As filed with the Securities and Exchange Commission on May ___ , 1999
Registration No. 333-76047
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Amendment No. 1 to
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. Cameron L. Cowan, Esq.
Skadden, Arps, Slate, Meagher Orrick, Herrington & Sutcliffe
& Flom LLP 3050 K Street, N.W.
919 Third Avenue Suite 200
New York, NY 10022 Washington, D.C. 20007
(212) 735-2853 (202) 339-8488
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. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED SECURITY (1) PRICE FEE (1)
- ------------------------------------------------------------------------------------------------------------
Asset Backed
<S> <C> <C> <C> <C>
Securities............ $4,500,000,000 100% $4,500,000,000 $1,250,722
============================================================================================================
</TABLE>
(1) $278 Previously paid .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.
- -----------------------------------------------------------------------------
=============================================================================
[Flag]
The information in this prospectus supplement and prospectus is not
complete and may be changed. We cannot sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. Neither this prospectus supplement nor the prospectus is an
offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MAY 28, 1999
=============================================================================
Prospectus Supplement to Prospectus, Dated ______________, 1999
METRIS MASTER TRUST
Issuer
Metris Receivables, Inc.
Transferor
Direct Merchants Credit Card Bank, National Association
Servicer
$_________ Class A Floating Rate Asset Backed Securities, Series 1999-___
$_________ Class B Floating Rate Asset Backed Securities, Series 1999-___
<TABLE>
<CAPTION>
Class A Securities Class B Securities
------------------ ------------------
<S> <C> <C>
Principal Amount $____________ $____________
Price $______ (___%) $______ (___%)
Underwriters' Commissions $______ (___%) $______ (___%)
Proceeds to the Issuer $______ (___%) $______ (___%)
Interest Rate one-month LIBOR + one-month LIBOR +
___% p.a.
___% p.a.
Interest Payment Dates monthly on the 20th monthly on the 20th
First Interest Payment Dat ___________, 1999 ___________, 1999
Scheduled Principal Payment Date ___________, ____ ___________, ____
</TABLE>
- -----------------------------------------------------------------------------
The Class B Securities are subordinated to the Class A Securities.
- -----------------------------------------------------------------------------
These securities are interests in Metris Master Trust, and are backed only
by the assets of the trust. Neither these securities nor the assets of the
Trust are obligations of Metris Receivables, Inc., Metris Companies Inc.,
Direct Merchants Credit Card Bank, National Association or any of their
affiliates, or obligations insured by
the FDIC.
These securities are highly structured. Before you purchase these
securities, be sure you understand the structure and the risks. See "Risk
Factors" beginning on page S-9 of this prospectus supplement.
- -----------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the disclosures in this supplement and the attached
prospectus. Any representation to the Contrary contrary is a criminal
offense.
- -----------------------------------------------------------------------------
These securities are offered subject to availability. We have applied to
have these securities listed on the Luxembourg Stock Exchange.
Underwriters of the Class A Securities .
Underwriter of the Class B Securities .
[date of prospectus supplement]
Table of Contents
Page
Where to Find Information in These Documents...............................S-3
Summary of Terms...........................................................S-4
Structural Summary.........................................................S-5
Selected Trust Portfolio Summary Data......................................S-8
Risk Factors...............................................................S-9
Potential Early
Repayment or Delayed
Payment due to Reduced
Portfolio Yield...................................................S-9
Limited History of Direct
Merchants Bank, the Trust
and the Trust Portfolio..........................................S-11
Allocations of Charged-Off
Receivables Could Reduce
Payments to Securityholders......................................S-12
Limited Ability to
Resell Securities................................................S-12
Certain Liens Could
Be Given Priority
Over Your Securities.............................................S-12
Insolvency or Bankruptcy
of Metris Receivables, Inc.
Could Result in Accelerated,
Delayed or Reduced Payments
to Securityholders...............................................S-12
Negative Carry............................................................S-14
Issuance of Additional
Series by the Trust
May Affect the Timing
of Payments......................................................S-14
Individual Securityholders
Will Have Limited Control
of Trust Actions.................................................S-14
Class B Bears Additional
Credit Risk......................................................S-14
Direct Merchants Bank's Credit Card Portfolio.............................S-15
General ........................................................S-15
Growing Credit Card Portfolio by Portfolio
Acquisitions...................................................S-15
Assessment of Fees and Finance and other
Charges........................................................S-16
Delinquency and Loss Experience .................................S-16
Recoveries ....................................................S-17
The Receivables...........................................................S-17
General..........................................................S-17
Maturity Considerations...................................................S-22
Accumulation Period .............................................S-22
Early Amortization Period .......................................S-22
Pay Out Events ..................................................S-23
Payment Rates ...................................................S-23
Receivable Yield Considerations...........................................S-24
Use of Proceeds...........................................................S-25
Description of the Securities.............................................S-25
General ........................................................S-25
Status of the Securities ........................................S-26
Previously Issued Series.........................................S-26
Interest Payments ...............................................S-26
Principal Payments ..............................................S-28
Postponement of Accumulation Period .............................S-28
Subordination of the Class B Securities..........................S-29
Allocation Percentages ..........................................S-29
Redirected Cash Flows ...........................................S-31
Redirected Principal Collections.................................S-32
Application of Collections.......................................S-33
Coverage of Interest Shortfalls..................................S-38
Shared Principal Collections ....................................S-38
Defaulted Receivables; Dilution..................................S-38
Investor Charge-Offs ............................................S-38
Principal Funding Account .......................................S-39
Accumulation Period Reserve Account .............................S-39
Paired Series ...................................................S-40
Defeasance.......................................................S-41
Final Payment of Principal; Termination..........................S-41
Pay Out Events...................................................S-42
Servicing Compensation and Payment of Expenses ..................S-43
Reports to Securityholders ......................................S-43
Listing And General Information...........................................S-44
ERISA Considerations......................................................S-44
Class A Securities ..............................................S-44
Class B Securities ..............................................S-45
Consultation with Counsel .......................................S-45
Underwriting..............................................................S-45
Exchange Listing..........................................................S-47
Index of Terms for Prospectus Supplement..................................S-48
ANNEX I..................................................................A-I-1
Where to Find Information in These Documents
The attached prospectus provides general information about Metris Master
Trust, including terms and conditions that are generally applicable to the
securities issued by the trust. The specific terms of Series 1999-___ are
described in this supplement.
This supplement begins with several introductory sections describing your
series and Metris Master Trust in abbreviated form:
o Summary of Terms provides important amounts, dates and other terms
of your series;
o Structural Summary gives a brief introduction of the key structural
features of your series and directions for locating further
information;
o Selected Trust Portfolio Summary Data gives certain financial information
about the assets of the Trust; and
o Risk Factors describes risks that apply to your series.
As you read through these sections, cross-references will direct you
to more detailed descriptions in the attached prospectus and elsewhere in
this supplement. You can also directly reference key topics by looking at
the table of contents pages in this supplