instance a
final maturity date of less than one year from their date of purchase or
other Cash Equivalents, (ii) seeks to maintain a constant net asset value
per share, (iii) has aggregate net assets of not less than $100,000,000 on
the date of purchase of such shares and (iv) which the Rating Agency
designates in writing will not result in a withdrawal or downgrading of its
then current rating of any Series rated by it or (y) Eurodollar time
deposits of a depository institution or trust company that are rated A-1+
by Standard & Poor's and P-1 by Moody's; provided, however, that at the
time of the Trust's investment or contractual commitment to invest therein,
the Eurodollar deposits of such depositary institution or trust company
shall have a credit rating from Standard & Poor's of A-1+ and P-1 by
Moody's; (d) a guaranteed investment contract (guaranteed as to timely
payment) which each Rating Agency designates in writing will not result in
a withdrawal or downgrading of its then current rating of any Series rated
by it; (e) repurchase agreements transacted with either (i) an entity
subject to the United States federal bankruptcy code, provided, however,
that (A) the term of the repurchase agreement is consistent with the
requirements with regard to the maturity of Cash Equivalents specified
herein or in the applicable Supplement for the applicable account or is due
on demand, (B) the Trustee or a third party acting solely as agent for the
Trustee has possession of the collateral, (C) the Trustee on behalf of the
Trust has a perfected first priority security interest in the collateral,
(D) the market value of the collateral is maintained at the requisite
collateral percentage of the obligation in accordance with standards of the
Rating Agencies, (E) the failure to maintain the requisite collateral level
will obligate the Trustee to liquidate the collateral as promptly as
practicable upon instructions from the Servicer, (F) the securities subject
to the repurchase agreement are either obligations of, or fully guaranteed
as to principal and interest by, the United States of America or any agency
or any instrumentality or agency thereof, certificates of deposit or
bankers acceptances and (G) the securities subject to the repurchase
agreement are free and clear of any third party lien or claim, or (ii) a
financial institution insured by the FDIC, or any broker-dealer with
"retail-customers" that is under the jurisdiction of the Securities
Investors Protection Corp. ("SIPC"), provided, however, that (A) the market
value of the collateral is maintained at the requisite collateral
percentage of the obligation in accordance with the standards of the Rating
Agencies, (B) the Trustee or a third party (with a rating from Moody's and
Standard & Poor's of P-1 and A-1+, respectively) acting solely as agent for
the Trustee has possession of the collateral, (C) the collateral is free
and clear of third party liens and, in the case of an SIPC broker, was not
acquired pursuant to a repurchase or reverse repurchase agreement and (D)
the failure to maintain the requisite collateral percentage will obligate
the Trustee to liquidate the collateral upon instructions from the
Servicer; provided, however, that at the time of the Trust's investment or
contractual commitment to invest in any repurchase agreement the short-term
deposits or commercial paper rating of such entity or institution in
subsections (i) and (ii) above shall have a credit rating of P-1 or A-1+ or
their equivalent from each Rating Agency; and (f) any other investment if
each Rating Agency confirms in writing that such investment will not
adversely affect its then current rating of the Investor Securities.
"Cedel" shall mean Cedel Bank, sociEtE anonyme.
"Class" shall mean, with respect to any Series, any one of the
classes of Securities of that Series as specified in the related
Supplement.
"Clearing Agency" shall mean an organization registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange Act of
1934, as amended.
"Clearing Agency Participant" shall mean a broker, dealer, bank,
other financial institution or other Person for whom from time to time a
Clearing Agency or Foreign Clearing Agency effects book-entry transfers and
pledges of securities deposited with the Clearing Agency or Foreign
Clearing Agency.
"Closing Date" shall mean, with respect to any Series, the date
of issuance of such Series of Securities, as specified in the related
Supplement.
"Collection Account" shall have the meaning specified in
subsection 4.2(a).
"Collections" shall mean all payments received by the Servicer in
respect of the Eligible Receivables in the form of cash, checks or any
other form of payment in accordance with the Contract in effect from time
to time on any Eligible Receivables.
"Contract" shall mean an agreement between a Credit Card
Originator and another Person for the extension of revolving credit,
including pursuant to a credit card, in the form of a written contract,
invoice, or revolving credit agreement (but shall not include any agreement
or plan relating to the extension of credit on a closed-end basis).
"Corporate Trust Office" shall mean the principal office of the
Trustee at which at any particular time its corporate trust business shall
be administered, which office at the date of the execution of this
Agreement is located at White Clay Center, Route 273, Newark, Delaware
19711, Attention: Corporate Trust Specialized Agency Services.
"Coupon" shall have the meaning specified in Section 6.1.
"Credit and Collection Policy" means the written policies and
procedures of the applicable Credit Card Originator relating to the
operation of its consumer revolving credit card business, including,
without limitation, the written policies and procedures for determining the
creditworthiness of credit card customers, the extension of credit to
credit card customers and relating to the maintenance of credit card
accounts and collection of receivables with respect thereto, as such
policies and procedures may be amended, modified, or otherwise changed from
time to time.
"Credit Card Originator" shall mean (i) DMCCB Utah and (ii) DMCCB
and its successors or assigns under the Bank Receivables Purchase Agreement
and/or any transferee of the Accounts from DMCCB or (iii) any other
originator of accounts which enters into a receivables purchase agreement
with DMCCB or Metris (to the extent that rights therein are granted to the
Transferor directly or indirectly) or the Transferor in accordance with the
provisions of this Agreement and who has been identified in a prior written
notice to each Rating Agency.
"Daily Report" shall mean a report in the form specified in
subsection 1.2(e) as may be supplemented pursuant to any Supplement.
"Date of Processing" shall mean, with respect to any transaction,
the date on which such transaction is settled according to the Servicer's
(or, in the case of a Credit Card Originator, such Credit Card
Originator's) computer master file of revolving credit accounts.
"Default Amount" shall mean, (i) on any Business Day other than
the Default Recognition Date, the aggregate amount of Principal Receivables
in Accounts which became Defaulted Accounts on such Business Day and (ii)
on any Default Recognition Date the aggregate amount of Principal
Receivables in Accounts which became Defaulted Accounts during the then
current Monthly Period (other than such Accounts which were included in
clause (i)).
"Default Recognition Date" shall mean the last day of each
calendar month; provided, however that with respect to any Monthly Period
the "related Default Recognition Date" shall mean the Default Recognition
Date occurring closest to the last day of such Monthly Period and any
amounts allocated or applied on such Default Recognition Date shall be
deemed to apply to the related Monthly Period.
"Defaulted Account" shall mean each Account with respect to
which, in accordance with the Credit and Collection Policy or the
Servicer's customary and usual servicing procedures, the Servicer has
charged off the Receivables in such Account as uncollectible; an Account
shall become a Defaulted Account on the day on which such Receivables are
recorded as charged off as uncollectible on the Servicer's computer master
file of consumer credit card revolving accounts. Notwithstanding any other
provision hereof, any Receivables in a Defaulted Account that are
Ineligible Receivables shall be treated as Ineligible Receivables rather
than Receivables in Defaulted Accounts.
"Defeasance Account" shall have the meaning specified in the
applicable Supplement.
"Definitive Security" shall have the meaning specified in Section
6.10.
"Depositary" shall have the meaning specified in Section 6.10.
"Depositary Agreement" shall mean, with respect to each Series,
the agreement among the Transferor, the Trustee and the applicable Clearing
Agency, or as otherwise provided in the related Supplement.
"Determination Date" shall mean the second Business Day prior to
each Distribution Date.
"Discount Option Receivables" shall mean, on and after the date
on which the Transferor's exercise of its discount option pursuant to
Section 2.8 takes effect, the sum of (a) the aggregate Discount Option
Receivables at the end of the prior day (which amount, prior to the date
on which the Transferor's exercise of its discount option takes effect and
with respect to Receivables generated prior to such date, shall be zero)
plus (b) any New Discount Option Receivables created on such day minus (c)
any Discount Option Receivables Collections received on such Date of
Processing.
"Discount Option Receivable Collections" shall mean on any Date
of Processing, on and after the date on which the Transferor's exercise of
its discount option pursuant to Section 2.8 takes effect, the product of
(a) a fraction the numerator of which is the amount of Discount Option
Receivables and the denominator of which is the sum of the Principal
Receivables and the Discount Option Receivables in each case (for both
numerator and denominator) at the end of the prior Date of Processing, (b)
Collections of Principal Receivables and Discount Option Receivables
received on such Date of Processing and (c) a fraction the numerator of
which is the aggregate amount of Principal Receivables arising on each Date
of Processing falling on or after the date on which the Transferor
exercises its discount option and the denominator of which is the Aggregate
Principal Receivables on such Date of Processing.
"Discount Percentage" shall mean the fixed percentage, if any,
designated by the Transferor pursuant to Section 2.8.
"Disposition" shall have the meaning specified in Section 9.2(a).
"Distribution Account" shall have the meaning specified in
subsection 4.2(c).
"Distribution Date" shall mean, unless otherwise specified in any
Supplement for the related Series, the twentieth day of each month or, if
such twentieth day is not a Business Day, the next succeeding Business Day.
"DMCCB" shall mean Direct Merchants Credit Card Bank, National
Association, a national banking organization organized and existing under
the laws of the United States of America and the successor by merger to
DMCCB Utah.
"DMCCB Utah" or "Predecessor Servicer" shall mean Direct
Merchants Credit Card Bank, National Association, a national banking
organization organized under the laws of the United States and located in
Salt Lake City, Utah which has been merged into DMCCB.
"Dollars", "$" or "U.S. $" shall mean United States dollars.
"Eligible Account" shall mean, as of the Initial Closing Date
(or, with respect to Additional Accounts, on the date the Credit Card
Originator acquires rights therein, or, with respect to Supplemental
Accounts, as of the date the Receivables arising in such Accounts are
designated for inclusion in the Trust), each revolving credit consumer
credit card account owned by a Credit Card Originator:
(a) which is payable in Dollars;
(b) the Obligor on which has provided, as its initial billing
address, an address located in the United States or its territories or
possessions or a United States military address;
(c) which has not been identified by the applicable Credit Card
Originator or any of its Affiliates in its computer files as stolen or
lost;
(d) which is not at the time of transfer to the Trust sold or
pledged to any other party and which does not have Receivables which, at
the time of transfer to the Trust, are sold or pledged to any other party
(provided that Receivables which were sold or pledged prior to the Closing
Date, but were repurchased free of all Liens or where all Liens were
released prior to the sale hereunder, shall not be disqualified under this
clause (d)); and
(e) the Receivables in which the applicable Credit Card
Originator has not charged off in its customary and usual manner for
charging off Receivables in such Accounts as of the Initial Closing Date
(or, with respect to Additional Accounts, as of the date the Receivables of
such Accounts are first designated for inclusion in the Trust) unless such
Account is subsequently reinstated.
"Eligible Receivable" shall mean each Receivable that satisfies
each of the following criteria: (a) arises under an Account, (b) it is
not sold or pledged to any other party, (c) it constitutes an "account,"
"chattel paper" or a "general intangible" as each are defined in Article 9
of the UCC as then in effect in each Relevant UCC State, (d) it is at the
time of its transfer to the Trust the legal, valid, and binding obligation
of, or is guaranteed by, a Person who is competent to enter into a contract
and incur debt and is enforceable against such person in accordance with
its terms, (e) it was created or acquired in compliance, in all material
respects, with all Requirements of Law applicable to the Credit Card
Originator and pursuant to a Contract that complies, in all material
respects, with all Requirements of Law applicable to the Credit Card
Originator (including without limitation, laws, rules and regulations
relating to truth in lending, usury, fair credit billing, fair credit
reporting, equal credit opportunity and fair debt collection practices),
(f) 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 related Contract have been duly obtained
or given and are in full force and effect as of the date of the creation of
such Receivables and (g) immediately prior to giving effect to the sale,
the Transferor or the Trust will have good and marketable title free and
clear of all Liens and security interests arising under or through the
Transferor (other than Permitted Liens).
"Enhancement" shall mean, with respect to any Series, any cash
collateral account, cash collateral guaranty, guaranty, collateral invested
amount, letter of credit, guaranteed rate agreement, maturity guaranty
facility, tax protection agreement, interest rate cap, interest rate swap,
currency swap, subordination of the rights of one Class or one Series to
another, or any other contract, agreement or arrangement for the benefit of
the Securityholders of such Series (or Securityholders of any Class within
such Series) as designated in the applicable Supplement.
"Enhancement Provider" shall mean, with respect to any Series,
the Person, if any, designated as such in the related Supplement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Euroclear Operator" shall mean Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, as operator of the Euroclear System.
"Excess Funding Account" shall have the meaning specified in
subsection 4.2(d).
"Exchange" shall mean either of the procedures described in
Section 6.9(b).
"Exchange Date" shall have the meaning, with respect to any
Series issued pursuant to an Exchange, specified in subsection 6.9(b).
"Exchange Notice" shall have the meaning, with respect to any
Series issued pursuant to an Exchange, specified in subsection 6.9(b).
"Exchangeable Transferor Security" shall mean the security
executed by the Transferor and authenticated by the Trustee, substantially
in the form of Exhibit A and exchangeable as provided in Section 6.9;
provided, that at any time there shall be only one Exchangeable Transferor
Security.
"Excluded Account" shall mean on any date of determination (i)
during any period on and after Restart Date and prior to an Automatic
Addition Suspension Date, any revolving credit consumer credit card account
which has been excluded from addition to the Trust pursuant to subsections
2.6(b) or 2.6(g) and any revolving credit consumer credit card account
which the Transferor has elected to exclude pursuant to subsection 2.6(h)
and (ii) during any period on and after an Automatic Addition Suspension
Date and prior to a Restart Date, all revolving credit consumer credit card
accounts other than accounts that were Accounts on the Automatic Addition
Suspension Date and Supplemental Accounts previously added during such
period.
"Extended Trust Termination Date" shall have the meaning
specified in subsection 12.1(a).
"FDIC" shall mean the Federal Deposit Insurance Corporation, or
any successor thereto.
"Finance Charge Collections" shall mean, with respect to any
Business Day, Collections received by the Servicer with respect to Finance
Charge Receivables on such Business Day.
"Finance Charge Receivables" shall mean the sum of (w) all
amounts billed from time to time to the Obligors on any Account in respect
of (i) Periodic Finance Charges, (ii) overlimit fees, (iii) late charges,
(iv) returned check fees, (v) annual membership fees and annual service
charges, if any, (vi) transaction charges, (vii) cash advance fees and
(viii) similar fees and charges, excluding fees and charges for insurance
and insurance type products, plus (x) Recoveries, (y) investment earnings
on amounts credited to the Excess Funding Account and (z) Discount Option
Receivables, if any.
"Foreign Clearing Agency" shall mean Cedel and the Euroclear
Operator.
"Global Security" shall have the meaning specified in Section
6.13.
"Governmental Authority" shall mean the United States of America,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Holder" or "Securityholder" shall mean the Person in whose name
a Security is registered in the Security Register, and if applicable, the
holder of any Bearer Security or Coupon, as the case may be.
"Ineligible Receivable" shall mean any Receivable that does not
satisfy the definition of Eligible Receivable.
"Initial Closing Date" shall mean May 30, 1995.
"Initial Invested Amount" shall mean, with respect to any Series
of Securities, the amount stated in the related Supplement or, if not
stated therein, the initial Invested Amount.
"Insolvency Event" shall have the meaning specified in subsection
9.2(a).
"Interest Funding Account" shall have the meaning specified in
subsection 4.2(b).
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
"Invested Amount" shall have, with respect to any Series of
Securities, the meaning stated in the related Supplement.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended from time to time.
"Investor Account" shall mean each of any Interest Funding
Account, any Principal Account, the Excess Funding Account, any
Distribution Account and any Series Account.
"Investor Exchange" shall have the meaning specified in
subsection 6.9(b).
"Investor Percentage" shall mean, with respect to Principal
Collections, Finance Charge Collections and Receivables in Defaulted
Accounts, and with respect to any Series of Securities, the percentage
specified in the related Supplement.
"Investor Security" shall mean any one of the securities
(including, without limitation, the Bearer Securities or the Registered
Securities) executed by the Transferor and authenticated by the Trustee
substantially in the form (or forms in the case of a Series with multiple
classes) of the investor security or variable funding security attached to
the related Supplement.
"Investor Securityholder" shall mean the Holder of an Investor
Security.
"Lien" shall mean any lien, security interest or other
encumbrance; provided, however, that any assignment pursuant to Section 7.2
shall not be deemed to constitute a Lien.
"Metris" shall mean Metris Companies Inc., a corporation
organized and existing under the laws of the State of Delaware.
"Minimum Aggregate Principal Receivables" shall mean, as of any
date of determination, the sum of the numerators used in the calculation of
the Investor Percentages for Principal Collections for all outstanding
Series on such date of determination.
"Minimum Retained Interest" shall mean the product of the
weighted average Minimum Retained Percentages for all Series and the sum of
the outstanding principal amounts of all Classes of all Series.
"Minimum Retained Percentage" shall mean, for any Series, the
Minimum Retained Percentage specified in the Supplement for that Series.
"Minimum Transferor Interest" shall mean, as of any date of
determination, the product of (i) the sum of (a) the aggregate Principal
Receivables and (b) the amounts on deposit in the Excess Funding Account
and (ii) the Minimum Transferor Percentage.
"Minimum Transferor Percentage" shall mean the highest Minimum
Transferor Percentage specified in any Supplement.
"Monthly Investor Servicing Fee" shall mean the Servicing Fee
payable to the Servicer with respect to a Monthly Period.
"Monthly Period" shall mean, unless otherwise defined with
respect to a Series in the related Supplement, the period from and
including the first day of each fiscal month of the Transferor to and
including the last day of such fiscal month.
"Moody's" shall mean Moody's Investors Service, Inc. or its
successor.
"MRI" shall mean Metris Receivables, Inc., a Delaware
corporation.
"New Discount Option Receivables" shall mean, on any Date of
Processing on and after the date on which the Transferor's exercise of its
discount option pursuant to Section 2.8 takes effect, the product of the
amount of any Principal Receivables created on such Date of Processing
(without reducing the amount of Principal Receivables by the amount of
Financial Charge Receivables which are Discount Option Receivables) and the
Discount Percentage.
"Obligor" shall mean a Person obligated to make payments with
respect to a Receivable arising under an Account pursuant to a Contract.
"Officer's Certificate" shall mean a certificate signed by any
Vice President, Treasurer, Assistant Treasurer or more senior officer of
the Transferor or Servicer and delivered to the Trustee.
"Opinion of Counsel" shall mean a written opinion of counsel, who
may be counsel for or an employee of the Person providing the opinion, and
who shall be reasonably acceptable to the Trustee.
"Paying Agent" shall mean any paying agent appointed pursuant to
Section 6.6 and shall initially be the Trustee.
"Pay Out Commencement Date" shall mean, with respect to each
Series, the date on which (a) a Trust Pay Out Event is deemed to occur
pursuant to Section 9.1 or (b) a Series Pay Out Event is deemed to occur
pursuant to the Supplement for such Series.
"Pay Out Event" shall mean, with respect to each Series, a Trust
Pay Out Event or a Series Pay Out Event.
"Periodic Finance Charges" shall have, with respect to any
Account, the meaning specified in the Contract applicable to such Account
for finance charges (due to periodic rate) or any similar term.
"Permitted Lien" shall mean with respect to the Receivables: (i)
Liens in favor of the Transferor created pursuant to the Purchase Agreement
assigned to the Trustee pursuant to this Agreement; (ii) Liens in favor of
the Trustee pursuant to this Agreement; and (iii) Liens that secure the
payment of taxes, assessments and governmental charges or levies, if such
taxes are either (a) not delinquent or (b) being contested in good faith by
appropriate legal or administrative proceedings and as to which adequate
reserves in accordance with generally accepted accounting principles shall
have been established.
"Person" shall mean any legal person, including any individual,
corporation, partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated organization,
governmental entity or other entity of similar nature.
"Pool Factor" shall mean, as of any Record Date, a number carried
out to seven decimals representing the ratio of the applicable Invested
Amount as of such Record Date (determined after taking into account any
reduction in the Invested Amount which will occur on the following
Distribution Date) to the applicable Initial Invested Amount unless
otherwise specified with respect to a Series in the related Supplement.
"Pooling and Servicing Agreement" shall have the meaning assigned
in the preamble hereto.
"Portfolio Yield" shall mean, with respect to any Monthly Period
and any outstanding Series, the amount which the related Supplement
specifies as the "Portfolio Yield" for such Monthly Period.
"Principal Account" shall have the meaning specified in
subsection 4.2(b).
"Principal Collections" shall mean, with respect to any Business
Day, the Collections received with respect to each Principal Receivable on
such Business Day.
"Principal Receivables" shall mean amounts shown on the
Servicer's records as amounts payable by Obligors with respect to Eligible
Receivables on any Account other than such amounts that are Finance Charge
Receivables (including Discount Option Receivables) or Receivables in
Defaulted Accounts and shall include, without limitation, amounts payable
for purchases of goods or services or cash advances. A Receivable shall be
deemed to have been created at the end of the day on the Date of Processing
of such Receivable. In calculating the aggregate amount of Principal
Receivables on any day, the amount of Principal Receivables shall be
reduced by the aggregate amount of credit balances in the Accounts on such
day.
"Principal Shortfalls" shall mean, with respect to any Business
Day and any outstanding Series, the amount which the related Supplement
specifies as the "Principal Shortfall" for such Business Day.
"Principal Terms" shall have the meaning, with respect to any
Series issued pursuant to an Exchange, specified in subsection 6.9(c).
"Prospective Pay Out Event" shall have the meaning specified in
subsection 2.3(m).
"Publication Date" shall have the meaning specified in subsection
9.2(a).
"Purchase Agreement" shall mean the amended and restated purchase
agreement dated as of July 30, 1998 between the Transferor, as buyer of
receivables, and Metris, as seller of receivables, as amended from time to
time.
"Qualified Institution" shall have the meaning specified in
subsection 4.2(a).
"Rating Agency" shall mean, with respect to each Series, the
rating agency or agencies, if any, specified in the related Supplement.
"Ratings Event" shall mean, with respect to any Class of any
outstanding Series rated by a Rating Agency, a reduction or withdrawal of
the rating of any such Class by a Rating Agency.
"Reassignment Date" shall have the meaning specified in
subsection 2.4(e).
"Receivable" shall mean all of the indebtedness of any Obligor
under an Account, including the right to receive payment of any interest or
finance charges and other obligations of such Obligors with respect
thereto. Each receivable includes, without limitation, all rights of the
Transferor under the applicable Contract.
"Record Date" shall mean, with respect to any Distribution Date,
unless otherwise specified in the applicable Supplement, the Business Day
preceding such Distribution Date, except that, with respect to any
Definitive Securities, Record Date shall mean the fifth day of the then
current Monthly Period.
"Recoveries" shall mean any amounts received by the Servicer with
respect to Receivables in Accounts that previously became Defaulted
Accounts.
"Registered Securities" shall have the meaning specified in
Section 6.1.
"Related Person" shall mean a Person that is an Affiliate of
Metris, any Investor Securityholder, any Enhancement Provider, or any
Person whose status would violate the conditions for a trustee contained in
Section (4)(i) of Rule 3a-7 under the Investment Company Act of 1940, as
amended.
"Relevant UCC State" shall mean each jurisdiction in which the
filing of a UCC financing statement is necessary to perfect the ownership
interest and security interest of the Transferor pursuant to the Purchase
Agreement or the ownership or security interest of the Trustee established
under this Agreement.
"Removal Date" shall have the meaning specified in subsection
2.7(b).
"Removal Notice Date" shall mean the day, no later than the fifth
Business Day prior to a Removal Date, on which the Transferor gives notice
to the Trustee pursuant to Section 2.7(a) of its intention to remove
Accounts from the Trust.
"Removed Accounts" shall have the meaning specified in subsection
2.7(a).
"Requirements of Law" for any Person shall mean the certificate
of incorporation or articles of association and by-laws or other
organizational or governing documents of such Person, and any material law,
treaty, rule or regulation, or determination of an arbitrator or
Governmental Authority, in each case applicable to or binding upon such
Person or to which such Person is subject.
"Responsible Officer" shall mean any officer within the Corporate
Trust Office (or any successor group of the Trustee), including the
President, any Vice President or any other officer of the Trustee
customarily performing functions similar to those performed by any person
who at the time shall be an above-designated officer and who shall have
direct responsibility for the administration of this Agreement.
"Restart Date" shall mean the date specified in the notice
delivered by the Transferor to the Trustee pursuant to subsection 2.6(b).
"Retained Interest" shall mean, on any date of determination, the
sum of the Transferor Interest and the Invested Amount represented by any
Transferor Retained Security.
"Retained Percentage" shall mean, on any date of determination,
the percentage equivalent of a fraction the numerator of which is the
Retained Interest and the denominator of which is the aggregate amount of
Principal Receivables at the end of the day immediately prior to such date
of determination plus all amounts on deposit in the Excess Funding Account
(but not including investment earnings on such amounts).
"Revolving Period" shall have, with respect to each Series, the
meaning specified in the related Supplement.
"Secured Obligations" shall have the meaning specified in Section
2.1.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"Security" shall mean any one of the Investor Securities of any
Series or the Exchangeable Transferor Security.
"Security Interest" shall mean interest payable in respect of the
Investor Securities of any Series pursuant to Article IV of the Agreement
as supplemented by the Supplement for such Series.
"Security Owner" shall mean, with respect to a Book-Entry
Security, the Person who is the beneficial owner of such Book-Entry
Security, as may be reflected on the books of the Clearing Agency, or on
the books of a Person maintaining an account with such Clearing Agency
(directly or as an indirect participant, in accordance with the rules of
such Clearing Agency).
"Security Principal" shall mean principal payable in respect of
the Investor Securities of any Series pursuant to Article IV of this
Agreement.
"Security Rate" shall mean, with respect to any Series of
Securities (or, for any Series with more than one Class, for each Class of
such Series), the percentage (or formula on the basis of which such rate
shall be determined) stated in the related Supplement.
"Security Register" shall mean the register maintained pursuant
to Section 6.3, providing for the registration of the Securities and
transfers and exchanges thereof.
"Securityholder" or "Holder" shall mean the Person in whose name
a Security is registered in the Security Register and, if applicable, the
holder of any Bearer Security or Coupon, as the case may be.
"Series" shall mean any series of Investor Securities issued by
the Trust pursuant to a Supplement, which may include within any such
Series a Class or Classes of Investor Securities subordinate to another
such Class or Classes of Investor Securities.
"Series Account" shall mean any account or accounts established
pursuant to a Supplement for the benefit of the related Series.
"Series Charge Off" shall have, with respect to each Series, the
meaning specified in the applicable Supplement.
"Series Default Amount" shall have, with respect to any Series of
Securities, the meaning stated in the related Supplement.
"Series Pay Out Event" shall have, with respect to any Series,
the meaning specified in the related Supplement.
"Series Percentage" shall mean with respect to any Series, on any
date of determination, the percentage equivalent of a fraction the
numerator of which is the Invested Amount of such Series and the
denominator of which is the sum of the Invested Amounts of all Series then
outstanding.
"Series Servicing Fee Percentage" shall mean, with respect to any
Series, the amount specified as such in the related Supplement.
"Series Termination Date" shall mean, with respect to any Series
of Securities, the date stated as such in the related Supplement.
"Servicer" shall mean DMCCB in its capacity as Servicer of the
Receivables or any Person appointed as Successor Servicer as herein
provided to service the Receivables.
"Servicer Default" shall have the meaning specified in Section
10.1.
"Servicing Fee" shall have the meaning specified in the related
Supplements.
"Settlement Statement" shall mean a report in the form specified
in subsection 1.2(e) as may be supplemented pursuant to any Supplement.
"Shared Principal Collections" shall mean, with respect to any
Business Day, the aggregate amount of Principal Collections for all
outstanding Series that the related Supplements specify are to be treated
as "Shared Principal Collections" available to be allocated to other Series
for such Business Day.
"Standard & Poor's" shall mean Standard & Poor's, a Division of
The McGraw-Hill Companies, or its successor.
"Successor Servicer" shall have the meaning specified in
subsection 10.2(a).
"Supplement" shall mean, with respect to any outstanding Series,
a supplement to this Agreement complying with the terms of Section 6.9 of
this Agreement, executed in conjunction with any issuance of Securities of
such Series.
"Supplemental Accounts" shall have the meaning specified in
subsection 2.6(c).
"Supplemental Security" shall have the meaning specified in
subsection 6.9(d).
"Termination Notice" shall have, with respect to any Series, the
meaning specified in Section 10.1.
"Transfer" shall mean transfer, sell, exchange, pledge,
hypothecate, participate, assign or otherwise dispose, in whole or in part.
"Transfer Agent and Registrar" shall have the meaning specified
in Section 6.3 (a) and shall initially be The Bank of New York (Delaware).
"Transfer Date" shall mean, with respect to any Series, the
Business Day immediately prior to each Distribution Date.
"Transferor" shall mean Metris Receivables, Inc., a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto.
"Transferor Exchange" shall have the meaning specified in
subsection 6.9(b).
"Transferor Interest" shall mean, on any date of determination,
the aggregate amount of Principal Receivables at the end of the day
immediately prior to such date of determination plus all amounts on deposit
in the Excess Funding Account (but not including investment earnings on
such amounts) at the end of such immediately preceding day, minus the
Aggregate Invested Amount at the end of such immediately preceding day.
"Transferor Percentage" shall mean, on any date of determination,
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" shall mean any Class of Investor
Securities of any Series which the Transferor retained pursuant to the
terms of any Supplement.
"Transferor Retained Securities" shall mean Investor Securities
of any Series which the Transferor is required to retain pursuant to the
terms of any Supplement.
"Transferred Account" shall mean an Account with respect to which
a new credit account number has been issued by the applicable Credit Card
Originator under circumstances resulting from a lost or stolen credit card
and not requiring standard application and credit evaluation procedures
under the Credit and Collection Policy.
"Trigger Event" shall have the meaning specified in subsection
9.2(a).
"Trust" shall mean the trust created by this Agreement, the
corpus of which shall consist of the Trust Property.
"Trust Extension" shall have the meaning specified in subsection
12.1(a).
"Trust Pay Out Event" shall have, with respect to each Series,
the meaning specified in Section 9.1.
"Trust Property" shall have the meaning specified in Section 2.1.
"Trust Termination Date" shall mean the earliest to occur of (i)
unless a Trust Extension shall have occurred, the day after the
Distribution Date with respect to any Series following the date on which
funds shall have been deposited in the Distribution Account or the
applicable Series Account for the payment of Investor Securityholders of
each Series then issued and outstanding sufficient to pay in full the
Aggregate Invested Amount plus interest accrued at the applicable Security
Rate through the end of the day prior to the Distribution Date with respect
to each such Series and certain other amounts as may be specified in any
Series Supplement, (ii) if a Trust Extension shall have occurred, the
Extended Trust Termination Date, and (iii) the date specified in subsection
12.1(a).
"Trustee" shall mean The Bank of New York (Delaware), a banking
corporation organized and existing under the laws of Delaware, and its
successors and any Person resulting from or surviving any consolidation or
merger to which it or its successors may be a party and any successor
trustee appointed as herein provided.
"UCC" shall mean the Uniform Commercial Code, as amended from
time to time, as in effect in the applicable jurisdiction.
"Undivided Interest" shall mean the undivided interest in the
Trust evidenced by an Investor Security.
"Variable Funding Securities" shall mean a Series of Investor
Securities, issued pursuant to Section 6.9 and a Variable Funding
Supplement, in one or more Classes.
"Variable Funding Supplement" shall mean a Supplement executed in
connection with the issuance of Variable Funding Securities.
Section 1.2 Other Definitional Provisions.
(a) All terms defined in any Supplement or this Agreement shall
have the meanings ascribed to them herein when used in any security,
certificate or other document made or delivered pursuant hereto unless
otherwise defined therein.
(b) As used herein and in any security, certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in Section 1.1, and accounting terms partially defined in Section
1.1 to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles. To the extent that
the definitions of accounting terms herein are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained herein shall control.
(c) The agreements, representations and warranties of DMCCB in
this Agreement and in any Supplement in its capacity as Servicer and of MRI
in its capacity as Transferor shall be deemed to be the agreements,
representations and warranties of DMCCB and MRI solely in each such
capacity for so long as either of them acts in each such capacity under
this Agreement.
(d) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to any Supplement or
this Agreement as a whole and not to any particular provision of this
Agreement or any Supplement; and Section, subsection, Schedule and Exhibit
references contained in this Agreement or any Supplement are references to
Sections, subsections, Schedules and Exhibits in or to this Agreement or
any Supplement unless otherwise specified.
(e) The Daily Report and Settlement Statement shall be in
substantially the forms of Exhibits B and C, with such changes as the
Servicer may determine to be necessary or desirable; provided, however,
that no such change shall serve to exclude information required by this
Agreement or any Supplement and each such change shall be reasonably
acceptable to the Trustee. The Servicer shall, upon making such
determination and receiving the consent of the Trustee to such change,
deliver to the Trustee and each Rating Agency an Officer's Certificate to
which shall be annexed the form of the related Exhibit, as so changed. Upon
the delivery of such Officer's Certificate to the Trustee, the related
Exhibit, as so changed, shall for all purposes of this Agreement constitute
such Exhibit. The Trustee may conclusively rely upon such Officer's
Certificate in determining whether the related Exhibit, as changed,
conforms to the requirements of this Agreement.
[End of Article I]
ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF SECURITIES
Section 2.1 Conveyance of Receivables. The Transferor does
hereby transfer, assign, set-over, and otherwise convey to the Trust for
the benefit of the Securityholders, without recourse, all of its right,
title and interest in, to and under (i) the Receivables now existing and
hereafter created and arising in connection with the Accounts existing as
of the Initial Closing Date and any Additional Accounts, including without
limitation, all accounts, general intangibles, chattel paper, contract
rights, and other obligations of any Obligor with respect to the
Receivables, now or hereafter existing, (ii) all monies and investments due
or to become due with respect thereto (including, without limitation, the
right to any Finance Charge Receivables, including any Recoveries), (iii)
all proceeds of such Receivables, (iv) the Purchase Agreement and (v) the
Bank Receivables Purchase Agreement to the extent that it relates to the
Receivables. Such property, together with all monies and investments on
deposit, from time to time, in the Collection Account, the Excess Funding
Account, the Series Accounts maintained for the benefit of the
Securityholders of any Series of Securities, any Enhancement and all monies
available under any Enhancement, to be provided for any Series for payment
to the Securityholders of such Series, shall constitute the assets of the
Trust (collectively, the "Trust Property"). The foregoing transfer,
assignment, set-over and conveyance does not constitute and is not intended
to result in a creation or an assumption by the Trust, the Trustee or any
Investor Securityholder of any obligation of the Transferor, the Servicer,
the applicable Credit Card Originator or any other Person in connection
with the Receivables or any agreement or instrument relating thereto,
including, without limitation, any obligation to any Obligors, merchant
banks, merchant clearance systems, VISA USA, Inc., MasterCard International
Incorporated or insurers, or in connection with the Purchase Agreement or
the Bank Receivables Purchase Agreement.
In connection with such transfer, assignment, set-over and
conveyance, the Transferor agrees to record and file, at its own expense,
one or more financing statements (including any continuation statements
with respect to such financing statements when applicable) with respect to
the Receivables now existing and hereafter created for the transfer of
accounts, chattel paper or general intangibles (each as defined in Section
9-106 of the UCC as in effect in the Relevant UCC State) meeting the
requirements of applicable state law in such manner and in such
jurisdictions as are necessary to perfect the assignment of the Receivables
to the Trust, and to deliver file-stamped copies of such financing
statements or continuation statements or other evidence of such filing
(which may, for purposes of this Section 2.1, consist of facsimile
confirmation of such filing) to the Trustee on or prior to the date of
issuance of the Securities, and in the case of any continuation statements
filed pursuant to this Section 2.1, as soon as practicable after receipt
thereof by the Transferor. The foregoing transfer, assignment, set-over
and conveyance to the Trust shall be made to the Trustee, on behalf of the
Trust, and each reference in this Agreement to such transfer, assignment,
set-over and conveyance shall be construed accordingly.
To the extent that the transfer of the Receivables from the
Transferor to the Trust hereunder may be characterized as a pledge rather
than as a sale, the Transferor hereby grants and transfers to the Trustee
for the benefit of the Securityholders a first priority perfected security
interest in all of the Transferor's right, title and interest in, to and
under the Trust Property to secure a loan in an amount equal to the unpaid
principal amount of the Investor Securities issued hereunder or to be
issued pursuant to this Agreement and the interest accrued thereon at the
related Security Rate and to secure all of the Transferor's and Servicer's
obligations hereunder, including, without limitation, the Transferor's
obligation to transfer Receivables hereafter created or acquired to the
Trust (the "Secured Obligations"), and agrees that this Agreement shall
constitute a security agreement under applicable law.
Section 2.2 Acceptance by Trustee.
(a) The Trustee hereby acknowledges its acceptance, on behalf of
the Trust, of all right, title and interest previously held by the
Transferor in, to and under the Trust Property and declares that it shall
maintain such right, title and interest, upon the Trust herein set forth,
for the benefit of all Securityholders.
(b) The Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement.
Section 2.3 Representations and Warranties of the Transferor.
The Transferor hereby represents and warrants to the Trustee, on behalf of
the Trust, as of the Initial Closing Date, as of the Amendment Closing Date
and, with respect to any Series of Securities, as of the date of the
related Supplement and the related Closing Date for such Series:
(a) Organization and Good Standing. The Transferor is a
corporation duly organized and validly existing and in good standing under
the laws of the State of Delaware and has the corporate power and authority
and legal right to own its properties and conduct its business as such
properties are presently owned and such business is presently conducted,
and to execute, deliver and perform its obligations under this Agreement
and the Purchase Agreement and to execute and deliver to the Trustee the
Securities pursuant hereto.
(b) Due Qualification. The Transferor is duly qualified to do
business and is in good standing (or is exempt from such requirements) as a
foreign corporation in any state required in order to conduct its business,
and has obtained all necessary licenses and approvals with respect to the
Transferor required under federal and Delaware law; provided, however, that
no representation or warranty is made with respect to any qualifications,
licenses or approvals which the Trustee would have to obtain to do business
in any state in which the Trustee seeks to enforce any Receivable.
(c) Due Authorization. The execution and delivery of this
Agreement and the Purchase Agreement and the consummation of the
transactions provided for herein and therein, have been duly authorized by
the Transferor by all necessary corporate action on its part.
(d) Binding Obligation. Each of this Agreement and the Purchase
Agreement, and the consummation of the transactions provided for herein and
therein, constitutes a legal, valid, and binding obligation of the
Transferor, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in
effect, affecting the enforcement of creditors' rights in general and as
such enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(e) No Conflicts. The execution and delivery of this Agreement
and the Purchase Agreement and the performance of the transactions
contemplated hereby and thereby, do not (i) contravene the Transferor's
charter or bylaws, (ii) violate any material provision of law applicable to
it or require any filing (except for the filings under the UCC),
registration, consent or approval under, any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in
effect having applicability to the Transferor, except for such filings,
registrations, consents or approvals as have already been obtained and are
in full force and effect.
(f) Taxes. Except as specified on Schedule 1, the Transferor
and each prior owner of the Receivables has filed all material tax returns
required to be filed and has paid or made adequate provision for the
payment of all material taxes, assessments and other governmental charges
due from the Transferor or such prior owner or is contesting any such tax,
assessment or other governmental charge in good faith through appropriate
proceedings.
(g) No Violation. The execution and delivery of this Agreement
and the Purchase Agreement and the execution and delivery to the Trustee of
the Securities, the performance of the transactions contemplated by this
Agreement and the Purchase Agreement and the fulfillment of the terms
hereof and thereof will not violate any Requirements of Law applicable to
the Transferor, will not violate, result in any breach of any of the
material terms and provisions of, or constitute (with or without notice or
lapse of time or both) a default under any Requirement of Law applicable to
the Transferor or any material indenture, contract, agreement, mortgage,
deed of trust or other material instrument to which the Transferor is a
party or by which it or its properties are bound.
(h) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Transferor, threatened against the
Transferor, before any Governmental Authority (i) asserting the invalidity
of this Agreement and the Purchase Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated hereby or thereby,
(iii) seeking any determination or ruling that would materially and
adversely affect the performance by the Transferor of its obligations
thereunder, (iv) seeking any determination or ruling that would materially
and adversely affect the validity or enforceability thereof or (v) seeking
to affect adversely the tax attributes of the Trust.
(i) All Consents Required. All approvals, authorizations,
consents, orders or other actions of any Governmental Authority required in
connection with the execution and delivery of this Agreement, the Purchase
Agreement and the Securities, the performance of the transactions
contemplated by this Agreement and the Purchase Agreement and the
fulfillment of the terms hereof and thereof, have been obtained.
(j) Bona Fide Receivables. Each Receivable is or will be an
account receivable arising out of the performance by the applicable Credit
Card Originator in accordance with the terms of the Contract giving rise to
such Receivable. The Transferor has no knowledge of any fact which should
have led it to expect at the time of the classification of any Receivable
as an Eligible Receivable that such Receivable would not be paid in full
when due, and each Receivable classified as an Eligible Receivable by the
Transferor in any document or report delivered under this Agreement
satisfies the requirements of eligibility contained in the definition of
Eligible Receivable set forth in this Agreement.
(k) Place of Business. The principal executive offices of the
Transferor are in Minnetonka, Minnesota, and the offices where the
Transferor keeps its records concerning the Receivables and related
Contracts are in Hennepin County, Minnesota and St. Cloud, Minnesota.
(l) Use of Proceeds. No proceeds of the issuance of any
Security will be used by the Transferor to purchase or carry any margin
security.
(m) Pay Out Event. No Pay Out Event and no condition that with
the giving of notice and/or the passage of time constitutes a Pay Out Event
(a "Prospective Pay Out Event") has occurred and is continuing.
(n) Not an Investment Company. The Transferor is not an
"investment company" within the meaning of the Investment Company Act, or
is exempt from all provisions of such Act.
(o) Solvency. The Transferor is not insolvent and will not be
rendered insolvent upon the transfer of the Receivables to the Trust.
The representations and warranties set forth in this Section 2.3
shall survive the transfer and assignment of the respective Receivables to
the Trust, and termination of the rights and obligations of the Servicer
pursuant to Section 10.1. The Transferor hereby represents and warrants to
the Trust, with respect to any Series of Securities, as of its Closing
Date, unless otherwise stated in the related Supplement, that the
representations and warranties of the Transferor set forth in Section 2.3,
are true and correct as of such date (and for the purposes of such
representations and warranties, "Securities" shall mean the Securities
issued on the related Closing Date) and that each representation and
warranty set forth in this Section 2.3 and in Section 2.4(a)(i) with
respect to the Agreement shall be made at such time with respect to the
applicable Supplement. Upon discovery by the Transferor, the Servicer or a
Responsible Officer of the Trustee of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall
give prompt written notice to the others.
Section 2.4 Representations and Warranties of the Transferor
Relating to the Agreement and the Receivables.
(a) Binding Obligation; Valid Transfer and Assignment. The
Transferor hereby represents and warrants to the Trustee, on behalf of the
Trust, that, as of the Initial Closing Date, as of the Amendment Closing
Date and, with respect to any Series of Securities, as of the date of its
related Supplement and Closing Date, and, with respect to any matters
involving Additional Accounts, as of the date the Receivables of such
Accounts are first designated for inclusion in the Trust:
(i) The Purchase Agreement and this Agreement each
constitutes the legal, valid and binding obligation of the Transferor,
enforceable against the Transferor in accordance with its terms,
except (A) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, affecting the enforcement of
creditors' rights in general, and (B) as such enforceability may be
limited by general principles of equity (whether considered in a suit
at law or in equity).
(ii) The transfer of Receivables by the Transferor to the
Trust under this Agreement constitutes either (A) a valid transfer,
assignment, set-over and conveyance to the Trust of all right, title
and interest of the Transferor in and to the Trust Property, and such
Trust Property will be held by the Trust free and clear of any Lien of
any Person claiming through or under the Transferor or any of its
Affiliates except for (x) Permitted Liens, (y) the interest of the
Transferor as Holder of the Exchangeable Transferor Security and any
other Class of Securities held by the Transferor from time to time and
(z) the Transferor's right, if any, to interest accruing on, and
investment earnings, if any, in respect of any Interest Funding
Account, any Principal Account, the Excess Funding Account, or any
Series Account, as provided in this Agreement or the related
Supplement, or (B) a grant of a first priority security interest (as
defined in the UCC as in effect in the Relevant UCC State) in, to and
under the Trust Property, which grant is enforceable with respect to
the existing Receivables and any Receivables in Additional Accounts
designated for inclusion in the Trust (other than Receivables in
Supplemental Accounts) and the proceeds thereof upon execution and
delivery of this Agreement, and which will be enforceable with respect
to such Receivables hereafter created and the proceeds thereof, upon
such creation. If this Agreement constitutes the grant of a security
interest to the Trust in such property, upon the filing of the
financing statement described in Section 2.1 and in the case of the
Receivables hereafter created and proceeds thereof, upon such
creation, the Trust shall have a first priority perfected security
interest in such property, except for Permitted Liens. Except as
contemplated in this Agreement or any Supplement, neither the
Transferor nor any Person claiming through or under the Transferor
shall have any claim to or interest in the Collection Account, any
Principal Account, any Interest Funding Account, the Distribution
Account, the Excess Funding Account, any principal funding account for
any Series or any other Series Account, except for the Transferor's
rights to receive interest accruing on, and investment earnings in
respect of, any such account as provided in this Agreement (or, if
applicable, any Series Account as provided in any Supplement) and, if
this Agreement constitutes the grant of a security interest in such
property, except for the interest of the Transferor in such property
as a debtor for purposes of the UCC as in effect in the Relevant UCC
State. The Purchase Agreement constitutes a valid transfer,
assignment, set-over and conveyance to the Transferor of all right,
title and interest of Metris in and to the Receivables purported to be
sold thereunder, whether then existing or thereafter created in the
applicable Accounts and the proceeds thereof.
(iii) The Transferor is (or, with respect to Receivables
arising after the date hereof, will be) the legal and beneficial owner
of all right, title and interest in and to each Receivable and each
Receivable has been or will be transferred to the Trust free and clear
of any Lien other than Permitted Liens.
(iv) All consents, licenses, approvals or authorizations of
or registrations or declarations with any Governmental Authority
required in connection with the transfer of Trust Property to the
Trust have been obtained.
(v) Each Account classified as an "Eligible Account" by the
Transferor in any document or report delivered hereunder will satisfy
the requirements contained in the definition of Eligible Account as of
the time of such document or report and each Receivable classified as
an "Eligible Receivable" by the Transferor in any document or report
delivered hereunder will satisfy the requirements contained in the
definition of Eligible Receivable as of the time of such document or
report.
(vi) Each Receivable then existing has been conveyed to the
Trust free and clear of any Lien of any Person claiming through or
under the Transferor or any of its Affiliates (other than Permitted
Liens) and in compliance, in all material respects, with all
Requirements of Law applicable to the Transferor.
(b) Daily Representations and Warranties. On each day on which
any new Receivable is purchased by the Transferor, the Transferor shall be
deemed to represent and warrant to the Trust that (A) each Receivable
purchased by the Transferor on such day has been conveyed to the Trust in
compliance, in all material respects, with all Requirements of Law
applicable to the Transferor and free and clear of any Lien of any Person
claiming through or under the Transferor or any of its Affiliates (other
than Permitted Liens) and (B) with respect to each such Receivable, all
consents, licenses, approvals or authorizations of or registrations or
declarations with, any Governmental Authority required to be obtained,
effected or given by the Transferor in connection with the conveyance of
such Receivable to the Trust have been duly obtained, effected or given and
are in full force and effect.
(c) Notice of Breach. The representations and warranties set
forth in this Section 2.4 shall survive the transfer and assignment of the
respective Receivables to the Trust. Upon discovery by the Transferor, the
Servicer or a Responsible Officer of the Trustee of a breach of any of the
representations and warranties set forth in this Section 2.4, the party
discovering such breach shall give prompt written notice to the other
parties mentioned above. The Transferor agrees to cooperate with the
Servicer and the Trustee in attempting to cure any such breach.
(d) Designation of Ineligible Receivables. In the event of a
breach with respect to a Receivable of any representations and warranties
set forth in subsection 2.3(j) or subsections 2.4(a)(iii) through (vi) or
subsection 2.4(b), or in the event that a Receivable is not an Eligible
Receivable on the date of its transfer to the Trust as a result of the
failure to satisfy the conditions set forth in the definition of Eligible
Receivable, such Receivable shall be designated an "Ineligible Receivable"
and shall be assigned a principal balance of zero for the purpose of
determining the aggregate amount of Principal Receivables on any day;
provided, however, that if such representations and warranties with respect
to such Receivable shall subsequently be true and correct in all material
respects as if such Receivable had been created on such day or such
Receivable shall subsequently satisfy the conditions set forth in the
definition of Eligible Receivable, such Receivable shall be designated an
Eligible Receivable, and such Principal Receivables shall be included in
determining the Aggregate Principal Receivables on such day. On and after
the date of its designation as an Ineligible Receivable, each Ineligible
Receivable shall not be given credit in determining the aggregate amount of
Principal Receivables used in the calculation of any Investor Percentage,
the Transferor Percentage or the Transferor Interest. In the event that on
any Business Day the exclusion of an Ineligible Receivable from the
calculation of the Transferor Interest would cause the Transferor Interest
to be reduced below the Minimum Transferor Interest, the Transferor shall
immediately make a deposit in the Excess Funding Account (for allocation as
a Principal Receivable) in immediately available funds prior to the next
succeeding Business Day in an amount equal to the amount by which the
Transferor Interest would be reduced below the Minimum Transferor Interest
as a result of the exclusion of such Ineligible Receivable. The portion of
such deposit allocated to the Investor Securities of each Series shall be
distributed to the Investor Securityholders of each Series in the manner
specified in Article IV.
(e) Reassignment of Trust Portfolio. In the event of a breach
of any of the representations and warranties set forth in subsections
2.3(a), (b) and (c) and 2.4(a)(i) and (ii) with respect to any Series,
either the Trustee or the Holders of Investor Securities evidencing
Undivided Interests aggregating more than 50% of the aggregate Invested
Amount of such Series, by notice then given in writing to the Transferor
(and to the Trustee and the Servicer, if given by the Investor
Securityholders of such Series), may direct the Transferor to accept
reassignment of an amount of Principal Receivables equal to the face amount
of the Invested Amount to be repurchased (as specified below) within 60
days of such notice (or within such longer period as may be specified in
such notice), and the Transferor shall be obligated to accept reassignment
of such Receivables on a Distribution Date specified by the Transferor
(such Distribution Date, the "Reassignment Date") occurring within such
applicable period on the terms and conditions set forth below; provided,
however, that no such reassignment shall be required to be made, and no
notice of such reassignment may be given, if, at any time during such
applicable period, the representations and warranties contained in
subsections 2.3(a), (b) and (c) and subsections 2.4(a)(i) and (ii) shall
then be true and correct in all material respects. The Transferor shall,
on the Transfer Date (in next day funds) preceding the Reassignment Date,
deposit an amount equal to the reassignment deposit amount for such Series
in the related Distribution Account or Series Account, as provided in the
related Supplement, for distribution to the Investor Securityholders
pursuant to Article XII. The reassignment deposit amount with respect to
any Series, unless otherwise stated in the related Supplement, shall be
equal to (i) the Invested Amount of such Series at the end of the day on
the Business Day preceding the Reassignment Date (provided, however, that
with respect to any Series issued pursuant to a Variable Funding Supplement
such amount shall be the Invested Amount of such Series as of the
Reassignment Date, less the amount, if any, previously allocated for
payment of principal to such Securityholders on the related Reassignment
Date, in the Monthly Period in which the Reassignment Date occurs), plus
(ii) an amount equal to all interest accrued but unpaid on the Investor
Securities of such Series at the applicable Security Rate through such last
day, less the amount, if any, previously allocated for payment of interest
to the Securityholders of such Series on the related Distribution Date in
the Monthly Period in which the Reassignment Date occurs plus any other
amounts accrued and owing as specified in the applicable Supplement.
Payment of the reassignment deposit amount with respect to any Series, and
all other amounts in the Distribution Account or the applicable Series
Account in respect of the preceding Monthly Period, shall be considered a
prepayment in full of the Receivables represented by the Investor
Securities of such Series. On the Distribution Date following the Transfer
Date on which such amount has been deposited in full into the Distribution
Account or the applicable Series Account, the Receivables and all monies
due or to become due with respect thereto and all proceeds of the
Receivables shall be released to the Transferor after payment of all
amounts otherwise due hereunder on or prior to such dates and the Trustee
shall execute and deliver such instruments of transfer or assignment, in
each case without recourse, representation or warranty, as shall be
prepared by and as are reasonably requested by the Transferor to vest in
the Transferor, or its designee or assignee, all right, title and interest
of the Trust in and to such Receivables, all monies due or to become due
with respect thereto and all proceeds of such Receivables allocated to such
Receivables pursuant to the related Supplement. If the Trustee or the
Investor Securityholders of any Series give notice directing the Transferor
to accept reassignment as provided above, the obligation of the Transferor
to accept reassignment of the applicable Receivables and pay the
reassignment deposit amount pursuant to this subsection 2.4(e) shall
constitute the sole remedy respecting a breach of the representations and
warranties contained in subsections 2.3(a), (b) and (c) and 2.4(a)(i) and
(ii) available to the Investor Securityholders of such Series or the
Trustee on behalf of the Investor Securityholders of such Series. The
Trustee shall have no duty to conduct any affirmative investigation as to
the occurrence of any condition requiring the repurchase of any Receivable
by the Transferor pursuant to this Agreement or any Supplement or the
eligibility of any Receivable for purposes of this Agreement or any
Supplement.
Section 2.5 Covenants of the Transferor. The Transferor hereby
covenants that:
(a) Receivables to be Accounts, Chattel Paper or General
Intangibles. The Transferor will take no action to cause any Receivable to
be evidenced by any instrument (as defined in the UCC as in effect in the
Relevant UCC State), except in connection with the enforcement or
collection of a Receivable. Except in such circumstances, the Transferor
will take no action to cause any Receivable to be anything other than an
"account," "chattel paper" or a "general intangible" (as defined in the UCC
as in effect in the Relevant UCC State).
(b) Security Interests. Except for the conveyances hereunder,
the Transferor will not sell, pledge, assign or transfer to any other
Person, or grant, create, incur, assume or suffer to exist any Lien, on any
Receivable, whether now existing or hereafter created, or any interest
therein; the Transferor will immediately notify the Trustee of the
existence of any Lien on any Receivable; and the Transferor shall defend
the right, title and interest of the Trust in, to and under the
Receivables, whether now existing or hereafter created, against all claims
of third parties claiming through or under the Transferor; provided,
however, that nothing in this subsection 2.5(b) shall prevent or be deemed
to prohibit the Transferor from suffering to exist upon any of the
Receivables any Permitted Lien.
(c) Delivery of Collections. In the event that the Transferor
receives Collections, the Transferor agrees to deposit such Collections
into the Collection Account as soon as practicable after the receipt
thereof, but in no event later than two Business Days after receipt
thereof.
(d) Notice of Liens. The Transferor shall notify the Trustee
promptly after becoming aware of any Lien on any Receivable other than
Permitted Liens.
(e) Enforcement of Purchase Agreements. The Transferor agrees
to take all action necessary and appropriate to enforce its rights and
claims under the Purchase Agreement and the Bank Receivables Purchase
Agreement.
(f) Separate Business. The Transferor will not permit its
assets to be commingled with those of either DMCCB or Metris and the
Transferor shall maintain separate corporate records, books of account and
bank accounts from those of either DMCCB or Metris. The Transferor will
not conduct its business in the name of either DMCCB or Metris and will
cause either DMCCB or Metris to conduct its business solely in its own name
so as not to mislead others as to the identity of the entity with which
those others are concerned. The Transferor will provide for its own
operating expenses and liabilities from its own funds, except that the
organizational expenses of the Transferor may be paid by either DMCCB or
Metris. The Transferor will not hold itself out, or permit itself to be
held out, as having agreed to pay, or as generally being liable for, the
debts of either DMCCB or Metris. The Transferor shall cause either DMCCB
or Metris not to hold itself out, or permit itself to be held out, as
having agreed to pay, or as generally being liable for, the debts of the
Transferor except that the organizational expenses of the Transferor may be
paid by either DMCCB or Metris and that either DMCCB or Metris will
contribute to the Transferor on the Closing Date a demand note. The
Transferor will maintain an arm's length relationship with either DMCCB or
Metris with respect to any transactions between the Transferor, on the one
hand, and either DMCCB or Metris, on the other.
(g) Purchase Agreement Notices. The Transferor (i) shall
promptly give the Trustee copies of any notices, reports or certificates
given or delivered to the Transferor under the Purchase Agreement, (ii)
shall not, without the consents, approvals and opinions, if any, required
by Section 13.1, as if Section 13.1 related to the Purchase Agreement
rather than this Agreement, enter into any amendment, supplement or other
modification to, or waiver of any provision of, the Purchase Agreement and
(iii) shall not permit the addition or removal of an Account or a
Receivable to or from the operation of the Purchase Agreement unless there
is a corresponding right or obligation of the Transferor to add or remove
such Account or Receivable to or from the Trust.
Section 2.6 Addition of Accounts.
(a) Except for Excluded Accounts, all revolving credit consumer
credit card accounts which meet the definition of Additional Accounts
shall be included as Accounts from and after the date upon which the Credit
Card Originator acquires rights in such Additional Accounts and all
Receivables in such Additional Accounts, whether such Receivables are then
existing or thereafter created, shall be transferred automatically to the
Trust. For all purposes of this Agreement, all receivables of such
Additional Accounts shall be treated as Receivables upon the Credit Card
Originator acquiring rights therein.
(b) Notwithstanding the foregoing, the Transferor may elect
at any time, or may be required pursuant to subsection 2.6(g), to suspend
the automatic inclusion in Accounts of new accounts which would otherwise
be Additional Accounts as of any Business Day (the "Automatic Addition
Suspension Date"), or terminate any such inclusion as of any Business Day
(an "Automatic Addition Termination Date") until a date (the "Restart
Date") to be identified in writing by the Transferor to the Trustee, the
Servicer and each Rating Agency at least 10 days prior to such Restart
Date. Promptly after an Automatic Addition Suspension Date or any
Automatic Addition Termination Date, or a Restart Date, the Transferor and
the Trustee agree to execute and the Transferor agrees to record and file
at its own expense an amendment to the financing statements referred to in
Section 2.1 hereof to specify the accounts then subject to this Agreement
(which specification may incorporate a list of accounts by reference) and
may, except in connection with any such filing made after a Restart Date,
release any security interest in any accounts created after the Automatic
Addition Suspension Date or any Automatic Addition Termination Date. In
connection with any Restart Date, the Transferor shall take all actions
necessary to grant the Trust a valid and perfected security interest in all
credit card accounts in which the Transferor acquired rights since the
preceding Automatic Addition Suspension Date.
(c) If the Transferor has elected to terminate or suspend the
inclusion of Additional Accounts and (i) on the tenth Business Day prior to
any Determination Date, the Transferor Interest for the related Monthly
Period is less than the Minimum Transferor Interest, the Transferor shall
designate additional credit card accounts ("Supplemental Accounts") to be
included as Accounts in a sufficient amount such that the Transferor
Interest as a percentage of the Aggregate Principal Receivables for such
Monthly Period after giving effect to such addition is at least equal to
the Minimum Transferor Interest, or on any Record Date, the Aggregate
Principal Receivables is less than the Minimum Aggregate Principal
Receivables, the Transferor shall designate Supplemental Accounts to be
included as Accounts in a sufficient amount such that the Aggregate
Principal Receivables will be equal to or greater than the Minimum
Aggregate Principal Receivables. Receivables from such Supplemental
Accounts shall be transferred to the Trust on or before the tenth Business
Day following such Record Date. On any day on which the Receivables in
Supplemental Accounts are to be transferred to the Trust, the Receivables
in such Accounts shall be included as Eligible Receivables if they satisfy
the requirements of the definition of "Eligible Receivables".
(d) In addition to its obligation under subsection 2.6(c), the
Transferor may, by giving ten Business Days notice to the Trustee and each
Rating Agency, but shall not be obligated to, designate from time to time
Supplemental Accounts of the Transferor to be included as Accounts.
(e) Unless otherwise specified in a Series Supplement, the
Transferor agrees that any such transfer of Receivables from Supplemental
Accounts, under subsection 2.6(c) or (d), shall satisfy the following
conditions (to the extent provided below):
(i) on or before the fifth Business Day prior to the
Addition Date with respect to additions pursuant to subsection 2.6(c)
and on or before the twentieth Business Day prior to the Addition Date
with respect to additions pursuant to subsection 2.6(d) (as
applicable, the "Notice Date"), the Transferor shall give the Trustee,
each Rating Agency and the Servicer written notice that such
Supplemental Accounts will be included, which notice shall specify the
approximate aggregate amount of the Receivables to be transferred;
(ii) on or before the applicable Addition Date, the
Transferor shall have delivered to the Trustee a written assignment
(including an acceptance by the Trustee on behalf of the Trust for the
benefit of the Investor Securityholders) in substantially the form of
Exhibit H (the "Assignment") and the Transferor shall have indicated
in its computer files that the Receivables created in connection with
the Supplemental Accounts have been transferred to the Trust and,
within five Business Days thereafter, the Transferor shall have
delivered to the Trustee or the bailee of the Trustee a computer file
or microfiche list containing a true and complete list of all
Supplemental Accounts, identified by account number and the Principal
Receivables in such Supplemental Accounts, as of the Addition Date,
which computer file or microfiche list shall be as of the date of such
Assignment incorporated into and made a part of such Assignment;
(iii) the Transferor shall represent and warrant that (x)
no selection procedure that is materially adverse to the interests of
the Investor Securityholders was utilized in selecting the
Supplemental Accounts and (y) as of the applicable Addition Date, the
Transferor is not insolvent and will not be rendered insolvent upon
the transfer of Receivables to the Trust;
(iv) the Transferor shall represent and warrant that, as of
the Addition Date, the Assignment constitutes either (x) a valid
transfer and assignment to the Trust of all right, title and interest
of the Transferor in and to (A) the Receivables then existing and
thereafter created and arising in connection with the Accounts and any
accounts that meet the definition of Additional Accounts, including,
without limitation, all accounts, general intangibles, chattel paper,
contract rights, and other obligations of any Obligor with respect to
the Receivables, now or hereafter existing, whether or not arising out
of or in connection with the sale or lease of goods or the rendering
of services, (B) all monies and investments due or to become due with
respect thereto (including, without limitation, the right to any
payment of interest and Finance Charge Receivables, including any
Recoveries), (C) all proceeds (as defined in the UCC as in effect in
the Relevant UCC State) of such Receivables, (D) the Purchase
Agreement and (E) the Bank Receivables Purchase Agreement, and such
Receivables and all proceeds thereof will be held by the Trust free
and clear of any Lien of any Person claiming through or under the
Transferor or any of its Affiliates, except for (i) Permitted Liens,
(ii) the interest of the Transferor as Holder of the Exchangeable
Transferor Security and any other Class or Series of Securities and
(iii) the Transferor's right, if any, to receive interest accruing on,
and investment earnings, if any, in respect of, any Interest Funding
Account and any Principal Account, the Excess Funding Account or any
Series Account as provided in this Agreement and any related
Supplement or (y) a grant of a security interest (as defined in the
UCC as in effect in the Relevant UCC State) in such property to the
Trust, which is enforceable with respect to then existing Receivables
of the Supplemental Accounts, the proceeds (as defined in the UCC as
in effect in the Relevant UCC State) thereof upon the conveyance of
such Receivables to the Trust, and which will be enforceable with
respect to the Receivables thereafter created in respect of
Supplemental Accounts conveyed on such Addition Date and the proceeds
(as defined in the UCC as in effect in the Relevant UCC State) thereof
upon such creation; and (z) if the Assignment constitutes the grant of
a security interest to the Trust in such property, upon the filing of
a financing statement as described in Section 2.1 with respect to such
Supplemental Accounts and in the case of the Receivables thereafter
created in such Supplemental Accounts and the proceeds (as defined in
the UCC as in effect in the Relevant UCC State) thereof, upon such
creation, the Trust shall have a first priority perfected security
interest in such property, except for Permitted Liens;
(v) the Transferor shall deliver to the Trustee an
Officer's Certificate substantially in the form of Schedule 2 to
Exhibit H confirming the items set forth in paragraph (ii) above;
(vi) the Transferor shall deliver to the Trustee an Opinion
of Counsel with respect to the Receivables in the Supplemental
Accounts (with a copy to the Rating Agencies) substantially in the
form of Exhibit I; and
(vii) the Transferor shall have received written notice
from the Rating Agencies that the inclusion of such accounts as
Supplemental Accounts pursuant to subsection 2.6(c) or (d), as the
case may be, will not result in the reduction or withdrawal of its
then existing rating of any Class of any Series of Investor Securities
then issued and outstanding and shall have delivered such notice to
the Trustee.
(f) The Transferor shall be permitted to designate Additional
Accounts with respect to any Monthly Period (the "Current Monthly Period")
prior to the last day of the May 1996 Monthly Period pursuant to subsection
2.6(a) of the Agreement, without limitation, provided, however, that with
respect to each Monthly Period beginning with the September 1995 Monthly
Period:
(i) the arithmetic average for the three Monthly Periods
preceding the Current Monthly Period, of the annualized percentage
equivalent of a fraction for each respective Monthly Period, the
numerator of which is equal to the Default Amount for the respective
Monthly Period (provided, however, that the Default Amount with
respect to each Default Recognition Date shall be deemed to apply to
the Monthly Period ending closest to such Default Recognition Date)
and the denominator of which is equal to the average amount of
Aggregate Principal Receivables outstanding on each day during such
Monthly Period, is less than 6%;
(ii) the arithmetic average for the three Monthly Periods
preceding the Current Monthly Period, of the percentage (the "Payment
Rate Percentage") equivalent of a fraction for each respective Monthly
Period, the numerator of which is equal to the amount of Collections
received during the respective Monthly Period and the denominator of
which is equal to the Aggregate Principal Receivables as of the first
day of the respective Monthly Period, is greater than or equal to 6%;
or
(iii) the weighted average of the Portfolio Yields for each
Series then outstanding for the three Monthly Periods preceding the
Current Monthly Period minus the weighted average of the Base Rates
for each Series then outstanding for such three Monthly Periods (the
"Excess Spread Percentage") is greater than or equal to 4%.
(iv) Standard & Poor's shall not have notified the Transferor
that the continued addition of Additional Accounts pursuant to this
subsection 2.6(e) will result in a reduction or withdrawal of the then
current rating of any Class by Standard & Poor's.
In the event that as of any date of determination prior to last day of the
May 1996 Monthly Period any of the conditions in clauses (i) through (iii)
listed above is not met, and with respect to each Monthly Period after the
May 1996 Monthly Period this subsection 2.6(f) shall no longer apply and
the conditions of subsection 2.6(g) shall apply. On or before the later of
(x) the last day of the September 1995 Monthly Period, the December 1995
Monthly Period and the March 1996 Monthly Period or (y) in each case the
tenth day following receipt of the settlement statement for the prior
Monthly Period, Standard & Poor's shall determine whether a Ratings Event
shall have occurred in connection with the addition of Additional Accounts
during the three consecutive Monthly Periods ending in August, November and
February preceding such date. Upon the occurrence of a Ratings Event in
connection with the addition of Additional Accounts this subsection 2.6(f)
shall no longer apply and the conditions of subsection 2.6(g) shall apply.
(g) Unless each Rating Agency otherwise consents to the
continued automatic addition of accounts, on and after the beginning of the
June 1996 Monthly Period, the Transferor shall be required to cease the
automatic addition of accounts and notify the Trustee, the Servicer and
each Rating Agency of the Automatic Addition Suspension Date in the
following circumstances: the number of Accounts the Receivables of which
are designated to be included in the Trust pursuant to subsection 2.6(a)
since (i) the first day of the eleventh preceding Monthly Period (or, in
the case of any date on which Additional Accounts are to be added to the
Trust which occurs on or before the last day of the May 1997 Monthly
Period, June 1, 1996) minus the number of Accounts of the type described in
clause (ii) of the definition of "Approved Account" which have been added
on the initial day of the addition of such type of Account pursuant to such
clause (ii) since the first day of such eleventh preceding Monthly Period
(or June 1, 1996, as the case may be) shall not exceed 20% of number of
Accounts on the first day of such eleventh preceding Monthly Period (or
June 1, 1996, as the case may be), and (ii) the first day of the second
preceding Monthly Period (or, in the case of any date on which Additional
Accounts are to be added to the Trust which occurs on or before the last
day of the August 1996 Monthly Period, June 1, 1996) minus the number of
Accounts of the type described in clause (ii) of the definition of
"Approved Accounts" have been added on the initial day of the addition of
such type of Account pursuant to such clause (ii) since the first day of
such second preceding Monthly Period (or June 1, 1996, as the case may be)
shall not exceed 15% of the number of Accounts on the first day of such
second preceding Monthly Period (or June 1, 1996, as the case may be).
(h) The Transferor may designate revolving credit consumer
credit card accounts which would otherwise be Additional Accounts as
Excluded Accounts by the Transferor delivering to the Trustee a written
notice clearly identifying such excluded accounts. If such designation is
made after the Trust acquires rights in such Accounts, such designation
shall only occur in accordance with the provisions of Section 2.7 hereof.
Section 2.7 Removal of Accounts.
(a) On each Determination Date that the Transferor Interest for
the related Monthly Period exceeds the Minimum Transferor Interest with
respect to such Determination Date, the Trustee shall be deemed to have
offered to the Transferor automatically and without any notice to or action
by or on behalf of the Trustee, as of such Determination Date, the right to
remove from the Trust all of the Trust's right, title and interest in, to
and under the Receivables then existing and thereafter created, all monies
then due or to become due and all amounts thereafter received with respect
thereto and all proceeds thereof in or with respect to those Accounts
designated by the Transferor (the "Removed Accounts") in an aggregate
amount not greater than the lesser of (i) the excess of the Transferor
Interest over the Minimum Transferor Interest and (ii) the excess of
Aggregate Principal Receivables over the Minimum Aggregate Principal
Receivables. To accept such offer, the Transferor is required to furnish
to the Trustee and each Rating Agency written notice by the fifth Business
Day after the Determination Date specifying the approximate aggregate
amount of Principal Receivables covered by the offer that the Transferor
intends to accept. There shall be no more than one such removal with
respect to any Monthly Period.
(b) In addition to the satisfaction of the conditions set forth
in subsection 2.7(a), the Transferor shall be permitted to accept
reassignment to it of the Receivables from Removed Accounts only upon
satisfaction of the following conditions:
(i) On each date specified by the Transferor for removal of
the Removed Accounts (a "Removal Date"), the Transferor shall prepare
and the Trustee shall execute and deliver to the Transferor a written
reassignment in substantially the form of Exhibit J (the
"Reassignment") and the Transferor shall deliver to the Trustee or the
bailee of the Trustee a computer file or microfiche list containing a
true and complete schedule identifying all Accounts the Receivables in
which remain in the Trust specifying for each such Account, as of the
Removal Notice Date, its account number and the principal balance of
such Account. Such computer file or microfiche list shall be
incorporated into and made part of this Agreement as of the date of
such Reassignment.
(ii) The Transferor shall represent and warrant as of each
Removal Notice Date that (a) the list of the Accounts not removed from
the Trust, as of the Removal Notice Date, complies in all material
respects with the requirements of paragraph (i) above and (b) no
selection procedure used by the Transferor that is materially adverse
to the interests of the Investor Securityholders was utilized in
selecting the Removed Accounts.
(iii) The Transferor shall represent and warrant that the
removal of any Receivables in any Removed Accounts on any Removal Date
shall not, in the reasonable belief of the Transferor, cause,
immediately or with the passage of time, a Pay Out Event to occur.
(iv) The Transferor shall have delivered at least 20 days'
(or such lesser number as any Rating Agency may agree) prior written
notice (which may be given prior to the Removal Date in expectation
that the Trustee will make the offer described in subsection 2.7(a))
of such removal to each Rating Agency that has rated any outstanding
Class of any Series and the Trustee shall have received written
confirmation from each such Rating Agency that such Rating Agency will
not reduce or withdraw its rating on any outstanding Class of any
Series as a result of such removal.
(v) The Transferor shall have delivered to the Trustee an
Officer's Certificate confirming the Transferor's compliance with the
items set forth in paragraphs (i) through (iv) above. The Trustee may
conclusively rely on such certificate, shall have no duty to make
inquiries with regard to the matters set forth therein and shall incur
no liability in so relying.
(c) Upon satisfaction of the conditions set forth in subsections
2.7(a) and (b), the Trustee shall execute and deliver the Reassignment to
the Transferor, and the Receivables from the Removed Accounts shall no
longer constitute a part of the Trust.
Section 2.8 Discount Option. (a) The Transferor shall have the
option to designate a percentage, which may be a fixed percentage or a
variable percentage based on a formula (the "Discount Percentage"), of
Principal Receivables, without giving effect to any discounting pursuant to
this Section 2.8, arising on or after the date of such designation, to be
treated as Finance Charge Receivables. The Transferor shall provide to the
Servicer, the Trustee, any Enhancement Provider and the Rating Agency 15
days' prior written notice of such designation, and such designation shall
become effective on the date designated therein (i) unless such designation
in the reasonable belief of the Transferor would cause a Pay Out Event to
occur, or an event which, with notice or the lapse of time or both, would
constitute a Pay Out Event and (ii) only if the Rating Agency shall have
delivered a letter to the Transferor and the Trustee confirming that its
then current rating of the Investor Securities of any Series then
outstanding will not be reduced or withdrawn as a result of such
designation.
(b) After the date on which the Transferor's exercise of its
discount option takes effect, and with respect to Receivables generated on
and after such date, the Transferor, in accordance with Section 4.3, shall
deposit into the Collection Account in immediately available funds an
amount equal to the amount of the Discount Option Receivable Collections
processed on such day. The deposit made by the Transferor into the
Collection Account under the preceding sentence shall be considered a
payment of such Discount Option Receivables and shall be applied as Finance
Charge Receivables in accordance with Article IV.
Section 2.9 Covenants of the Transferor with Respect to the
Purchase Agreement. The Transferor, in its capacity as purchaser of the
Receivables from Metris or a Credit Card Originator pursuant to the
Purchase Agreement, hereby covenants that the Transferor will at all times
enforce the covenants and agreements of each Credit Card Originator in the
Bank Receivables Purchase Agreement, including, without limitation,
covenants to the effect set forth below.
(a) Periodic Finance Charges and Other Fees. Except as
otherwise required by any Requirement of Law, or as is deemed by the
applicable Credit Card Originator in its sole discretion to be
necessary in order to maintain its credit card business on a
competitive basis, it shall not at any time reduce the annual
percentage rates of the Periodic Finance Charges assessed on the
Receivables or other fees charged on any of the Accounts if, as a
result of any such reduction, either (i) the Transferor's reasonable
expectation is that such reduction will cause a Pay Out Event to occur
or (ii) such reduction is not also applied to any comparable segment
of consumer revolving credit card accounts owned by such Credit Card
Originator that have characteristics the same as, or substantially
similar to, such Accounts.
(b) Credit and Collection Policy and Contracts. Each Credit
Card Originator shall comply with and perform its obligations under
the Contracts relating to the Accounts and the Credit and Collection
Policy except insofar as any failure so to comply or perform would not
materially and adversely affect the rights of the Trust or the
Securityholders hereunder or under the Securities. Subject to
compliance with all Requirements of Law, a Credit Card Originator may
change the terms and provisions of the Contracts or the Credit and
Collection Policy with respect to any of the Accounts in any respect
(including the calculation of the amount, or the timing, of charge-
offs and the Periodic Finance Charges and other fees to be assessed
thereon) only if in the reasonable judgment of the Credit Card
Originator (i) (if it owns a comparable segment of receivables) such
change is made applicable to any comparable segment of the consumer
revolving credit card accounts owned by such Credit Card Originator
which have characteristics the same as, or substantially similar to,
such Accounts or (ii) (if it does not own such a comparable segment of
receivables) will not be made with the intent to materially benefit
the Transferor or the Credit Card Originator over the Investor
Securityholders or to materially adversely affect the Investor
Securityholders, except as otherwise restricted by an endorsement,
sponsorship, or other agreement between the Transferor and an
unrelated third party or by the terms of the Contracts.
The Transferor further covenants that the Transferor will not
enter into any amendments to the Bank Receivables Purchase Agreement or the
Purchase Agreement that would cause a Ratings Event to occur.
Section 2.10. Receivables in Defaulted Accounts. On the date on
which an Account becomes a Defaulted Account, the Trust shall automatically
and without further action or consideration be deemed to transfer, set
over, and otherwise convey to the Transferor, without recourse,
representation or warranty, all the right, title and interest of the Trust
in and to the Receivables in such Defaulted Account, all monies due or to
become due with respect thereto, all proceeds of such Receivables allocable
to the Trust with respect to such Receivable, excluding Recoveries relating
thereto, which shall remain a part of the Trust Property. On each
Determination Date, the Servicer shall calculate the aggregate Series
Default Amount for the preceding Monthly Period with respect to each
Series.
[End of Article II]
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.1 Acceptance of Appointment and Other Matters
Relating to the Servicer.
(a) DMCCB agrees to act as the Servicer under this Agreement.
The Investor Securityholders of each Series by their acceptance of the
related Securities consent to DMCCB acting as Servicer. Notwithstanding
the foregoing or any other provisions of this Agreement or any Supplement,
the Investor Securityholders consent to an Affiliate of DMCCB acting as
Servicer hereunder, in full substitution thereof; provided that such
Affiliate shall expressly assume in writing (unless such assumption occurs
by operation of law), by an agreement supplemental hereto, executed and
delivered to the Trustee, the performance of every covenant and obligation
of the Servicer, as applicable hereunder, and shall in all respects be
designated the Servicer under this Agreement; provided, further, that DMCCB
will remain jointly and severally liable with such Affiliate.
(b) The Servicer shall service and administer the Receivables
and shall collect payments due under the Receivables in accordance with its
customary and usual servicing procedures and the Credit and Collection
Policies and shall have full power and authority, acting alone or through
any party properly designated by it hereunder, to do any and all things in
connection with such servicing and administration that it may deem
necessary or desirable. Without limiting the generality of the foregoing
and subject to Section 10.1, the Servicer is hereby authorized and
empowered (i) to make withdrawals from the Collection Account as set forth
in this Agreement, (ii) unless such power and authority is revoked by the
Trustee on account of the occurrence of a Servicer Default pursuant to
Section 10.1, to instruct the Trustee in writing to make withdrawals and
payments, from any Interest Funding Account, the Excess Funding Account,
any Principal Account and any Series Account, in accordance with such
instructions as set forth in this Agreement, (iii) unless such power and
authority is revoked by the Trustee on account of the occurrence of a
Servicer Default pursuant to Section 10.1, to instruct the Trustee in
writing to take any action permitted or required under any Enhancement at
such time as set forth in this Agreement and any Supplement, (iv) to
execute and deliver, on behalf of the Trust for the benefit of the
Securityholders, any and all instruments of satisfaction or cancellation,
or of partial or full release or discharge, and all other comparable
instruments, with respect to the Receivables and, after the delinquency of
any Receivable and to the extent permitted under and in compliance with
applicable law and regulations, to commence enforcement proceedings with
respect to such Receivables, (v) to make any filings, reports, notices,
applications, registrations with, and to seek any consents or
authorizations from, the Securities and Exchange Commission and any state
securities authority on behalf of the Trust as may be necessary or
advisable to comply with any federal or state securities or reporting
requirements and (vi) to delegate certain of its service, collection,
enforcement and administrative duties hereunder with respect to the
Accounts and the Receivables to any Person who agrees to conduct such
duties in accordance with the Credit and Collection Policies; provided,
however, that the Servicer shall notify the Trustee in writing of any such
delegation; and provided further that the Servicer shall remain jointly and
severally liable with such Person. The Trustee agrees that it shall
promptly follow the instructions of the Servicer or its delegate to
withdraw funds from the Collection Account, any Principal Account, any
Interest Funding Account, the Excess Funding Account, or any Series Account
and to take any action required under any Enhancement at such time as
required under this Agreement. The Trustee shall execute at the Servicer's
written request such documents prepared by the Transferor and acceptable to
the Trustee as the Servicer certifies are necessary or appropriate to
enable the Servicer to carry out its servicing and administrative duties
hereunder.
(c) The Servicer shall not be obligated to use separate
servicing procedures, offices or employees for servicing the Receivables
from the procedures, offices and employees used by the Servicer in
connection with servicing other credit card receivables.
Section 3.2 Servicing Compensation. As compensation for its
servicing activities hereunder and reimbursement for its expenses as set
forth in the immediately following paragraph, the Servicer shall be
entitled to receive a servicing fee in respect of each day prior to the
termination of the Trust pursuant to Section 12.1 (the "Servicing Fee"),
payable in arrears on each date and in the manner specified in the
applicable Supplement, 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 Series
Servicing Fee Percentage for all outstanding Series (based upon the Series
Servicing Fee Percentage for each Series and the Invested Amount of such
Series) and (iii) the daily average aggregate balance of all Principal
Receivables over the term of such measuring period. The share of the
Servicing Fee allocable to each Series with respect to any date of payment
shall be 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 applicable Series Servicing Fee Percentage for
such Series and (iii) the Invested Amount of such Series, as appropriate,
as of the date of determination for such payment as specified in the
applicable Supplement. The remainder of the Servicing Fee shall be paid by
the Transferor, or retained by the Servicer as provided in Article IV, and
in no event shall the Trust, the Trustee, any Enhancement Provider, or the
Investor Securityholders be liable for the share of the Servicing Fee to be
paid by the Transferor.
The Servicer shall be responsible for its own expenses, which
shall include the amounts due to the Trustee pursuant to Section 11.5 and
the reasonable fees and disbursements of independent public accountants and
all other expenses incurred by the Servicer in connection with its
activities hereunder; provided, that the Servicer shall not be liable for
any liabilities, costs or expenses of the Trust, the Investor
Securityholders or the Security Owners arising under any tax law, including
without limitation any federal, state or local income or franchise taxes or
any other tax imposed on or measured by income (or any interest, penalties
or additions with respect thereto or arising from a failure to comply
therewith). In the event that the Servicer fails to pay any amounts due to
the Trustee pursuant to Section 11.5, the Trustee shall be entitled to
deduct and receive such amounts from the Servicing Fee prior to the payment
thereof to the Servicer and the obligations of the Trust to pay any such
amounts shall thereby be fully satisfied. The Servicer shall be required
to pay such expenses for its own account and shall not be entitled to any
payment therefor other than the Servicing Fee.
Section 3.3 Representations and Warranties of the Servicer.
DMCCB, as Servicer, hereby makes, and any Successor Servicer by its
appointment hereunder shall make, the following representations and
warranties on which the Trustee has relied in accepting the Receivables in
trust and in authenticating the Securities issued on the Initial Closing
Date:
(a) Organization and Good Standing. The Servicer is either (i)
a national banking association duly organized, validly existing and in good
standing under the laws of the United States or (ii) a corporation duly
organized, validly existing and in good standing under the laws of its
state of incorporation and has the corporate power, authority and legal
right to own its properties and conduct its business as such properties are
presently owned and such business is presently conducted, and to execute,
deliver and perform its obligations under this Agreement.
(b) Due Qualification. The Servicer is duly qualified to do
business and is in good standing (or is exempt from such requirements) as a
foreign corporation in any state where such qualification is necessary in
order to service the Receivables as required by this Agreement and has
obtained all necessary licenses and approvals as required under Federal and
state law in order to service the Receivables as required by this
Agreement, and if the Servicer shall be required by any Requirement of Law
to so qualify or register or obtain such license or approval, then it shall
do so except where the failure to obtain such license or approval does not
materially affect the Servicer's ability to perform its obligations
hereunder or the enforceability of the Receivables.
(c) Due Authorization. The execution and delivery of this
Agreement and the consummation of the transactions provided for herein,
have been duly authorized by the Servicer by all necessary corporate action
on the part of the Servicer.
(d) Binding Obligation. This Agreement and the consummation of
the transactions provided for herein, constitutes a legal, valid and
binding obligation of the Servicer, enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereinafter in effect, affecting the enforcement of creditors' rights in
general and as such enforceability may be limited by general principles of
equity (whether considered in a proceeding at law or in equity).
(e) No Violation. The execution and delivery of this Agreement
by the Servicer, and the performance of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof applicable to the
Servicer, will not violate, result in any breach of any of the material
terms and provisions of, or constitute (with or without notice or lapse of
time or both) a default under, any Requirement of Law applicable to the
Servicer or any material indenture, contract, agreement, mortgage, deed of
trust or other material instrument to which the Servicer is a party or by
which it is bound.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Servicer, threatened against the
Servicer before any Governmental Authority (i) asserting the invalidity of
this Agreement, (ii) seeking to prevent the issuance of the Securities or
the consummation of any of the transactions contemplated by this Agreement,
(iii) seeking any determination or ruling that would materially and
adversely affect the performance by the Servicer of its obligations under
this Agreement, (iv) seeking any determination or ruling that would
materially and adversely affect the validity or enforceability of this
Agreement or (v) seeking to affect adversely the tax attributes of the
Trust.
(g) Compliance with Requirements of Law. The Servicer shall
duly satisfy all obligations on its part to be fulfilled under or in
connection with each Receivable and the related Contract, will maintain in
effect all qualifications required under Requirements of Law in order to
service properly each Receivable and the related Contract and will comply
in all material respects with all other Requirements of Law in connection
with servicing each Receivable and the related Contract the failure to
comply with which would have a material adverse effect on the
Securityholders or any Enhancement Provider.
(h) Protection of Securityholders' Rights. The Servicer shall
take no action which, nor omit to take any action the omission of which,
would impair the rights of Securityholders in any Receivable or the related
Account or the rights or obligations of any Enhancement Provider, nor shall
it reschedule, revise or defer payments due on any Receivable except in
accordance with the Credit and Collection Policies.
(i) All Consents Required. All approvals, authorizations,
consents, orders or other actions of any Governmental Authority required in
connection with the execution and delivery of this Agreement and the
performance of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof, have been obtained; provided, however,
that the Servicer makes no representation or warranty regarding State
securities or "Blue Sky" laws in connection with the distribution of the
Securities.
(j) Rescission or Cancellation. The Servicer shall not permit
any rescission or cancellation of any Receivable except as ordered by a
court of competent jurisdiction or other Governmental Authority or in
accordance with the Credit and Collection Policy or the normal operating
procedures of the Servicer.
(k) Receivables Not To Be Evidenced by Promissory Notes. Except
in connection with its enforcement or collection of an Account (in which
case any such promissory note would be made in the name of the Trust on
behalf of the Securityholders), the Servicer will take no action to cause
any Receivable to be evidenced by an instrument (as defined in the UCC as
in effect in the Relevant UCC State).
(l) Principal Place of Business. The Servicer shall at all
times maintain its principal executive offices within the United States.
Section 3.4 Reports and Records for the Trustee.
(a) Daily Records. Upon reasonable prior notice by the Trustee,
the Servicer shall make available at an office of the Servicer (or other
location designated by the Servicer if such records are not accessible by
the Servicer at an office of the Servicer) selected by the Servicer for
inspection by the Trustee or its agent (reasonably acceptable to the
Servicer) on a Business Day during the Servicer's normal business hours a
record setting forth (i) the Collections on the Receivables and (ii) the
amount of Receivables for the Business Day preceding the date of the
inspection. The Servicer shall, at all times, maintain its computer files
with respect to the Receivables in such a manner so that the Receivables
may be specifically identified and, upon reasonable prior request of the
Trustee, shall make available to the Trustee, at an office of the Servicer
(or other location designated by the Servicer if such computer files are
not located at an office of the Servicer) selected by the Servicer, on any
Business Day of the Servicer during the Servicer's normal business hours
any computer programs necessary to make such identification.
(b) Daily Report.
(i) On each Business Day the Servicer shall prepare a
completed Daily Report.
(ii) The Servicer shall deliver to the Trustee and the
Paying Agent the Daily Report by 3:00 p.m. (New York City time) on
each Business Day with respect to activity in the Receivables for the
prior Business Day (or, in the case of a Daily Report delivered on the
second Business Day following a Saturday, Sunday or other non-Business
Day, the aggregate activity for the preceding Business Day and such
preceding non-Business Days).
(iii) Upon discovery of any error or receipt of notice of
any error in any Daily Report, the Servicer, the Transferor and the
Trustee shall arrange to confer and shall agree upon any adjustments
necessary to correct any such errors. If any such error is materially
adverse to the interests of the Security Owners, the Servicer or the
Trustee, as the case may be, shall retain all Collections which would
otherwise be paid from the Trust (or such lesser amount as the Trustee
and the Servicer shall agree to be necessary to cover any such error)
in the Collection Account until such material error is corrected.
Unless the Trustee has received written notice of any error or
discrepancy, the Trustee may rely on each Daily Report delivered to it
for all purposes hereunder.
(c) Settlement Statement. On the second Business Day prior to
each Distribution Date, the Servicer shall, prior to 3:00 p.m. (New York
City time) on such day, deliver to the Trustee and the Paying Agent the
Settlement Statement for the related Monthly Period substantially in the
form of Exhibit C hereto, including the following information (which, in
the case of clauses (iii), (iv) and (v) below, will be stated on the basis
of an original principal amount of $1,000 per Security): (i) the aggregate
amount of Collections received in the Collection Account for the Monthly
Period preceding such Determination Date and the aggregate amount of
Finance Charge Collections and the aggregate amount of Principal
Collections processed during such Monthly Period; (ii) the aggregate
amount of the applicable Investor Percentage of Principal Collections
during the preceding Monthly Period for each Series of Securities and the
aggregate amount of the applicable Investor Percentage of Finance Charge
Collections during the preceding Monthly Period for each Series of
Securities; (iii) for each Series and for each Class within any such
Series, the total amount to be distributed to Investor Securityholders on
the next succeeding Distribution Date; (iv) for each Series and for each
Class within any such Series, the amount of such distribution allocable to
principal; (v) for each Series and for each Class within any such Series,
the amount of such distribution allocable to interest; (vi) for each Series
and each Class within a Series, the Series Default Amount for the
immediately preceding Monthly Period; (vii) for each Series and each Class
within a Series, the amount of the Series Charge-Offs and the amount of the
reimbursements of Series Charge-Offs for such Distribution Date; (viii) for
each Series, the Servicing Fee for such Distribution Date; (ix) for each
Series, the existing deficit controlled amortization amount, if applicable;
(x) the Aggregate Principal Receivables in the Trust at the close of
business on the last day of the Monthly Period preceding such Distribution
Date; (xi) for each Series, the Invested Amount at the close of business on
the last day of the Monthly Period immediately preceding such Distribution
Date; (xii) the available amount of any Enhancement for each Class of each
Series, if any; (xiii) for each Series and each Class within a Series, the
Pool Factor as of the end of the related Monthly Period; (xiv) whether a
Pay Out Event or a Prospective Pay Out Event with respect to any Series
shall have occurred during or with respect to the related Monthly Period;
(xv) the aggregate amount of Discount Option Receivables in the Trust at
the close of business on the last day of the Monthly Period preceding such
Distribution Date; (xvi) the aggregate amount of Discount Option
Receivables Collections processed during such Monthly Period; and (xvii)
such other calculations as may be required by any Supplement. The Trustee
shall be under no duty to recalculate, verify or recompute the information
supplied to it under this Section 3.4 or such other matters as are set
forth in any Settlement Statement. The Servicer shall also provide a copy
of the Settlement Statement in a prompt manner to each Rating Agency.
Section 3.5 Annual Servicer's Certificate. The Servicer will
deliver, in accordance with Section 13.5, to the Trustee, any Enhancement
Provider and the Rating Agencies, within 100 days of the end of each fiscal
year, beginning in 1995, an Officer's Certificate substantially in the form
of Exhibit D stating that (a) a review of the activities of the Servicer
during the preceding fiscal year and of its performance under this
Agreement was made under the supervision of the officer signing such
certificate and (b) to such officer's knowledge, based on such review, the
Servicer has fully performed all its obligations under this Agreement
throughout such period, or, if there has been a default in the performance
of any such obligation, specifying each such default known to such officer
and the nature and status thereof. A copy of such certificate may be
obtained by any Investor Securityholder by a request in writing to the
Trustee addressed to the Corporate Trust Office.
Section 3.6 Annual Independent Accountants' Servicing Report.
(a) Within 100 days of the end of each fiscal year, the Servicer
shall cause a firm of nationally recognized independent public accountants
(who may also render other services to the Servicer or the Transferor) to
furnish a report with respect to the prior fiscal year (or, in the case of
the first such period, the period beginning on the Initial Closing Date and
ending on the last day of the related fiscal year) to the Trustee, any
Enhancement Provider and each Rating Agency, to the effect that such firm
has applied certain procedures, agreed upon with the Servicer and the
Trustee and substantially as set forth in Exhibit G hereto, which would re-
perform certain accounting procedures performed by the Servicer pursuant to
certain documents and records relating to the servicing of the Accounts
under this Agreement. In addition, each report shall set forth the agreed
upon procedures performed and the results of such procedures.
(b) Within 100 days of the end of each fiscal year, the Servicer
shall cause a firm of nationally recognized independent certified public
accountants (who may also render other services to the Servicer or the
Transferor) to furnish a report to the Trustee, any Enhancement Provider
and the Rating Agency to the effect that they have compared the amounts and
percentages set forth in four of the monthly certificates forwarded by the
Servicer pursuant to subsection 3.4(c) during the period covered by such
report with the computer reports (which may include personal computer
generated reports that summarize data from the computer reports generated
by either the Transferor or Servicer which are used to prepare the Daily
Reports) which were the source of such amounts and percentages and that on
the basis of such comparison, such amounts and percentages are in agreement
except as shall be set forth in such report. A copy of such report will be
sent by the Trustee to each Investor Securityholder.
Section 3.7 Tax Treatment. The Transferor has structured this
Agreement and the Investor Securities with the intention that the Investor
Securities will qualify under applicable federal, state, local and foreign
tax law as indebtedness. Except to the extent expressly specified to the
contrary in any Supplement, the Transferor, the Servicer, the Holder of the
Exchangeable Transferor Security, each Investor Securityholder, Holder of a
Variable Funding Security, and each Security Owner agree to treat and to
take no action inconsistent with the treatment of the Investor Securities
(or beneficial interest therein) as indebtedness for purposes of federal,
state, local and foreign income or franchise taxes and any other tax
imposed on or measured by income. Each Investor Securityholder, Holder of
a Variable Funding Security and the Holder of the Exchangeable Transferor
Security, by acceptance of its Security and each Security Owner, by
acquisition of a beneficial interest in a Security, agree to be bound by
the provisions of this Section 3.7. Each Securityholder agrees that it
will cause any Security Owner acquiring an interest in a Security through
it to comply with this Agreement as to treatment as indebtedness under
applicable tax law, as described in this Section 3.7. Furthermore, subject
to Section 11.11, the Trustee shall treat the Trust as a security device
only, and shall not file tax returns or obtain an employer identification
number on behalf of the Trust.
Section 3.8 Adjustments. (a) If the Servicer adjusts downward
the amount of any Receivable because of a rebate, refund, unauthorized
charge or billing error to an Obligor, because such Receivable was created
in respect of merchandise which was refused or returned by an Obligor, or
if the Servicer otherwise adjusts downward the amount of any Receivable
without receiving Collections therefor or without charging off such amount
as uncollectible, then, in any such case, the aggregate amount of the
Principal Receivables used to calculate the Investor Percentages applicable
to any Series and the Transferor Interest will be reduced by the principal
amount of any such adjustment. Similarly, the aggregate amount of the
Principal Receivables used to calculate the Investor Percentages applicable
to any Series will be reduced by the amount of any Principal Receivable
which was discovered as having been created through a fraudulent or
counterfeit charge or with respect to which the covenant contained in
subsection 2.5(b) was breached. Any adjustment required pursuant to either
of the two preceding sentences shall be made on or prior to the end of the
Monthly Period in which such adjustment obligation arises. In the event
that, following any such adjustment, the Transferor Interest would be less
than the Minimum Transferor Interest, within two Business Days of the date
on which such adjustment obligation arises, the Transferor shall pay to
the Servicer, for deposit into the Excess Funding Account, in immediately
available funds an amount equal to the amount by which the Transferor
Interest would be reduced below the Minimum Transferor Interest as a result
of such adjustment or exclusion. Any amount deposited into the Excess
Funding Account in connection with the adjustment of a Receivable (an
"Adjustment Payment") shall be applied in accordance with Article IV and
the terms of each Supplement.
(b) If (i) the Servicer makes a deposit into the Collection
Account in respect of a Collection of a Receivable and such deposit was in
the form of a check which is not honored for any reason or (ii) the
Servicer makes a mistake with respect to the amount of any Collection and
deposits an amount that is less than or more than the actual amount of such
Collection, the Servicer shall appropriately adjust the amount subsequently
deposited into the Collection Account (or shall be entitled to receive a
refund from the Collection Account in the case of an excess deposit) to
reflect such dishonored check or mistake. Any Receivable in respect of
which a dishonored check is received shall be deemed not to have been paid.
Notwithstanding the first two sentences of this paragraph, any adjustments
made pursuant to this paragraph will be reflected in a current report but
will not change any amount of Collections previously reported pursuant to
subsection 3.4(b).
Section 3.9 Notices to DMCCB. In the event that DMCCB or any
Affiliate thereof is no longer acting as Servicer, any Successor Servicer
appointed pursuant to Section 10.2 shall deliver or make available to
Metris each certificate and report required to be prepared, forwarded or
delivered thereafter pursuant to Sections 3.4, 3.5 and 3.6.
[End of Article III]
ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Securityholders. Each Series of Investor
Securities shall represent Undivided Interests in the Trust, including the
benefits of any Enhancement issued with respect to such Series and the
right to receive the Collections and other amounts at the times and in the
amounts specified in this Article IV and the related Supplement to be
deposited in the Investor Accounts or to be paid to the Investor
Securityholders of such Series; provided, however, that the aggregate
interest represented by such Securities at any time in the Principal
Receivables shall not exceed an amount equal to the Invested Amount of such
Securities. The Exchangeable Transferor Security shall represent the
remaining undivided interest in the Trust, including the right to receive
the Collections and other amounts with respect to each Series at the times
and in the amounts specified in this Article IV and the related Supplement
to be paid to the Holder of the Exchangeable Transferor Security; provided,
however, that the aggregate interest represented by such Security at any
time in the Principal Receivables shall not exceed the Transferor Interest
at such time and such Security shall not represent any interest in the
Investor Accounts, except as provided in this Agreement and the
Supplements, or the benefits of any Enhancement issued with respect to any
Series.
Section 4.2 Establishment of Accounts.
(a) The Collection Account. The Servicer, for the benefit of
the Securityholders, shall establish in the name of the Trustee, on behalf
of the Trust, a non-interest bearing segregated account (the "Collection
Account") bearing a designation clearly indicating that the funds deposited
therein are held in trust for the benefit of the Securityholders, and shall
cause such Collection Account to be established and maintained, (i) in a
segregated trust account with the corporate trust department of a
depositary institution or trust company (which may include the Trustee)
organized under the laws of the United States of America or any one of the
states thereof or the District of Columbia which has a long-term unsecured
debt rating of at least Baa3 by Moody's and whose deposits are insured to
the limits provided by law by the FDIC having corporate trust powers and
acting as trustee for funds deposited therein (provided, however, that such
account need not be maintained as a segregated trust account with the
corporate trust department of such institution if at all times the
certificates of deposit, short-term deposits or commercial paper or the
long-term unsecured debt obligations (other than such obligation whose
rating is based on collateral or on the credit of a Person other than such
institution or trust company) of such depositary institution or trust
company shall have a credit rating from Standard & Poor's of at least A-1+
and P-1 from Moody's in the case of the certificates of deposit, short-term
deposits or commercial paper, or a rating from Standard & Poor's of AAA and
from Moody's of Aaa in the case of the long-term unsecured debt
obligations) or (ii) with a depositary institution, which may include the
Trustee, which is acceptable to the Rating Agency (in the case of (i) and
(ii), a "Qualified Institution"). If, at any time, the institution holding
the Collection Account ceases to be a Qualified Institution, the Transferor
shall direct the Servicer to establish within 10 Business Days a new
Collection Account with a Qualified Institution, transfer any cash and/or
any investments to such new Collection Account and from the date such new
Collection Account is established, it shall be the "Collection Account."
The Servicer shall give written notice to the Trustee of the location and
account number of the Collection Account and shall notify the Trustee in
writing prior to any subsequent change thereof. Pursuant to authority
granted to it pursuant to subsection 3.1(b), the Servicer shall have the
power revocable by the Trustee to withdraw funds from the Collection
Account for the purposes of carrying out its duties hereunder.
The Collection Account shall be under the sole dominion and
control of the Trustee and the Trustee shall possess all right, title and
interest in all funds from time to time on deposit in such account.
(b) The Interest Funding and Principal Accounts. The Trustee,
for the benefit of the Investor Securityholders, shall establish and
maintain with a Qualified Institution in the name of the Trust two
segregated trust accounts for each Series (an "Interest Funding Account"
and a "Principal Account," respectively), each bearing a designation
clearly indicating that the funds therein are held for the benefit of the
Investor Securityholders of such Series. Except as provided in subsection
4.2(e), each Interest Funding Account and each Principal Account shall be
under the sole dominion and control of the Trustee for the benefit of the
Investor Securityholders. Pursuant to authority granted to it hereunder,
the Servicer shall have the revocable power to instruct the Trustee to
withdraw funds from the Interest Funding Account and any Principal Account
for any purpose of carrying out the Servicer's or the Trustee's duties
hereunder. The Trustee at all times shall maintain accurate records
reflecting each transaction in each Principal Account and each Interest
Funding Account and that funds held therein shall at all times be held in
trust for the benefit of the Investor Securityholders of such Series. If,
at any time, the institution holding the Interest Funding Account ceases to
be a Qualified Institution, the Servicer shall direct the Trustee to
establish within 10 Business Days a new Interest Funding Account meeting
the conditions specified above with a Qualified Institution, transfer any
cash and/or any investments to such new Interest Funding Account and from
the date such new Interest Funding Account is established, it shall be the
"Interest Funding Account." Similarly, if, at any time, the institution
holding any Principal Account ceases to be a Qualified Institution, the
Servicer shall direct the Trustee to establish within 10 Business Days a
new Principal Account meeting the conditions specified above with a
Qualified Institution, transfer any cash and/or any investments to such new
Principal Account and from the date such new Principal Account is
established, it shall be a "Principal Account."
(c) Distribution Accounts. The Trustee, for the benefit of the
Investor Securityholders of each Series, shall cause to be established and
maintained in the name of the Trust, with an office or branch of a
Qualified Institution a non-interest-bearing segregated demand deposit
account for each Series (a "Distribution Account") bearing a designation
clearly indicating that the funds deposited therein are held in trust for
the benefit of the Investor Securityholders of such Series. Each
Distribution Account shall be under the sole dominion and control of the
Trustee for the benefit of the Investor Securityholders of the related
Series. Pursuant to the authority granted to the Paying Agent herein, the
Paying Agent shall have the power, revocable by the Trustee, to make
withdrawals and payments from the Distribution Account for the purpose of
carrying out the Paying Agent's duties hereunder. If, at any time, the
institution holding a Distribution Account ceases to be a Qualified
Institution, the Servicer shall direct the Trustee to establish within 10
Business Days a new Distribution Account meeting the conditions specified
above with a Qualified Institution, transfer any cash and/or any
investments to such new Distribution Account and from the date such new
Distribution Account is established, it shall be a "Distribution Account."
(d) The Excess Funding Account. The Trustee, for the benefit of
the Securityholders, shall cause to be established in the name of the
Trustee, on behalf of the Securityholders, with a Qualified Institution, a
segregated trust account (the "Excess Funding Account") bearing a
designation clearly indicating that the funds deposited therein are held
for the benefit of the Securityholders. Except as provided in subsection
4.3(e), the Excess Funding Account shall, except as otherwise provided
herein, be under the sole dominion and control of the Trustee for the
benefit of the Securityholders. Pursuant to the authority granted to the
Servicer herein, the Servicer shall have the power, revocable by the
Trustee, to make withdrawals and payments from the Excess Funding Account
for the purpose of carrying out the Servicer's or Trustee's duties
hereunder. If, at any time, the institution holding the Excess Funding
Account ceases to be a Qualified Institution, the Servicer shall direct the
Trustee to establish within 10 Business Days a new Excess Funding Account
meeting the conditions specified above with a Qualified Institution,
transfer any cash and/or any investments to such new Excess Funding Account
and from the date such new Excess Funding Account is established, it shall
be the "Excess Funding Account."
(e) Administration of the Principal Accounts and the Interest
Funding Accounts. Funds on deposit in each Principal Account and each
Interest Funding Account shall at all times be invested by the Servicer
(or, at the written direction of the Transferor, by the Trustee) on behalf
of the Transferor in Cash Equivalents. Any such investment shall mature
and such funds shall be available for withdrawal on or before the Transfer
Date following the Monthly Period in which such funds were processed for
collection. No such investments shall be liquidated prior to maturity. At
the end of each month, all interest and earnings (net of losses and
investment expenses) on funds on deposit in each Principal Account and each
Interest Funding Account (unless otherwise specified in the applicable
Supplement) shall be deposited by the Trustee in a separate deposit account
with a Qualified Institution in the name of the Servicer, or a Person
designated in writing by the Servicer, which shall not constitute a part of
the Trust, or shall otherwise be turned over by the Trustee to the Servicer
in accordance with instructions from the Servicer to the Trustee not less
frequently than monthly. Subject to the restrictions set forth above, the
Servicer, or a Person designated in writing by the Servicer, of which the
Trustee shall have received written notification, shall have the authority
to instruct the Trustee with respect to the investment of funds on deposit
in any Principal Account and any Interest Funding Account. Any investment
instructions to the Trustee shall be in writing, shall be given no later
than 10:00 a.m. New York City time on a Business Day that such investment
is proposed to be made and shall include a certification that the proposed
investment is a Cash Equivalent that matures at or prior to the time
required by this Agreement. For purposes of determining the availability
of funds or the balances in any Interest Funding Account and any Principal
Account for any reason under this Agreement, all investment earnings on
such funds shall be deemed not to be available or on deposit.
Section 4.3 Collections and Allocations.
(a) Collections. Obligors shall make payments on the
Receivables to the Servicer who shall deposit all such payments in the
Collection Account no later than the second Business Day following the Date
of Processing thereof.
The Servicer shall allocate such amounts to each Series of
Investor Securities and to the Holder of the Exchangeable Transferor
Security in accordance with this Article IV and the related Supplement and
shall cause the Trustee to withdraw the required amounts from the
Collection Account or pay such amounts to the Holder of the Exchangeable
Transferor Security in accordance with this Article IV and the related
Supplement. The Servicer shall make such deposits or payments on the date
indicated herein by wire transfer or as otherwise provided in the
Supplement for any Series of Securities with respect to such Series.
Notwithstanding anything in this Agreement to the contrary, but
subject to the terms of any Supplement, for so long as, and only so long
as, DMCCB (or any successors to DMCCB pursuant to Section 8.2) or an
Affiliate of DMCCB shall remain the Servicer hereunder, and (a)(i) DMCCB
(or any successors to DMCCB pursuant to Section 8.2) or an Affiliate of
DMCCB provides to the Trustee a letter of credit or other form of
Enhancement rated at least A-1 by Standard & Poor's and P-1 by Moody's (as
certified to the Trustee by the Servicer), and (ii) after notifying each
Rating Agency of the proposed use of such letter of credit or other form of
Enhancement the Transferor shall have received a notice from each Rating
Agency that making payments monthly rather than daily would not result in a
downgrading or withdrawal of any of such Rating Agency's then-existing
ratings of the Investor Securities, or (b) DMCCB (or any successors to
DMCCB pursuant to Section 8.2) shall have and maintain a short-term credit
rating of at least A-1 by Standard & Poor's and P-1 by Moody's (as
certified to the Trustee by the Servicer), the Servicer need not deposit
Collections from the Collection Account into the Principal Account or the
Interest Funding Account or any Series Account, or make payments to the
Holder of the Exchangeable Transferor Security, prior to the close of
business on the day any Collections are deposited in the Collection Account
as otherwise provided in this Article IV and the related Supplement, but
may instead make such deposits, payments and withdrawals on each Transfer
Date in an amount equal to the net amount of such deposits, payments and
withdrawals which would have been made but for the provisions of this
paragraph.
(b) Allocations for the Exchangeable Transferor Security.
Throughout the existence of the Trust, unless otherwise stated in any
Supplement, on each Business Day the Servicer shall allocate to the Holder
of the Exchangeable Transferor Security an amount equal to the product of
(A) the Transferor Percentage as of the end of the preceding Business Day
and (B) the aggregate amount of Principal Collections and Finance Charge
Collections available in the Collection Account. The Servicer shall pay
such amount to the Holder of the Exchangeable Transferor Security on each
Business Day; provided, however, that amounts payable to the Holder of the
Exchangeable Transferor Security pursuant to this clause (b) shall instead
be deposited in the Excess Funding Account to the extent necessary to
prevent the Transferor Interest from being less than the Minimum Transferor
Interest.
(c) Allocation for Series. On each Business Day, (i) the amount
of Finance Charge Collections available in the Collection Account allocable
to each Series, (ii) the amount of Principal Collections available in the
Collection Account allocable to each Series and (iii) the Receivables in
Defaulted Accounts allocable to each Series shall be determined in
accordance with the provisions of the related Supplement. The Servicer
shall, prior to the close of business on the day any Collections are
deposited in the Collection Account, cause the Trustee to withdraw the
required amounts from the Collection Account and cause the Trustee to
deposit such amounts into the applicable Principal Account, the applicable
Interest Funding Account, the Excess Funding Account, or any Series Account
or pay such amounts to the Holder of the Exchangeable Transferor Security
in accordance with the provisions of this Article IV and the Supplements.
(d) Unallocated Principal Collections; Excess Funding Account.
On each Business Day, Shared Principal Collections shall be allocated to
each outstanding Series pro rata based on the Principal Shortfall, if any,
for each such Series, and then, at the option of the Transferor, any
remainder may be applied as principal with respect to the Variable Funding
Securities. The Servicer shall pay any remaining Shared Principal
Collections on such Business Day to the Transferor; provided, that if the
Transferor Interest as determined on such Business Day does not exceed the
Minimum Transferor Interest, then such remaining Shared Principal
Collections shall be deposited in the Excess Funding Account to the extent
necessary to increase the Transferor Interest above the Minimum Transferor
Interest; provided, further, that if an Amortization Period has commenced
and is continuing with respect to more than one outstanding Series, such
remaining Shared Principal Collections shall be allocated to such Series
pro rata based on the Investor Percentage for Principal Receivables
applicable for such Series.
(e) Amounts in Excess Funding Account. Amounts on deposit in the
Excess Funding Account on any Business Day will be invested by the Servicer
(or, at the direction of the Transferor, by the Trustee) on behalf of the
Transferor in Cash Equivalents which shall mature and be available on or
before the next Business Day on which amounts may be released from the
Excess Funding Account. Earnings from such investments received shall be
deposited in the Collection Account and treated as Finance Charge
Collections. Any investment instructions to the Trustee shall be in
writing and shall include a certification that the proposed investment is a
Cash Equivalent that matures at or prior to the date required by this
Agreement. If on any Business Day other than a Business Day on which a Pay
Out Event or a Prospective Pay Out Event has occurred and is continuing,
the Transferor Interest is greater than the Minimum Transferor Interest,
amounts on deposit in the Excess Funding Account may, at the option of the
Transferor, be released to the Holder of the Exchangeable Transferor
Security. On the first Business Day of the Amortization Period for any
Series, funds on deposit in the Excess Funding Account will be deposited in
the Principal Account for such Series to the extent of the lesser of (x)
the Invested Amount of such Series and (y) the amount then on deposit in
the Excess Funding Account.
[THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL
BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]
[End of Article IV]
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY
SUPPLEMENT WITH RESPECT TO ANY SERIES]
[End of Article V]
ARTICLE VI
THE SECURITIES
Section 6.1 The Securities. Subject to Sections 6.10 and 6.13,
the Investor Securities of each Series and any Class thereof may be issued
in bearer form (the "Bearer Securities") with attached interest coupons
and, if applicable, a special coupon (collectively, the "Coupons") or in
fully registered form (the "Registered Securities"), and shall be
substantially in the form of the exhibits with respect thereto attached to
the related Supplement. The Exchangeable Transferor Security shall be
substantially in the form of Exhibit A. The Investor Securities and the
Exchangeable Transferor Security shall, upon issue pursuant hereto or to
Section 6.9 or Section 6.10, be executed and delivered by the Transferor to
the Trustee for authentication and redelivery as provided in Sections 2.1
and 6.2. Unless otherwise specified in any Supplement, any Investor
Security shall be issuable in a minimum denomination of $1,000 Undivided
Interest and integral multiples thereof, and shall be issued upon original
issuance in an original aggregate principal amount equal to the Initial
Invested Amount. The Exchangeable Transferor Security shall be issued as a
single security. Each Security shall be executed by manual or facsimile
signature on behalf of the Transferor by its President or any Vice
President. Securities bearing the manual or facsimile signature of the
individual who was, at the time when such signature was affixed, authorized
to sign on behalf of the Transferor or the Trustee shall not be rendered
invalid, notwithstanding that such individual has ceased to be so
authorized prior to the authentication and delivery of such Securities or
does not hold such office at the date of such Securities. No Security
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless there appears on such Security a certificate of
authentication substantially in the form provided for herein, executed by
or on behalf of the Trustee by the manual signature of a duly authorized
signatory, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been validly issued
and duly authenticated and delivered hereunder. All Securities shall be
dated the date of their authentication except Bearer Securities which
shall be dated the applicable Issuance Date as provided in the related
Supplement.
Section 6.2 Authentication of Securities. Contemporaneously
with the initial assignment and transfer of the Receivables, whether now
existing or hereafter created (other than Receivables in Supplemental
Accounts) and the other components to the Trust, the Trustee shall
authenticate and deliver the initial Series of Investor Securities (or
applicable Classes thereof), upon the written order of the Transferor.
Upon the issuance of such Investor Securities, such Investor Securities
shall be validly issued, fully paid and non-assessable. The Trustee shall
authenticate and deliver the Exchangeable Transferor Security to the
Transferor simultaneously with its delivery of the initial Series of
Investor Securities. Upon an Exchange as provided in Section 6.9 and the
satisfaction of certain other conditions specified therein, the Trustee
shall authenticate and deliver the Investor Securities of additional Series
(with the designation provided in the related Supplement), upon the written
order of the Transferor. Upon the written order of the Transferor, the
Securities of any Series shall be duly authenticated by or on behalf of the
Trustee, in authorized denominations equal to (in the aggregate) the
Initial Invested Amount of such Series of Investor Securities. If
specified in the related Supplement for any Series, the Trustee shall
authenticate and deliver outside the United States the Global Security that
is issued upon original issuance thereof, upon the written order of the
Transferor, to the Depositary. If specified in the related Supplement for
any Series, the Trustee shall authenticate Book-Entry Securities that are
issued upon original issuance thereof, upon the written order of the
Transferor, to a Clearing Agency or its nominee as provided in Section
6.10.
Section 6.3 Registration of Transfer and Exchange of Securities.
(a) The Trustee shall cause to be kept at the office or agency
to be maintained by a transfer agent and registrar (the "Transfer Agent and
Registrar") in accordance with the provisions of Section 11.16, a register
(the "Security Register") in which, subject to such reasonable regulations
as it may prescribe, the Transfer Agent and Registrar shall provide for the
registration of the Investor Securities of each Series (unless otherwise
provided in the related Supplement) and of transfers and exchanges of the
Investor Securities as herein provided. Whenever reference is made in this
Agreement to the transfer or exchange of the Securities by the Trustee,
such reference shall be deemed to include the transfer or exchange on
behalf of the Trustee by a Transfer Agent and Registrar. The Trustee is
hereby initially appointed Transfer Agent and Registrar for the purposes of
registering the Investor Securities and transfers and exchanges of the
Investor Securities as herein provided. If any form of Investor Security
is issued as a Global Security, the Trustee may, or if and so long as any
Series of Investor Securities are listed on a stock exchange and such
exchange shall so require, the Trustee shall appoint a co-transfer agent
and co-registrar, which will also be a co-paying agent, in such city as the
Transferor may specify. Any reference in this Agreement to the Transfer
Agent and Registrar shall include any co-transfer agent and co-registrar
unless the context otherwise requires. The Trustee shall be permitted to
resign as Transfer Agent and Registrar upon 30 days' written notice to the
Servicer. In the event that the Trustee shall no longer be the Transfer
Agent and Registrar, the Transferor shall appoint a successor Transfer
Agent and Registrar. If any Series with respect to which Book Entry
Securities were originally issued is no longer issued as Book-Entry
Securities, then the Servicer may appoint a successor Transfer Agent and
Registrar.
Unless otherwise provided in the related Supplement, in the case
of any Investor Security with respect to which no Opinion of Counsel to the
effect that such Investor Security (or Class or Series to which such
Investor Security pertains) will be characterized as indebtedness for
federal income tax purposes was delivered, no sale, assignment,
participation, pledge, hypothecation, transfer or other disposition of such
Investor Security (or any interest therein) shall be made unless the
Transferor and the Servicer shall have granted their prior consent thereto,
which consent may not be unreasonably withheld and, provided further, that
for purposes of this sentence, it shall in all cases be reasonable for the
Transferor or the Servicer to withhold consent to such proposed sale,
assignment, participation, pledge, hypothecation, transfer or other
disposition of all or any part of a Security (or any interest therein) if
the transaction would, if effected, give rise to any adverse tax
consequence, as determined in the sole and absolute discretion of the
Transferor or the Servicer.
Upon surrender for registration of transfer of any Security at
any office or agency of the Transfer Agent and Registrar maintained for
such purpose, the Transferor shall execute, subject to the provisions of
subsection 6.3(c), and the Trustee shall (unless the Transfer Agent and
Registrar is different than the Trustee, in which case the Transfer Agent
and Registrar shall) authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities in
authorized denominations of like aggregate Undivided Interests; provided,
that the provisions of this paragraph shall not apply to Bearer Securities.
At the option of any Holder of Registered Securities, Registered
Securities may be exchanged for other Registered Securities of the same
Series in authorized denominations of like aggregate Undivided Interests in
the Trust, upon surrender of the Registered Securities to be exchanged at
any office or agency of the Transfer Agent and Registrar maintained for
such purpose. At the option of a Bearer Securityholder, subject to
applicable laws and regulations (including without limitation, the Bearer
Rules), Bearer Securities may be exchanged for other Bearer Securities or
Registered Securities of the same Series in authorized denominations of
like aggregate Undivided Interests in the Trust, in the manner specified in
the Supplement for such Series, upon surrender of the Bearer Securities to
be exchanged at an office or agency of the Transfer Agent and Registrar
located outside the United States. Each Bearer Security surrendered
pursuant to this Section 6.3 shall have attached thereto (or be accompanied
by) all unmatured Coupons, provided that any Bearer Security so surrendered
after the close of business on the Record Date preceding the relevant
Distribution Date after the related Series Termination Date need not have
attached the Coupons relating to such Distribution Date.
Whenever any Investor Securities of any Series are so surrendered
for exchange, the Transferor shall execute, and the Trustee shall (unless
the Transfer Agent and Registrar is different than the Trustee, in which
case the Transfer Agent and Registrar shall) authenticate and deliver, the
Investor Securities of such Series which the Securityholder making the
exchange is entitled to receive. Every Investor Security presented or
surrendered for registration of transfer or exchange shall be accompanied
by a written instrument of transfer in a form satisfactory to the Trustee
and the Transfer Agent and Registrar duly executed by the Securityholder
thereof or his attorney-in-fact duly authorized in writing.
The preceding provisions of this Section 6.3 notwithstanding, the
Trustee or the Transfer Agent and Registrar, as the case may be, shall not
be required to register the transfer of or exchange any Investor Security
of any Series for the period from the Record Date preceding the due date
for any payment to the Distribution Date with respect to the Investor
Securities of such Series.
Unless otherwise provided in the related Supplement, no service
charge shall be made for any registration of transfer or exchange of
Securities, but the Transfer Agent and Registrar may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed
in connection with any transfer or exchange of Securities.
All Investor Securities (together with any Coupons attached to
Bearer Securities) surrendered for registration of transfer or exchange
shall be canceled by the Transfer Agent and Registrar and disposed of in a
manner satisfactory to the Trustee. The Trustee shall cancel and dispose
of any Global Security upon its exchange in full for Definitive Securities,
but shall not be required to destroy such Global Securities. Such security
shall also state that a security or securities of each Foreign Clearing
Agency to the effect referred to in Section 6.13 was received with respect
to each portion of the Global Security exchanged for Definitive Securities.
The Transferor shall execute and deliver to the Trustee or the
Transfer Agent and Registrar, as applicable, Bearer Securities and
Registered Securities in such amounts and at such times as are necessary to
enable the Trustee to fulfill its responsibilities under this Agreement and
the Securities.
(b) Except as provided in Section 6.9 or 7.2 or in any
Supplement, in no event shall the Exchangeable Transferor Security or any
interest therein be transferred, sold, exchanged, pledged, participated or
otherwise assigned hereunder, in whole or in part, unless the Transferor
shall have consented in writing to such transfer and unless the Trustee
shall have received (1) confirmation in writing from each Rating Agency
that such transfer will not result in a lowering or withdrawal of its then-
existing rating of any Series of Investor Securities and (2) an Opinion of
Counsel that such transfer does not (i) adversely affect the conclusions
reached in any of the federal income tax opinions issued in connection with
the original issuance of any Series of Investor Securities or (ii) result
in a taxable event to the holders of any such Series.
(c) Unless otherwise provided in the related Supplement,
registration of transfer of Registered Securities containing a legend
relating to the restrictions on transfer of such Registered Securities
(which legend shall be set forth in the Supplement relating to such
Investor Securities) shall be effected only if the conditions set forth in
such related Supplement are satisfied.
Whenever a Registered Security containing the legend set forth in
the related Supplement is presented to the Transfer Agent and Registrar for
registration of transfer, the Transfer Agent and Registrar shall promptly
seek instructions from the Servicer regarding such transfer. The Transfer
Agent and Registrar and the Trustee shall be entitled to receive written
instructions signed by an officer of the Trustee prior to registering any
such transfer or authenticating new Registered Securities, as the case may
be. The Servicer hereby agrees to indemnify the Transfer Agent and
Registrar and the Trustee and to hold each of them harmless against any
loss, liability or expense incurred without negligence or bad faith on
their part arising out of or in connection with actions taken or omitted by
them in reliance on any such written instructions furnished pursuant to
this subsection 6.3(c).
(d) The Transfer Agent and Registrar will maintain at its
expense in the Borough of Manhattan, The City of New York, an office or
offices or an agency or agencies where Investor Securities of such Series
may be surrendered for registration of transfer or exchange.
(e) Prior to the Transfer of any portion of a Transferor
Retained Class, the Trustee shall have received an Opinion of Counsel to
the effect that such proposed Transfer will not adversely affect the
Federal or Applicable Tax State income tax characterization of any
outstanding Series of Investor Securities or the taxability (or tax
characterization) of the Trust under Federal, Minnesota or Delaware income
tax laws. The Transferor shall provide to Moody's notice of any such
Transfer and a copy of the Opinion of Counsel described above.
Section 6.4 Mutilated, Destroyed, Lost or Stolen Securities. If
(a) any mutilated Security (together, in the case of Bearer Securities,
with all unmatured Coupons, if any, appertaining thereto) is surrendered to
the Transfer Agent and Registrar, or the Transfer Agent and Registrar
receives evidence to its satisfaction of the destruction, loss or theft of
any Security and (b) there is delivered to the Transfer Agent and Registrar
and the Trustee such security or indemnity as may be required by them to
hold each of them and the Trust harmless, then, in the absence of notice to
the Trustee that such Security has been acquired by a bona fide purchaser,
the Trustee shall (unless the Transfer Agent and Registrar is different
from the Trustee, in which case the Transfer Agent and Registrar shall)
authenticate and deliver (in compliance with applicable law), in exchange
for or in lieu of any such mutilated, destroyed, lost or stolen Security, a
new Security of like tenor and aggregate Undivided Interest. In connection
with the issuance of any new Security under this Section 6.4, the Trustee
or the Transfer Agent and Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee and the Transfer Agent and Registrar) connected
therewith. Any duplicate Security issued pursuant to this Section 6.4
shall constitute complete and indefeasible evidence of ownership in the
Trust, as if originally issued, whether or not the lost, stolen or
destroyed Security shall be found at any time.
Section 6.5 Persons Deemed Owners. Prior to due presentation of
a Security for registration of transfer, the Trustee, the Paying Agent, the
Transfer Agent and Registrar and any agent of any of them may treat the
Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving distributions pursuant to Article V
(as described in any Supplement) and Article XII and for all other purposes
whatsoever, and neither the Trustee, the Paying Agent, the Transfer Agent
and Registrar nor any agent of any of them shall be affected by any notice
to the contrary; provided, however, that in determining whether the holders
of Investor Securities evidencing the requisite Undivided Interests have
given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Investor Securities owned by the Transferor, the Servicer
or any Affiliate thereof shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Investor Securities which a
Responsible Officer in the Corporate Trust Office of the Trustee knows to
be so owned shall be so disregarded. Investor Securities so owned that
have been pledged in good faith shall not be disregarded as outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Investor Securities and that the
pledgee is not the Transferor, the Servicer or an Affiliate thereof.
In the case of a Bearer Security, the Trustee, the Paying Agent,
the Transfer Agent and Registrar and any agent of any of them may treat the
holder of a Bearer Security or Coupon as the owner of such Bearer Security
or Coupon for the purpose of receiving distributions pursuant to Article V
(as described in any Supplement) and Article XII and for all other purposes
whatsoever, and neither the Trustee, the Paying Agent, the Transfer Agent
and Registrar nor any agent of any of them shall be affected by any notice
to the contrary. Securities so owned that have been pledged in good faith
shall not be disregarded and may be regarded as outstanding, if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Investor Securities and that the pledgee is not
the Transferor, the Servicer or an Affiliate thereof.
Section 6.6 Appointment of Paying Agent.
(a) The Paying Agent shall make distributions to Investor
Securityholders from the appropriate account or accounts maintained for the
benefit of Securityholders as specified in this Agreement or the related
Supplement for any Series pursuant to Articles IV and V hereof. Any Paying
Agent shall have the revocable power to withdraw funds from such
appropriate account or accounts for the purpose of making distributions
referred to above. The Trustee (or the Servicer if the Trustee is the
Paying Agent) may revoke such power and remove the Paying Agent, if the
Trustee (or the Servicer if the Trustee is the Paying Agent) determines in
its sole discretion that the Paying Agent shall have failed to perform its
obligations under this Agreement in any material respect or for other good
cause. The Paying Agent, unless the Supplement with respect to any Series
states otherwise, shall initially be the Trustee. The Trustee shall be
permitted to resign as Paying Agent upon 30 days' written notice to the
Servicer. Upon the resignation of the Paying Agent, if the Paying Agent
was not the Trustee, the Trustee shall be the successor Paying Agent unless
and until another successor has been appointed as Paying Agent. In the
event that the Trustee, shall no longer be the Paying Agent, the Transferor
shall appoint a successor to act as Paying Agent (which shall be a bank or
trust company). Any reference in this Agreement to the Paying Agent shall
include any co-paying agent unless the context requires otherwise.
If specified in the related Supplement for any Series, so long as
the Investor Securities of such Series are outstanding and the Paying Agent
is not located in New York City, the Transferor shall maintain a co-paying
agent in New York City (for Registered Securities only) or any other city
designated in such Supplement.
(b) The Trustee shall cause each Paying Agent (other than
itself) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent will hold
all sums, if any, held by it for payment to the Securityholders in trust
for the benefit of the Securityholders entitled thereto and waive all
rights of set off the Paying Agent may have against any sums held by it
until such sums shall be paid to such Securityholders and shall agree, and
if the Trustee is the Paying Agent it hereby agrees, that it shall comply
with all requirements of the Internal Revenue Code regarding the
withholding by the Trustee of payments in respect of federal income taxes
due from Security Owners.
Section 6.7 Access to List of Securityholders' Names and
Addresses. The Trustee will furnish or cause to be furnished by the
Transfer Agent and Registrar to the Servicer or the Paying Agent, within
five Business Days after receipt by the Trustee of a request therefor from
the Servicer or the Paying Agent, respectively, in writing, a list in such
form as the Servicer or the Paying Agent may reasonably require, of the
names and addresses of the Investor Securityholders as of the most recent
Record Date for payment of distributions to Investor Securityholders.
Unless otherwise provided in the related Supplement, holders of Investor
Securities evidencing Undivided Interests aggregating not less than 25% of
the Invested Amount of the Investor Securities of any Series (the
"Applicants") may apply in writing to the Trustee, and if such application
states that the Applicants desire to communicate with other Investor
Securityholders of any Series with respect to their rights under this
Agreement or under the Investor Securities and is accompanied by a copy of
the communication which such Applicants propose to transmit, then the
Trustee, after having been adequately indemnified by such Applicants for
its costs and expenses, shall afford or shall cause the Transfer Agent and
Registrar to afford such Applicants access during normal business hours to
the most recent list of Securityholders held by the Trustee and shall give
the Servicer notice that such request has been made, within five Business
Days after the receipt of such application. Such list shall be as of a
date no more than 45 days prior to the date of receipt of such Applicants'
request. Every Securityholder, by receiving and holding a Security, agrees
with the Trustee that neither the Trustee, the Transfer Agent and
Registrar, nor any of their respective agents shall be held accountable by
reason of the disclosure of any such information as to the names and
addresses of the Securityholders hereunder, regardless of the source from
which such information was obtained.
Section 6.8 Authenticating Agent.
(a) The Trustee may appoint one or more authenticating agents
(each, an "Authenticating Agent") with respect to the Securities which
shall be authorized to act on behalf of the Trustee in authenticating the
Securities in connection with the issuance, delivery, registration of
transfer, exchange or repayment of the Securities. The Trustee will
appoint any Transfer Agent and Registrar to be an Authentication Agent.
Whenever reference is made in this Agreement to the authentication of
Securities by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication on behalf of the
Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent must be acceptable to the Transferor. The Trustee
hereby initially appoints The Bank of New York as its Authenticating Agent.
(b) Any institution succeeding to the corporate agency business
of an Authenticating Agent shall continue to be an Authenticating Agent
without the execution or filing of any paper or any further act on the part
of the Trustee or such Authenticating Agent.
(c) An Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee and to the Transferor. The
Trustee may at any time terminate the agency of an Authenticating Agent by
giving notice of termination to such Authenticating Agent and to the
Transferor. Upon receiving such a notice of resignation or upon such a
termination, or in case at any time an Authenticating Agent shall cease to
be acceptable to the Trustee or the Transferor, the Trustee promptly may
appoint a successor Authenticating Agent. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with
all the rights, powers and duties of its predecessor hereunder, with like
effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless acceptable to the Trustee
and the Transferor.
(d) The Servicer agrees to pay each Authenticating Agent from
time to time reasonable compensation for its services under this Section
6.8.
(e) The provisions of Sections 11.1, 11.2 and 11.3 shall be
applicable to any Authenticating Agent.
(f) Pursuant to an appointment made under this Section 6.8, the
Securities may have endorsed thereon, in lieu of the Trustee's certificate
of authentication, an alternate certificate of authentication in
substantially the following form:
Trustee's Certificate of Authentication
This is one of the securities described in the Pooling and
Servicing Agreement.
_______________________________________,
as Authenticating Agent for the Trustee
By:____________________________________
Authorized Signatory
Dated:_________________
Section 6.9 Tender of Exchangeable Transferor Security.
(a) Upon any Exchange, the Transferor shall deliver to the
Trustee for authentication under Section 6.2, one or more new Series of
Investor Securities. Any such Series of Investor Securities shall be
substantially in the form specified in the related Supplement and shall
bear, upon its face, the designation for such Series to which it belongs,
as selected by the Transferor. Except as specified in any Supplement for a
related Series, all Investor Securities of any Series shall rank pari passu
and be equally and ratably entitled as provided herein to the benefits
hereof (except that the Enhancement provided for any Series shall not be
available for any other Series) without preference, priority or distinction
on account of the actual time or times of authentication and delivery, all
in accordance with the terms and provisions of this Agreement and the
related Supplement.
(b) The Holder of the Exchangeable Transferor Security may (i)
tender the Exchangeable Transferor Security to the Trustee in exchange for
(A) one or more newly issued Series of Investor Securities or, with respect
to any pre-funded Series, interests therein and (B) a reissued Exchangeable
Transferor Security, (ii) request the Trustee to issue to it one or more
Classes of any newly issued Series of Investor Securities which upon
payment by the purchaser thereof of the Initial Invested Amount of such
Securities to a Defeasance Account, will represent an interest in the Trust
equal to such Initial Invested Amount (an "Unfunded Security") or (iii)
take a combination of the actions specified in clauses (i) and (ii)
provided that the sum of the amount of Transferor Interest which is
tendered under clause (i) and the amount to be paid to the Defeasance
Account under clause (ii) equals the Initial Invested Amount of the
Investor Securities delivered to the Holder of the Exchangeable Transferor
Security (any such event under clauses (i), (ii) or (iii), a "Transferor
Exchange"). In addition, to the extent permitted for any Series of
Investor Securities as specified in the related Supplement, the Investor
Securityholders of such Series may tender their Investor Securities and the
Holder of the Exchangeable Transferor Security may tender the Exchangeable
Transferor Security to the Trustee pursuant to the terms and conditions set
forth in such Supplement in exchange for (i) one or more newly issued
Series of Investor Securities and (ii) a reissued Exchangeable Transferor
Security (an "Investor Exchange"). Unless otherwise specified in any
Supplement, the Transferor shall not be permitted to deposit money into any
Defeasance Account. The Transferor Exchange and Investor Exchange are
referred to collectively herein as an "Exchange." The Holder of the
Exchangeable Transferor Security may perform an Exchange by notifying the
Trustee, in writing, at least five Business Days in advance (an "Exchange
Notice") of the date upon which the Exchange is to occur (an "Exchange
Date"). Any Exchange Notice shall state the designation of any Series to
be issued on the Exchange Date and, with respect to each such Class or
Series: (a) its Initial Invested Amount (or the method for calculating
such Initial Invested Amount), which at any time may not be greater than
the current principal amount of the Exchangeable Transferor Security at
such time (or in the case of an Investor Exchange, the sum of the Invested
Amount of any Class or Series of Investor Securities to be exchanged plus
the current principal amount of the Exchangeable Transferor Security)
taking into account any Receivables transferred to the Trust simultaneous
with such Exchange, (b) its Security Rate (or the method for allocating
interest payments or other cash flows to such Series), if any, and (c) the
Enhancement Provider, if any, with respect to such Series. On the Exchange
Date, the Trustee shall authenticate and deliver any such Class or Classes
of such Series of Investor Securities only upon delivery to it of the
following: (a) a Supplement satisfying the criteria set forth in
subsection 6.9(c) and in form reasonably satisfactory to the Trustee
executed by the Transferor and the Servicer and specifying the Principal
Terms of such Series, (b) the applicable Enhancement, if any, (c) the
agreement, if any, pursuant to which the Enhancement Provider agrees to
provide the Enhancement, if any, (d) an Opinion of Counsel to the effect
that (i) any Class of the newly issued Series of Investor Securities sold
to third parties will be characterized as either indebtedness or
partnership interests for Federal and applicable state income tax purposes
or (ii) that the issuance of the newly issued Series of Investor Securities
will not adversely affect the Federal or Applicable Tax State income tax
characterization of any outstanding Series of Investor Securities or the
taxability of the Trust under Federal or Applicable Tax State income tax
laws, (e) written confirmation from each Rating Agency that the Exchange
will not result in such Rating Agency's reducing or withdrawing its rating
on any then outstanding Class of any Series as to which it is a Rating
Agency, (f) an Officer's Certificate of the Transferor, that on the
Exchange Date after giving effect to such exchange (i) the Transferor
Interest would be at least equal to the Minimum Transferor Interest and
(ii) the Retained Interest would be at least equal to the Minimum Retained
Interest, (g) the existing Exchangeable Transferor Security or applicable
Investor Securities, as the case may be and (h) such other documents,
certificates and Opinions of Counsel as may be required by the applicable
Supplement. Upon satisfaction of such conditions, the Trustee shall cancel
the existing Exchangeable Transferor Security or applicable Investor
Securities, as the case may be, and issue, as provided above, such Series
of Investor Securities and a new Exchangeable Transferor Security, dated
the Exchange Date. There is no limit to the number of Exchanges that may
be performed under this Agreement.
(c) In conjunction with an Exchange, the parties hereto shall
execute a Supplement, which shall specify the relevant terms with respect
to any newly issued Series of Investor Securities, which may include
without limitation: (i) its name or designation, (ii) the Initial Invested
Amount or the method of calculating the Initial Invested Amount, (iii) the
Security Rate (or formula for the determination thereof), (iv) the Closing
Date, (v) the rating agency or agencies rating such Series, (vi) the name
of the Clearing Agency, if any, (vii) the rights of the Holder of the
Exchangeable Transferor Security that have been transferred to the Holders
of such Series pursuant to such Exchange (including any rights to
allocations of Finance Charge Collections and Principal Collections),
(viii) the interest payment date or dates and the date or dates from which
interest shall accrue, (ix) the method of allocating Principal Collections
for such Series and the method by which the principal amount of Investor
Securities of such Series shall amortize or accrete and the method for
allocating Finance Charge Collections, (x) the names of any accounts to be
used by such Series and the terms governing the operation of any such
account, (xi) the Series Servicing Fee Percentage, (xii) the Minimum
Transferor Interest, (xiii) the Series Termination Date, (xiv) the terms of
any Enhancement with respect to such Series, (xv) the Enhancement Provider,
if applicable, (xvi) the base rate applicable to such Series, (xvii) the
terms on which the Securities of such Series may be repurchased or
remarketed to other investors, (xviii) any deposit into any account
provided for such Series, (xix) the number of Classes of such Series and,
if more than one Class, the rights and priorities of each such Class, (xx)
whether any fees will be included in the funds available to be paid for
such Series, (xxi) the subordination of such Series to any other Series,
(xxii) the Pool Factor, (xxiii) the Minimum Aggregate Principal
Receivables, (xxiv) whether such Series will be a part of a group or
subject to being paired with any other Series, (xxv) whether such Series
will be pre-funded, and (xxvi) any other relevant terms of such Series
(including whether or not such Series will be pledged as collateral for an
issuance of any other securities, including commercial paper) (all such
terms, the "Principal Terms" of such Series). The terms of such Supplement
may modify or amend the terms of this Agreement solely as applied to such
new Series. If on the date of the issuance of such Series there is issued
and outstanding one or more Series of Investor Securities and no Series of
Investor Securities is currently rated by a Rating Agency, then as a
condition to such Exchange a nationally recognized investment banking firm
or commercial bank shall also deliver to the Trustee an officer's
certificate stating, in substance, that the Exchange will not have an
adverse effect on the timing or distribution of payments to such other
Series of Investor Securities then issued and outstanding.
(d) The Transferor may surrender the Exchangeable Transferor
Security to the Trustee in exchange for a newly issued Exchangeable
Transferor Security and a second security (a "Supplemental Security"), the
terms of which shall be defined in a supplement to this Agreement (which
supplement shall be subject to Section 13.1 hereof to the extent that it
amends any of the terms of this Agreement), to be delivered to or upon the
order of the Transferor (or a Person designated by the Transferor, in the
case of the transfer or exchange thereof, as provided below), upon
satisfaction of the following conditions: (i) following such exchange, the
Transferor Interest (less any interest therein represented by any
Supplemental Securities) would be at least equal to the Minimum Transferor
Interest ,(ii) following such exchange the Retained Interest (less any
interest therein represented by any Supplemental Securities) equals or
exceeds the Minimum Retained Interest, and (iii) the Trustee received prior
to such exchange (A) a letter from the Rating Agency stating that the then
current ratings on the Investor Securities of each rated class of each
Series then outstanding will not be reduced or withdrawn because of the
issuance of such Supplemental Security and (B) an Opinion of Counsel to the
effect that (i) such Supplemental Security will be characterized as either
indebtedness or a partnership interest for Federal and applicable state
income tax purposes or (ii) that such Supplemental Security will not
adversely affect the Federal, Minnesota or Delaware income tax
characterization of any outstanding Series of Investor Securities or the
taxability of the Trust under Federal, Minnesota or Delaware income tax
laws, transferred or exchanged only upon satisfaction of the conditions set
forth in clause (iii) above.
Section 6.10 Book-Entry Securities. Unless otherwise provided
in any related Supplement, the Investor Securities, upon original issuance,
shall be issued in the form of typewritten Securities representing the
Book-Entry Securities, to be delivered to the depositary specified in such
Supplement (the "Depositary") which shall be the Clearing Agency or Foreign
Clearing Agency, by or on behalf of such Series. The Investor Securities
of each Series shall, unless otherwise provided in the related Supplement,
initially be registered on the Security Register in the name of the nominee
of the Clearing Agency or Foreign Clearing Agency. No Security Owner will
receive a definitive security representing such Security Owner's interest
in the related Series of Investor Securities, except as provided in Section
6.12. Unless and until definitive, fully registered Investor Securities of
any Series ("Definitive Securities") have been issued to Security Owners
pursuant to Section 6.12:
(i) the provisions of this Section 6.10 shall be in full
force and effect with respect to each such Series;
(ii) the Transferor, the Servicer, the Paying Agent, the
Transfer Agent and Registrar and the Trustee may deal with the
Clearing Agency and the Clearing Agency Participants for all purposes
(including the making of distributions on the Investor Securities of
each such Series) as the authorized representatives of the Security
Owners;
(iii) to the extent that the provisions of this Section
6.10 conflict with any other provisions of this Agreement, the
provisions of this Section 6.10 shall control with respect to each
such Series; and
(iv) the rights of Security Owners of Investor Securities
of each such Series shall be exercised only through the Clearing
Agency or Foreign Clearing Agency and the applicable Clearing Agency
Participants and shall be limited to those established by law and
agreements between such Security Owners and the Clearing Agency or
Foreign Clearing Agency and/or the Clearing Agency Participants.
Pursuant to the Depositary Agreement applicable to a Series, unless
and until Definitive Securities of such Series are issued pursuant to
Section 6.12, the initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and receive and
transmit distributions of principal and interest on the Investor
Securities to such Clearing Agency Participants.
Section 6.11 Notices to Clearing Agency. Whenever notice or
other communication to the Securityholders is required under this
Agreement, unless and until Definitive Securities shall have been issued to
Security Owners pursuant to Section 6.12, the Trustee shall give all such
notices and communications specified herein to be given to Holders of the
Investor Securities to the Clearing Agency or Foreign Clearing Agency.
Section 6.12 Definitive Securities. If (i) (A) the Transferor
advises the Trustee in writing that the Clearing Agency or Foreign Clearing
Agency is no longer willing or able to discharge properly its
responsibilities under the applicable Depositary Agreement, and (B) the
Transferor is unable to locate a qualified successor, (ii) the Transferor,
at its option, advises the Trustee in writing that it elects to terminate
the book-entry system through the Clearing Agency or Foreign Clearing
Agency with respect to any Series of Securities or (iii) after the
occurrence of a Servicer Default, Security Owners of a Series representing
beneficial interests aggregating not less than 50% of the Invested Amount
of such Series advise the Trustee and the applicable Clearing Agency or
Foreign Clearing Agency through the applicable Clearing Agency Participants
in writing that the continuation of a book-entry system through the
applicable Clearing Agency or Foreign Clearing Agency is no longer in the
best interests of the Security Owners, the Trustee shall notify all
Security Owners of such Series, through the applicable Clearing Agency
Participants, of the occurrence of any such event and of the availability
of Definitive Securities to Security Owners of such Series requesting the
same. Upon surrender to the Trustee of the Investor Securities of such
Series by the applicable Clearing Agency or Foreign Clearing Agency for
registration, accompanied by registration instructions from the applicable
Clearing Agency or Foreign Clearing Agency, the Trustee shall issue the
Definitive Securities of such Series. Neither the Transferor nor the
Trustee shall be liable for any delay in delivery of such instructions and
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Securities of such Series,
all references herein to obligations imposed upon or to be performed by the
applicable Clearing Agency or Foreign Clearing Agency shall be deemed to be
imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Securities, and the Trustee shall recognize the
Holders of the Definitive Securities of such Series as Securityholders of
such Series hereunder.
Section 6.13 Global Security; Euro-Security Exchange Date. If
specified in the related Supplement for any Series, the Investor Securities
may be initially issued in the form of a single temporary Global Security
(the "Global Security") in bearer form, without interest coupons, in the
denomination of the Initial Invested Amount of such Series and
substantially in the form attached to the related Supplement. Unless
otherwise specified in the related Supplement, the provisions of this
Section 6.13 shall apply to such Global Security. The Global Security will
be authenticated by the Trustee upon the same conditions, in substantially
the same manner and with the same effect as the Definitive Securities. The
Global Security may be exchanged in the manner described in the related
Supplement for Registered Securities or Bearer Securities in definitive
form.
Section 6.14 Meetings of Securityholders.
To the extent provided by the Supplement for any Series issued in
whole or in part in Bearer Securities, the Servicer or the Trustee may at
any time call a meeting of the Securityholders of such Series, to be held
at such time and at such place as the Servicer or the Trustee, as the case
may be, shall determine, for the purpose of approving a modification of or
amendment to, or obtaining a waiver of, any covenant or condition set forth
in this Agreement with respect to such Series or in the Securities of such
Series, subject to Section 13.1 of this Agreement.
[End of Article VI]
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
Section 7.1 Liability of the Transferor. The Transferor shall
be liable in accordance herewith solely to the extent of the obligations
specifically undertaken by the Transferor.
Section 7.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Transferor.
(a) The Transferor shall not consolidate with or merge into any
other business entity or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) the business entity formed by such consolidation or
into which the Transferor is merged or the Person which acquires by
conveyance or transfer the properties and assets of the Transferor
substantially as an entirety shall be, if the Transferor is not the
surviving entity, (x) a corporation organized and existing under the
laws of the United States of America or any State or the District of
Columbia or (y) a state or national banking association that is not
subject to the Bankruptcy Code of 1978, as amended from time to time,
or to any successor statute, and shall expressly assume, by an
agreement supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, the performance of every covenant
and obligation of the Transferor, as applicable hereunder and shall
benefit from all the rights granted to the Transferor, as applicable
hereunder. To the extent that any right, covenant or obligation of
the Transferor, as applicable hereunder, is inapplicable to the
successor entity, such successor entity shall be subject to such
covenant or obligation, or benefit from such right, as would apply, to
the extent practicable, to such successor entity. In furtherance
hereof, in applying this Section 7.2 to a successor entity, Section
9.2 hereof shall be applied by reference to events of involuntary
liquidation, receivership or conservatorship applicable to such
successor entity as shall be set forth in the officer's certificate
described in subsection 7.2(a)(ii);
(ii) the Transferor shall have delivered to the Trustee an
Officer's Certificate signed by a Vice President (or any more senior
officer) of the Transferor stating that such consolidation, merger,
conveyance or transfer and such supplemental agreement comply with
this Section 7.2 and that all conditions precedent herein provided for
relating to such transaction have been complied with and an Opinion of
Counsel that such supplemental agreement is legal, valid and binding
and that the entity surviving such consolidation, conveyance or
transfer is organized and existing under the laws of the United States
of America or any State or the District of Columbia and, subject to
customary limitations and qualifications, such entity will not be
substantively consolidated with any Credit Card Originator or the
Servicer;
(iii) the Transferor shall have delivered notice to the
Rating Agency of such consolidation, merger, conveyance or transfer
and the Rating Agency shall have provided written confirmation that
such consolidation, merger, conveyance or transfer will not result in
the Rating Agency reducing or withdrawing its rating on any then
outstanding Series as to which it is a Rating Agency;
(iv) the successor entity shall be a special purpose
bankruptcy remote entity; and
(v) if the Transferor is not the surviving entity, the
surviving entity shall file new UCC-1 financing statements with
respect to the interest of the Trust in the Receivables.
(b) The obligations of the Transferor hereunder shall not be
assignable nor shall any Person succeed to the obligations of the
Transferor hereunder except for mergers, consolidations, assumptions or
transfers in accordance with the provisions of the foregoing paragraph.
Section 7.3 Limitation on Liability. The directors, officers,
employees or agents of the Transferor shall not be under any liability to
the Trust, the Trustee, the Securityholders, any Enhancement Provider or
any other Person hereunder or pursuant to any document delivered hereunder,
it being expressly understood that all such liability is expressly waived
and released as a condition of, and as consideration for, the execution of
this Agreement and any Supplement and the issuance of the Securities;
provided, however, that this provision shall not protect the officers,
directors, employees, or agents of the Transferor against any liability
which would otherwise be imposed upon them by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or
by reason of reckless disregard of obligations and duties hereunder.
Except as provided in Sections 7.1 and 7.4 with respect to the Trust and
the Trustee and its officers, directors, employees and agents, the
Transferor shall not be under any liability to the Trust, the Trustee, its
officers, directors, employees and agents, the Securityholders, any
Enhancement Provider or any other Person for any action taken or for
refraining from the taking of any action in its capacity as Transferor
pursuant to this Agreement or any Supplement whether arising from express
or implied duties under this Agreement or any Supplement or otherwise;
provided, however, that this provision shall not protect the Transferor
against any liability which would otherwise be imposed upon it by reason of
willful misfeasance, bad faith or gross negligence in the performance of
duties or by reason of reckless disregard of obligations and duties
hereunder. The Transferor and any director, officer, employee or agent may
rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising
hereunder.
Section 7.4 Liabilities. Notwithstanding Section 7.3, by
entering into this Agreement, the Transferor agrees to be liable, directly
to the injured party, for the entire amount of any losses, claims, damages,
penalties or liabilities (other than those incurred by a Securityholder in
the capacity of an investor in the Investor Securities as a result of the
performance of the Receivables, market fluctuations, a shortfall or failure
by the Enhancement Provider to make payment under any Enhancement or other
similar market or investment risks associated with ownership of the
Investor Securities) arising out of or based on the arrangement created by
this Agreement and the actions of the Servicer taken pursuant hereto as
though this Agreement created a partnership under the Delaware Uniform
Partnership Law, in which the Transferor is a general partner. The
Transferor agrees to pay, indemnify and hold harmless each Investor
Securityholder against and from any and all such loses, claims, damages and
liabilities (other than those incurred by a Securityholder in the capacity
of an investor in the Investor Securities as a result of the performance of
the Receivables, market fluctuations, a shortfall or failure by an
Enhancement Provider to make payment under an Enhancement or other similar
market or investment risks) except to the extent that they arise from any
action by such Investor Securityholder. Subject to Sections 8.3 and 8.4,
in the event of a Service Transfer, the Successor Servicer will indemnify
and hold harmless the Transferor for any losses, claims, damages and
liabilities of the Transferor as described in this Section 7.4 arising from
the actions or omissions of such Successor Servicer.
[End of Article VII]
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.1 Liability of the Servicer. The Servicer shall be
liable in accordance herewith only to the extent of the obligations
specifically undertaken by the Servicer in such capacity herein.
Section 8.2 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. Subject to subsection 3.1(a), the Servicer
shall not consolidate with or merge into any other corporation or convey or
transfer its properties and assets substantially as an entirety to any
Person, unless:
(i) the corporation formed by such consolidation or into
which the Servicer is merged or the Person which acquires by
conveyance or transfer the properties and assets of the Servicer
substantially as an entirety shall be (x) a corporation organized and
existing under the laws of the United States of America or any State
or the District of Columbia or (y) a state or national banking
association that is not subject to the Bankruptcy Code of 1978, as
amended from time to time, or to any successor statute, and, if the
Servicer is not the surviving entity, shall expressly assume, by an
agreement supplemental hereto, executed and delivered to the Trustee
in form satisfactory to the Trustee, the performance of every covenant
and obligation of the Servicer hereunder (to the extent that any
right, covenant or obligation of the Servicer, as applicable
hereunder, is inapplicable to the successor entity, such successor
entity shall be subject to such covenant or obligation, or benefit
from such right, as would apply, to the extent practicable, to such
successor entity);
(ii) the Servicer shall have delivered to the Trustee an
Officer's Certificate that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section 8.2
and that all conditions precedent herein provided for relating to such
transaction have been complied with and an Opinion of Counsel that
such supplemental agreement is legal, valid and binding with respect
to the Servicer and that the entity surviving such consolidation,
conveyance or transfer is organized and existing under the laws of the
United States of America or any State or the District of Columbia; and
(iii) the Servicer shall have delivered notice to the
Rating Agency of such consolidation, merger, conveyance or transfer.
Section 8.3 Limitation on Liability of the Servicer and Others.
The directors, officers, employees or agents of the Servicer shall not be
under any liability to the Trust, the Trustee, the Securityholders, any
Enhancement Provider or any other Person hereunder or pursuant to any
document delivered hereunder, it being expressly understood that all such
liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Agreement and any Supplement and
the issuance of the Securities; provided, however, that this provision
shall not protect the directors, officers, employees and agents of the
Servicer against any liability which would otherwise be imposed upon them
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties hereunder. Except as provided in Sections 8.1 and 8.4 with respect
to the Trustee, its officers, directors, employees and agents, the Servicer
shall not be under any liability to the Trust, the Trustee, its officers,
directors, employees and agents, the Securityholders, any Enhancement
Provider or any other Person for any action taken or for refraining from
the taking of any action in its capacity as Servicer pursuant to this
Agreement or any Supplement; provided, however, that this provision shall
not protect the Servicer against any liability which would otherwise be
imposed upon it by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of its reckless
disregard of its obligations and duties hereunder or under any Supplement.
The Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters
arising hereunder. The Servicer shall not be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to
its duties to service the Receivables in accordance with this Agreement
which in its reasonable opinion may involve it in any expense or liability.
Section 8.4 Servicer Indemnification of the Transferor, the
Trust and the Trustee. Subject to the limitations on liability set forth
in Section 8.3, the Servicer shall indemnify and hold harmless the
Transferor, the Trustee and the Trust (each, an "Indemnified Party") from
and against any loss, liability, reasonable expense, damage or injury,
including, but not limited to, any judgment, award, settlement, reasonable
attorneys' fees and other costs or expenses incurred in connection with the
defense of any actual or threatened action, proceeding or claim, suffered
or sustained by reason of any acts or omissions or alleged acts or
omissions of the Servicer with respect to activities of the Trust or the
Trustee for which the Servicer is responsible pursuant to this Agreement;
provided, however, that the Servicer shall not indemnify or hold harmless
an Indemnified Party if such acts, omissions or alleged acts or omissions
constitute or are caused by fraud, gross negligence, or willful misconduct
by such Indemnified Party (or any of such Indemnified Party's officers,
directors, employees or agents) or the Investor Securityholders; provided,
further, that the Servicer shall not indemnify or hold harmless the Trust,
the Investor Securityholders or the Security Owners for any losses,
liabilities, expenses, damages or injuries suffered or sustained by any of
them with respect to any action taken by the Trustee at the request of the
Investor Securityholders; provided further, that the Servicer shall not
indemnify or hold harmless the Trust, the Investor Securityholders or the
Security Owners as to any losses, liabilities, expenses, damages or
injuries suffered or sustained by any of them in their capacities as
investors, including without limitation losses incurred as a result of
Receivables in Defaulted Accounts; provided further, that the Servicer
shall not indemnify or hold harmless the Transferor, the Trust, the
Investor Securityholders or the Security Owners for any losses,
liabilities, expenses, damages or injuries suffered or sustained by the
Trust, the Investor Securityholders or the Security Owners arising under
any tax law, including without limitation, any federal, state, local or
foreign income or franchise taxes or any other tax imposed on or measured
by income (or any interest, penalties or additions with respect thereto or
arising from a failure to comply therewith) required to be paid by the
Trust, the Investor Securityholders or the Security Owners in connection
herewith to any taxing authority; and, provided, further, that in no event
will the Servicer be liable, directly or indirectly, for or in respect of
any indebtedness or obligation evidenced or created by any Security,
recourse as to which shall be limited solely to the assets of the Trust
allocated for the payment thereof as provided in this Agreement and any
applicable Supplement. Any such indemnification shall not be payable from
the assets of the Trust, but the Servicer shall be subrogated to the rights
of the Trust with respect to the foregoing matters if and to the extent
that the Servicer shall have indemnified the Trust with respect thereto.
The Servicer shall indemnify and hold harmless the Trustee and its
officers, directors, employees or agents from and against any loss,
liability, reasonable expense, damage or injury suffered or sustained by
reason of the acceptance of this Trust by the Trustee, the issuance by the
Trust of the Securities or any of the other matters contemplated herein or
in any Supplement; provided, however, that the Servicer shall not indemnify
the Trustee or its officers, directors, employees or agents for any loss,
liability, expense, damage or injury caused by the fraud, negligence or
willful misconduct of any of them. The provisions of this indemnity shall
run directly to and be enforceable by an injured party subject to the
limitations hereof and shall survive the resignation or removal of the
Servicer, the resignation or removal of the Trustee and/or the termination
of the Trust and shall survive the termination of the Agreement.
Section 8.5 The Servicer Not to Resign. Subject to subsection
3.1(a), the Servicer shall not resign from the obligations and duties
hereby imposed on it except upon determination that (i) the performance of
its duties hereunder is no longer permissible under applicable law and (ii)
there is no reasonable action that the Servicer could take to make the
performance of its duties hereunder permissible under applicable law. Any
such determination permitting the resignation of the Servicer shall be
evidenced as to clause (i) above by an Opinion of Counsel to such effect
delivered to the Trustee. No such resignation shall become effective until
the Trustee or a Successor Servicer shall have assumed the responsibilities
and obligations of the Servicer in accordance with Section 10.2 hereof. If
the Trustee is unable within 120 days of the date of delivery to it of such
Opinion of Counsel to appoint a Successor Servicer, the Trustee shall serve
as Successor Servicer hereunder (but shall have continued authority to
appoint another Person as Successor Servicer).
Section 8.6 Access to Certain Documentation and Information
Regarding the Receivables. The Servicer shall provide to the Trustee and
its agents (who shall be reasonably acceptable to the Servicer) access to
the documentation regarding the Accounts and the Receivables in such cases
where the Trustee is required in connection with the enforcement of the
rights of the Investor Securityholders, or by applicable statutes or
regulations, to review such documentation, such access being afforded
without charge but only (i) upon reasonable request, (ii) during normal
business hours, (iii) subject to the Servicer's normal security and
confidentiality procedures and (iv) at offices designated by the Servicer.
Nothing in this Section 8.6 shall derogate from the obligation of any
Credit Card Originator, the Transferor, the Trustee or the Servicer to
observe any applicable law prohibiting disclosure of information regarding
the Obligors and the failure of the Servicer to provide access as provided
in this Section 8.6 as a result of such obligations shall not constitute a
breach of this Section 8.6.
Section 8.7 Delegation of Duties. It is understood and agreed
by the parties hereto that the Servicer may delegate certain of its duties
hereunder to First Data Resources, Inc., a Delaware corporation. In the
ordinary course of business, the Servicer may at any time delegate any
duties hereunder to any Person who agrees to conduct such duties in
accordance with the Credit and Collection Policies. Any such delegations
shall not relieve the Servicer of its liability and responsibility with
respect to such duties, and shall not constitute a resignation within the
meaning of Section 8.5 hereof and the Servicer will remain jointly and
severally liable with such Person for any amounts which would otherwise be
payable pursuant to this Article VIII as if the Servicer had performed such
duty; provided, however, that in the case of any significant delegation to
a Person other than First Data Resources, Inc. or an Affiliate of DMCCB (i)
written notice shall be given to the Trustee and to each Rating Agency of
such delegation, (ii) Moody's shall have notified the Transferor and the
Trustee in writing that such delegation will not result in the lowering or
withdrawal of its then existing rating of any Series or Class of Investor
Securities and (iii) the Transferor shall not have received written notice
from Standard & Poor's that such delegation would result in the lowering or
withdrawal of its then existing rating of any Series or Class of Investor
Securities.
[End of Article VIII]
ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay Out Events. If any one of the following events
(each, a "Trust Pay Out Event") shall occur:
(a) the Transferor, Metris or DMCCB shall consent to the
appointment of a bankruptcy trustee or receiver or liquidator in any
bankruptcy proceeding or any other insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating
to all or substantially all of its property; or a decree or order of a
court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a bankruptcy trustee or receiver or
liquidator in any bankruptcy proceeding or any other insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Transferor, Metris or DMCCB; or the
Transferor, Metris or DMCCB shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute including the U.S.
bankruptcy code, make an assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations; or the Transferor shall
become unable for any reason to transfer Receivables to the Trust in
accordance with the provisions of this Agreement; or
(b) the Trust shall become subject to regulation by the
Securities and Exchange Commission as an "investment company" within the
meaning of the Investment Company Act;
then a Pay Out Event with respect to all Series of Securities shall occur
without any notice or other action on the part of the Trustee or the
Investor Securityholders immediately upon the occurrence of such event.
The Trustee shall provide notice of a Pay Out Event in a prompt manner to
each Rating Agency.
Section 9.2 Additional Rights Upon the Occurrence of Certain
Events.
(a) If (x) the Transferor shall consent to the appointment of a
bankruptcy trustee or receiver or liquidator for the winding-up or
liquidation of its affairs, or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a bankruptcy trustee or receiver or liquidator for the
winding-up or liquidation of its affairs shall have been entered against
the Transferor or Metris (an "Insolvency Event"), on the day of such
Insolvency Event (the "Appointment Day") or (y) the Retained Percentage
shall at any time be equal to or less than 2% (a "Trigger Event"), the
following actions shall be taken and processes begun:
(i) If an Insolvency Event shall have occurred, the
Transferor shall immediately cease to transfer Principal Receivables
to the Trust and shall promptly give written notice to the Trustee of
such Insolvency Event. Notwithstanding any cessation of the transfer
to the Trust of additional Principal Receivables, receivables accrued
in respect of Finance Charge Receivables (other than Discount Option
Receivables), whenever created, accrued in respect of Receivables that
have been transferred to the Trust, shall continue to be a part of the
Trust, and Collections with respect thereto shall continue to be
allocated and paid in accordance with Article IV.
(ii) If an Insolvency Event or a Trigger Event shall have
occurred this Agreement and the Trust shall be deemed to have
terminated, subject to the liquidation, winding-up and dissolution
procedures described below; provided, however, that within 15 days of
the date of written notice to the Trustee, the Trustee shall (i)
publish a notice in an Authorized Newspaper that an Insolvency Event
or a Trigger Event has occurred, that the Trust has terminated, and
that the Trustee intends to sell, dispose of or otherwise liquidate
the Receivables pursuant to this Agreement in a commercially
reasonable manner and on commercially reasonable terms, which shall
include the solicitation of competitive bids (a "Disposition"), and
(ii) send written notice to the Investor Securityholders describing
the provisions of this Section 9.2 and requesting each Investor
Securityholder to advise the Trustee in writing that it elects one of
the following options: (A) the Investor Securityholder wishes the
Trustee to instruct the Servicer not to effectuate a Disposition, or
(B) the Investor Securityholder refuses to advise the Trustee as to
the specific action the Trustee shall instruct the Servicer to take or
(C) the Investor Securityholder wishes the Servicer to effect a
Disposition. If after 90 days from the day notice pursuant to clause
(i) above is first published (the "Publication Date"), the Trustee
shall not have received the written instruction described in clause
(A) above from Holders of Investor Securities representing Undivided
Interests aggregating in excess of 50% of the related Invested Amount
of each Series (or, in the case of a Series having more than one
Class, each Class of such Series) and the holders of any Supplemental
Securities or any other interest in the Exchangeable Transferor
Security other than the Transferor as provided in Section 6.3(b) for
each Series, a "Holders' Majority"), the Trustee shall instruct the
Servicer to effectuate a Disposition, and the Servicer shall proceed
to consummate a Disposition. If, however, with respect to the portion
of the Receivables allocable to any outstanding Series, a Holders'
Majority instruct the Trustee not to effectuate a Disposition of the
portion of the Receivables allocable to such Series, the Trust shall
be reconstituted and continue with respect to such Series pursuant to
the terms of this Agreement and the applicable Supplement (as amended
in connection with such reconstitution). The portion of the
Receivables allocable to any Series shall be equal to the sum of (1)
the product of (A) the Transferor Percentage, (B) the aggregate
outstanding Principal Receivables and (C) a fraction the numerator of
which is the related Investor Percentage of Finance Charge Collections
and the denominator of which is the sum of all Investor Percentages
with respect to Finance Charge Collections for all Series outstanding
and (2) the Invested Amount of such Series. The Transferor or any of
its Affiliates shall be permitted to bid for the Receivables. In
addition, the Transferor or any of its Affiliates shall have the right
to match any bid by a third person and be granted the right to
purchase the Receivables at such matched bid price. The Trustee may
obtain a prior determination from any such bankruptcy trustee,
receiver or liquidator that the terms and manner of any proposed
Distribution are commercially reasonable. The provisions of Sections
9.1 and 9.2 shall not be deemed to be mutually exclusive.
(b) The proceeds from the Disposition pursuant to subsection (a)
above shall be treated as Collections on the Receivables and shall be
allocated and deposited in accordance with the provisions of Article IV;
provided, however, that the proceeds from a Disposition with respect to any
Series shall be applied solely to make payments to such Series; provided
further, that the Trustee shall determine conclusively in its sole
discretion the amount of such proceeds that are allocable to Finance Charge
Collections and the amount of such proceeds that are allocable to
Collections of Principal Receivables. Unless the Trustee receives written
instructions from Investor Securityholders of one or more Series to
continue the Trust with respect to such Series as provided in subsection
9.2(a) above, on the day following the last Distribution Date in the
Monthly Period during which such proceeds are distributed to the Investor
Securityholders of each Series, the Trust shall terminate.
(c) The Trustee may appoint an agent or agents to assist with
its responsibilities pursuant to this Article IX with respect to
competitive bids.
[End of Article IX]
ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults. If any one of the following
events (a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give instructions or notice to the Trustee pursuant to
Article IV or to instruct the Trustee to make any required drawing,
withdrawal, or payment under any Enhancement on or before the date
occurring five Business Days after the date such payment, transfer,
deposit, withdrawal or drawing or such instruction or notice is required to
be made or given, as the case may be, under the terms of this Agreement;
provided, however, that any such failure caused by a non- willful act of
the Servicer shall not constitute a Servicer Default if the Servicer
promptly remedies such failure within five Business Days after receiving
notice of such failure or otherwise becoming aware of such failure;
(b) failure on the part of the Servicer duly to observe or
perform in any respect any other covenants or agreements of the Servicer
set forth in this Agreement, which has a material adverse effect on the
Investor Securityholders of any Series and which continues unremedied for a
period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer by
the Trustee, or to the Servicer and the Trustee by the Holders of Investor
Securities evidencing Undivided Interests aggregating not less than 50% of
the Invested Amount of any Series materially adversely affected thereby and
continues to materially adversely affect such Investor Securityholders for
such period; or the Servicer shall delegate its duties under this
Agreement, except as permitted by Section 8.7;
(c) any representation, warranty or certification made by the
Servicer in this Agreement or in any security delivered pursuant to this
Agreement shall prove to have been incorrect when made, which has a
material adverse effect on the Investor Securityholders of any Series and
which continues to be incorrect in any material respect for a period of 60
days after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Servicer by the Trustee,
or to the Servicer and the Trustee by the Holders of Investor Securities
evidencing Undivided Interests aggregating not less than 50% of the
Invested Amount of any Series materially adversely affected thereby and
continues to materially adversely affect such Investor Securityholders for
such period; or
(d) the Servicer shall consent to the appointment of a
bankruptcy trustee or receiver or liquidator in any bankruptcy proceeding
or any other insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Servicer or of or
relating to all or substantially all of its property; or a decree or order
of a court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a bankruptcy trustee or receiver or
liquidator in any bankruptcy proceeding or any other insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Servicer, and such decree or order shall have
remained in force undischarged or unstayed for a period of 60 days; or the
Servicer shall admit in writing its inability to pay its debts generally as
they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make any assignment for the benefit
of its creditors or voluntarily suspend payment of its obligations;
then, so long as such Servicer Default shall not have been remedied, either
the Trustee, or the Holders of Investor Securities evidencing Undivided
Interests aggregating more than 50% of the Aggregate Invested Amount, by
notice then given in writing to the Servicer (and to the Trustee if given
by the Investor Securityholders) (a "Termination Notice"), may terminate
all of the rights and obligations of the Servicer as Servicer under this
Agreement. After receipt by the Servicer of such Termination Notice, and
on the date that a Successor Servicer shall have been appointed by the
Trustee pursuant to Section 10.2, all authority and power of the Servicer
under this Agreement shall pass to and be vested in a Successor Servicer;
and, without limitation, the Trustee is hereby authorized and empowered
(upon the failure of the Servicer to cooperate) to execute and deliver, on
behalf of the Servicer, as attorney-in-fact or otherwise, all documents and
other instruments upon the failure of the Servicer to execute or deliver
such documents or instruments, and to do and accomplish all other acts or
things necessary or appropriate to effect the purposes of such transfer of
servicing rights and obligations. The Servicer agrees to cooperate with
the Trustee and such Successor Servicer in effecting the termination of the
responsibilities and rights of the Servicer to conduct servicing hereunder
including, without limitation, the transfer to such Successor Servicer of
all authority of the Servicer to service the Receivables provided for under
this Agreement, including, without limitation, all authority over all
Collections which shall on the date of transfer be held by the Servicer for
deposit, or which have been deposited by the Servicer, in the Collection
Account, the Excess Funding Account, the Interest Funding Account or the
Principal Account, and any Series Account, or which shall thereafter be
received with respect to the Receivables. The Servicer shall promptly
transfer its electronic records or electronic copies thereof relating to
the Receivables to the Successor Servicer in such electronic form as the
Successor Servicer may reasonably request and shall promptly transfer to
the Successor Servicer all other records, correspondence and documents
necessary for the continued servicing of the Receivables in the manner and
at such times as the Successor Servicer shall reasonably request. To the
extent that compliance with this Section 10.1 shall require the Servicer to
disclose to the Successor Servicer information of any kind which the
Servicer deems to be confidential, the Successor Servicer shall be required
to enter into such customary licensing and confidentiality agreements as
the Servicer shall deem necessary to protect its interests. The Servicer
shall, on the date of any servicing transfer, transfer all of its rights
and obligations under the Enhancement with respect to any Series to the
Successor Servicer. In connection with any service transfer, all
reasonable costs and expenses (including attorneys' fees) incurred in
connection with transferring the records, correspondence and other
documents with respect to the Receivables and the other Trust Property to
the Successor Servicer and amending this Agreement to reflect such
succession as Successor Servicer pursuant to this Section 10.1 and Section
10.2 shall be paid by the Servicer (unless the Trustee is acting as the
Servicer on a temporary basis, in which case the original Servicer shall be
responsible therefor) upon presentation of reasonable documentation of such
costs and expenses.
Notwithstanding the foregoing, a delay in or failure of
performance referred to in subsection 10.1(a) for a period of five Business
Days or under subsection 10.1(b) or (c) for a period of 60 days, shall not
constitute a Servicer Default if such delay or failure could not be
prevented by the exercise of reasonable diligence by the Servicer and such
delay or failure was caused by an act of God or the public enemy, acts of
declared or undeclared war, public disorder, rebellion, riot or sabotage,
epidemics, landslides, lightning, fire, hurricanes, tornadoes, earthquakes,
nuclear disasters or meltdowns, floods, power outages, bank closings,
communications outages, computer failure or similar causes. The preceding
sentence shall not relieve the Servicer from using its best efforts to
perform its obligations in a timely manner in accordance with the terms of
this Agreement and the Servicer shall provide the Trustee, any Enhancement
Provider, the Transferor and the Holders of Investor Securities with an
Officer's Certificate giving prompt notice of such failure or delay by it,
together with a description of the cause of such failure or delay and its
efforts so to perform its obligations.
Section 10.2 Trustee to Act; Appointment of Successor.
(a) On and after the receipt by the Servicer of a Termination
Notice pursuant to Section 10.1, the Servicer shall continue to perform all
servicing functions under this Agreement until the date specified in the
Termination Notice or as otherwise specified by the Trustee in writing or,
if no such date is specified in such Termination Notice, or otherwise
specified by the Trustee, until a date mutually agreed upon by the Servicer
and Trustee. The Trustee shall notify each Rating Agency of such removal
of the Servicer. The Trustee shall, as promptly as possible after the
giving of a Termination Notice, appoint a successor servicer (the
"Successor Servicer"), and such Successor Servicer shall accept its
appointment by a written assumption in a form acceptable to the Trustee.
If such Successor Servicer is unable to accept such appointment, the
Trustee may obtain bids from any potential successor servicer. If the
Trustee is unable to obtain any bids from any potential successor servicer
and the Servicer delivers an Officer's Certificate to the effect that it
cannot in good faith cure the Servicer Default which gave rise to a
transfer of servicing, and if the Trustee is legally unable to act as
Successor Servicer, then the Trustee shall offer the Transferor the right
to accept reassignment of all of the Receivables for an amount equal to the
Aggregate Invested Amount on the date of such purchase plus all interest
accrued but unpaid on all of the outstanding Investor Securities at the
applicable Security Rate through the date of such purchase; provided,
however, that no such purchase by the Transferor shall occur unless the
Transferor shall deliver an Opinion of Counsel reasonably acceptable to the
Trustee that such purchase would not constitute a fraudulent conveyance of
the Transferor. The proceeds of such sale shall be deposited in the
Distribution Account or any Series Account, as provided in the related
Supplement, for distribution to the Investor Securityholders of each
outstanding Series pursuant to Section 12.3 of the Agreement. In the event
that a Successor Servicer has not been appointed and has not accepted its
appointment at the time when the Servicer ceases to act as Servicer, the
Trustee without further action shall automatically be appointed the
Successor Servicer (but shall have continued authority to appoint another
Person as Successor Servicer). The Trustee may delegate any of its
servicing obligations to an affiliate or agent of the Trustee in accordance
with Article III hereof. Any such delegations shall not relieve the
Trustee of its liability and responsibility with respect to such duties.
Notwithstanding the above, the Trustee shall, if it is legally unable to
act, petition a court of competent jurisdiction to appoint any established
financial institution having, in the case of an entity that is subject to
risk-based capital adequacy requirements, risk-based capital of at least
$50,000,000 or, in the case of an entity that is not subject to risk-based
capital requirements, having a net worth of not less than $50,000,000 and
whose regular business includes the servicing of credit card receivables
similar to the Receivables as the Successor Servicer hereunder.
(b) Upon its appointment, the Successor Servicer shall be the
successor in all respects to the Servicer with respect to servicing
functions under this Agreement and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof, and all references in this
Agreement to the Servicer shall be deemed to refer to the Successor
Servicer. Any Successor Servicer, by its acceptance of its appointment,
will automatically agree to be bound by the terms and provisions of each
Enhancement.
(c) In connection with such appointment and assumption, the
Trustee shall be entitled to such compensation, or may make such
arrangements for the compensation of the Successor Servicer out of
Collections, as it and such Successor Servicer shall agree; provided,
however, that no such compensation shall be in excess of the Servicing Fee
permitted to the Servicer pursuant to Section 3.2. The Transferor agrees
that if the Servicer is terminated hereunder, it will agree to deposit a
portion of the Collections in respect of Finance Charge Receivables that it
is entitled to receive pursuant to Article IV to pay its ratable share of
the compensation of the Successor Servicer.
(d) All authority and power granted to the Successor Servicer
under this Agreement shall automatically cease and terminate upon
termination of the Trust pursuant to Section 12.1 and shall pass to and be
vested in the Transferor and, without limitation, the Transferor is hereby
authorized and empowered to execute and deliver, on behalf of the Successor
Servicer, as attorney-in-fact or otherwise, all documents and other
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of such transfer of servicing rights.
The Successor Servicer agrees to cooperate with the Transferor in effecting
the termination of the responsibilities and rights of the Successor
Servicer to conduct servicing on the Receivables. The Successor Servicer
shall transfer its electronic records relating to the Receivables to the
Transferor in such electronic form as the Transferor may reasonably request
and shall transfer all other records, correspondence and documents to the
Transferor in the manner and at such times as the Transferor shall
reasonably request. To the extent that compliance with this Section 10.2
shall require the Successor Servicer to disclose to the Transferor
information of any kind which the Successor Servicer deems to be
confidential, the Transferor shall be required to enter into such customary
licensing and confidentiality agreements as the Successor Servicer shall
deem necessary to protect its interests.
Section 10.3 Notification to Securityholders. Upon the Servicer
becoming aware of any Servicer Default, the Servicer shall give prompt
written notice thereof to the Trustee and any Enhancement Provider and,
upon receipt of such written notice, the Trustee shall give notice to the
Investor Securityholders at their respective addresses appearing in the
Security Register. Upon any termination or appointment of a Successor
Servicer pursuant to this Article X, the Trustee shall give prompt written
notice thereof to Investor Securityholders at their respective addresses
appearing in the Security Register.
Section 10.4 Waiver of Past Defaults. The Holders of Investor
Securities evidencing Undivided Interests aggregating not less than 66-2/3%
of the Invested Amount of each Series materially adversely affected by any
default by the Servicer or Transferor may, on behalf of all Securityholders
of such Series, waive any default by the Servicer or Transferor in the
performance of their respective obligations hereunder and its consequences,
except a default in the failure to make any required deposits or payments
of interest or principal relating to such Series pursuant to Article IV,
which default does not result from the failure of the Paying Agent to
perform its obligations to make any required deposits or payments of
interest and principal in accordance with Article IV. Upon any such waiver
of a past default, such default shall cease to exist, and any default
arising therefrom shall be deemed to have been remedied for every purpose
of this Agreement. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereon except to the extent
expressly so waived.
[End of Article X]
ARTICLE XI
THE TRUSTEE
Section 11.1 Duties of Trustee.
(a) The Trustee, prior to the occurrence of any Servicer Default
of which a Responsible Officer of the Trustee has actual knowledge and
after the curing of all Servicer Defaults which may have occurred,
undertakes to perform such duties and only such duties as are specifically
set forth in this Agreement, and no implied covenants or duties shall be
read into this Agreement against the Trustee. If a Responsible Officer has
received written notice that a Servicer Default has occurred (and such
Servicer Default has not been cured or waived), the Trustee shall exercise
such of the rights and powers vested in it by this Agreement, and use the
same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs; provided, however, that if the Trustee shall assume the duties of
the Servicer pursuant to Section 8.5 or 10.2, the Trustee in performing
such duties shall use the degree of skill and attention customarily
exercised by a servicer with respect to comparable receivables that it
services for itself or others.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments
furnished to the Trustee that are specifically required to be furnished
pursuant to any provision of this Agreement, shall examine them to
determine whether they substantially conform to the requirements of this
Agreement. The Trustee shall retain all such items for at least one year
after receipt and shall make such items available for inspection by any
Investor Securityholder at the Corporate Trust Office, such inspection to
be made during regular business hours and upon reasonable prior notice to
the Trustee.
(c) Subject to subsection 11.1(a), no provision of this
Agreement shall be construed to relieve the Trustee from liability for its
own negligent action, its own negligent failure to act or its own
misconduct; provided, however, that:
(i) the Trustee shall not be personally liable for an error
of judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction of the Holders of Investor
Securities evidencing Undivided Interests aggregating more than 50% of
the Invested Amount of any Series relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee with respect to such Series, or exercising any trust or power
conferred upon the Trustee with respect to such Series, under this
Agreement; and
(iii) the Trustee shall not be charged with knowledge of
any failure by the Servicer referred to in clauses (a) and (b) of
Section 10.1 or of any breach by the Servicer contemplated by clause
(c) of Section 10.1 or any Pay Out Event unless a Responsible Officer
of the Trustee obtains actual knowledge of such failure, breach or
Pay-Out Event or the Trustee receives written notice of such failure,
breach or Pay Out Event from the Servicer or any Holders of Investor
Securities evidencing Undivided Interests aggregating not less than
10% of the Invested Amount of any Series adversely affected thereby.
(d) The Trustee shall not be required to expend or risk its own
funds or otherwise incur financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if
there is reasonable ground for believing that the repayment of such funds
or adequate indemnity against such risk or liability is not reasonably
assured to it, and none of the provisions contained in this Agreement shall
in any event require the Trustee to perform, or be responsible for the
manner of performance of, any of the obligations of the Servicer under this
Agreement except during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties, powers and privileges
of, the Servicer in accordance with the terms of this Agreement.
(e) Except for actions expressly authorized by this Agreement,
the Trustee shall take no action reasonably likely to impair the interests
of the Trust in any Receivable now existing or hereafter created or to
impair the value of any Receivable now existing or hereafter created.
(f) Except as provided in this Agreement, the Trustee shall have
no power to vary the corpus of the Trust.
(g) If a Responsible Officer of the Trustee, has received
written notice that the Paying Agent or the Transfer Agent and Registrar
shall fail to perform any obligation, duty or agreement in the manner or on
the day required to be performed by the Paying Agent or the Transfer Agent
and Registrar, as the case may be, under this Agreement, the Trustee shall
be obligated promptly upon its obtaining knowledge thereof by a Responsible
Officer of the Trustee to perform such obligation, duty or agreement in the
manner so required.
(h) If the Transferor has agreed to transfer any of its open-end
revolving credit card receivables (other than the Receivables) to another
Person, upon the written request of the Transferor, the Trustee on behalf
of the Trust will enter into such intercreditor agreements with the
transferee of such receivables as are customary and necessary to identify
separately the rights, if any, of the Trust and such other Person in the
Transferor's open-end revolving credit card receivables; provided, however,
that the Trust shall not be required to enter into any intercreditor
agreement that could adversely affect the interests of the Securityholders
or the Trustee and, upon the request of the Trustee, the Transferor will
deliver an Opinion of Counsel on any matters relating to such intercreditor
agreement, reasonably requested by the Trustee.
Section 11.2 Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 11.1:
(a) the Trustee may rely on and shall be protected in acting on,
or in refraining from acting in accordance with, the initial report, the
Daily Report, the Settlement Statement, the annual Servicer's certificate,
the monthly payment instructions and notification to the Trustee, the
monthly Securityholder's statement, any resolution, Officer's Certificate,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond or other
paper or document believed by it to be genuine and to have been signed or
presented to it pursuant to this Agreement by the proper party or parties;
(b) the Trustee may consult with counsel, and the advice or any
Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken or suffered or omitted by it hereunder in
good faith and in accordance with such advice or Opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement or any Enhancement, or
to institute, conduct or defend any litigation hereunder or in relation
hereto, at the request, order or direction of any of the Securityholders or
any Enhancement Provider, pursuant to the provisions of this Agreement,
unless such Securityholders or Enhancement Provider shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby; nothing contained
herein shall, however, relieve the Trustee of the obligations, upon the
occurrence of any Servicer Default (which has not been cured or waived) of
which a Responsible Officer of the Trustee has knowledge, to exercise such
of the rights and powers vested in it by this Agreement and any
Enhancement, and to use the same degree of care and skill in its exercise
as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs;
(d) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Agreement;
(e) the Trustee shall not be bound to make any investigation
into the facts of matters stated in the initial report, the Daily Report,
the Settlement Statement, the annual Servicer's certificate, the monthly
payment instructions and notification to the Trustee, the monthly
Securityholders statement, any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing so to do by
Holders of Investor Securities evidencing Undivided Interests aggregating
more than 50% of the Invested Amount of any Series which could be adversely
affected if the Trustee does not perform such acts;
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian, and the Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent,
attorney or custodian appointed with due care by it hereunder;
(g) except as may be required by subsection 11.1(a), the Trustee
shall not be required to make any initial or periodic examination of any
documents or records related to the Accounts or the Receivables for the
purpose of establishing the presence or absence of defects, the compliance
by the Transferor with its representations and warranties or for any other
purpose;
(h) whenever in the administration of this Agreement the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officer's Certificate; and
(i) the right of the Trustee to perform any discretionary act
enumerated in this Agreement or any Supplement or Enhancement shall not be
construed as a duty, and the Trustee shall not be answerable for
performance of any such act.
Section 11.3 Trustee Not Liable for Recitals in Securities. The
Trustee assumes no responsibility for the correctness of the recitals
contained herein and in the Securities (other than the certificate of
authentication on the Securities). Except as set forth in Section 11.15,
the Trustee makes no representations as to the validity or sufficiency of
this Agreement or of the Securities (other than the certificate of
authentication on the Securities) or of any Receivable or related document.
The Trustee shall not be accountable for the use or application by the
Transferor of any of the Securities or of the proceeds of such Securities,
or for the use or application of any funds paid to the Transferor in
respect of the Receivables or deposited in or withdrawn from the Collection
Account, the Excess Funding Account, the Principal Account or the Interest
Funding Account, or any Series Account or other accounts now or hereafter
established to effectuate the transactions contemplated herein and in
accordance with the terms hereof. The Trustee shall have no responsibility
for filing any financing or continuation statement in any public office at
any time or to otherwise perfect or maintain the perfection of any security
interest or Lien granted to it hereunder (unless the Trustee shall have
become the Successor Servicer) or to prepare or file any Securities and
Exchange Commission filing for the Trust or to record this Agreement or any
Supplement.
Section 11.4 [Reserved].
Section 11.5 The Servicer to Pay Trustee's Fees and Expenses.
The Servicer covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to receive, reasonable compensation
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by
the Trustee in the execution of the trust hereby created and in the
exercise and performance of any of the powers and duties hereunder of the
Trustee, and, subject to Section 8.4, the Servicer will pay or reimburse
the Trustee (without reimbursement from any Investor Account, any Series
Account or otherwise) upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance
with any of the provisions of this Agreement (including the reasonable fees
and expenses of its agents and counsel) except any such expense,
disbursement or advance as may arise from its own negligence or bad faith
and except as provided in the following sentence. If the Trustee is
appointed Successor Servicer pursuant to Section 10.2, the provisions of
this Section 11.5 shall not apply to expenses, disbursements and advances
made or incurred by the Trustee in its capacity as Successor Servicer
(which shall be covered out of the Servicing Fee).
The obligations of the Servicer under this Section 11.5 shall
survive the termination of the Trust and the resignation or removal of the
Trustee.
Section 11.6 Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times (a) be a corporation organized and doing
business under the laws of the United States of America or any state
thereof authorized under such laws to exercise corporate trust powers,
having a long-term unsecured debt rating of at least Baa3 by Moody's,
having, in the case of an entity that is subject to risk-based capital
adequacy requirements, risk-based capital of at least $50,000,000 or, in
the case of an entity that is not subject to risk-based capital adequacy
requirements, having a combined capital and surplus of at least $50,000,000
and subject to supervision or examination by federal or state authority and
(b) not be a Related Person. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purpose of this
Section 11.6, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee
shall cease to be eligible in accordance with the provisions of this
Section 11.6, the Trustee shall resign immediately in the manner and with
the effect specified in Section 11.7.
Section 11.7 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign and be discharged from
the Trust hereby created by giving written notice thereof to the Servicer.
Upon receiving such notice of resignation, the Servicer shall promptly
appoint a successor trustee by written instrument, in duplicate, one copy
of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted such appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition
any court of competent jurisdiction for the appointment of a successor
trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 11.6 hereof and shall fail to
resign after written request therefor by the Transferor, or if at any time
the Trustee shall be legally unable to act, or shall be adjudged bankrupt
or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Transferor may, but shall not be
required to, remove the Trustee and promptly appoint a successor trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee.
(c) If (i) the Trustee shall fail to perform any of its
obligations hereunder, (ii) a Securityholder shall deliver written notice
of such failure to the Trustee, and (iii) the Trustee shall not have
corrected such failure for 60 days thereafter, then the Holders of Investor
Securities representing more than 50% of the Invested Amount (including
related commitments of holders of Variable Funding Securities) shall have
the right to remove the Trustee and (with the consent of the Transferor,
which shall not be unreasonably withheld) promptly appoint a successor
trustee by written instrument, in duplicate, one copy of which instrument
shall be delivered to the Trustee so removed and one copy to the successor
trustee.
(d) Any resignation or removal of the Trustee and appointment of
a successor trustee pursuant to any of the provisions of this Section 11.7
shall not become effective until acceptance of appointment by the successor
trustee as provided in Section 11.8 hereof and any liability of the Trustee
arising hereunder shall survive such appointment of a successor trustee.
Notice of any resignation or removal of the Trustee and appointment of a
successor trustee shall be provided to Moody's and Standard & Poor's by the
Servicer in a prompt manner.
Section 11.8 Successor Trustee.
(a) Any successor trustee appointed as provided in Section 11.7
hereof shall execute, acknowledge and deliver to the Transferor and to its
predecessor Trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor Trustee shall
become effective and such successor trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder, with the like effect
as if originally named as Trustee herein. The predecessor Trustee shall
deliver to the successor trustee all documents and statements held by it
hereunder, and the Transferor and the predecessor Trustee shall execute and
deliver such instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the successor
trustee all such rights, powers, duties and obligations.
(b) No successor trustee shall accept appointment as provided in
this Section 11.8 unless at the time of such acceptance such successor
trustee shall be eligible under the provisions of Section 11.6 hereof.
(c) Upon acceptance of appointment by a successor trustee as
provided in this Section 11.8, such successor trustee shall mail notice of
such succession hereunder to all Securityholders at their addresses as
shown in the Security Register.
Section 11.9 Merger or Consolidation of Trustee. Any Person
into which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of
the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible under the provisions of Section 11.6 hereof,
without the execution or filing of any paper or any further act on the part
of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 11.10 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Agreement, at
any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust may at the time be located, the
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or
separate trustee or separate trustees, of all or any part of the Trust, and
to vest in such Person or Persons, in such capacity and for the benefit of
the Securityholders, such title to the trust, or any part thereof, and,
subject to the other provisions of this Section 11.10, such powers, duties,
obligations, rights and trusts as the Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required
to meet the terms of eligibility as a successor trustee under Section 11.6
and no notice to Securityholders of the appointment of any co-trustee or
separate trustee shall be required under Section 11.8. The Trustee shall
provide written notice to each Rating Agency of any co-trustee or separate
trustee so appointed .
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions
and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-
trustee jointly (it being understood that such separate trustee or co-
trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any laws of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every
instrument appointing any separate trustee or co-trustee shall refer to
this Agreement and the conditions of this Article XI. Each separate
trustee and co-trustee, upon its acceptance of the trusts conferred, shall
be vested with the estates or property specified in its instrument of
appointment, either jointly with the Trustee or separately, as may be
provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement or Enhancement
relating to the conduct of, affecting the liability of, or affording
protection to, the Trustee. Every such instrument shall be filed with the
Trustee and a copy thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee as its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under
or in respect to this Agreement on its behalf and in its name. If any
separate trustee or co-trustee shall die, become incapable of acting,
resign or be removed, all of its estates, properties, rights, remedies and
trusts shall vest in and be exercised by the Trustee, to the extent
permitted by law, without the appointment of a new or successor trustee.
Section 11.11 Tax Returns. Consistent with Section 3.7, the
Trustee shall not, except as required by law, file any United States
federal income tax returns on behalf of the Trust; provided, however, that
if a class of Securities is issued that will be characterized (in the sole
and absolute discretion of the Transferor) as equity interests in a
partnership for federal income tax purposes, partnership information
returns for the Trust shall be prepared and signed by the Transferor, as
general partner, and the Transferor shall act as the "Tax Matters Partner"
(as defined in Section 6231(a)(7) of the Internal Revenue Code). In the
event the Trust shall be required to file tax returns, the Servicer shall
at its expense prepare or cause to be prepared any tax returns required to
be filed by the Trust and, to the extent possible, shall remit such returns
to the Trustee for signature at least five days before such returns are due
to be filed. The Trustee is hereby authorized to sign any such return on
behalf of the Trust. The Servicer shall prepare or shall cause to be
prepared all tax information required by law to be distributed to
Securityholders and shall deliver such information to the Trustee at least
five days prior to the date it is required by law to be distributed to
Securityholders. The Trustee, upon request, will furnish the Servicer with
all such information known to the Trustee as may be reasonably required in
connection with the preparation of all tax returns of the Trust and shall,
upon request, execute such return. In no event shall the Trustee be liable
for any liabilities, costs or expenses of the Trust, the Investor
Securityholders or the Security Owners arising under any tax law, including
without limitation federal, state, local or foreign income or excise taxes
or any other tax imposed on or measured by income (or any interest or
penalty or addition with respect thereto or arising from a failure to
comply therewith).
Section 11.12 Trustee May Enforce Claims Without Possession of
Securities. All rights of action and claims under this Agreement or any
Series of Securities may be prosecuted and enforced by the Trustee without
the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, be for the ratable benefit of any Series of
Securityholders in respect of which such judgment has been obtained.
Section 11.13 Suits for Enforcement. If a Servicer Default of
which a Responsible Officer of the Trustee has knowledge shall occur and be
continuing, the Trustee, in its discretion may, subject to the provisions
of Section 10.1, proceed to protect and enforce its rights and the rights
of any Series of Securityholders under this Agreement by a suit, action or
proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or in
aid of the execution of any power granted in this Agreement or for the
enforcement of any other legal, equitable or other remedy as the Trustee,
being advised by counsel, shall deem most effectual to protect and enforce
any of the rights of the Trustee or any Series of Securityholders.
Section 11.14 Rights of Securityholders to Direct Trustee.
Holders of Investor Securities representing more than 50% of the Aggregate
Invested Amount (or, with respect to any remedy, trust or power that does
not relate to all Series, 50% of the aggregate Invested Amount of the
Investor Securities of all Series to which such remedy, trust or power
relates) shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee; provided, however,
that Holders of Investor Securities representing more than 50% of the
aggregate Invested Amount of any Class may direct the Trustee to exercise
its rights under Section 8.6; provided, further, that, subject to Section
11.1, the Trustee shall have the right to decline to follow any such
direction if the Trustee being advised by counsel determines that the
action so directed may not lawfully be taken, or if the Trustee in good
faith shall, by a Responsible Officer or Responsible Officers of the
Trustee, determine that the proceedings so directed would be illegal or
involve it in personal liability or be unduly prejudicial to the rights of
Securityholders not parties to such direction; and provided, further that
nothing in this Agreement shall impair the right of the Trustee to take any
action deemed proper by the Trustee and which is not inconsistent with such
direction of such Holders of Investor Securities.
Section 11.15 Representations and Warranties of Trustee. The
Trustee represents and warrants that:
(i) the Trustee is a corporation organized, existing and
authorized to engage in the business of banking under the laws of the
State of its incorporation;
(ii) the Trustee is an entity that satisfies the
eligibility requirements of Section 11.6;
(iii) the Trustee has full power, authority and right to
execute, deliver and perform this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Agreement; and
(iv) this Agreement has been duly executed and delivered by
the Trustee.
Section 11.16 Maintenance of Office or Agency. The Trustee will
maintain at its expense an office or offices, or agency or agencies, where
notices and demands to or upon the Trustee in respect of the Securities and
this Agreement may be served. The Trustee initially appoints its Corporate
Trust Office as its office for such purposes. The Trustee will give prompt
written notice to the Servicer and to Securityholders (or in the case of
Holders of Bearer Securities, in the manner provided for in the related
Supplement) of any change in the location of the Security Register or any
such office or agency.
[End of Article XI]
ARTICLE XII
TERMINATION
Section 12.1 Termination of Trust.
(a) The respective obligations and responsibilities of the
Transferor, the Servicer and the Trustee created hereby (other than the
obligation of the Trustee to make payments to Securityholders as hereafter
set forth) shall terminate, except with respect to the duties described in
Sections 7.4, 8.4 and 11.5 and subsection 12.3(b), on the Trust Termination
Date; provided, however, that the Trust shall not terminate on the date
specified in clause (i) of the definition of "Trust Termination Date" if
each of the Servicer and the Holder of the Exchangeable Transferor Security
notify the Trustee in writing, not later than five Business Days preceding
such date, that they desire that the Trust not terminate on such date,
which notice (such notice, a "Trust Extension") shall specify the date on
which the Trust shall terminate (such date, the "Extended Trust Termination
Date"); provided, however, that the Extended Trust Termination Date shall
be not later than May 26, 2095. The Servicer and the Holder of the
Exchangeable Transferor Security may, on any date following the Trust
Extension, so long as no Series of Securities is outstanding, deliver a
notice in writing to the Trustee changing the Extended Trust Termination
Date.
(b) In the event that (i) the Trust has not terminated by the
Distribution Date occurring in the second month preceding the Trust
Termination Date, and (ii) the Invested Amount of any Series, exclusive of
any Transferor Retained Class (after giving effect to all transfers,
withdrawals, deposits and drawings to occur on such date and the payment of
principal on any Series of Securities to be made on the related
Distribution Date during such month pursuant to Article IV), would be
greater than zero, the Servicer shall sell within 30 days after such
Transfer Date an amount of Receivables up to the remaining Invested Amount
if it can do so in a commercially reasonable manner. The Servicer shall
notify each Enhancement Provider of the proposed sale of the Receivables
and shall provide each Enhancement Provider an opportunity to bid on the
Receivables. The Transferor shall have the right of first refusal to
purchase the Receivables on terms equivalent to the best purchase offer as
determined by the Trustee in its sole discretion. The proceeds of any such
sale shall be treated as Collections on the Receivables and shall be
allocated and deposited in accordance with Article IV; provided, however,
that the Trustee shall determine conclusively in its sole discretion the
amount of such proceeds which are allocable to Finance Charge Collections
and the amount of such proceeds which are allocable to Principal
Collections. During such thirty-day period, the Servicer shall continue to
collect payments on the Receivables and allocate and deposit such payments
in accordance with the provisions of Article IV.
(c) All principal or interest with respect to any Series of
Investor Securities shall be due and payable no later than the Series
Termination Date with respect to such Series. Unless otherwise provided in
a Supplement, in the event that the Invested Amount of any Series of
Securities is greater than zero, exclusive of any Class held by the
Transferor, on its Series Termination Date (the "Affected Series"), after
giving effect to all transfers, withdrawals, deposits and drawings to occur
on such date and the payment of principal to be made on such Series on such
date, and the Trustee will sell or cause to be sold, and the Trustee will
pay the proceeds to all Securityholders of such Series pro rata in final
payment of all principal of and accrued interest on such Series of
Securities or, if any Class of such Series is subordinated, in order of
their respective seniorities, an amount of Principal Receivables and the
related Finance Charge Receivables (or interests therein) up to 110% of the
Invested Amount of such Series at the close of business on such date (but
the amount of such Principal Receivables not to be more than an amount of
Receivables equal to the sum of (1) the product of (A) the Transferor
Percentage, (B) the aggregate outstanding Principal Receivables and (C) a
fraction the numerator of which is the Invested Amount of such Series on
such date and the denominator of which is the sum of the Invested Amounts
of all Series on such Date and (2) the Invested Amount of such Series).
Receivables on which the Obligor has not made the full monthly payment for
the prior months shall be deemed to be in default for purposes of this
Section 12.1(c) to the extent that the cash allocated to any Class of
Transferor Retained Securities of such Series pursuant to a sale under
Section 12.1(c) is less than the amount that would have been allocated to
the Exchangeable Transferor Security and the Transferor Retained Securities
had the proceeds from such sale been allocated pursuant to Section 4.3.
The Servicer shall notify each Enhancement Provider of the proposed sale of
such Receivables and shall provide each Enhancement Provider an opportunity
to bid on such Receivables. The Transferor shall be permitted to purchase
such Receivables in such case and shall have a right of first refusal with
respect thereto to the extent of a bona fide offer by an unrelated third
party or to the extent the Receivables represent Defaulted Receivables.
Any proceeds of such sale in excess of such principal and interest paid
shall be paid to the Holder of the Exchangeable Transferor Security. Upon
such Series Termination Date with respect to the applicable Series of
Securities, final payment of all amounts allocable to any Investor
Securities of such Series shall be made in the manner provided in Section
12.3.
Section 12.2 Optional Termination. (a) If so provided in any
Supplement, the Transferor may, but shall not be obligated to, cause a
final distribution to be made in respect of the related Series of
Securities on a Distribution Date specified in such Supplement by
depositing into the Distribution Account or the applicable Series Account,
not later than the Transfer Date preceding such Distribution Date, for
application in accordance with Section 12.3, the amount specified in such
Supplement; provided, however that if the short-term deposits or long-term
unsecured debt obligations of the Transferor are not rated at the time of
such purchase of Receivables at least P-3 or Baa3, respectively, by
Moody's, no such event shall occur unless the Transferor shall deliver to
the Trustee, with a copy to Moody's, an Officer's Certificate which shall
have attached to it the relevant fraudulent conveyance statue, if any, and
set forth the factual basis for a conclusion that such deposit into the
Distribution Account or any Series Account as provided in the related
Supplement would not constitute a fraudulent conveyance of the Transferor.
(b) The amount deposited pursuant to subsection 12.2(a) shall be
paid to the Investor Securityholders of the related Series pursuant to
Section 12.3 on the related Distribution Date following the date of such
deposit. All Securities of a Series with respect to which a final
distribution has been made pursuant to subsection 12.2(a) shall be
delivered by the Holder to, and be canceled by, the Transfer Agent and
Registrar and be disposed of in a manner satisfactory to the Trustee and
the Transferor. The Invested Amount of each Series with respect to which a
final distribution has been made pursuant to subsection 12.2(a) shall, for
the purposes of the definition of "Transferor Interest," be deemed to be
equal to zero on the Distribution Date following the making of the deposit,
and the Transferor Interest shall thereupon be deemed to have been
increased by the Invested Amount of such Series.
Section 12.3 Final Payment with Respect to any Series.
(a) Written notice of any termination, specifying the
Distribution Date upon which the Investor Securityholders of any Series may
surrender their Securities for payment of the final distribution with
respect to such Series and cancellation, shall be given (subject to at
least four Business Days' prior notice from the Servicer to the Trustee) by
the Trustee to Investor Securityholders of such Series mailed not later
than the fifth day of the month of such final distribution (or in the
manner provided by the Supplement relating to such Series) specifying (i)
the Distribution Date (which shall be the Distribution Date in the month
(x) in which the deposit is made pursuant to subsection 2.4(e), 9.2(a),
10.2(a), or 12.2(a) of the Agreement or such other section as may be
specified in the related Supplement, or (y) in which the related Series
Termination Date occurs) upon which final payment of such Investor
Securities will be made upon presentation and surrender of such Investor
Securities at the office or offices therein designated (which, in the case
of Bearer Securities, shall be outside the United States), (ii) the amount
of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made
only upon presentation and surrender of the Investor Securities at the
office or offices therein specified. The Servicer's notice to the Trustee
in accordance with the preceding sentence shall be accompanied by an
Officers' Certificate setting forth the information specified in Article V
of this Agreement covering the period during the then current calendar year
through the date of such notice and setting forth the date of such final
distribution. The Trustee shall give such notice to the Transfer Agent and
Registrar and the Paying Agent at the time such notice is given to such
Investor Securityholders.
(b) Notwithstanding the termination of the Trust pursuant to
subsection 12.1(a) or the occurrence of the Series Termination Date with
respect to any Series, all funds then on deposit in the Excess Funding
Account, the Interest Funding Account, the Principal Account, the
Distribution Account or any Series Account applicable to the related Series
shall continue to be held in trust for the benefit of the Securityholders
of the related Series and the Paying Agent or the Trustee shall pay such
funds to the Securityholders of the related Series upon surrender of their
Securities (which surrenders and payments, in the case of Bearer
Securities, shall be made only outside the United States). In the event
that all of the Investor Securityholders of any Series shall not surrender
their Securities for cancellation within six months after the date
specified in the above-mentioned written notice, the Trustee shall give a
second written notice (or, in the case of Bearer Securities, publication
notice) to the remaining Investor Securityholders of such Series upon
receipt of the appropriate records from the Transfer Agent and Registrar to
surrender their Securities for cancellation and receive the final
distribution with respect thereto. If within one and one half years after
the second notice with respect to a Series, all the Investor Securities of
such Series shall not have been surrendered for cancellation, the Trustee
may take appropriate steps or may appoint an agent to take appropriate
steps, to contact the remaining Investor Securityholders of such Series
concerning surrender of their Securities, and the cost thereof shall be
paid out of the funds in the Distribution Account or any Series Account
held for the benefit of such Investor Securityholders. The Trustee and the
Paying Agent shall pay to the Transferor upon request any monies held by
them for the payment of principal or interest which remains unclaimed for
two years. After payment to the Transferor, Investor Securityholders
entitled to the money must look to the Transferor for payment as general
creditors unless an applicable abandoned property law designates otherwise.
(c) All Securities surrendered for payment of the final
distribution with respect to such Securities and cancellation shall be
canceled by the Transfer Agent and Registrar and be disposed of in a manner
satisfactory to the Trustee and the Transferor.
Section 12.4 Termination Rights of Holder of Exchangeable
Transferor Security. Upon the termination of the Trust pursuant to Section
12.1, and after payment of all amounts due hereunder on or prior to such
termination and the surrender of the Exchangeable Transferor Security, the
Trustee shall execute a written reconveyance substantially in the form of
Exhibit F pursuant to which it shall reconvey to the Holder of the
Exchangeable Transferor Security (without recourse, representation or
warranty) all right, title and interest of the Trust in the Receivables,
whether then existing or thereafter created, all moneys due or to become
due with respect thereto (including all accrued interest theretofore posted
as Finance Charge Receivables) allocable to the Trust pursuant to any
Supplement, except for amounts held by the Trustee pursuant to subsection
12.3(b). The Trustee shall execute and deliver such instruments of
transfer and assignment, in each case prepared by the Transferor and
without recourse, representation or warranty (other than a warranty that
such property is conveyed free and clear of any Lien of any Person claiming
by or through the Trustee) as shall be reasonably requested by the Holder
of the Exchangeable Transferor Security to vest in such Holder all right,
title and interest which the Trust had in the Receivables and other Trust
Property.
[End of Article XII]
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment.
(a) This Agreement (including any Supplement) may be amended
from time to time by the Servicer, the Transferor and the Trustee, without
the consent of any of the Securityholders, (i) to cure any ambiguity, to
revise any exhibits or Schedules (other than Schedule 1), to correct or
supplement any provisions herein or thereon which may be inconsistent with
any other provisions herein or thereon or (ii) to add any other provisions
with respect to matters or questions raised under this Agreement which
shall not be inconsistent with the provisions of this Agreement; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel,
adversely affect in any material respect the interests of any of the
Investor Securityholders. Additionally, this Agreement may be amended from
time to time by the Servicer, the Transferor and the Trustee, without the
consent of any of the Securityholders, to add to or change any of the
provisions of this Agreement to provide that Bearer Securities may be
registrable as to principal, to change or eliminate any restrictions on the
payment of principal of (or premium, if any) or any interest on Bearer
Securities to comply with the Bearer Rules, to permit Bearer Securities
to be issued in exchange for Registered Securities (if then permitted by
the Bearer Rules), to permit Bearer Securities to be issued in exchange
for Bearer Securities of other authorized denominations or to permit the
issuance of Securities in uncertificated form.
This Agreement (including any Supplement), and any schedule or
exhibit thereto may also be amended from time to time by the Servicer, the
Transferor and the Trustee, without the consent of any of the
Securityholders, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement, or of
modifying in any manner the rights of the Holders of Securities; provided,
however, that (i) the Servicer shall have provided an Officer's Certificate
to the Trustee to the effect that such amendment will not materially and
adversely affect the interests of the Securityholders, (ii) such amendment
shall not, as evidenced by an Opinion of Counsel, cause the Trust to be
characterized for Federal income tax purposes as an association taxable as
a corporation or otherwise have any material adverse impact on the Federal
income taxation of any outstanding Series of Investor Securities or any
Security Owner and (iii) the Servicer shall have provided at least ten
Business Days prior written notice to each Rating Agency of such amendment
and shall have received written confirmation from each Rating Agency to the
effect that the rating of any Series or any class of any Series will not be
reduced or withdrawn as a result of such amendment; provided, further, that
such amendment shall not reduce in any manner the amount of, or delay the
timing of, distributions which are required to be made on any Investor
Security of such Series without the consent of the related Investor
Securityholder, change the definition of or the manner of calculating the
interest of any Investor Securityholder of such Series without the consent
of the related Investor Securityholder or reduce the percentage pursuant to
Subsection 13.1(b) required to consent to any such amendment, in each case
without the consent of all such Investor Securityholders.
(b) This Agreement and any Supplement may also be amended from
time to time by the Servicer, the Transferor and the Trustee with the
consent of the Holders of Investor Securities evidencing Undivided
Interests aggregating not less than 66-2/3% of the Invested Amount of each
and every Series adversely affected, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of
the Investor Securityholders of any Series then issued and outstanding;
provided, however, that no such amendment under this subsection shall (i)
reduce in any manner the amount of, or delay the timing of, distributions
which are required to be made on any Investor Security of such Series
without the consent of all of the related Investor Securityholders; (ii)
change the definition of or the manner of calculating the interest of any
Investor Securityholder of such Series without the consent of the related
Investor Securityholder or (iii) reduce the aforesaid percentage required
to consent to any such amendment, in each case without the consent of all
such Investor Securityholders.
(c) Notwithstanding anything in this Section 13.1 to the
contrary, the Supplement with respect to any Series may be amended on the
items and in accordance with the procedures provided in such Supplement.
(d) Promptly after the execution of any such amendment (other
than an amendment pursuant to paragraph (a)), the Trustee shall furnish
notification of the substance of such amendment to each Investor
Securityholder of each Series adversely affected and ten Business Days
prior to the proposed effective date for such amendment the Servicer shall
furnish notification of the substance of such amendment to each Rating
Agency providing a rating for such Series.
(e) It shall not be necessary to obtain the consent of Investor
Securityholders under this Section 13.1 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents and
of evidencing the authorization of the execution thereof by Investor
Securityholders shall be subject to such reasonable requirements as the
Trustee may prescribe.
(f) Any Supplement executed and delivered pursuant to Section
6.9 and any amendments regarding the addition or removal of Receivables
from the Trust as provided in Sections 2.6 or 2.7, executed in accordance
with the provisions hereof, shall not be considered amendments to this
Agreement for the purpose of subsections 13.1(a) and (b).
(g) In connection with any amendment, the Trustee may request an
Opinion of Counsel from the Transferor or Servicer to the effect that the
amendment complies with all requirements of this Agreement. The Trustee
may, but shall not be obligated to, enter into any amendment which affects
the Trustee's rights, duties or immunities under this Agreement or
otherwise.
Section 13.2 Protection of Right, Title and Interest to Trust.
(a) The Servicer shall cause this Agreement, all amendments
hereto and/or all financing statements and continuation statements and any
other necessary documents covering the Securityholders and the Trustee's
right, title and interest to the Trust to be promptly recorded, registered
and filed, and at all times to be kept recorded, registered and filed, all
in such manner and in such places as may be required by law fully to
preserve and protect the right, title and interest of the Securityholders
or the Trustee, as the case may be, hereunder to all property comprising
the Trust. The Servicer shall deliver to the Trustee file-stamped copies
of, or filing receipts for, any document recorded, registered or filed as
provided above, as soon as available following such recording, registration
or filing. The Transferor shall cooperate fully with the Servicer in
connection with the obligations set forth above and will execute any and
all documents reasonably required to fulfill the intent of this subsection
13.2(a).
(b) Within 30 days after the Transferor makes any change in its
name, identity or corporate structure which would make any financing
statement or continuation statement filed in accordance with paragraph (a)
above materially misleading within the meaning of Section 9-402(7) of the
UCC as in effect in the Relevant UCC State, the Transferor shall give the
Trustee written notice of any such change and shall file such financing
statements or amendments as may be necessary to continue the perfection of
the Trust's security interest in the Receivables and the proceeds thereof.
(c) Each of the Transferor and the Servicer will give the
Trustee prompt written notice of any relocation of any office from which it
services Receivables or keeps records concerning the Receivables or of its
principal executive office and whether, as a result of such relocation, the
applicable provisions of the UCC would require the filing of any amendment
of any previously filed financing or continuation statement or of any new
financing statement and shall file such financing statements or amendments
as may be necessary to continue the perfection of the Trust's security
interest in the Receivables and the proceeds thereof. Each of the
Transferor and the Servicer will at all times maintain each office from
which it services Receivables and its principal executive office within the
United States of America.
(d) The Servicer will deliver to the Trustee on or before March
31 of each year, beginning with March 31, 1996, an Opinion of Counsel,
substantially in the form of Exhibit E and upon each date that any
Supplemental Accounts are to be included in the Accounts pursuant to
subsection 2.6(c) an Opinion of Counsel substantially in the form of
Exhibit I.
Section 13.3 Limitation on Rights of Securityholders.
(a) The death or incapacity of any Investor Securityholder shall
not operate to terminate this Agreement or the Trust, nor shall such death
or incapacity entitle such Securityholder's legal representatives or heirs
to claim an accounting or to take any action or commence any proceeding in
any court for a partition or winding up of the Trust, nor otherwise affect
the rights, obligations and liabilities of the parties hereto or any of
them.
(b) No Investor Securityholder shall have any right to vote
(except with respect to the Investor Securityholders as provided in Section
13.1 hereof) or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the
Securities, be construed so as to constitute the Securityholders from time
to time as members of an association; nor shall any Investor Securityholder
be under any liability to any third person by reason of any action taken by
the parties to this Agreement pursuant to any provision hereof.
(c) No Securityholder shall have any right by virtue of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless
such Securityholder previously shall have given written notice to the
Trustee, and unless the Holders of Securities evidencing Undivided
Interests aggregating more than 50% of the Invested Amount of any Series
which may be adversely affected but for the institution of such suit,
action or proceeding, shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity
as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt
of such notice, request and offer of indemnity, shall have neglected or
refused to institute any such action, suit or proceeding; it being
understood and intended, and being expressly covenanted by each
Securityholder with every other Securityholder and the Trustee, that no one
or more Securityholders shall have the right in any manner whatever by
virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Securityholders
of any other of the Securities, or to obtain or seek to obtain priority
over or preference to any other such Securityholder, or to enforce any
right under this Agreement, except in the manner herein provided and for
the equal, ratable and common benefit of all Securityholders. For the
protection and enforcement of the provisions of this Section 13.3, each and
every Securityholder and the Trustee shall be entitled to such relief as
can be given either at law or in equity.
Section 13.4 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO
ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 13.5 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given
if personally delivered at, sent by facsimile to, sent by courier at or
mailed by registered mail, return receipt requested, to (a) in the case of
the Transferor to 600 South Highway 169, Suite 300, St. Louis Park,
Minnesota 55426, Attention: Chief Financial Officer and General Counsel,
with a copy to the Servicer as provided below, (b) in the case of the
Servicer, 6909 East Greenway Parkway, Scottsdale, Arizona 85254,
Attention: Treasurer with a copy to 600 South Highway 169, Suite 300, St.
Louis Park, Minnesota 55426, Attention: Treasurer and General Counsel,
(c) in the case of the Trustee, to the Corporate Trust Office, (d) in the
case of the Enhancement Provider for a particular Series, the address, if
any, specified in the Supplement relating to such Series and (e) in the
case of the Rating Agency for a particular Series, the address, if any,
specified in the Supplement relating to such Series; or, as to each party,
at such other address as shall be designated by such party in a written
notice to each other party. Unless otherwise provided with respect to any
Series in the related Supplement any notice required or permitted to be
mailed to a Securityholder shall be given by first class mail, postage
prepaid, at the address of such Securityholder as shown in the Security
Register, or with respect to any notice required or permitted to be made to
the Holders of Bearer Securities, by publication in the manner provided in
the related Supplement. If and so long as any Series or Class is listed on
the Luxembourg Stock Exchange and such Exchange shall so require, any
Notice to Investor Securityholders shall be published in an authorized
newspaper of general circulation in Luxembourg within the time period
prescribed in this Agreement. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Securityholder receives such notice.
Section 13.6 Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall for
any reason whatsoever be held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other provisions of this
Agreement or of the Securities or rights of the Securityholders thereof.
Section 13.7 Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Section 8.2, this
Agreement may not be assigned by the Servicer without the prior consent of
Holders of Investor Securities representing not less than 66 2/3% of the
Invested Amount of each Series on a Series by Series basis. Upon such
assignment, the Trustee shall provide notice to Moody's in a prompt manner.
Section 13.8 Securities Non-Assessable and Fully Paid. Except
to the extent otherwise expressly provided in Section 7.4 with respect to
the Transferor, it is the intention of the parties to this Agreement that
the Investor Securityholders shall not be personally liable for obligations
of the Trust, that the Undivided Interests represented by the Securities
shall be non-assessable for any losses or expenses of the Trust or for any
reason whatsoever, and that Securities upon authentication thereof by the
Trustee pursuant to Sections 2.1 and 6.2 are and shall be deemed fully
paid.
Section 13.9 Further Assurances. The Transferor and the
Servicer agree to do and perform, from time to time, any and all acts and
to execute any and all further instruments required or reasonably requested
by the Trustee more fully to effect the purposes of this Agreement,
including, without limitation, the execution of any financing statements or
continuation statements relating to the Receivables and the other Trust
Property for filing under the provisions of the UCC of any applicable
jurisdiction.
Section 13.10 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Trustee, any
Enhancement Provider or the Investor Securityholders, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of
any other right, remedy, power or privilege. The rights, remedies, powers
and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privileges provided by law.
Section 13.11 Counterparts. This Agreement may be executed in
two or more counterparts (and by different parties on separate
counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.
Section 13.12 Third-Party Beneficiaries. This Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Securityholders and, to the extent provided in the related Supplement, to
the Enhancement Provider named therein, and their respective successors and
permitted assigns. Except as otherwise provided in this Article XIII, no
other Person will have any right or obligation hereunder.
Section 13.13 Actions by Securityholders.
(a) Wherever in this Agreement a provision is made that an
action may be taken or a notice, demand or instruction given by Investor
Securityholders, such action, notice or instruction may be taken or given
by any Investor Securityholder, unless such provision requires a specific
percentage of Investor Securityholders.
(b) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Securityholder shall bind such
Securityholder and every subsequent holder of such Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done or omitted to be done by the Trustee or the
Servicer in reliance thereon, whether or not notation of such action is
made upon such Security.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement or any
Supplement to be given or taken by Securityholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed
by such Securityholders in person or by agent duly appointed in writing;
and except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee
and, when required, to the Transferor or the Servicer. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement or any Supplement and
conclusive in favor of the Trustee, the Transferor and the Servicer, if
made in the manner provided in this Section.
(d) The fact and date of the execution by any Securityholder of
any such instrument or writing may be proved in any reasonable manner which
the Trustee deems sufficient.
Section 13.14 Rule 144A Information. For so long as any of the
Investor Securities of any Series or any Class are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, each of the
Transferor, the Servicer, the Trustee and the Enhancement Provider for such
Series agree to cooperate with each other to provide to any Investor
Securityholders of such Series or Class and to any prospective purchaser of
Securities designated by such an Investor Securityholder upon the request
of such Investor Securityholder or prospective purchaser, any information
required to be provided to such holder or prospective purchaser to satisfy
the condition set forth in Rule 144A(d)(4) under the Securities Act.
Section 13.15 Merger and Integration. Except as specifically
stated otherwise herein, this Agreement sets forth the entire understanding
of the parties relating to the subject matter hereof, and all prior
understandings, written or oral, are superseded by this Agreement. This
Agreement may not be modified, amended, waived or supplemented except as
provided herein.
Section 13.16 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
[End of Article XIII]
IN WITNESS WHEREOF, the Transferor, the Servicer and the Trustee
have caused this Agreement to be duly executed by their respective officers
as of the day and year first above written.
METRIS RECEIVABLES, INC.,
Transferor
By:_________________________________
Name:
Title:
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION, Servicer
By:_________________________________
Name:
Title:
THE BANK OF NEW YORK (DELAWARE),
Trustee
By:_________________________________
Name:
Title:
SCHEDULE 1
TAX RETURNS AND PAYMENTS
FCI (for so long as FCI owns 80% or more of the common stock of Metris) or
else Metris and its subsidiaries have filed all applicable federal, state
and material local tax returns and have paid or caused to be paid all
associated taxes due and payable on such returns or on any assessments
received by them; except that FCI (for so long as FCI owns 80% or more of
the common stock of Metris) or its subsidiaries have not filed certain tax
returns purported to be required because they believe the requirements are
invalid and unenforceable under the commerce clause of the United States
Constitution as interpreted by the Supreme Court in National Bellas Hess v.
Department of Revenue of Illinois, 386 U.S. 753 (1967) and the supporting
lines of cases, including Quill Corp. v. North Dakota, 112 S. Ct. 1904
(1992). The following are the states in which FCI (for so long as FCI owns
80% or more of the common stock of Metris) or its subsidiaries are
currently collecting sales/use taxes:
California Oklahoma
Florida Pennsylvania
Illinois South Carolina
Iowa South Dakota
Minnesota Tennessee
New York Utah
Ohio Wisconsin
Notwithstanding the Supreme Court decisions, the following states, to the
best knowledge of FCI (for so long as FCI owns 80% or more of the common
stock of Metris) or its subsidiaries, currently have legislation in effect
which purports or may purport to require FCI (for so long as FCI owns 80%
or more of the common stock of Metris) or else Metris or its subsidiaries
to collect sales or use taxes:
Alabama Iowa New Jersey Tennessee
Arizona Kansas New Mexico Texas
Arkansas Kentucky New York Utah
California Louisiana North Carolina Vermont
Colorado Massachusetts North Dakota Virginia
Connecticut Michigan Ohio Washington
Florida Minnesota Oklahoma West Virginia]
Georgia Mississippi Pennsylvania
Idaho Missouri Rhode Island
Illinois Nebraska South Carolina
Indiana Nevada South Dakota
In addition, because one of the subsidiaries of Metris, Direct
Merchants Credit Card Bank, National Association, is a national banking
entity which derives the majority of its income from Mastercard credit
cards, it may be subject to special financial institution rules in certain
states. Such rules attempt to impute state income tax nexus to a credit
card company if it obtains finance revenue and/or has credit card
receivables generated from customers in that state. Of the states that
have adopted such financial institution rules, Minnesota is the only state
where Metris and its subsidiaries are currently filing income or franchise
tax returns. States which currently have rules pursuant to which they may
attempt to impose income tax nexus based upon such credit card activity
include:
Arkansas
California
Hawaii
Indiana
Massachusetts
Minnesota
New Mexico
Tennessee
Direct Merchants Credit Card Bank, National Association has not filed in
states other than Minnesota because it believes the above referenced
financial institution rules to be unconstitutional.
SCHEDULE 2
NOMENCLATURE LIST
The following is a table listing the terms used in the Pooling and
Servicing Agreement prior to this Amended and Restated Pooling and
Servicing Agreement which have been renamed in this Amended and Restated
Pooling and Servicing Agreement. The terms used in the Pooling and
Servicing Agreement prior to this Amended and Restated Pooling and
Servicing Agreement will keep their meaning with respect to each Series
issued prior to the Amendment Closing Date and outstanding on the date
hereof consistent with this table.
Terms Used in This Amended and
Terms Used in Pooling and Servicing Restated Pooling and Servicing
Agreement Prior to Amendment Agreement
Bearer Certificate Bearer Security
Bearer Certificateholder Bearer Securityholder
Book-Entry Certificates Book-Entry Securities
Certificate Owner Security Owner
Certificate Principal Security Principal
Certificate Rate Security Rate
Certificate Register Security Register
Certificateholders Securityholders
Certificates Securities
Definitive Certificates Definitive Securities
Euro-Certificate Exchange Date Euro-Security Exchange Date
Exchangeable Transferor Certificate Exchangeable Transferor Security
Global Certificate Global Security
Investor Certificateholder Investor Securityholder
Investor Certificates Investor Securities
Investor Charge-Off Series Charge-Off
Investor Default Amount Series Default Amount
Registered Certificates Registered Securities
Supplemental Certificate Supplemental Security
Transferor Retained Transferor Retained
Certificate Security
Unfunded Certificate Unfunded Security
Variable Funding Variable Funding
Certificates Securities
EXHIBIT A
FORM OF EXCHANGEABLE TRANSFEROR SECURITY
No. 1 One Unit
METRIS MASTER TRUST
ASSET BACKED SECURITY
THIS SECURITY WAS ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY BE SOLD ONLY
PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACT OR AN
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE ACT. IN ADDITION, THE
TRANSFER OF THIS SECURITY IS SUBJECT TO RESTRICTIONS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. A COPY OF THE POOLING
AND SERVICING AGREEMENT WILL BE FURNISHED TO THE HOLDER OF THIS SECURITY BY
THE TRUSTEE UPON WRITTEN REQUEST.
This Security represents an Undivided Interest
in the Metris Master Trust
Evidencing an undivided interest in a trust, the corpus of which consists
of open-end or revolving credit receivables generated from time to time in
the ordinary course of business by Direct Merchants Credit Card Bank,
National Association ("DMCCB" or the "Servicer") and other assets and
interests constituting the Trust under the Pooling and Servicing Agreement
described below.
(Not an interest in or a recourse obligation of
Metris Receivables, Inc.,
Direct Merchants Credit Card Bank, National Association
or any Affiliate of either of them.)
This certifies that METRIS RECEIVABLES, INC. ("MRI," the "Holder"
or the "Transferor," as the context requires) is the registered owner of a
fractional undivided interest in the Metris Master Trust (the "Trust")
issued pursuant to the Amended and Restated Pooling and Servicing
Agreement, dated as of July 30, 1998 (the "Pooling and Servicing
Agreement"; such term to include any amendment or Supplement thereto) by
and among MRI, as Transferor, DMCCB, as the Servicer, and The Bank of New
York (Delaware), as Trustee (the "Trustee"), as supplemented by each
supplement thereto existing from time to time. The corpus of the Trust
will include (i) a portfolio of Receivables (the "Receivables") generated
from time to time by DMCCB satisfying certain criteria, (ii) all funds to
be collected from Obligors in respect of the Receivables, (iii) all right,
title, and interest of the Transferor in, to, and under the Purchase
Agreement, (iv) the benefit of funds on deposit in the Excess Funding
Account, (v) Recoveries, (vi) moneys on deposit in the Pre-Funding Account,
(vii) all proceeds of the foregoing, (viii) all monies and investments due
or to become due with respect thereto and all amounts received with respect
to the Receivables in existence on the Closing Date or generated
thereafter, all monies on deposit in the Collection Account, the Interest
Funding Account, the Principal Account, the Distribution Account, the Pre-
Funding Account and the Excess Funding Account (excluding any investment
earnings on such deposited amounts except for such amounts as are on
deposit in the Pre-Funding Account and the Excess Funding Account), and all
other assets and interests constituting the Trust and (ix) all proceeds of
the foregoing.
To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Pooling and Servicing Agreement.
This Security is issued under and is subject to the terms, provisions and
conditions of the Pooling and Servicing Agreement, to which Pooling and
Servicing Agreement, as amended from time to time, the Holder by virtue of
the acceptance hereof assents and by which the Holder is bound.
This Security has not been registered or qualified under the
Securities Act of 1933, as amended, or any state securities law. No sale,
transfer or other disposition of this Security shall be permitted other
than in accordance with the provisions of Section 6.3, 6.9 or 7.2 of the
Pooling and Servicing Agreement.
The Receivables arise generally from revolving consumer credit
card accounts.
This Security is the Exchangeable Transferor Security (the
"Security"), which represents an undivided interest in the Trust, including
the right to receive the Collections and other amounts at the times and in
the amounts specified in the Pooling and Servicing Agreement to be paid to
the Holder of the Exchangeable Transferor Security. The aggregate interest
represented by this Security at any time in the Principal Receivables in
the Trust shall not exceed the Transferor Interest at such time. In
addition to this Security, Series of Investor Securities will be issued to
investors pursuant to the Pooling and Servicing Agreement, each of which
will represent an Undivided Interest in the Trust. This Security shall not
represent any interest in any Enhancement, except to the extent provided in
the Pooling and Servicing Agreement. The Transferor Interest on any date
of determination will be an amount equal to the aggregate amount of
Principal Receivables at the end of the day immediately prior to such date
of determination plus amounts on deposit in the Excess Funding Account and
Pre-Funding Account (but not including any investment earnings thereon)
minus the Aggregate Invested Amount at the end of such day.
The Servicer shall deposit all Collections in the Collection
Account as promptly as possible after the Date of Processing of such
Collections. Unless otherwise stated in any Supplement, throughout the
existence of the Trust, the Servicer shall allocate to the Holder of the
Security an amount equal to the product of (A) the Transferor Percentage
and (B) the aggregate amount of such Principal Collections and Finance
Charge Collections, respectively, in respect of each Monthly Period.
Notwithstanding the first sentence of this paragraph, the Servicer need not
deposit this amount or any other amounts so allocated to the Security
pursuant to the Pooling and Servicing Agreement into the Collection Account
and shall pay, or be deemed to pay, such amounts as collected to the Holder
of the Security.
DMCCB or any permitted successor or assignee, as Servicer, is
entitled to receive as servicing compensation a monthly servicing fee. The
portion of the servicing fee which will be allocable to the Holder of the
Security pursuant to the Pooling and Servicing Agreement will be payable by
the Holder of the Security and neither the Trust nor the Trustee or the
Investor Securityholders will have any obligation to pay such portion of
the servicing fee.
This Security does not represent a recourse obligation of, or any
interest in, the Transferor or the Servicer. This Security is limited in
right of payment to certain Collections respecting the Receivables, all as
more specifically set forth hereinabove and in the Pooling and Servicing
Agreement.
Upon the termination of the Trust pursuant to Section 12.1 of the
Pooling and Servicing Agreement, the Trustee shall assign and convey to the
Holder of the Security (without recourse, representation or warranty) all
right, title and interest of the Trust in the Receivables, whether then
existing or thereafter created, and all proceeds relating thereto. The
Trustee shall execute and deliver such instruments of transfer and
assignment, in each case without recourse, as shall be reasonably requested
by the Holder of the Security to vest in such Holder all right, title and
interest which the Trustee had in the Receivables.
Unless the certificate of authentication hereon has been executed
by or on behalf of the Trustee, by manual signature, this Security shall
not be entitled to any benefit under the Pooling and Servicing Agreement,
or be valid for any purpose.
IN WITNESS WHEREOF, the Transferor has caused this Security to be
duly executed.
METRIS RECEIVABLES, INC.
By:________________________________
Name:
Title:
Date:_________________
CERTIFICATE OF AUTHENTICATION
This is the Exchangeable Transferor Security referred to in the
within-mentioned Pooling and Servicing Agreement.
_______________________________
Authenticating Agent
By:____________________________
Name:
Title:
EXHIBIT B
FORM OF DAILY REPORT
[TO BE SUPPLIED]
EXHIBIT C
FORM OF SETTLEMENT STATEMENT
[TO BE SUPPLIED]
EXHIBIT D
FORM OF ANNUAL SERVICER'S CERTIFICATE
METRIS RECEIVABLES, INC.
METRIS MASTER TRUST
The undersigned, a duly authorized representative of Direct
Merchants Credit Card Bank, National Association ("DMCCB"), as Servicer,
pursuant to the Amended and Restated Pooling and Servicing Agreement dated
as of July 30, 1998 (the "Pooling and Servicing Agreement") by and among
Metris Receivables, Inc. (the "Transferor"), DMCCB, as Servicer and The
Bank of New York (Delaware), as trustee (the "Trustee") does hereby certify
that:
1. DMCCB is Servicer under the Pooling and Servicing
Agreement.
2. The undersigned is duly authorized pursuant to the
Pooling and Servicing Agreement to execute and deliver this
Certificate to the Trustee.
3. This Certificate is delivered pursuant to Section 3.5 of
the Pooling and Servicing Agreement.
4. A review of the activities of the Servicer during (the
period from the Closing Date until) (the twelve fiscal month period
ended) ________, 19__ was conducted under our supervision.
5. Based on such review, the Servicer has, to the best of
our knowledge, fully performed all its obligations under the Pooling
and Servicing Agreement throughout such period and no default in the
performance of such obligations has occurred or is continuing except
as set forth in paragraph 6 below.
6. The following is a description of each default in the
performance of the Servicer's obligations under the provisions of the
Pooling and Servicing Agreement, including any Supplement, known to us
to have been made during such period which sets forth in detail (i)
the nature of each such default, (ii) the action taken by the
Servicer, if any, to remedy each such default and (iii) the current
status of each such default:
[If applicable, insert "None."]
IN WITNESS WHEREOF, the undersigned has duly executed this
certificate this ___ day of ________, ____.
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL
ASSOCIATION, as Servicer
By:________________________________________
Name:
Title:
EXHIBIT E
FORM OF ANNUAL OPINION OF COUNSEL
The opinion set forth below, which is to be delivered pursuant to
subsection 13.2(d)(ii) of the Pooling and Servicing Agreement, may be
subject to certain qualifications, assumptions, limitations and exceptions
taken or made in the opinion of counsel delivered on the Initial Closing
Date with respect to similar matters.
No filing or other action, other than such filing or action
described in such opinion, is necessary from the date of such opinion
through ________ of the following year to continue the perfected status of
the interest of the Trust in the collateral described in the financing
statements referred to in such opinion.
EXHIBIT F
FORM OF RECONVEYANCE OF RECEIVABLES
RECONVEYANCE OF RECEIVABLES, dated as of _____ __ , 19__ by and
between METRIS RECEIVABLES, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Transferor"), and The Bank of
New York (Delaware), a banking corporation organized and existing under the
laws of the State of Delaware (the "Trustee") pursuant to the Pooling and
Servicing Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Transferor and the Trustee are parties to the
Amended and Restated Pooling and Servicing Agreement dated as of July 30,
1998 (hereinafter as such agreement may have been, or may from time to time
be, amended, supplemented or otherwise modified, the "Pooling and Servicing
Agreement") by and among the Transferor, Direct Merchants Credit Card Bank,
National Association, as Servicer, and the Trustee;
WHEREAS, pursuant to the Pooling and Servicing Agreement, the
Transferor wishes to cause the Trustee to reconvey all of the Receivables
and proceeds thereof, whether now existing or hereafter created, from the
Trust to the Transferor pursuant to the terms of Section 12.4 of the
Pooling and Servicing Agreement upon termination of the Trust pursuant to
subsection 12.1(a) of the Pooling and Servicing Agreement (as each such
term is defined in the Pooling and Servicing Agreement);
WHEREAS, the Trustee is willing to reconvey the Receivables
subject to the terms and conditions hereof;
NOW THEREFORE, the Transferor and the Trustee hereby agree as
follows:
1. Defined Terms. All terms defined in the Pooling and
Servicing Agreement and used herein shall have such defined meanings when
used herein, unless otherwise defined herein.
"Reconveyance Date" shall mean _____ __, 19__.
2. Return of Lists of Receivables. The Trustee shall deliver
to the Transferor or the bailee of the Transferor, not later than three
Business Days after the Reconveyance Date, each and every computer file or
microfiche list of Receivables delivered to the Trustee pursuant to the
terms of the Pooling and Servicing Agreement.
3. Conveyance of Receivables. (a) The Trustee does hereby
reconvey to the Transferor, without recourse, representation or warranty,
on and after the Reconveyance Date, all right, title and interest of the
Trust in and to each and every Receivable now existing and hereafter
created, all monies due or to become due with respect thereto (including
all Finance Charge Receivables), all proceeds (as defined in Section 9-306
of the UCC as in effect in the Relevant UCC State) of such Receivables,
except for amounts, if any, held by the Trustee pursuant to subsection
12.3(b) of the Pooling and Servicing Agreement.
(b) In connection with such transfer, the Trustee agrees to
execute and deliver to the Transferor on or prior to the date of this
Reconveyance, such UCC termination statements as the Transferor may
reasonably request, evidencing the release by the Trust of its lien on the
Receivables.
4. Counterparts. This Reconveyance may be executed in two or
more counterparts (and by different parties on separate counterparts), each
of which shall be an original, but all of which together shall constitute
one and the same instrument.
5. Governing Law. THIS RECONVEYANCE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS.
EXHIBIT G
FORM OF AGREED-UPON PROCEDURES
The Servicer and Trustee will engage a firm of nationally recognized
independent public accountants (who may also render other services to the
Servicer or any of its subsidiaries) to perform certain agreed-upon
procedures substantially similar to the following:
1) The accountants will obtain the Master Trust schedules showing the
daily amount of eligible accounts receivable activity (hereinafter
referred to as the "Daily Report") for 5 days within the period and
compare amounts set forth on the Daily Report representing sales, cash
advances, payments, interest income, and charge offs and miscellaneous
charges and adjustments, with the corresponding amounts set forth in
the Servicer's accounts receivable reports and recompute the
mathematical accuracy of amounts and percentages within the Daily
Report.
2) For 5 days within the period, the accountants will compare the
payments appearing on the Servicer's accounts receivable reports to an
entry on the relevant Daily Report. The accountants will compare the
cash transfers indicated on the Daily Reports to entries on the
relevant Master Trust bank statements.
3) The accountants will compare the aggregate customer balances in the
"30-59 day delinquent" and "90-119 day delinquent" categories as
reflected on the monthly Settlement Statement to the corresponding
amounts set forth in the Servicer's accounts receivable aging reports
as of 3 month-ends within the period.
4) For 5 weekly periods, the accountants will compare the beginning of
week and end of week total receivables balances on the Servicer's
accounts receivable reports with the corresponding balances on the
corresponding Daily Report and will verify the amounts of the
calculation of beginning and ending Principal Receivable balances and
beginning and ending Finance Charge Receivables balances on each Daily
Report within each weekly period.
5) For 5 days within the period, the accountants will recompute the daily
allocation of Principal and Finance Charge Collections to each series
based upon information appearing on the Daily Reports.
6) For one monthly Settlement Statement during the period, the
accountants will compare the amounts and percentages appearing therein
to the information appearing in the corresponding Daily Reports for
such month.
EXHIBIT H
FORM OF ASSIGNMENT OF RECEIVABLES IN SUPPLEMENTAL ACCOUNTS
ASSIGNMENT No. __ OF RECEIVABLES IN ADDITIONAL ACCOUNTS, dated as
of ________ __, ____ by and between METRIS RECEIVABLES, INC., a corporation
organized under the laws of the State of Delaware (the "Transferor"), and
The Bank of New York (Delaware), a banking corporation organized and
existing under the laws of the State of Delaware (the "Trustee") pursuant
to the Pooling and Servicing Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Transferor and the Trustee are parties to the
Amended and Restated Pooling and Servicing Agreement, dated as of July 30,
1998 (hereinafter as such agreement may have been, or may from time to time
be, amended, supplemented or otherwise modified, the "Pooling and Servicing
Agreement");
WHEREAS, pursuant to the Pooling and Servicing Agreement, the
Transferor wishes to designate Supplemental Accounts of the Transferor to
be included as Accounts and to convey the Receivables of such Supplemental
Accounts, whether now existing or hereafter created, to the Trust as part
of the corpus of the Trust (as each such term is defined in the Pooling and
Servicing Agreement); and
WHEREAS, the Trustee is willing to accept such designation and
conveyance subject to the terms and conditions hereof;
NOW, THEREFORE, the Transferor and the Trustee hereby agree as
follows:
(i) Defined Terms. All terms defined in the Pooling and
Servicing Agreement and used herein shall have such defined meanings
when used herein, unless otherwise defined herein.
"Addition Date" shall mean, with respect to the Supplemental
Accounts designated hereby, ____________, ____.
"Notice Date" shall mean, with respect to the Supplemental
Accounts designated hereby, _________, ______ (which shall be a date
on or prior to the fifth Business Day prior to the Addition Date with
respect to additions pursuant to subsection 2.6(a) of the Pooling and
Servicing Agreement and the tenth Business Day prior to the Addition
Date with respect to additions pursuant to subsection 2.6(b) of the
Pooling and Servicing Agreement).
(ii) Designation of Additional Accounts. The Transferor
shall deliver to the Trustee not later than five Business Days after
the Addition Date, a computer file or microfiche list containing a
true and complete list of each MasterCardregistered trademark and
VISAregistered trademark account which as of the Addition Date shall
be deemed to be an Additional Account, such accounts being identified
by account number and by the amount of Receivables in such accounts as
of the close of business on the Addition Date. Such list shall be
delivered five Business Days after the date of this Agreement and
shall be marked as Schedule l to this Assignment and, as of the
Addition Date, shall be incorporated into and made a part of this
Assignment.
(iii) Conveyance of Receivables.
The Transferor does hereby transfer, assign, set-over and
otherwise convey to the Trustee, on behalf of the Trust, for the benefit of
the Securityholders, without recourse on and after the Addition Date, all
right, title and interest of the Transferor in and to the Receivables now
existing and hereafter created in the Additional Accounts designated
hereby, all monies due or to become due with respect thereto (including all
Finance Charge Receivables) and all proceeds of such Receivables.
In connection with such transfer, the Transferor
agrees to record and file, at its own expense, a financing
statement with respect to the Receivables now existing and
hereafter created in the Additional Accounts designated hereby
(which may be a single financing statement with respect to all
such Receivables) for the transfer of accounts as defined in
Section 9 106 of the UCC as in effect in the State of Delaware
meeting the requirements of applicable state law in such manner
and such jurisdictions as are necessary to perfect the assignment
of such Receivables to the Trust, and to deliver a file-stamped
copy of such financing statement or other evidence of such filing
(which may, for purposes of this Section 3, consist of telephone
confirmation of such filing) to the Trustee on or prior to the
date of this Assignment.
In connection with such transfer, the Transferor
further agrees, at its own expense, on or prior to the date of
this Assignment to indicate in its computer files that
Receivables created in connection with the Additional Accounts
designated hereby have been transferred to the Trust pursuant to
this Assignment for the benefit of the Securityholders.
The Transferor hereby grants and transfers to the Trustee,
for the benefit of the Securityholders, a first priority perfected
security interest in all of the Transferor's right, title and interest
in, to and under the Receivables now existing and hereafter created
and arising in connection with the Additional Accounts designated
hereby, all monies due or to become due with respect thereto
(including all Finance Charge Receivables) and all proceeds of such
Receivables, and that this Assignment shall constitute a security
agreement under applicable law.
(iv) Acceptance by Trustee. The Trustee hereby
acknowledges its acceptance on behalf of the Trust for the benefit of
the Securityholders of all right, title and interest previously held
by the Transferor in and to the Receivables now existing and hereafter
created, and declares that it shall maintain such right, title and
interest, upon the trust herein set forth, for the benefit of all
Securityholders.
(v) Representations and Warranties of the Transferor. The
Transferor hereby represents and warrants to the Trust as of the
Addition Date:
Legal Valid and Binding Obligation. This Assignment
constitutes a legal, valid and binding obligation of the
Transferor enforceable against the Transferor in accordance with
its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity).
Eligibility of Accounts and Receivables. Each
Additional Account designated hereby is an Eligible Account and
each Receivable in such Additional Account is an Eligible
Receivable. No selection procedures believed by the Transferor
to be materially adverse to the interests of the Investor
Securityholders were utilized in selecting the Additional
Accounts from the available Eligible Accounts, provided, that,
the selection of newly originated Accounts is deemed not to be
materially adverse to the interests of the Investor
Securityholders.
Insolvency. The Transferor is not insolvent and,
after giving effect to the conveyance set forth in Section 3 of
this Assignment, will not be insolvent.
Security Interest. This Assignment constitutes
either (i) a valid transfer and assignment to the Trust of all
right, title and interest of the Transferor in and to Receivables
now existing and hereafter created in the Additional Accounts
designated hereby, and all proceeds (as defined in the UCC as in
effect in the State of Delaware) of such Receivables, and such
Receivables and any proceeds thereof will be held by the Trust
free and clear of any Lien of any Person claiming through or
under the Transferor or any of its Affiliates except for (x)
Liens permitted under subsection 2.5(b) of the Pooling and
Servicing Agreement, (y) the interest of the Holder of the
Exchangeable Transferor Security and (z) the Transferor's right
to receive interest accruing on, and investment earnings in
respect of, the Finance Charge Account and the Principal Account
as provided in the Pooling and Servicing Agreement; or (ii) a
grant of a security interest (as defined in the UCC as in effect
in the State of Delaware) in such property to the Trust, which is
enforceable with respect to the existing Receivables of the
Additional Accounts designated hereby and the proceeds (as
defined in the UCC as in effect in the State of Delaware) thereof
upon the conveyance of such Receivables to the Trust, and which
will be enforceable with respect to the Receivables thereafter
created in respect of Additional Accounts designated hereby and
the proceeds (as defined in the UCC as in effect in the State of
Delaware) thereof upon such creation; and provided, further, that
if this Assignment constitutes the grant of a security interest
to the Trust in such property pursuant to subsection (ii) above,
upon the filing of a financing statement described in Section 3
of this Assignment with respect to the Additional Accounts
designated hereby and in the case of the Receivables of such
Additional Accounts thereafter created and the proceeds (as
defined in the UCC as in effect in the State of Delaware) thereof
upon such creation, the Trust shall have a first priority
perfected security interest in such property, except for Liens
permitted under subsection 2.5(b) of the Pooling and Servicing
Agreement.
(vi) Conditions Precedent. The acceptance by the Trustee
set forth in Section 4 and the amendment of the Pooling and Servicing
Agreement set forth in Section 7 are subject to the satisfaction, on
or prior to the Addition Date, of the following conditions precedent:
Officer's Certificate. The Transferor shall have
delivered to the Trustee a certificate of a Vice President or
more senior officer substantially in the for: of Schedule 2
hereto, certifying that (i) all requirements set forth in Section
2.6 of the Pooling and Servicing Agreement for designating
Additional Accounts and conveying the Principal Receivables of
such Accounts, whether now existing or hereafter created, have
been satisfied and (ii) each of the representations and
warranties made by the Transferor in Section 5 is true and
correct as of the Addition Date. The Trustee may conclusively
rely on such Officer's Certificate, shall have no duty to make
inquiries with regard to the matters set forth therein, end shall
incur no liability In so relying.
Opinion of Counsel. The Transferor shall have
delivered to the Trustee an Opinion of Counsel with respect to
the Additional Accounts designated hereby substantially in the
form of Exhibit I to the Pooling and Servicing Agreement.
Additional Information. The Transferor shall have
delivered to the Trustee such information as was reasonably
requested by the Trustee to satisfy itself as to the accuracy of
the representation and warranty set forth in subsection 5(d) to
this Agreement.
(vii) Amendment of the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement is hereby amended to provide that
all references therein to the "Pooling and Servicing Agreement," to
"this Agreement" and "herein" shall be deemed from and after the
Addition Date to be a dual reference to the Pooling and Servicing
Agreement as supplemented by this Assignment. Except as expressly
amended hereby, all of the representations, warranties, terms,
covenants and conditions of the Pooling and Servicing Agreement shall
remain unamended and shall continue to be, and shall remain, in full
force and effect in accordance with its terms and except as expressly
provided herein shall not constitute or be deemed to constitute a
waiver of compliance with or a consent to noncompliance with any term
or provision of the Pooling and Servicing Agreement.
(viii) Counterparts. This Assignment may be executed in
two or more counterparts (and by different parties on separate
counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.
(ix) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO ITS CONFLICT OF LAW PROVISIONS.
IN WITNESS WHEREOF, the undersigned have caused this Assignment
of Receivables in Additional Accounts to be duly executed and delivered by
their respective duly authorized officers on the day and year first above
written.
METRIS RECEIVABLES, INC.
By:________________________________
Name:
Title:
THE BANK OF NEW YORK (DELAWARE)
By:_______________________________
Name:
Title:
Schedule 1
to Assignment of
Receivables in
Supplemental Accounts
SUPPLEMENTAL ACCOUNTS
Schedule 2
to Assignment of
Receivables in
Supplemental Accounts
Metris Receivables, Inc.
Metris Master Trust
Officer's Certificate
____________________, a duly authorized officer of Metris
Receivables, Inc., a Delaware corporation (the "Transferor"), hereby
certifies and acknowledges on behalf of the Bank that to the best of his
knowledge the following statements are true on ______, ____, (the "Addition
Date"), and acknowledges on behalf of the Bank that this Officer's
Certificate will be relied upon by The Bank of New York (Delaware) as
Trustee (the "Trustee") of the Metris Master Trust in connection with the
Trustee entering into Assignment No. of Receivables in Supplemental
Accounts, dated as of the Addition Date (the "Assignment"), by and between
the Bank and the Trustee, in connection with the Amended and Restated
Pooling and Servicing Agreement, dated as of July 30, 1998, as heretofore
supplemented and amended (the "Pooling and Servicing Agreement") pursuant
to which the Transferor and the Trustee are parties. The undersigned
hereby certifies and acknowledges on behalf of the Bank that:
On or prior to the Addition Date, the Bank has delivered to the
Trustee the Assignment (including an acceptance by the Trustee on behalf of
the Trust for the benefit of the Investor Securityholders) and the Bank has
indicated in its computer files that the Receivables created in connection
with the Supplemental Accounts have been transferred to the Trust and
within five Business Days after the Addition Date the Bank shall deliver to
the Trustee a [computer file or] microfiche list containing a true and
complete list of all Supplemental Accounts identified by account number and
the aggregate amount of the Receivables in such Supplemental Accounts as of
the Addition Date, which computer file or microfiche list shall be as of
the date of such Assignment, incorporated into and made a part of such
Assignment and the Pooling and Servicing Agreement.
Legal Valid and Binding Obligation. The Assignment constitutes
a legal, valid and binding obligation of the Bank, enforceable against the
Bank in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general except as such enforceability may be limited
by general principles of equity (whether considered in a suit at law or in
equity).
Accounts. Each Supplemental Account designated Pursuant to the
Assignment is an Eligible Account. No selection procedures believed by the
Bank to be materially adverse to the interests of the Investor
Securityholders were utilized in selecting the Additional Accounts from the
available Eligible Accounts, provided, that, the selection of newly
originated Accounts is deemed not to be materially adverse to the interests
of the Investor Securityholders.
Insolvency. The Bank is not insolvent and, after giving effect
to the conveyance set forth in Section 3 of the Assignment, will not be
insolvent.
Security Interest. The Assignment constitutes either (i) a
valid transfer and assignment to the Trust of all right, title and interest
of the Bank in and to Receivables now existing and hereafter created in the
Supplemental Accounts designated pursuant to the Assignment and all
proceeds (as defined in the UCC as in effect in the State of Delaware) of
such Receivables, and such Receivables and any proceeds thereof will be
held by the Trust free and clear of any Lien of any Person claiming through
or under the Transferor or any of its Affiliates except for (x) Liens
permitted under subsection 2.5(b) of the Pooling and Servicing Agreement,
(y) the interest of the Bank as holder of the Exchangeable Transferor
Security and (z) the Bank's right to receive interest accruing on, and
investment earnings in respect of, the Finance Charge Account and the
Principal Account or any Series Account as provided in the Pooling and
Servicing Agreement and any Supplement; or (ii) a grant of a security
interest (as defined in the UCC as in effect in the State of Delaware) in
such property to the Trust, which is enforceable with respect to the
existing Receivables of the Additional Accounts designated pursuant to the
Assignment and the proceeds (as defined in the UCC as in effect in the
State of Delaware) thereof upon the conveyance of such Receivables to the
Trust, and which will be enforceable with respect to the Receivables
thereafter created in respect of Additional Accounts designated pursuant to
the Assignment and the proceeds (as defined in the UCC as in effect in the
State of Delaware) thereof upon such creation; and provided, further, that
if the Assignment constitutes the grant of a security interest to the Trust
in such property pursuant to subsection (ii) above, upon the filing of a
financing statement described in Section 3 of the Assignment with respect
to the Additional Accounts designated pursuant to the Assignment and in the
case of the Receivables of such Additional Accounts thereafter created and
the proceeds (as defined in the UCC as in effect in the State of Delaware)
thereof upon such creation, the Trust shall have a first priority perfected
security Interest in such property, except for Liens permitted under
subsection 2.5(b) of the Pooling and Servicing Agreement.
Requirements of Pooling and Servicing Agreement. All
requirements set forth in Section 2.6 of the Pooling and Servicing
Agreement for designating Additional Accounts and conveying the Principal
Receivables of such Accounts, whether now existing or hereafter created,
have been satisfied.
Initially capitalized terms used herein and not otherwise defined
are used as defined in the Pooling and Servicing Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand this ___________
day of ________ ____.
METRIS RECEIVABLES, INC.
By:_______________________________
Name:
Title:
EXHIBIT I
FORM OF OPINION OF COUNSEL REGARDING SUPPLEMENTAL ACCOUNTS
PROVISIONS TO BE INCLUDED IN OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 2.6(d)(vi)
OF THE POOLING AND SERVICING AGREEMENT
The opinions set forth below may be subject to certain
qualifications, assumptions, limitations and exceptions taken or made in
the opinion of the Transferor's counsel with respect to similar matters
delivered on the Closing Date. Such counsel may rely as to factual matters
on certificates of officers of the Transferor and the Servicer.
(i) The Assignment has been duly authorized, executed and
delivered by the Transferor and constitutes the valid and legally binding
agreement of the Transferor, enforceable against the Transferor in
accordance with its terms, except (x) to the extent that the enforceability
thereof may be limited by (a) bankruptcy, insolvency, receivership,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and the rights of creditors of
Delaware chartered banks as the same may be applied in the event of the
bankruptcy, insolvency, receivership, reorganization, moratorium or other
similar event in respect of the Transferor, and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding
at law or in equity).
(ii) The provisions of the Pooling and Servicing Agreement are
effective to create, in favor of the Trustee, a valid security interest (as
such term is defined in Section 1-201(37) of the Delaware UCC) in all of
the Transferor's right, title and interest in that portion of the
Receivables which constitutes accounts, general intangibles or chattel
paper under the Delaware UCC and proceeds thereof which security interest
if characterized as a transfer for security will secure all Secured
Obligations and which security interest if characterized as a sale of
accounts will constitute a valid sale of all of the Transferor's right,
title and interest in and to the Receivables and the proceeds thereof.
(iii) A Uniform Commercial Code financing statement having been
filed in the appropriate recording offices, the security interest (as such
term is defined in Section 1-201(37) of the Relevant UCC) in favor of the
Trustee in the Receivables and proceeds thereof has been perfected, and
under the Relevant UCC no other security interest of any other creditor of
the Transferor will be equal or prior to the security interest of the
Trustee in such Receivables and the proceeds thereof.
EXHIBIT J
FORM OF REASSIGNMENT OF RECEIVABLES
REASSIGNMENT NO. OF RECEIVABLES, dated as of ,
, by and between METRIS RECEIVABLES, INC., a corporation organized and
existing under the laws of the States of Delaware (the "Transferor"), and
THE BANK OF NEW YORK (DELAWARE), a banking corporation organized under the
laws of the State of Delaware (the "Trustee") pursuant to the Pooling and
Servicing Agreement referred to below.
W I T N E S S E T H
WHEREAS, the Transferor and the Trustee are parties to the
Amended and Restated Pooling and Servicing Agreement, dated as of July
30,1998 (hereinafter as such agreement may have been, or may from time to
time be, amended, supplemented or otherwise modified, the "Pooling and
Servicing Agreement") by and among the Transferor, Federated Department
Stores, Inc. as Servicer, and the Trustee;
WHEREAS, pursuant to Section 2.7 of the Pooling and Servicing
Agreement, the Transferor wishes to remove all Receivables from certain
designated Accounts (collectively, the "Removed Accounts") and to cause the
Trustee to reconvey the Receivables of such Removed Accounts, whether now
existing or hereafter created, from the Trust to the Transferor (as each
such term is defined in the Pooling and Servicing Agreement); and
WHEREAS, the Trustee is willing to accept such designation and to
reconvey the Receivables in the Removed Accounts subject to the terms and
conditions hereof.
NOW THEREFORE, the Transferor and the Trustee hereby agree as
follows:
(x) Defined Terms. All terms defined in the Pooling and
Servicing Agreement and used herein shall have such defined meanings when
used herein, unless otherwise defined herein.
"Removal Date" shall mean, with respect to the Removed Accounts
designated hereby, , .
"Removal Notice Date" shall mean, with respect to the Removed
Accounts designated hereby, , (which shall be a date on or
prior to the fifth Business Day prior to the Removal Date).
(xi) Designation of Removed Accounts. The Transferor shall
deliver to the Trustee or the bailee of the Trustee, not later than five
Business Days after the Removal Date, a computer file or microfiche list
containing a true and complete list of each revolving consumer credit card
account which as of the Removal Date shall be deemed to be a Removed
Account, such accounts being identified by account number and by the
aggregate amount of Receivables in such accounts as of the close of
business on the Removal Date. Such list shall be marked as Schedule 1 to
this Reassignment and shall be incorporated into and made a part of this
Reassignment as of the Removal Date.
(xii) Conveyance of Receivables
The Trustee does hereby reconvey to the Transferor, without
recourse, representation or warranty, on and after the Removal Date, all
right, title and interest of the Trust in and to the Receivables now
existing and hereafter created in the Removed Accounts designated hereby,
all monies due or to become due with respect thereto (including all Finance
Charge Receivables) and all proceeds (as defined in Section 9-306 of the
UCC as in effect in the [Relevant UCC State]) of such Receivables.
In connection with such transfer, the Trustee agrees to execute
and deliver to the Transferor on or prior to the date of this Reassignment,
a termination statement with respect to the Receivables now existing and
hereafter created in the Removed Accounts designated hereby evidencing the
release by the Trust of its Lien on the Receivables in the Removed
Accounts, and meeting the requirements of applicable state law, in such
manner and such jurisdictions as are necessary to remove such Lien.
(xiii) Representations and Warranties of the Transferor. The
Transferor hereby represents and warrants to the Trust as of the Removal
Date:
Legal, Valid and Binding Obligation. This Reassignment
constitutes a legal, valid and binding obligation of the Transferor
enforceable against the Transferor in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
affecting the enforcement of creditors' rights in general and except as
such enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity).
Selection Procedures. No selection procedures believed by
the Transferor to be materially adverse to the interests of the Investor
Securityholders were utilized in selecting the Removed Accounts designated
hereby.
(xiv) Conditions Precedent. The amendment of the Pooling and
servicing Agreement set forth in Section 6 hereof is subject to the
satisfaction, on or prior to the Removal Date, of the following condition
precedent:
The Transferor shall have delivered to the Trustee an
Officer's Certificate certifying that (i) as of the Removal Date, all
requirements set forth in Section 2.7 of the Pooling and Servicing
Agreement for designating Removed Accounts and reconveying the Receivables
of such Removed Accounts, whether now existing or hereafter created, have
been satisfied, and (ii) each of the representations and warranties made by
the Transferor in Section 4 hereof is true and correct as of the Removal
Date. The Trustee may conclusively rely on such Officer's Certificate,
shall have no duty to make inquiries with regard to the matters set forth
therein and shall incur no liability in so relying.
(xv) Amendment of the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement is hereby amended to provide that all
references therein to the "Pooling and Servicing Agreement", to "this
Agreement" and "herein" shall be deemed from and after the Removal Date to
be a dual reference to the Pooling and Servicing Agreement as supplemented
by this Reassignment. Except as expressly amended hereby, all of the
representations, warranties, terms, covenants and conditions of the Pooling
and Servicing Agreement shall remain unamended and shall continue to be,
and shall remain, in full force and effect in accordance with its terms and
except as expressly provided herein shall not constitute or be deemed to
constitute a waiver of compliance with or a consent to non-compliance with
any term or provision of the Pooling and Servicing Agreement.
(xvi) Counterparts. This Reassignment may be executed in two or
more counterparts, and by different parties on separate counterparts, each
of which shall be an original, but all of which together shall constitute
one and the same instrument.
(xvii) Governing Law. THIS REASSIGNMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS.
IN WITNESS WHEREOF, the undersigned have caused this Reassignment
of Receivables to be duly executed and delivered by their respective duly
authorized officers on the day and year first above written.
METRIS RECEIVABLES INC.
By:_________________________________
Name:
Title:
THE BANK OF NEW YORK (DELAWARE),
as Trustee
By:________________________________
Name:
Title:
METRIS COMPANIES INC.
Buyer
and
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION
Seller
AMENDED AND RESTATED
BANK RECEIVABLES PURCHASE AGREEMENT
Dated as of July 30, 1998
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Other Definitional Provisions . . . . . . . . . . . 8
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES . . . . . . . 9
Section 2.1 Sale . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
CONSIDERATION AND PAYMENT . . . . . . . . . . . . . . . . . . . 11
Section 3.1 Purchase Price . . . . . . . . . . . . . . . . . . 11
Section 3.2 Payment of Purchase Price . . . . . . . . . . . . . 11
Section 3.3 Daily Reports . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 12
Section 4.1 Seller's Representations and Warranties . . . . . . 12
Section 4.2 Seller's Representations and Warranties
Regarding Receivables . . . . . . . . . . . . . . 15
Section 4.3 Representations and Warranties of the Buyer . . . . 17
ARTICLE V
COVENANTS OF SELLER AND BUYER . . . . . . . . . . . . . . . . . 19
Section 5.1 Seller Covenants . . . . . . . . . . . . . . . . . 19
Section 5.2 Addition of Accounts . . . . . . . . . . . . . . . 21
Section 5.3 Buyer Covenant Regarding Sale Treatment . . . . . . 22
ARTICLE VI
OPTIONAL REPURCHASE . . . . . . . . . . . . . . . . . . . . . . 22
Section 6.1 Breach of Warranty . . . . . . . . . . . . . . . . . 22
Section 6.2 Conveyance of Reassigned Receivables . . . . . . . 23
ARTICLE VII
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.1 Conditions to the Buyer's Obligations
Regarding Receivables . . . . . . . . . . . . . . 23
Section 7.2 Conditions Precedent to the Seller's
Obligations . . . . . . . . . . . . . . . . . . . 24
ARTICLE VIII
TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . 25
Section 8.1 Term . . . . . . . . . . . . . . . . . . . . . . . 25
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . 25
ARTICLE IX
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . 26
Section 9.1 Amendment . . . . . . . . . . . . . . . . . . . . . 26
Section 9.2 Governing Law . . . . . . . . . . . . . . . . . . . 26
Section 9.3 Notices . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.4 Severability of Provisions . . . . . . . . . . . . 27
Section 9.5 Further Assurances . . . . . . . . . . . . . . . . 27
Section 9.6 No Waiver; Cumulative Remedies . . . . . . . . . . 27
Section 9.7 Counterparts . . . . . . . . . . . . . . . . . . . 27
Section 9.8 Binding Effect; Third Party Beneficiaries . . . . . 27
Section 9.9 Merger and Integration. . . . . . . . . . . . . . 28
Section 9.10 Headings . . . . . . . . . . . . . . . . . . . . . 28
Section 9.11 Schedules and Exhibits . . . . . . . . . . . . . . 28
Section 9.12 Protection of Right, Title and Interest
to Receivables . . . . . . . . . . . . . . . . . 28
Exhibit A Form of Daily Report
AMENDED AND RESTATED BANK
RECEIVABLES PURCHASE AGREEMENT
AMENDED AND RESTATED BANK RECEIVABLES PURCHASE AGREEMENT, dated
as of July 30, 1998 (the "Agreement"), by and between METRIS COMPANIES
INC., a Minnesota corporation ("Metris" or the "Buyer"), and DIRECT
MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION, a national banking
association ("Direct Merchants" or the "Seller").
W I T N E S S E T H :
WHEREAS, the Buyer desires to purchase from time to time certain
open-end or revolving credit receivables (including, without limitation,
MasterCard, Visa and private label credit card receivables) generated on or
before April 18, 1995 (the "Original Closing Date") or to be generated
after the Closing Date in the normal course of business;
WHEREAS, the Seller desires to sell and assign from time to time
such receivables to the Buyer upon the terms and conditions hereinafter set
forth;
WHEREAS, the Buyer is an Affiliate of the Seller;
WHEREAS, the Seller is the successor by merger to Direct
Merchants Credit Card Bank, National Association, a national banking
association with its principal place of business in Salt Lake City, Utah
(the "Predecessor Seller").
WHEREAS, the Predecessor Seller and Fingerhut Companies, Inc.
("Fingerhut") previously entered into that certain Amended and Restated
Bank Receivables Purchase Agreement dated as of May 26, 1995 as amended
prior hereto pursuant to which the Predecessor Seller has previously sold
to the Buyer all Receivables in all Previous Accounts (as hereinafter
defined) (the "Previously Amended and Restated Purchase Agreement");
WHEREAS, the Predecessor Seller, the Buyer and Fingerhut
previously entered into an Assignment and Assumption Agreement (the
"Assumption Agreement") dated as of September 16, 1996 in which Fingerhut
assigned to Metris all of its rights arising under the Previously Amended
and Restated Purchase Agreement and Metris agreed to assume and perform all
of Fingerhut's duties and obligations under the Previously Amended and
Restated Purchase Agreement;
WHEREAS, the Seller and the Buyer previously entered into an
Amendment and Assumption Agreement (the "Amendment and Assumption
Agreement") dated as of July 13, 1998 (the "Assumption Date") in which the
Seller assumed all of the rights and obligations of the Predecessor Seller;
WHEREAS, the parties hereto desire to amend and restate the
Previously Amended and Restated Purchase Agreement;
WHEREAS, the Seller understands that the Buyer will be re-selling
the Receivables (as defined herein) to a special purpose subsidiary, which
will in turn transfer the Receivables to a master trust pursuant to the
Pooling and Servicing Agreement (as defined herein);
NOW, THEREFORE, it is hereby agreed by and between the Buyer and
the Seller as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms used herein shall have the following
meanings assigned to them:
"Account" shall mean: (i) each revolving credit card account in
which the Predecessor Seller had rights on the Original Closing Date; (ii)
each revolving credit card account in which the Predecessor Seller acquired
rights from the Original Closing Date through the Assumption Date; (iii)
each revolving credit card account in which the Seller had rights on the
Assumption Date and (iv) each Additional Account. The definition of
Account shall include each Transferred Account but shall not include any
Accounts containing Ineligible Receivables and repurchased by the Seller
pursuant to Article VI hereof. The term "Account" shall be deemed to refer
to an Additional Account only from and after the date the Seller acquires
rights therein.
"Additional Account" shall mean each revolving credit card
account in which the Seller acquires rights after the Assumption Date other
than any Excluded Accounts.
"Affiliate" shall mean, with respect to a particular Person, any
Person that, directly or indirectly, is in control of, is controlled by, or
is under common control with, such Person.
"Assumption Date" shall mean July 13, 1998.
"Business Day" shall mean any day other than a Saturday, a Sunday
or a day on which banking institutions in Minneapolis, Minnesota,
Scottsdale, Arizona, Tulsa, Oklahoma or Omaha, Nebraska are authorized or
obligated by law or executive order to be closed.
"Collections" shall mean all payments received by the Seller in
respect of the Eligible Receivables in the form of cash, checks or any
other form of payment in accordance with the Contract in effect from time
to time on any Eligible Receivables, other than pre-paid insurance
premiums.
"Contract" shall mean an agreement between the Seller or an
Affiliate thereof and another Person for the extension of revolving credit,
including pursuant to a credit card, in the form of a written contract,
invoice, or revolving credit agreement (but shall not include any agreement
or plan relating to the extension of credit on a closed-end basis).
"Credit Adjustment" shall have the meaning set forth in Section
3.2(b) hereof.
"Credit and Collection Policy" shall mean the written policies
and procedures of the Seller relating to the operation of its consumer
revolving credit card business, including, without limitation, the written
policies and procedures for determining the creditworthiness of credit card
customers, the extension of credit to credit card customers and relating to
the maintenance of credit card accounts and collection of receivables with
respect thereto, as such policies and procedures may be amended, modified
or otherwise changed from time to time.
"Date of Processing" shall mean with respect to any transaction,
the date on which such transaction is settled according to the Seller's
computer master file of revolving credit accounts.
"Defaulted Account" shall mean each Account with respect to
which, in accordance with the Credit and Collection Policy or the Seller's
customary and usual servicing procedures, the Seller has charged off the
Receivables in such Account as uncollectible; an Account shall become a
Defaulted Account on the day on which such Receivables are recorded as
charged off as uncollectible on the Seller's computer master file of
consumer credit card revolving accounts. Notwithstanding any other
provision hereof, any Receivables in a Defaulted Account that are
Ineligible Receivables shall be treated as Ineligible Receivables rather
than Receivables in Defaulted Accounts.
"Eligible Account" shall mean, as of May 26, 1995 (or, with
respect to Additional Accounts, as of the date the Receivable arising in
such Accounts are first sold to the Buyer), each revolving credit consumer
credit card account owned by the Seller:
(a) which is payable in Dollars;
(b) the Obligor on which has provided, as its initial billing
address, an address located in the United States or its territories or
possessions or a United States military address;
(c) which has not been identified by the Seller in its computer
master file as stolen or lost;
(d) which is not at the time of sale sold or pledged to any
other party and which does not have Receivables, which at the time of sale,
are sold or pledged to any other party (provided that Receivables which
were sold or pledged prior to the Closing Date, but repurchased free of all
Liens or where all Liens were released prior to the sale hereunder, shall
not be disqualified under this clause (d));
(e) the Receivables in which the Seller has not charged off (or
required to be charged off) in its customary and usual manner for charging
off Receivables in such Accounts as of the Closing Date (or, with respect
to Additional Accounts, as of the date the Receivables of such Accounts are
sold to the Buyer) unless such Account is subsequently reinstated; and
(f) which is not an Excluded Account.
"Eligible Receivable" shall mean each Receivable that satisfies
each of the following criteria: (a) it arises under an Account, (b) it is
not sold or pledged to any other party, (c) it constitutes an "account,"
"chattel paper" or a "general intangible" as each are defined in Article 9
of the UCC as then in effect in the Relevant UCC State, (d) it is at the
time of its purchase by the Buyer the legal, valid, and binding obligation
of, or is guaranteed by, a person who is competent to enter into a contract
and incur debt, and is enforceable against such person in accordance with
its terms, (e) which was created or acquired in compliance, in all material
respects, with all Requirements of Law applicable to the Seller and
pursuant to a Contract which complies, in all material respects, with all
Requirements of Law applicable to the Seller (including, without
limitation, laws, rules and regulations relating to truth in lending,
usury, fair credit billing, fair credit reporting, equal credit opportunity
and fair debt collection practices), (f) 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
related Contract have been duly obtained or given and are in full force and
effect as of the date of the creation of such Receivables and (g)
immediately prior to giving effect to the sale, the Seller will have good
and marketable title free and clear of all Liens and security interests
arising under or through the Seller (other than Permitted Liens).
"Excluded Account" shall mean an Additional Account which the
Buyer and the Seller have elected to exclude from sale under this Agreement
in accordance Section 2.1(e) hereof.
"Finance Charge Receivables" shall mean the sum of (w) all
amounts billed from time to time to the Obligors on any Account in respect
of (i) Periodic Finance Charges, (ii) overlimit fees, (iii) late charges,
(iv) returned check fees, (v) annual membership fees and annual service
charges, if any, (vi) transaction charges, (vii) cash advance fees and
(viii) similar fees and charges, excluding fees and charges for insurance
and insurance type products, plus (y) Recoveries.
"Governmental Authority" shall mean the United States of America,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Ineligible Receivable" shall have the meaning set forth in
Section 6.1 hereof.
"Lien" shall mean any lien, security interest or other
encumbrance.
"Obligor" shall mean a Person obligated to make payments with
respect to a Receivable arising under an Account pursuant to a Contract.
"Original Closing Date" shall mean April 18, 1995.
"Periodic Finance Charges" shall have, with respect to any
Account, the meaning set forth in the Contract applicable to such Account
for finance charges (due to periodic rate) or any similar term.
"Permitted Lien" shall mean with respect to the Receivables:
Liens that secure the payment of taxes, assessments and governmental
charges or levies, if such taxes are either (a) not delinquent or (b) being
contested in good faith by appropriate legal or administrative proceedings
and as to which adequate reserves in accordance with generally accepted
accounting principles shall have been established.
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, governmental entity or other entity of
similar nature.
"Pooling and Servicing Agreement" shall mean the Amended and
Restated Pooling and Servicing Agreement, dated as of July 20, 1998, as
amended from time to time, by and among Direct Merchants Credit Card Bank,
National Association, as Servicer, Metris Receivables, Inc., as Transferor
and The Bank of New York (Delaware), as Trustee.
"Previous Accounts" shall mean all revolving credit card accounts
specified in clauses (i) and (ii) of the definition of Account.
"Principal Receivables" shall mean amounts shown on the Seller's
records as amounts payable by Obligors with respect to Eligible Receivables
on any Account other than such amounts that are Finance Charge Receivables
or Receivables in Defaulted Accounts and shall include, without limitation,
amounts payable for purchases of goods or services or cash advances. A
Receivable shall be deemed to have been created at the end of the day on
the Date of Processing of such Receivable. In calculating the aggregate
amount of Principal Receivables on any day, the amount of Principal
Receivables shall be reduced by the aggregate amount of credit balances in
the Accounts on such day.
"Purchase Price" shall have the meaning set forth in Section 3.1
hereof.
"Receivable" shall mean, with respect to any Obligor, all of the
indebtedness of such Obligor under an Account, including the right to
receive payment of any interest or finance charges and other obligations of
such Obligor with respect thereto. Each receivable includes, without
limitation, all rights of the Seller under the applicable Contract.
"Recoveries" shall mean any amounts received by the Seller with
respect to Receivables in Accounts that previously became Defaulted
Accounts.
"Relevant UCC State" shall mean each jurisdiction in which the
filing of a UCC financing statement is necessary to perfect the ownership
interest and security interest of the Buyer pursuant to this Agreement.
"Requirements of Law" for any Person shall mean the certificate
of incorporation or articles of association and by-laws or other
organizational or governing documents of such Person, and any material law,
treaty, rule or regulation, or determination of an arbitrator or
Governmental Authority, in each case applicable to or binding upon such
Person or to which such Person is subject.
"Sale Papers" shall have the meaning set forth in Section 4.1(c)
hereof.
"Secured Obligations" shall have the meaning set forth in Section
2.1(d) hereof.
"Termination Date" shall have the meaning set forth in Section
8.1 hereof.
"Transferred Account" shall mean an Account with respect to which
a new credit card account number has been issued by the Seller under
circumstances resulting from a lost or stolen credit card and not requiring
standard application and credit evaluation procedures under the Credit and
Collection Policy.
"UCC" shall mean the Uniform Commercial Code, as amended from
time to time, as in effect in the applicable jurisdiction.
Section 1.2 Other Definitional Provisions. The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this
Agreement or any Sale Paper shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; and Section, Subsection,
Schedule and Exhibit references contained in this Agreement are references
to Sections, Subsections, Schedules and Exhibits in or to this Agreement
unless otherwise specified.
[END OF ARTICLE I]
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES
Section 2.1 Sale. (a) In consideration for the Purchase Price
and upon the terms and subject to the conditions set forth herein, the
Seller does hereby sell, assign, transfer, set-over, and otherwise convey
to the Buyer, and the Buyer does hereby purchase from the Seller, on the
terms and subject to the conditions specifically set forth herein, all of
the Seller's right, title and interest in, to and under (i) the Receivables
now existing and hereafter created and arising in connection with the
Accounts and any Additional Accounts, including, without limitation, all
accounts, general intangibles, chattel paper and other obligations of any
Obligor with respect to the Receivables, now or hereafter existing, whether
or not arising out of or in connection with the sale or lease of goods or
the rendering of services, (ii) all monies and investments due or to become
due with respect thereto (including, without limitation, the right to any
Finance Charge Receivables, including any recoveries)and (iii) all proceeds
of such Receivables. The foregoing sale, transfer, assignment, set-over
and conveyance does not constitute and is not intended to result in a
creation or an assumption by the Buyer of any obligation of the Seller in
connection with the Receivables or any agreement or instrument relating
thereto, including, without limitation, any obligation to any Obligors,
merchant banks, merchant clearance systems, VISA USA, Inc., MasterCard
International Incorporated or insurers.
(b) In connection with the foregoing sale, the Seller agrees to
record and file, at the Buyer's expense, a financing statement or
statements with respect to the Receivables and the other property described
in Section 2.1(a) sold by the Seller hereunder meeting the requirements of
applicable state law in such manner and in such jurisdictions as are
necessary to perfect and protect the interests of the Buyer created hereby
under the applicable UCC against all creditors of and purchasers from the
Seller, and to deliver a file-stamped copy of such financing statements or
other evidence of such filings to the Buyer.
(c) In connection with the sale and conveyance hereunder, the
Seller agrees, at the Buyer's expense, on or prior to the Closing Date and
on each Business Day thereafter, to indicate or cause to be indicated
clearly and unambiguously in its accounting records that such Receivables
and the other property described in clauses (i), (ii) and (iii) of Section
2.1(a) have been sold to the Buyer pursuant to this Agreement as of the
Closing Date or such Business Day as applicable.
(d) It is the express intent of the Seller and the Buyer that
the conveyance of the Receivables by the Seller to the Buyer pursuant to
this Agreement be construed as a sale of such Receivables by the Seller to
the Buyer. It is, further, not the intention of the Seller and the Buyer
that such conveyance be deemed a grant of a security interest in the
Receivables by the Seller to the Buyer to secure a debt or other obligation
of the Seller. However, in the event that, notwithstanding the intent of
the parties, the Receivables are held to continue to be property of the
Seller, then (i) this Agreement also shall be deemed to be and hereby is a
security agreement within the meaning of the UCC; and (ii) the conveyance
by the Seller provided for in this Agreement shall be deemed to be and the
Seller hereby grants to the Buyer a security interest in and to all of the
Seller's right, title and interest in (w) all Receivables outstanding on
the Closing Date and thereafter created by the Seller and all rights (but
not the obligations) relating to such Receivables, (x) with respect to the
Receivables, all accounts (as defined in the applicable UCC) outstanding on
the Closing Date and thereafter created by the Seller, and all rights (but
not the obligations) relating thereto, (y) all monies due or to become due
with respect thereto and (z) all proceeds of the foregoing to secure (1)
the obligations of the Seller and (2) a loan to the Seller in the amount of
the Purchase Price as set forth in this Agreement (the "Secured
Obligations"). The Seller and the Buyer shall, to the extent consistent
with this Agreement, take such actions as may be necessary to ensure that,
if this Agreement were deemed to create a security interest in the
Receivables, such security interest would be deemed to be a perfected
security interest of first priority in favor of the Buyer under applicable
law and will be maintained as such throughout the term of this Agreement.
(e) The Buyer and the Seller may designate revolving credit card
accounts which would otherwise be Additional Accounts as Excluded Accounts.
Such designation shall be evidenced by the Seller indicating in the
appropriate computer files that receivables arising under such revolving
credit card accounts have been retained by the Seller by including in such
computer files a code identifying that each such account has been so
retained. If such designation is made after the Buyer acquires rights in
such Accounts and the Buyer has agreed to the designation of such revolving
credit card accounts as Excluded Accounts, upon receipt of payment for the
related receivables the Buyer will take such actions as may be reasonably
requested by the Seller to reconvey any Receivables relating to such
Excluded Accounts to the Seller.
[END OF ARTICLE II]
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 Purchase Price. The Purchase Price for the
Receivables and related property conveyed to the Buyer under this Agreement
shall be a dollar amount equal to, for Receivables sold on any date, the
aggregate amount of all Principal Receivables sold as of such date subject
to adjustment from time to time with respect to new Receivables to reflect
such factors as the Buyer and the Purchaser mutually agree will result in a
Purchase Price determined to approximate the fair market value of such new
Receivables.
Section 3.2 Payment of Purchase Price. (a)On each Business Day
on which Receivables are transferred hereunder, the Purchase Price shall be
paid in immediately available funds.
(b) The Purchase Price shall be adjusted on a daily basis (the
"Credit Adjustment") if the Seller adjusts downward the amount of any
Receivable because of a rebate, refund, unauthorized charge or billing
error to an Obligor, because such Receivable was created in respect of
merchandise which was refused or returned by an Obligor, or if the Seller
otherwise adjusts downward the amount of any Receivable without receiving
Collections therefor or without charging off such amount as uncollectible.
Section 3.3 Daily Reports. On each Business Day, the Seller
shall deliver to the Buyer a Daily Report (the "Daily Report") showing the
aggregate Purchase Price of Receivables generated, the aggregate amount, if
any, owing to the Buyer pursuant to Section 6.1 hereof and the aggregate
net amount of cash owing for Receivables generated in each case for the
period from and including the preceding Business Day.
[END OF ARTICLE III]
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and Warranties. Without
limiting the generality of the Amendment and Assumption Agreement, the
Seller expressly assumes responsibility for all representations and
warranties made by the Predecessor Seller under Section 4.1 and 4.2 of the
Previously Amended and Restated Purchase Agreement which are incorporated
herein by reference. The Seller represents and warrants to the Buyer as of
the Assumption Date, and as to matters involving Additional Accounts, as
of the date the Receivables of such Accounts are sold to the Buyer, that:
(a) Organization and Good Standing. The Seller is a national
banking association organized and validly existing in good standing under
the laws of the United States and has the corporate power and authority and
legal right to own its property and conduct its business as such properties
are presently owned and as such business is presently conducted and to
execute, deliver and perform its obligations under this Agreement and each
other document or instrument to be delivered by the Seller hereunder
(collectively, the "Sale Papers").
(b) Due Qualification. The Seller is duly qualified to do
business and is in good standing (or is exempt from such requirements), as
a foreign corporation in any state required in order to conduct business,
and has obtained all necessary licenses and approvals with respect to the
Seller required under applicable law; provided that no representation or
warranty is made with respect to any qualifications, licenses or approvals
which the Buyer would have to obtain to do business in any state in which
the Buyer seeks to enforce any Receivable.
(c) Due Authorization. The execution and delivery of the Sale
Papers, and the consummation of the transactions provided for herein and
therein have been duly authorized by the Seller by all necessary corporate
action on its part.
(d) Binding Obligation. Each of the Sale Papers, and the
consummation of the transactions provided for therein, constitutes a legal,
valid and binding obligation of the Seller, enforceable in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereinafter in effect, affecting the enforcement of creditors'
rights in general and as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law or in
equity).
(e) No Conflicts. The execution and delivery of the Sale Papers
and the performance of the transactions contemplated thereby, do not (i)
contravene the Seller's charter or by-laws or (ii) violate any material
provision of law applicable to it or require any filing (except for the
filings under the UCC), registration, consent or approval under, any law,
rule, regulation, order, writ, judgment, injunction, decree, determination
or award presently in effect having applicability to the Seller, except for
such filings, registrations, consents or approvals as have already been
obtained and are in full force and effect.
(f) Taxes. The Seller has filed all material tax returns
required to be filed and has paid or made adequate provision for the
payment of all material taxes, assessments and other governmental charges
due from the Seller or is contesting any such tax, assessment or other
governmental charge in good faith through appropriate proceedings.
(g) No Violation. The execution and delivery of the Sale
Papers, the performance of the transactions contemplated by the Sale Papers
and the fulfillment of the terms thereof, will not violate any Requirements
of Law applicable to the Seller, will not violate, result in any breach of
any of the material terms and provisions of or constitute (with or without
notice or lapse of time or both) a default under any Requirement of Law
applicable to the Seller, or any material indenture, contract, agreement,
mortgage, deed of trust or other material instrument to which the Seller is
a party or by which it or its properties are bound.
(h) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Seller, threatened against the
Seller before any Governmental Authority (i) asserting the invalidity of
the Sale Papers, (ii) seeking to prevent the consummation of any of the
transactions contemplated thereby, (iii) seeking any determination or
ruling that would materially and adversely affect the performance by the
Seller of its obligations thereunder or (iv) seeking any determination or
ruling that would materially and adversely affect the validity or
enforceability thereof.
(i) All Consents Required. All approvals, authorizations,
consents, orders or other actions of any Governmental Authority required in
connection with the execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale Papers and the
fulfillment of the terms hereof and thereof, have been obtained.
(j) Bona Fide Receivables. The Seller has no knowledge of any
fact which should have led it to expect at the time of the classification
of any Receivable as an Eligible Receivable that such Receivable would not
be paid in full when due, and each Receivable classified as an Eligible
Receivable by the Seller in any document or report delivered under this
Agreement satisfies the requirements of eligibility contained in the
definition of Eligible Receivable set forth herein.
(k) Place of Business. The principal executive offices of the
Seller are in Scottsdale, Arizona and the offices where the Seller keeps
its records concerning the Receivables and related Contracts are in
Scottsdale, Arizona, [Salt Lake City, Utah], Omaha, Nebraska, Hennepin
County, Minnesota, Tulsa, Oklahoma and St. Cloud, Minnesota.
(l) Use of Proceeds. No proceeds of the sale of any Receivable
hereunder received by the Seller will be used by the Seller to purchase or
carry any margin stock.
(m) Not an Investment Company. The Seller is not an "investment
company" within the meaning of the Investment Company Act, or is exempt
from all provisions of such Act.
The representations and warranties set forth in this Section 4.1
shall survive the sale of the Receivables to the Buyer. The Seller hereby
represents and warrants to the Buyer, that the representations and
warranties of the Seller set forth in Section 4.1 are true and correct as
of such date. Upon discovery by the Seller or the Buyer of a material
breach of any of the foregoing representations and warranties, the party
discovering such breach shall give prompt written notice thereof to the
other.
Section 4.2 Seller's Representations and Warranties Regarding
Receivables.
(a) Valid Sale, etc. The Seller (x) hereby represents and
warrants as of the Assumption Date, with respect to the Receivables created
on or prior to, and outstanding on, such date and (y) shall be deemed to
represent and warrant as of the date of the creation and transfer to the
Buyer of any Receivables with respect to such Receivables, that:
(i) This Agreement constitutes the legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance
with its terms, except (A) as such enforceability may be limited by
applicable bankruptcy, receivership, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect, affecting
the enforcement of creditors' rights in general, and (B) as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity).
(ii) The transfer of Receivables by the Seller to the Buyer
under this Agreement constitutes a valid sale, transfer, assignment,
set-over and conveyance to the Buyer of all right, title and interest
of the Seller in and to the Receivables, whether then existing or
thereafter created and arising in connection with the Accounts, and
such Receivables will be held by the Buyer free and clear of any Lien
of any Person claiming through or under the Seller or any of its
Affiliates except for Permitted Liens. This Agreement constitutes a
valid sale, transfer, assignment, set-over and conveyance to the Buyer
of all right, title and interest of the Seller in and to the
Receivables purported to be sold hereunder, whether then existing or
thereafter created and the proceeds thereof.
(iii) The Seller is not insolvent and will not be rendered
insolvent upon sale of the Receivables to the Buyer.
(iv) The Seller is (or, with respect to Receivables arising
after the date hereof, will be) the legal and beneficial owner of all
right, title and interest in and to each Receivable and each
Receivable has been or will be transferred to the Buyer free and clear
of any Lien other than Permitted Liens.
(v) All consents, licenses, approvals or authorizations of
or registrations or declarations with any Governmental Authority
required in connection with the transfer of such Receivables to the
Buyer have been obtained.
(vi) Each Account classified as an "Eligible Account" by
the Seller in any document or report delivered hereunder will satisfy
the requirements contained in the definition of Eligible Account as of
the date of such document or report and each Receivable classified as
an "Eligible Receivable" by the Seller in any document or report
delivered hereunder will satisfy the requirements contained in the
definition of Eligible Receivable as of the time of such document or
report.
(vii) Each Receivable then existing has been conveyed to
the Buyer free and clear of any Lien of any Person claiming through or
under the Seller or any of its Affiliates (other than Permitted Liens)
and in compliance, in all material respects, with all Requirements of
Law applicable to the Seller.
(b) Daily Representations and Warranties. On each day on which
any new Receivable is created or acquired by the Seller, the Seller shall
be deemed to represent and warrant to the Buyer that (A) each Receivable
purchased by the buyer on such day has been conveyed to the Buyer in
compliance, in all material respects, with all Requirements of Law
applicable to the Seller and free and clear of any Lien of any Person
claiming through or under the Seller or any of its Affiliates (other than
Permitted Liens) and (B) with respect to each such Receivable, all
consents, licenses, approvals or authorizations of or registrations or
declarations with, any Governmental Authority required to be obtained,
effected or given by the Seller in connection with the conveyance of such
Receivable to the Buyer have been duly obtained, effected or given and are
in full force and effect.
(c) Notice of Breach. The representations and warranties set
forth in this Section 4.2 shall survive the sale, transfer and assignment
of the respective Receivables to the Buyer. Upon discovery by the Seller
or the Buyer of a breach of any of the representations and warranties set
forth in this Section 4.2, the party discovering such breach shall give
prompt written notice thereof to the other. The Seller agrees to cooperate
with the Buyer in attempting to cure any such breach.
Section 4.3 Representations and Warranties of the Buyer. The
Buyer hereby represents and warrants and agrees with the Seller, as of the
date hereof, and shall be deemed to represent and warrant as of the date of
the sale of any Receivable to the Buyer hereunder that:
(a) Organization and Good Standing. The Buyer is a corporation
duly organized and validly existing in good standing under the laws of the
State of Delaware and has the corporate power and authority and legal right
to own its property and conduct its business as such properties are
presently owned and such business is presently conducted and to execute,
deliver, and perform its obligations under the Sale Papers.
(b) Due Qualification. The Buyer is duly qualified to do
business and is in good standing (or is exempt from such requirements) as a
foreign corporation in any state required in order to conduct business and
has obtained all necessary licenses and approvals with respect to the Buyer
required under federal and Minnesota law.
(c) Due Authorization. The execution and delivery of the Sale
Papers and the consummation of the transactions provided for in the Sale
Papers have been duly authorized by the Buyer by all necessary corporate
action on its part.
(d) No Conflicts. The execution and delivery of the Sale Papers
and the performance of the transactions contemplated thereby do not (i)
contravene the Buyer's certificate of incorporation or by-laws or (ii)
violate any material provision of law applicable to it, or require any
filing (except for the filings under the UCC), registration, consent or
approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Buyer, except for such filings, registrations,
consents or approvals as have already been obtained and are in full force
and effect.
(e) No Violation. The execution and delivery of the Sale
Papers, the performance of the transactions contemplated by the Sale
Papers, and the fulfillment of the terms of the Sale Papers will not
violate any Requirements of Law applicable to the Buyer, will not violate,
result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default
under any Requirement of Law applicable to the Buyer, or any material
indenture, contract, agreement, mortgage, deed of trust or other material
instrument to which the Buyer is a party or by which it or its properties
are bound.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Buyer, threatened against the
Buyer, before any Governmental Authority (i) asserting the invalidity of
the Sale Papers, (ii) seeking to prevent the consummation of any of the
transactions contemplated by the Sale Papers, (iii) seeking any
determination or ruling that would materially and adversely affect the
performance by the Buyer of its obligations thereunder or (iv) seeking any
determination or ruling that would materially and adversely affect the
validity or enforceability of the Sale Papers.
(g) All Consents Required. All approvals, authorizations,
consents, orders, or other actions of any Governmental Authority required
in connection with the execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale Papers, and the
fulfillment of the terms of the Sale Papers have been obtained.
The representations and warranties set forth in this Section 4.3
shall survive the sale of the Receivables to the Buyer. The Buyer hereby
represents and warrants to the Seller that the representations and
warranties of the Buyer set forth in Section 4.3 are true and correct as of
such date. Upon discovery by the Buyer or the Seller of a breach of any of
the foregoing representations and warranties, the party discovering such
breach shall give prompt written notice to the other.
[END OF ARTICLE IV]
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. The Seller hereby covenants that:
(a) Receivables to be Accounts, General Intangibles or Chattel
Paper. The Seller will take no action to cause any Receivable to be
evidenced by any instrument (as defined in the UCC as in effect in the
Relevant UCC State), except in connection with the enforcement or
collection of a Receivable. Except in such circumstances, the Seller will
take no action to cause any Receivable to be anything other than an
"account," a "general intangible" or "chattel paper" (as defined in the UCC
as in effect in the Relevant UCC State).
(b) Security Interests. Except for the conveyances hereunder,
the Seller will not sell, pledge, assign or transfer to any other Person,
or grant, create, incur, assume or suffer to exist any Lien, on any
Receivable, whether now existing or hereafter created, or any interest
therein; the Seller will immediately notify the Buyer of the existence of
any Lien on any Receivable; and the Seller shall defend the right, title
and interest of the Buyer in, to and under the Receivables, whether now
existing or hereafter created, against all claims of third parties claiming
through or under the Seller; provided, however, that nothing in this
subsection 5.1(b) shall prevent or be deemed to prohibit the Seller from
suffering to exist upon any of the Receivables any Permitted Lien.
(c) Periodic Finance Charges and Other Fees. Except as
otherwise required by any Requirement of Law, or as is deemed by the Seller
in its sole discretion to be necessary in order to maintain its credit card
business on a competitive basis, it shall not at any time reduce the annual
percentage rates of the Periodic Finance Charges assessed on the
Receivables or other fees charged on any of the Accounts if, as a result of
any such reduction, either (i) the Seller's reasonable expectation is that
such reduction will cause a Pay Out Event (as defined in the Pooling and
Servicing Agreement) to occur so long as there are Investor Securities (as
defined in the Pooling and Servicing Agreement) outstanding or (ii) such
reduction is not also applied to any comparable segment of consumer
revolving credit card accounts owned by the Seller that have
characteristics the same as, or substantially similar to, such Accounts.
(d) Credit and Collection Policy and Contracts. The Seller
shall comply with and perform its obligations under the Contracts relating
to the Accounts and the Credit and Collection Policy except insofar as any
failure so to comply or perform would not materially and adversely affect
the rights of the Trust or the Securityholders hereunder or under the
Securities. Subject to compliance with all Requirements of Law, the Seller
may change the terms and provisions of the Contracts or the Credit and
Collection Policy with respect to any of the Accounts in any respect
(including the calculation of the amount, or the timing, of charge-offs and
the Periodic Finance Charges and other fees to be assessed thereon) only if
in the reasonable judgment of the Seller (i) (if it owns a comparable
segment of receivables) such change is made applicable to any comparable
segment of the consumer revolving credit card accounts owned by the Seller
which have characteristics the same as, or substantially similar to, such
Accounts or (ii) (if it does not own such a comparable segment of
receivables) such change will not be made with the intent to materially
benefit the Seller over the Buyer or to materially adversely affect the
Buyer, except as otherwise restricted by an endorsement, sponsorship, or
other agreement between the Seller and an unrelated third party or by the
terms of the Contracts. The Seller further covenants that the Seller will
not enter into any amendments to this Agreement that would cause a Ratings
Event (as defined in the Pooling and Servicing Agreement) to occur so long
as there are Investor Securities outstanding.
(e) Delivery of Collections. In the event that the Seller
receives Collections, the Seller agrees to forward to the Buyer or its
designee such Collections as soon as practicable after the receipt thereof,
but in no event later than the second Business Day following the Date of
Processing thereof.
(f) Notice of Liens. The Seller shall notify the Buyer promptly
after becoming aware of any Lien on any Receivable other than Permitted
Liens.
(g) Separate Business. The Seller shall maintain separate
corporate records and books of account from those of the Buyer. The Seller
will not conduct its business in the name of the Buyer so as not to mislead
others as to the identity of the entity with which those others are
concerned.
Section 5.2 Addition of Accounts. Unless excluded pursuant to
Section 2.1(e) hereof, all revolving credit consumer credit card accounts
shall be included as Accounts from and after the date upon which the Seller
acquires rights in such Additional Accounts and all Receivables in such
Additional Accounts, whether such Receivables are then existing or
thereafter created or acquired, shall be automatically sold to the Buyer.
For the purposes of this Agreement, all receivables of such Additional
Accounts shall be treated as Receivables upon their creation.
Section 5.3 Buyer Covenant Regarding Sale Treatment. The Buyer
agrees to treat this conveyance for all purposes (including, without
limitation, tax and financial accounting purposes) as a sale on all
relevant books, records, tax returns, financial statements and other
applicable documents.
[END OF ARTICLE V]
ARTICLE VI
OPTIONAL REPURCHASE
Section 6.1 Breach of Warranty. In the event of a breach with
respect to a Receivable of any of the representations and warranties set
forth in Section 4.1(j) or subsections 4.2(a)(iii) through (vii) or 4.2(b),
or in the event that a Receivable is not an Eligible Receivable on the date
of its transfer to the Buyer as a result of the failure to satisfy the
conditions set forth in the definition of Eligible Receivable, at the sole
option of the Buyer and upon written notice to the Seller, such Receivable
shall be designated an "Ineligible Receivable" and the Seller shall pay to
the Buyer an amount in cash equal to the purchase price paid for any such
Ineligible Receivable by the Buyer to the Seller. Such payment must be
made by the close of business on the thirtieth Business Day following the
day such Receivable has been designated an Ineligible Receivable;
provided, however, that such amount may be offset against any amounts due
from the Buyer to the Seller with respect to the Purchase Price for
Receivables sold to the Buyer on such day. The obligation of the Seller
set forth in this Section shall constitute the sole remedy respecting any
breach of the representations and warranties set forth in the above-
referenced Sections or failure to meet the conditions set forth in the
definition of Eligible Receivable with respect to such Receivable available
to the Buyer.
Section 6.2 Conveyance of Reassigned Receivables. Upon the
request of the Seller, the Buyer shall execute and deliver to the Seller a
reconveyance substantially in such form and upon such terms as shall be
acceptable to the Seller, pursuant to which the Buyer evidences the
conveyance to the Seller of all of the Buyer's right, title, and interest
in any Receivables reconveyed to the Seller pursuant to Section 6.1. The
Buyer shall execute such other documents or instruments of conveyance or
take such other actions as the Seller may reasonably require to effect any
repurchase of Receivables pursuant to this Article VI.
[END OF ARTICLE VI]
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to the Buyer's Obligations Regarding
Receivables. The obligations of the Buyer to purchase the Receivables on
any Business Day shall be subject to the satisfaction of the following
conditions:
(a) All representations and warranties of the Seller contained
in this Agreement shall be true and correct on the Closing Date and on the
day of creation of any Receivable created thereafter with the same effect
as though such representations and warranties had been made on such date;
(b) All information concerning the Receivables provided to the
Buyer shall be true and correct in all material respects as of the Closing
Date, in the case of Receivables sold to the Buyer on the Closing Date, or
the applicable Date of Processing, in the case of Receivables created after
the Closing Date;
(c) At the Closing Date, the Seller shall have substantially
performed all other obligations required to be performed by the provisions
of this Agreement;
(d) With respect to Receivables sold to the Buyer on the Closing
Date, the Seller shall have filed the financing statement(s) required to be
filed pursuant to Section 2.1(b); and
(e) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Buyer, and the Buyer shall have
received from the Seller copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Buyer may reasonably have requested.
Section 7.2 Conditions Precedent to the Seller's Obligations.
The obligations of the Seller to sell Receivables on any Business Day shall
be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Buyer contained in
this Agreement shall be true and correct with the same effect as though
such representations and warranties had been made on such date;
(b) Payment or provision for payment of the Purchase Price in
accordance with the provisions of Section 3.2 hereof shall have been made;
and
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Seller, and the Seller shall have
received from the Buyer copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Seller may reasonably have requested.
[END OF ARTICLE VII]
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Term. This Agreement shall commence as of the date
of execution and delivery hereof and shall continue in full force and
effect until the earlier of: (a) such date as may be agreed to in writing
by the Buyer and the Seller, or (b) the occurrence of any of the following
events: the Buyer or the Seller shall (i) become insolvent, (ii) fail to
pay its debts generally as they become due, (iii) voluntarily seek, consent
to, or acquiesce in the benefit or benefits of any debtor relief law, (iv)
become a party to (or be made the subject of) any proceeding provided for
by any debtor relief law, other than as a creditor or claimant, and, in the
event such proceeding is involuntary, the petition instituting same is not
dismissed within 60 days after its filing, or (v) become unable for any
reason to purchase or re-purchase Receivables in accordance with the
provisions of this Agreement or default in its obligations hereunder, which
default continues unremedied for more than 30 days after written notice is
delivered to the defaulting party by the non-defaulting party (any such
date set forth in clause (a) or (b) hereof being a "Termination Date");
provided, however, that the termination of this Agreement pursuant to this
Section 8.1 shall not discharge any Person from any obligations incurred
prior to such termination, including, without limitation, any obligations
to make any payments with respect to Receivables sold prior to such
termination.
Section 8.2 Effect of Termination. No termination or rejection
of or failure to assume the executory obligations of this Agreement in the
event of the receivership of the Seller or bankruptcy of the Buyer shall be
deemed to impair or affect the obligations pertaining to any executed sale
or executed obligations, including, without limitation, pre-termination
breaches of representations and warranties by the Seller or the Buyer.
[END OF ARTICLE VIII]
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment. This Agreement and any other Sale Papers
and the rights and obligations of the parties hereunder may not be changed
orally, but only by an instrument in writing signed by the Buyer and the
Seller. The Seller shall provide prompt written notice of any such
amendment to the Rating Agencies.
Section 9.2 Governing Law. THIS AGREEMENT AND THE OTHER SALE
PAPERS SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MINNESOTA, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 9.3 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given
if personally delivered at or mailed by registered mail, return receipt
requested, to:
(a) in the case of the Seller, to:
Direct Merchants Credit Card Bank, N.A.
6909 East Greenway Parkway
Scottsdale, Arizona 85254
Attention: Treasurer
Telephone: (602) 718-4600
(b) in the case of the Buyer, to:
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: Chief Financial Officer
Telephone: (612) 525-5094
Telecopy: (612) 525-5070
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party.
Section 9.4 Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of the Sale Papers shall for
any reason whatsoever be held invalid, then such covenants, agreements,
provisions, or terms shall be deemed severable from the remaining
covenants, agreements, provisions, or terms of the Sale Papers and shall in
no way affect the validity or enforceability of the other provisions of the
Sale Papers.
Section 9.5 Further Assurances. The Buyer and the Seller agree
to do and perform, from time to time, any and all acts and to execute any
and all further instruments required or reasonably requested by the other
party more fully to effect the purposes of the Sale Papers, including,
without limitation, the execution of any financing statements or
continuation statements or equivalent documents relating to the Receivables
for filing under the provisions of the UCC or other laws of any applicable
jurisdiction.
Section 9.6 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Buyer or the
Seller, any right, remedy, power or privilege hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative
and not exhaustive of any rights, remedies, powers and privileges provided
by law.
Section 9.7 Counterparts. The Sale Papers may each be executed
in two or more counterparts including telefax transmission thereof (and by
different parties on separate counterparts), each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
Section 9.8 Binding Effect; Third Party Beneficiaries. The Sale
Papers will inure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns. The Seller hereby
acknowledges that the Buyer has assigned certain of its rights hereunder to
Metris Receivables, Inc. and Metris Funding Corporation, respectively, and
that such entities are third party beneficiaries hereunder.
Section 9.9 Merger and Integration. Except as specifically
stated otherwise herein, the Sale Papers set forth the entire understanding
of the parties relating to the subject matter hereof, and all prior
understandings, written or oral, are superseded by the Sale Papers. The
Sale Papers may not be modified, amended, waived or supplemented except as
provided herein.
Section 9.10 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
Section 9.11 Schedules and Exhibits. The schedules and exhibits
attached hereto and referred to herein shall constitute a part of this
Agreement and are incorporated into this Agreement for all purposes.
Section 9.12 Protection of Right, Title and Interest to
Receivables.
(a) The Seller shall cause this Agreement, all amendments hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the Seller's and the Buyer's right, title and
interest to the Receivables to be promptly recorded, registered and filed,
and at all times to be kept recorded, registered and filed, all in such
manner and in such places as may be required by law fully to preserve and
protect the right, title and interest of the Buyer hereunder to the
Receivables and proceeds thereof. The Seller shall deliver to the Buyer
file-stamped copies of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as available following such
recording, registration or filing. The Buyer shall cooperate fully with
the Seller in connection with the obligations set forth above and will
execute any and all documents reasonably required to fulfill the intent of
this subsection 9.12(a).
(b) Within 30 days after the Seller makes any change in its
name, identity or corporate structure which would make any financing
statement or continuation statement filed in accordance with paragraph (a)
above materially misleading within the meaning of Section 9-402(7) of the
UCC as in effect in the Relevant UCC State, the Seller shall give the Buyer
written notice of any such change and shall file such financing statements
or amendments as may be necessary to continue the perfection of the Buyer's
security interest in the Receivables and the proceeds thereof.
(c) The Seller will give the Buyer prompt written notice of any
relocation of any office from which it services Receivables or keeps
records concerning the Receivables or of its principal executive office and
whether, as a result of such relocation, the applicable provisions of the
UCC would require the filing of any amendment of any previously filed
financing or continuation statement or of any new financing statement and
shall file such financing statements or amendments as may be necessary to
continue the perfection of the Buyer's security interest in the Receivables
and the proceeds thereof. The Seller will at all times maintain each
office from which it services Receivables and its principal executive
office within the United States of America.
[END OF ARTICLE IX]
IN WITNESS WHEREOF, the Buyer and the Seller each have caused
this Agreement to be duly executed by their respective officers as of the
day and year first above written.
DIRECT MERCHANTS CREDIT CARD
BANK, NATIONAL ASSOCIATION,
as Seller
By:________________________
Title:
METRIS COMPANIES INC.,
as Buyer
By:________________________
Title:
EXHIBIT A
FORM OF DAILY REPORT
METRIS RECEIVABLES, INC.
Buyer
and
METRIS COMPANIES INC.
Seller
AMENDED AND RESTATED
PURCHASE AGREEMENT
Dated as of July 30, 1998
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . . . . . . . . . . 2
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
CONSIDERATION AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Payment of Purchase Price . . . . . . . . . . . . . . . 6
Section 3.3 Daily Reports . . . . . . . . . . . . . . . . . . . . . 6
Section 3.4 Capital Contribution . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 7
Section 4.1 Seller's Representations and Warranties . . . . . . . . 7
Section 4.2 Seller's Representations and Warranties
Regarding Receivables . . . . . . . . . . . . . . . . . 10
Section 4.3 Representations and Warranties of the Buyer . . . . . . 12
ARTICLE V
COVENANTS OF SELLER AND BUYER . . . . . . . . . . . . . . . . . . . . 15
Section 5.1 Seller Covenants . . . . . . . . . . . . . . . . . . . . 15
Section 5.2 Addition of Accounts . . . . . . . . . . . . . . . . . . 17
Section 5.3 Buyer Covenant Regarding Sale Treatment . . . . . . . . 17
ARTICLE VI
REPURCHASE OBLIGATION . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.1 Mandatory Repurchase . . . . . . . . . . . . . . . . . . 18
Section 6.2 Conveyance of Reassigned Receivables . . . . . . . . . . 19
ARTICLE VII
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.1 Conditions to the Buyer's Obligations Regarding
Receivables . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.2 Conditions Precedent to the Seller's Obligations . . . . 20
ARTICLE VIII
TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX
MISCELLANEOUS PROVISIONS . . . . . . . . . 23
Section 9.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.2 Governing Law . . . . . . . . . . . . . . . . . . . . . 23
Section 9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.4 Severability of Provisions . . . . . . . . . . . . . . 24
Section 9.5 Assignment . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.6 Further Assurances . . . . . . . . . . . . . . . . . . 24
Section 9.7 No Waiver; Cumulative Remedies . . . . . . . . . . . . 25
Section 9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . 25
Section 9.9 Binding Effect; Third-Party Beneficiaries . . . . . . . 25
Section 9.10 Merger and Integration. . . . . . . . . . . . . . . . 25
Section 9.11 Headings . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.12 Schedules and Exhibits . . . . . . . . . . . . . . . . 25
Section 9.13 No Bankruptcy Petition Against the Buyer . . . . . . . 25
Section 9.14 Merger or Consolidation of, or Assumption of
the Obligations of, the Seller . . . . . . . . . . . . 26
Section 9.15 Protection of Right, Title and Interest to
Receivables . . . . . . . . . . . . . . . . . . . . . 27
Exhibit A Form of Daily Report
AMENDED AND RESTATED
PURCHASE AGREEMENT
AMENDED AND RESTATED PURCHASE AGREEMENT, dated as of July 30,
1998 (the "Agreement"), by and between METRIS COMPANIES INC., a Minnesota
corporation ("Metris" or the "Seller"), and METRIS RECEIVABLES, INC., a
Delaware corporation ("MRI" or the "Buyer").
W I T N E S S E T H :
WHEREAS, the Buyer desires to purchase from time to time certain
open-end or revolving credit receivables (including, without limitation,
MasterCard, Visa and private label credit card receivables) generated or
acquired on or before the Initial Closing Date or to be generated or
acquired after the Initial Closing Date by the Seller, the Bank or any
Affiliate thereof in the normal course of its business;
WHEREAS, the Seller desires to sell and assign from time to time
such receivables to the Buyer upon the terms and conditions hereinafter set
forth;
WHEREAS, the Buyer is an Affiliate of the Seller;
WHEREAS, the Buyer and Fingerhut Companies, Inc. ("Fingerhut")
previously entered into that certain Purchase Agreement, dated as of May
26, 1995, as amended prior hereto (the "Previous Purchase Agreement");
WHEREAS, pursuant to the Assignment and Assumption Agreement,
dated as of September 16, 1996, by and among Fingerhut, Metris and MRI,
Fingerhut assigned to Metris all of its rights arising under the Previous
Purchase Agreement and Metris agreed to assume and perform all of
Fingerhut's duties and obligations under the Purchase Agreement;
WHEREAS, the parties hereto desire to amend and restate the
Previous Purchase Agreement in its entirety;
NOW, THEREFORE, it is hereby agreed by and between the Buyer and
the Seller as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms used herein shall have the following
meanings assigned to them:
"Bank" shall mean Direct Merchants Credit Card Bank, National
Association, a national banking association organized and existing under
the laws of the United States of America and the successor by merger to
DMCCB Utah.
"Credit Adjustment" shall have the meaning set forth in Section
3.2(b) hereof.
"Involuntary Case" shall have the meaning set forth in Section
2.1(c) hereof.
"Opinion of Counsel" shall mean a written opinion of counsel
acceptable to the Buyer and the Seller, which counsel may be an employee of
the Seller.
"Pooling and Servicing Agreement" shall mean the Amended and
Restated Pooling and Servicing Agreement, dated as of July 30, 1998, as
amended from time to time, by and among the Bank, as Servicer, MRI, as
Transferor, and the Trustee.
"Purchase Price" shall have the meaning set forth in Section 3.1
hereof.
"Receivable" shall mean all of the indebtedness of any Obligor
under an Account, including the right to receive payment of any interest or
finance charges and other obligations of such Obligors with respect
thereto. Each Receivable includes, without limitation, all rights of the
Seller under the applicable Contract.
"Sale Papers" shall have the meaning set forth in Section 4.1(a)
hereof.
"Secured Obligations" shall have the meaning set forth in Section
2.1(f) hereof.
Section 1.2 Other Definitional Provisions. The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this
Agreement or any Sale Paper shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; and Section, Subsection,
Schedule and Exhibit references contained in this Agreement are references
to Sections, Subsections, Schedules and Exhibits in or to this Agreement
unless otherwise specified. All capitalized terms not otherwise defined
herein are defined in the Pooling and Servicing Agreement. In the event
that any term or provision contained herein shall conflict with or be
inconsistent with any provisions contained in the Pooling and Servicing
Agreement, the terms and provisions contained herein shall govern with
respect to this Agreement.
[END OF ARTICLE I]
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES
Section 2.1 Sale. (a) In consideration for the Purchase Price
and upon the terms and subject to the conditions set forth herein, the
Seller does hereby sell, assign, transfer, set-over, and otherwise convey
to the Buyer, and the Buyer does hereby purchase from the Seller, on the
terms and subject to the conditions specifically set forth herein, all of
the Seller's right, title and interest in, to and under (i) the Receivables
now existing and hereafter created and arising in connection with the
Accounts and any accounts that meet the definition of Additional Accounts,
including, without limitation, all accounts, general intangibles, chattel
paper, contract rights and other obligations of any Obligor with respect to
the Receivables, now or hereafter existing, whether or not arising out of
or in connection with the sale or lease of goods or the rendering of
services, (ii) all monies and investments due or to become due with respect
thereto (including, without limitation, the right to any Finance Charge
Receivables, including any Recoveries), (iii) all proceeds of such
Receivables and (iv) the Bank Receivables Purchase Agreement to the extent
that it relates to the Receivables. The foregoing sale, transfer,
assignment, set-over and conveyance does not constitute and is not intended
to result in a creation or an assumption by the Buyer of any obligation of
the Seller in connection with the Receivables or any agreement or
instrument relating thereto, including, without limitation, any obligation
to any Obligors, merchant banks, merchant clearance systems, VISA USA,
Inc., MasterCard International Incorporated or insurers.
(b) In connection with the foregoing sale, the Seller agrees to
record and file on or prior to the Initial Closing Date, at its own
expense, a financing statement or statements with respect to the
Receivables and the other property described in Section 2.1(a) sold by the
Seller hereunder meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to perfect and protect
the interests of the Buyer created hereby under the applicable UCC against
all creditors of and purchasers from the Seller, and to deliver a file-
stamped copy of such financing statements or other evidence of such filings
to the Buyer within 10 days after the Initial Closing Date.
(c) The Buyer shall not be obligated to continue to pay for
Receivables hereunder if the Seller shall become an involuntary party to
(or be made the subject of) any bankruptcy proceeding or any other
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Seller or relating to all or
substantially all of its property (an "Involuntary Case") upon receipt by
the Seller at its head corporate office of notice of such Involuntary Case.
(d) The Buyer shall not be obligated to continue to pay for
Receivables hereunder if the Seller shall admit in writing its inability to
pay its debts as they are due, or the Seller shall commence a voluntary
case under the federal bankruptcy laws, as now or hereafter in effect, or
any present or future federal or state bankruptcy, insolvency or similar
law, or the Seller shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Seller or of any substantial part of its
property or the Seller shall make an assignment for the benefit of
creditors or the Seller shall fail generally to pay its debts as such debts
become due or the Seller shall take corporate action in furtherance of any
of the foregoing. In the event the Buyer ceases to pay for new
Receivables, pursuant to subsection 2.1(c) or 2.1(d) hereof, the Buyer
shall release its interest in any Receivables thereafter generated in
Accounts created after the date the Buyer ceases such payments (the
"Cessation Date") but the Buyer shall not release its interest in new
Receivables generated after the Cessation Date in Accounts in existence
prior to the Cessation Date.
(e) In connection with the sale and conveyance hereunder, the
Seller agrees, at its own expense, on or prior to the Initial Closing Date
and on each Business Day thereafter, to indicate or cause to be indicated
clearly and unambiguously in its accounting records and with respect to any
Receivables purchased by the Seller from the Bank to cause the Bank to
indicate clearly and unambiguously in the Bank's accounting records that
such Receivables and the other property described in clauses (i), (ii),
(iii) and (iv) of Section 2.1(a) have been sold to the Buyer pursuant to
this Agreement as of the Initial Closing Date or such Business Day as
applicable.
(f) It is the express intent of the Seller and the Buyer that
the conveyance of the Receivables by the Seller to the Buyer pursuant to
this Agreement be construed as a sale of such Receivables by the Seller to
the Buyer. It is, further, not the intention of the Seller and the Buyer
that such conveyance be deemed a grant of a security interest in the
Receivables by the Seller to the Buyer to secure a debt or other obligation
of the Seller. However, in the event that, notwithstanding the intent of
the parties, the Receivables are held to continue to be property of the
Seller, then (i) this Agreement also shall be deemed to be and hereby is a
security agreement within the meaning of the UCC; and (ii) the conveyance
by the Seller provided for in this Agreement shall be deemed to be and the
Seller hereby grants to the Buyer a security interest in and to all of the
Seller's right, title and interest in (w) the Receivables then existing and
thereafter created and arising in connection with the Accounts that meet
the definition of Additional Accounts, including, without limitation, all
accounts, general intangibles, chattel paper, contract rights and other
obligations of any Obligor with respect to the Receivables, then or
thereafter existing, (x) all monies and investments due or to become due
with respect thereto (including, without limitation, the right to any
Finance Charge Receivables, including any Recoveries), (y) all proceeds of
such Receivables and (z) the Bank Receivables Purchase Agreement to secure
(1) the obligations of the Seller and (2) a loan to the Seller in the
amount of the Purchase Price as set forth in this Agreement (the "Secured
Obligations"). The Seller and the Buyer shall, to the extent consistent
with this Agreement, take such actions as may be necessary to ensure that,
if this Agreement were deemed to create a security interest in the
Receivables, such security interest would be deemed to be a perfected
security interest of first priority in favor of the Buyer under applicable
law and will be maintained as such throughout the term of this Agreement.
The Seller and the Buyer may rely upon an Opinion of Counsel addressed to
them as to what is required to provide the Buyer with such security
interest; and any such Opinion of Counsel shall permit the Trustee, on
behalf of the Securityholders, the Securityholders (in the case of any
Series issued in a placement exempt from the registration requirements of
the Securities Act) and the Rating Agencies to rely on it.
[END OF ARTICLE II]
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 Purchase Price. The Purchase Price for the
Receivables and related property conveyed to the Buyer under this Agreement
shall be a dollar amount equal to, for Receivables sold on any date, the
aggregate amount of all Principal Receivables sold as of such date subject
to adjustment from time to time with respect to new Receivables to reflect
such factors as the Buyer and the Purchaser mutually agree will result in a
Purchase Price determined to approximate the fair market value of such new
Receivables.
Section 3.2 Payment of Purchase Price. (a) The Purchase Price
for Receivables shall be paid or provided for on the Initial Closing Date
with respect to the Receivables existing on the Initial Closing Date and on
each Business Day thereafter on which Receivables are transferred
hereunder, as the case may be, by payment in immediately available funds.
To the extent that the total Purchase Price for Receivables is not paid in
full by the Buyer on the Initial Closing Date or on each Business Day on
which Receivables are purchased hereunder in cash, the Seller shall be
deemed to have contributed Receivables in an aggregate principal amount
equal to such shortfall to the Buyer.
(b) The Purchase Price shall be adjusted on a daily basis (the
"Credit Adjustment") with respect to any Receivable adjusted as provided in
subsection 3.8 of the Pooling and Servicing Agreement in an amount equal to
the amount of such Credit Adjustment specified in subsection 3.8 of the
Pooling and Servicing Agreement. If the Buyer is required thereunder to
deposit amounts into the Excess Funding Account, the Seller shall pay the
amount so adjusted to the Buyer.
Section 3.3 Daily Reports. On each Business Day, the Seller
shall deliver to the Buyer a Daily Report (the "Daily Report") showing the
aggregate Purchase Price of Receivables generated, the aggregate amount, if
any, owing to the Buyer pursuant to Section 6.1 hereof and the aggregate
net amount of cash owing for Receivables generated in each case for the
period from and including the preceding Business Day.
Section 3.4 Initial Capitalization. The Seller has contributed
cash in exchange for 100 shares of common stock of the Buyer, which 100
shares represent all of the outstanding capital stock of the Buyer.
[END OF ARTICLE III]
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and Warranties. The Seller
represents and warrants to the Buyer as of the Initial Closing Date, and
shall be deemed to represent and warrant as of the date of any Supplement
and the related Closing Date, that:
(a) Organization and Good Standing. The Seller is a corporation
duly organized and validly existing in good standing under the laws of the
State of Delaware and has the corporate power and authority and legal right
to own its property and conduct its business as such properties are
presently owned and as such business is presently conducted and to execute,
deliver and perform its obligations under this Agreement and each other
document or instrument to be delivered by the Seller hereunder
(collectively, the "Sale Papers").
(b) Due Qualification. The Seller is duly qualified to do
business and is in good standing (or is exempt from such requirements), as
a foreign corporation in any state required in order to conduct business,
and has obtained all necessary licenses and approvals with respect to the
Seller required under applicable law; provided that no representation or
warranty is made with respect to any qualifications, licenses or approvals
which the Buyer would have to obtain to do business in any state in which
the Buyer seeks to enforce any Receivable.
(c) Due Authorization. The execution and delivery of the Sale
Papers, and the consummation of the transactions provided for herein and
therein have been duly authorized by the Seller by all necessary corporate
action on its part.
(d) Binding Obligation. Each of the Sale Papers, and the
consummation of the transactions provided for therein, constitutes a legal,
valid and binding obligation of the Seller, enforceable in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereinafter in effect, affecting the enforcement of creditors'
rights in general and as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law or in
equity).
(e) No Conflicts. The execution and delivery of the Sale Papers
and the performance of the transactions contemplated thereby, do not (i)
contravene the Seller's charter or by-laws or (ii) violate any material
provision of law applicable to it or require any filing (except for the
filings under the UCC), registration, consent or approval under, any law,
rule, regulation, order, writ, judgment, injunction, decree, determination
or award presently in effect having applicability to the Seller, except for
such filings, registrations, consents or approvals as have already been
obtained and are in full force and effect.
(f) Taxes. Except as specified on Schedule 1 hereto, the Seller
has filed all material tax returns required to be filed and has paid or
made adequate provision for the payment of all material taxes, assessments
and other governmental charges due from the Seller or is contesting any
such tax, assessment or other governmental charge in good faith through
appropriate proceedings.
(g) No Violation. The execution and delivery of the Sale
Papers, the performance of the transactions contemplated by the Sale Papers
and the fulfillment of the terms thereof, will not violate any Requirements
of Law applicable to the Seller, will not violate, result in any breach of
any of the material terms and provisions of or constitute (with or without
notice or lapse of time or both) a default under any Requirement of Law
applicable to the Seller, or any material indenture, contract, agreement,
mortgage, deed of trust or other material instrument to which the Seller is
a party or by which it or its properties are bound.
(h) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Seller, threatened against the
Seller before any Governmental Authority (i) asserting the invalidity of
the Sale Papers, (ii) seeking to prevent the consummation of any of the
transactions contemplated thereby, (iii) seeking any determination or
ruling that would materially and adversely affect the performance by the
Seller of its obligations thereunder or (iv) seeking any determination or
ruling that would materially and adversely affect the validity or
enforceability thereof.
(i) All Consents Required. All approvals, authorizations,
consents, orders or other actions of any Governmental Authority required in
connection with the execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale Papers and the
fulfillment of the terms hereof and thereof, have been obtained.
(j) Bona Fide Receivables. The Seller has no knowledge of any
fact which should have led it to expect at the time of the classification
of any Receivable as an Eligible Receivable that such Receivable would not
be paid in full when due, and each Receivable classified as an Eligible
Receivable by the Seller in any document or report delivered under this
Agreement satisfies the requirements of eligibility contained in the
definition of Eligible Receivable set forth in the Pooling and Servicing
Agreement.
(k) Place of Business. The principal executive offices of the
Seller are in St. Louis Park, Minnesota and the offices where the Seller
keeps its records concerning the Receivables and related Accounts are in
Salt Lake City, Utah, Omaha, Nebraska, Hennepin County, Minnesota, Tulsa,
Oklahoma and St. Cloud, Minnesota.
(l) Use of Proceeds. No proceeds of the sale of any Receivable
hereunder received by the Seller will be used by the Seller to purchase or
carry any margin stock.
(m) Pay Out Event. As of the Initial Closing Date, no Pay Out
Event and no condition that with the giving of notice and/or the passage of
time would constitute a Pay Out Event, has occurred and is continuing.
(n) Not an Investment Company. The Seller is not an "investment
company" within the meaning of the Investment Company Act, or is exempt
from all provisions of such Act.
The representations and warranties set forth in this Section 4.1
shall survive the sale of the Receivables to the Buyer. The Seller hereby
represents and warrants to the Buyer, that the representations and
warranties of the Seller set forth in this Section 4.1 are true and correct
as of such date. Upon discovery by the Seller or the Buyer of a material
breach of any of the foregoing representations and warranties, the party
discovering such breach shall give prompt written notice thereof to the
other.
Section 4.2 Seller's Representations and Warranties Regarding
Receivables.
(a) Valid Sale, etc. The Seller (x) hereby represents and
warrants as of the Initial Closing Date, with respect to the Receivables
created on or prior to, and outstanding on, such date and (y) shall be
deemed to represent and warrant as of the date of the creation or
acquisition and transfer to the Buyer of any Receivables with respect to
such Receivables, that:
(i) Each of this Agreement and the Bank Receivables
Purchase Agreement constitutes the legal, valid and binding obligation
of the Seller, enforceable against the Seller in accordance with its
terms, except (A) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, affecting the enforcement of
creditors' rights in general, and (B) as such enforceability may be
limited by general principles of equity (whether considered in a suit
at law or in equity).
(ii) The transfer of Receivables by the Seller to the Buyer
under this Agreement constitutes a valid sale, transfer, assignment,
set-over and conveyance to the Buyer of all right, title and interest
of the Seller in and to the Receivables, whether then existing or
thereafter created and arising in connection with the Accounts, and
such Receivables will be held by the Buyer free and clear of any Lien
of any Person claiming through or under the Seller or any of its
Affiliates except for Permitted Liens. This Agreement constitutes a
valid sale, transfer, assignment, set-over and conveyance to the Buyer
of all right, title and interest of the Seller in and to the
Receivables purported to be sold hereunder, whether then existing or
thereafter created and the proceeds thereof.
(iii) The Seller is not insolvent and will not be rendered
insolvent upon sale of the Receivables to the Buyer.
(iv) The Seller is (or, with respect to Receivables arising
after the date hereof, will be) the legal and beneficial owner of all
right, title and interest in and to each Receivable and each
Receivable has been or will be transferred to the Buyer free and clear
of any Lien other than Permitted Liens.
(v) All consents, licenses, approvals or authorizations of
or registrations or declarations with any Governmental Authority
required in connection with the transfer of such Receivables to the
Buyer have been obtained.
(vi) Each Account classified as an "Eligible Account" by
the Seller in any document or report delivered hereunder will satisfy
the requirements contained in the definition of Eligible Account as of
the date of such document or report and each Receivable classified as
an "Eligible Receivable" by the Seller in any document or report
delivered hereunder will satisfy the requirements contained in the
definition of Eligible Receivable as of the time of such document or
report.
(vii) Each Receivable then existing has been conveyed to
the Buyer free and clear of any Lien of any Person claiming through or
under the Seller or any of its Affiliates (other than Permitted Liens)
and in compliance, in all material respects, with all Requirements of
Law applicable to the Seller.
(b) Daily Representations and Warranties. On each day on which
any new Receivable is created or acquired by the Seller, the Seller shall
be deemed to represent and warrant to the Buyer that (A) each Receivable
purchased by the Buyer on such day has been conveyed to the Buyer in
compliance, in all material respects, with all Requirements of Law
applicable to the Seller and free and clear of any Lien of any Person
claiming through or under the Seller or any of its Affiliates (other than
Permitted Liens) and (B) with respect to each such Receivable, all
consents, licenses, approvals or authorizations of or registrations or
declarations with, any Governmental Authority required to be obtained,
effected or given by the Seller in connection with the conveyance of such
Receivable to the Buyer have been duly obtained, effected or given and are
in full force and effect.
(c) Notice of Breach. The representations and warranties set
forth in this Section 4.2 shall survive the sale, transfer and assignment
of the respective Receivables to the Buyer. Upon discovery by the Seller
or the Buyer of a breach of any of the representations and warranties set
forth in this Section 4.2, the party discovering such breach shall give
prompt written notice thereof to the other. The Seller agrees to cooperate
with the Buyer in attempting to cure any such breach.
Section 4.3 Representations and Warranties of the Buyer. The
Buyer hereby represents and warrants and agrees with, as of the date hereof
and as of the Initial Closing Date, the Seller and shall be deemed to
represent and warrant as of the date of the creation of any Receivable sold
to the Buyer hereunder that:
(a) Organization and Good Standing. The Buyer is a corporation
duly organized and validly existing in good standing under the laws of the
State of Delaware and has the corporate power and authority and legal right
to own its property and conduct its business as such properties are
presently owned and such business is presently conducted and to execute,
deliver, and perform its obligations under the Sale Papers.
(b) Due Qualification. The Buyer is duly qualified to do
business and is in good standing (or is exempt from such requirements) as a
foreign corporation in any state required in order to conduct business and
has obtained all necessary licenses and approvals with respect to the Buyer
required under federal and Delaware law.
(c) Due Authorization. The execution and delivery of the Sale
Papers and the consummation of the transactions provided for in the Sale
Papers have been duly authorized by the Buyer by all necessary corporate
action on its part.
(d) No Conflicts. The execution and delivery of the Sale Papers
and the performance of the transactions contemplated thereby do not (i)
contravene the Buyer's certificate of incorporation or by-laws or (ii)
violate any material provision of law applicable to it, or require any
filing (except for the filings under the UCC), registration, consent or
approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Buyer, except for such filings, registrations,
consents or approvals as have already been obtained and are in full force
and effect.
(e) No Violation. The execution and delivery of the Sale
Papers, the performance of the transactions contemplated by the Sale
Papers, and the fulfillment of the terms of the Sale Papers will not
violate any Requirements of Law applicable to the Buyer, will not violate,
result in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default
under any Requirement of Law applicable to the Buyer, or any material
indenture, contract, agreement, mortgage, deed of trust or other material
instrument to which the Buyer is a party or by which it or its properties
are bound.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Buyer, threatened against the
Buyer, before any Governmental Authority (i) asserting the invalidity of
the Sale Papers, (ii) seeking to prevent the consummation of any of the
transactions contemplated by the Sale Papers, (iii) seeking any
determination or ruling that would materially and adversely affect the
performance by the Buyer of its obligations thereunder or (iv) seeking any
determination or ruling that would materially and adversely affect the
validity or enforceability of the Sale Papers.
(g) All Consents Required. All approvals, authorizations,
consents, orders, or other actions of any Governmental Authority required
in connection with the execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale Papers, and the
fulfillment of the terms of the Sale Papers have been obtained.
(h) Solvency. The Buyer is not insolvent and will not be
rendered insolvent upon the purchase of the Receivables.
The representations and warranties set forth in this Section 4.3
shall survive the sale of the Receivables to the Buyer. The Buyer hereby
represents and warrants to the Seller that the representations and
warranties of the Buyer set forth in Section 4.3 are true and correct as of
such date. Upon discovery by the Buyer or the Seller of a breach of any of
the foregoing representations and warranties, the party discovering such
breach shall give prompt written notice to the other.
[END OF ARTICLE IV]
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. The Seller hereby covenants that:
(a) Receivables to be Accounts, General Intangibles or Chattel
Paper. The Seller will take no action to cause any Receivable to be
evidenced by any instrument (as defined in the UCC as in effect in the
Relevant UCC State), except in connection with the enforcement or
collection of a Receivable. Except in such circumstances, the Seller will
take no action to cause any Receivable to be anything other than an
"account," a "general intangible" or "chattel paper" (as defined in the UCC
as in effect in the Relevant UCC State).
(b) Security Interests. Except for the conveyances hereunder,
the Seller will not sell, pledge, assign or transfer to any other Person,
or grant, create, incur, assume or suffer to exist any Lien, on any
Receivable, whether now existing or hereafter created, or any interest
therein; the Seller will immediately notify the Buyer of the existence of
any Lien on any Receivable; and the Seller shall defend the right, title
and interest of the Buyer in, to and under the Receivables, whether now
existing or hereafter created, against all claims of third parties claiming
through or under the Seller; provided, however, that nothing in this
subsection 5.1(b) shall prevent or be deemed to prohibit the Seller from
suffering to exist upon any of the Receivables any Permitted Lien.
(c) Periodic Finance Charges and Other Fees. Except as
otherwise required by any Requirement of Law, or as is deemed by the Seller
in its sole discretion to be necessary in order to maintain its credit card
business on a competitive basis, it shall not at any time reduce the annual
percentage rates of the Periodic Finance Charges assessed on the
Receivables or other fees charged on any of the Accounts if, as a result of
any such reduction, either (i) the Seller's reasonable expectation is that
such reduction will cause a Pay Out Event to occur or (ii) such reduction
is not also applied to any comparable segment of consumer revolving credit
card accounts owned by the Seller that have characteristics the same as, or
substantially similar to, such Accounts.
(d) Credit and Collection Policy and Contracts. The Seller
shall comply with and perform its obligations under the Contracts relating
to the Accounts and the Credit and Collection Policy except insofar as any
failure so to comply or perform would not materially and adversely affect
the rights of the Trust or the Securityholders hereunder or under the
Securities. Subject to compliance with all Requirements of Law, the Seller
may change the terms and provisions of the Contracts or the Credit and
Collection Policy with respect to any of the Accounts in any respect
(including the calculation of the amount, or the timing, of charge-offs and
the Periodic Finance Charges and other fees to be assessed thereon) only if
in the reasonable judgment of the Credit Card Originator (i) (if it owns a
comparable segment of receivables) such change is made applicable to any
comparable segment of the consumer revolving credit card accounts owned by
such Credit Card Originator which have characteristics the same as, or
substantially similar to, such Accounts or (ii) (if it does not own a
comparable segment of receivables) such change will not be made with the
intent to materially benefit the Credit Card Originator over the buyer or
to materially adversely affect the buyer, except as otherwise restricted by
an endorsement, sponsorship, or other agreement between the Credit Card
Originator and an unrelated third party or by the terms of the Contracts.
The Seller further covenants that it will not enter into any
amendments to this Agreement that would cause a Ratings Event to occur.
(e) Delivery of Collections. In the event that the Seller
receives Collections, the Seller agrees to deposit such Collections into
the Collection Account as soon as practicable after the receipt thereof,
but in no event later than the second Business Day following the Date of
Processing thereof.
(f) Conveyance of Receivables. Except as provided in Section
9.5, the Seller covenants and agrees that it will not convey, assign,
exchange or otherwise transfer any Receivable, to any Person other than the
Buyer prior to the termination of this Agreement pursuant to Article VIII;
provided, however, that the Seller shall not be prohibited hereby from
conveying, assigning, exchanging or otherwise transferring a Receivable in
connection with a transaction in which the Seller and its successor agree
to comply with provisions substantially similar to those of Section 9.14.
(g) Notice of Liens. The Seller shall notify the Buyer promptly
after becoming aware of any Lien on any Receivable other than Permitted
Liens.
(h) Separate Business. The Seller will not permit its assets to
be commingled with those of the Buyer and shall maintain separate corporate
records and books of account from those of the Buyer. The Seller will not
conduct its business in the name of the Buyer and will cause the Buyer to
conduct its business solely in its own name so as not to mislead others as
to the identity of the entity with which those others are concerned. The
Seller will provide for its own operating expenses and liabilities from its
own funds. The Seller will not hold itself out, or permit itself to be
held out, as having agreed to pay, or as generally being liable for, the
debts of the Buyer, except that the organizational expenses of the Buyer
may be paid by the Seller and that the Seller will contribute to the
Transferor on the Initial Closing Date one or more demand notes. The
Seller shall cause the Buyer not to hold itself out, or permit itself to be
held out, as having agreed to pay, or as being liable for, the debts of the
Seller. The Seller will maintain an arm's length relationship with the
Buyer with respect to any transactions between the Seller, on the one hand,
and the Buyer, on the other.
Section 5.2 Addition of Accounts. Unless the Seller specifies
to the contrary, all Accounts that meet the definition of Additional
Accounts shall be included as Accounts from and after the date upon which
such Additional Accounts are created or acquired and all Receivables in
such Additional Accounts, whether such Receivables are then existing or
thereafter created or acquired, shall be automatically sold to the Buyer.
For the purposes of this Agreement, all receivables of such Additional
Accounts shall be treated as Receivables upon their creation or acquisition
and shall be subject to the eligibility criteria specified in the
definitions of "Eligible Receivable" and "Eligible Account."
Section 5.3 Buyer Covenant Regarding Sale Treatment. The Buyer
agrees to treat this conveyance for all purposes (including, without
limitation, tax and financial accounting purposes) as a sale on all
relevant books, records, tax returns, financial statements and other
applicable documents.
[END OF ARTICLE V]
ARTICLE VI
REPURCHASE OBLIGATION
Section 6.1 Mandatory Repurchase.
(a) Breach of Warranty. In the event of a breach with respect
to a Receivable of any of the representations and warranties set forth in
Section 4.1(j) or subsections 4.2(a)(iii) through (vii) or 4.2(b), or in
the event that a Receivable is not an Eligible Receivable on the date of
its transfer to the Buyer as a result of the failure to satisfy the
conditions set forth in the definition of Eligible Receivable, such
Receivable shall be designated an "Ineligible Receivable" and the Seller
shall pay to the Buyer an amount in cash equal to the purchase price paid
for any such Ineligible Receivable by the Buyer to the Seller. Such
payment must be made by the close of business on the next succeeding
Business Day following the day such Receivable has been designated an
Ineligible Receivable; provided, however, that such amount may be offset
against any amounts due from the Buyer to the Seller with respect to the
Purchase Price for Receivables sold to the Buyer on such day. The
obligation of the Seller set forth in this Section shall constitute the
sole remedy respecting any breach of the representations and warranties set
forth in the above-referenced Sections or failure to meet the conditions
set forth in the definition of Eligible Receivable with respect to such
Receivable available to the Buyer.
(b) Reassignment of the Sold Assets. In the event of a breach
of any of the representations and warranties set forth in Section 4.1(a),
(b), and (c) and 4.2(a)(i) and (ii), the Buyer by notice given in writing
to the Seller may direct the Seller to accept reassignment of the
Receivables at the amount specified below within 60 days of such notice (or
within such longer period as may be specified in such notice), and the
Seller shall be obligated to accept reassignment of the Receivables within
such applicable period on the terms and conditions set forth below;
provided, however, that no such reassignment shall be required to be made
if, at any time during such applicable period, the Seller delivers to the
Buyer an Officer's Certificate stating that the representations and
warranties contained in Section 4.1(a), (b), and (c) and 4.2(a)(i) and (ii)
shall then be true and correct in all material respects as if made on such
day. The Seller shall pay to the Buyer on the day of such reassignment an
amount equal to the aggregate Invested Amount plus accrued and unpaid
interest on the Investor Securities. On the day on which such amount has
been paid, each Receivable shall be sold and reassigned to the Seller, and
the Buyer shall execute and deliver such instruments of sale and
assignment, in each case without recourse, representation or warranty, as
shall be reasonably requested by the Seller to vest in the Seller, or its
designee or assignee, all right, title and interest of the Buyer in and to
each Receivable. The obligation of the Seller to purchase each Receivable
pursuant to this Section shall constitute the sole remedy available to the
Buyer for a breach of the representations and warranties contained in
Section 4.1(a), (b), and (c) and 4.2(a)(i) and (ii).
Section 6.2 Conveyance of Reassigned Receivables. Upon the
request of the Seller, the Buyer shall execute and deliver to the Seller a
reconveyance substantially in such form and upon such terms as shall be
acceptable to the Seller, pursuant to which the Buyer evidences the
conveyance to the Seller of all of the Buyer's right, title, and interest
in any Receivables reconveyed to the Seller pursuant to Section 6.1(b).
The Buyer shall (and shall cause the Trustee to) execute such other
documents or instruments of conveyance or take such other actions as the
Seller may reasonably require to effect any repurchase of Receivables
pursuant to this Article VI.
[END OF ARTICLE VI]
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to the Buyer's Obligations Regarding
Receivables. The obligations of the Buyer to purchase the Receivables on
any Business Day shall be subject to the satisfaction of the following
conditions:
(a) All representations and warranties of the Seller contained
in this Agreement shall be true and correct on the Initial Closing Date and
on the day of creation of any Receivable created thereafter with the same
effect as though such representations and warranties had been made on such
date;
(b) All information concerning the Receivables provided to the
Buyer shall be true and correct in all material respects as of the Initial
Closing Date, in the case of Receivables sold to the Buyer on the Initial
Closing Date, or the applicable Date of Processing, in the case of
Receivables created after the Initial Closing Date;
(c) At the Initial Closing Date, the Seller shall have
substantially performed all other obligations required to be performed by
the provisions of this Agreement;
(d) With respect to Receivables sold to the Buyer on the Initial
Closing Date, the Seller shall have filed the financing statement(s)
required to be filed pursuant to Section 2.1(b); and
(e) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Buyer, and the Buyer shall have
received from the Seller copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Buyer may reasonably have requested.
Section 7.2 Conditions Precedent to the Seller's Obligations.
The obligations of the Seller to sell Receivables on any Business Day shall
be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Buyer contained in
this Agreement shall be true and correct with the same effect as though
such representations and warranties had been made on such date;
(b) Payment or provision for payment of the Purchase Price in
accordance with the provisions of Section 3.2 hereof shall have been made;
and
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Seller, and the Seller shall have
received from the Buyer copies of all documents (including, without
limitation, records of corporate proceedings) relevant to the transactions
herein contemplated as the Seller may reasonably have requested.
[END OF ARTICLE VII]
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Termination. Upon the termination of the Trust
pursuant to Section 12.1 of the Pooling and Servicing Agreement and the
surrender of the Exchangeable Transferor Security, the Buyer shall return
to the Seller (without recourse, representation or warranty) all right,
title and interest of the Buyer in the Receivables, whether then existing
or thereafter created, all moneys due or to become due with respect
thereto, and all proceeds thereof except for amounts held by the Trustee
pursuant to subsection 12.3(b) of the Pooling and Servicing Agreement. The
Buyer shall execute and deliver such instruments of transfer and
assignment, in each case without recourse, as shall be reasonably requested
by the Seller to vest in the Seller all right, title and interest which the
Buyer had in the Receivables.
[END OF ARTICLE VIII]
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment. This Agreement and any other Sale Papers
and the rights and obligations of the parties hereunder may not be changed
orally, but only by an instrument in writing signed by the Buyer and the
Seller. The Seller shall provide prompt written notice of any such
amendment to the Rating Agencies.
Section 9.2 Governing Law. THIS AGREEMENT AND THE OTHER SALE
PAPERS SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 9.3 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given
if personally delivered at or mailed by registered mail, return receipt
requested, to:
(a) in the case of the Buyer, to:
Metris Receivables, Inc.
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
Attention: Treasurer
(612) 417-5645
(b) in the case of the Seller, to:
Metris Companies Inc.
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
Attention: Treasurer
(612) 525-5094
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party.
Section 9.4 Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of the Sale Papers shall for
any reason whatsoever be held invalid, then such covenants, agreements,
provisions, or terms shall be deemed severable from the remaining
covenants, agreements, provisions, or terms of the Sale Papers and shall in
no way affect the validity or enforceability of the other provisions of the
Sale Papers.
Section 9.5 Assignment. Notwithstanding anything to the
contrary contained herein, this Agreement may not be assigned by the Buyer
or the Seller except as contemplated by this Section 9.5 and the Pooling
and Servicing Agreement; provided, however, that simultaneously with the
execution and delivery of this Agreement, the Buyer shall assign all of its
right, title and interest herein to the Trustee for the benefit of the
Investor Securityholders of all Series as provided in Section 2.1 of the
Pooling and Servicing Agreement, to which the Seller hereby expressly
consents; provided, further, that except for the foregoing assignment, no
such assignment shall occur unless the Buyer shall have received
confirmation from the Rating Agencies that such assignment shall not cause
a reduction or withdrawal of the rating of any Series of Securities. The
Seller agrees to perform its obligations hereunder for the benefit of the
Trust and that the Trustee may enforce the provisions of this Agreement,
exercise the rights of the Buyer and enforce the obligations of the Seller
hereunder without the consent of the Buyer.
Section 9.6 Further Assurances. The Buyer and the Seller agree
to do and perform, from time to time, any and all acts and to execute any
and all further instruments required or reasonably requested by the other
party more fully to effect the purposes of the Sale Papers, including,
without limitation, the execution of any financing statements or
continuation statements or equivalent documents relating to the Receivables
for filing under the provisions of the UCC or other laws of any applicable
jurisdiction.
Section 9.7 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Buyer or the
Seller, any right, remedy, power or privilege hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative
and not exhaustive of any rights, remedies, powers and privileges provided
by law.
Section 9.8 Counterparts. The Sale Papers may each be executed
in two or more counterparts including telefax transmission thereof (and by
different parties on separate counterparts), each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
Section 9.9 Binding Effect; Third-Party Beneficiaries. The Sale
Papers will inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns.
Section 9.10 Merger and Integration. Except as specifically
stated otherwise herein, the Sale Papers set forth the entire understanding
of the parties relating to the subject matter hereof, and all prior
understandings, written or oral, are superseded by the Sale Papers. The
Sale Papers may not be modified, amended, waived or supplemented except as
provided herein.
Section 9.11 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
Section 9.12 Schedules and Exhibits. The schedules and exhibits
attached hereto and referred to herein shall constitute a part of this
Agreement and are incorporated into this Agreement for all purposes.
Section 9.13 No Bankruptcy Petition Against the Buyer. The
Seller hereby covenants and agrees that, prior to the date which is one
year and one day after the payment in full of all Invested Amounts, it will
not institute against or join any other Person in instituting against the
Buyer any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings or other similar proceeding under the laws of the
United States or any state of the United States.
Section 9.14 Merger or Consolidation of, or Assumption of the
Obligations of, the Seller. The Seller shall not consolidate with or merge
into any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) the corporation formed by such consolidation or into
which the Seller is merged or the Person which acquires by conveyance
or transfer the properties and assets of the Seller substantially as
an entirety shall be a corporation organized and existing under the
laws of the United States of America or any State or the District of
Columbia and, if the Seller is not the surviving entity, shall
expressly assume, by an agreement supplemental hereto, executed and
delivered to the Buyer in form satisfactory to the Buyer, the
performance of every covenant and obligation of the Seller hereunder
(to the extent that any right, covenant or obligation of the Seller,
as applicable hereunder, is inapplicable to the successor entity, such
successor entity shall be subject to such covenant or obligation, or
benefit from such right, as would apply, to the extent practicable, to
such successor entity); and
(ii) the Seller shall have delivered to the Buyer an
Officer's Certificate that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section 9.14
and that all conditions precedent herein provided for relating to such
transaction have been complied with and an Opinion of Counsel that
such supplemental agreement is legal, valid and binding with respect
to the successor entity and that the entity surviving such
consolidation, conveyance or transfer is organized and existing under
the laws of the United States of America or any State or the District
of Columbia. The Rating Agencies shall receive prompt written notice
of such merger or consolidation of the Seller.
Section 9.15 Protection of Right, Title and Interest to
Receivables.
(a) The Seller shall cause this Agreement, all amendments hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the Seller's and the Buyer's right, title and
interest to the Receivables to be promptly recorded, registered and filed,
and at all times to be kept recorded, registered and filed, all in such
manner and in such places as may be required by law fully to preserve and
protect the right, title and interest of the Buyer hereunder to the
Receivables and proceeds thereof. The Seller shall deliver to the Buyer
file-stamped copies of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as available following such
recording, registration or filing. The Buyer shall cooperate fully with
the Seller in connection with the obligations set forth above and will
execute any and all documents reasonably required to fulfill the intent of
this subsection 9.15(a).
(b) Within 30 days after the Seller makes any change in its
name, identity or corporate structure which would make any financing
statement or continuation statement filed in accordance with paragraph (a)
above materially misleading within the meaning of Section 9-402(7) of the
UCC as in effect in the Relevant UCC State, the Seller shall give the Buyer
written notice of any such change and shall file such financing statements
or amendments as may be necessary to continue the perfection of the Buyer's
security interest in the Receivables and the proceeds thereof.
(c) The Seller will give the Buyer prompt written notice of any
relocation of any office from which it services Receivables or keeps
records concerning the Receivables or of its principal executive office and
whether, as a result of such relocation, the applicable provisions of the
UCC would require the filing of any amendment of any previously filed
financing or continuation statement or of any new financing statement and
shall file such financing statements or amendments as may be necessary to
continue the perfection of the Buyer's security interest in the Receivables
and the proceeds thereof. The Seller will at all times maintain each
office from which it services Receivables and its principal executive
office within the United States of America.
[END OF ARTICLE IX]
IN WITNESS WHEREOF, the Buyer and the Seller each have caused
this Agreement to be duly executed by their respective officers as of the
day and year first above written.
METRIS RECEIVABLES, INC.,
as Buyer
By:________________________
Title:
METRIS COMPANIES INC.,
as Seller,
By:________________________
Title:
EXHIBIT A
FORM OF DAILY REPORT
SCHEDULE 1
TAX RETURNS AND PAYMENTS
Metris and its subsidiaries have filed all applicable federal, state and
material local tax returns and have paid or caused to be paid all
associated taxes due and payable on such returns or on any assessments
received by them; except that because one of Metris's subsidiaries, Direct
Merchants Credit Card Bank, National Association, is a national banking
entity (established in 1995) which derives the majority of its income from
Mastercard credit cards, it may be subject to special financial institution
rules in certain states. Such rules attempt to impute state income tax
nexus to a credit card company it obtains finance revenue and/or has credit
card receivables generated from customers in that state. Of the states
that have adopted such financial institution rules, Minnesota is the only
state where Metris and its subsidiaries are currently filing income or
franchise tax returns. States which currently have rules pursuant to which
they may attempt to impose income tax nexus based upon such credit card
activity include:
Arkansas Minnesota
California New Mexico
Hawaii Tennessee
Indiana West Virginia
Massachusetts
Direct Merchants Credit Card Bank, National Association has not filed in
states other than Minnesota because it believes the above referenced
financial institution rules to be unconstitutional.
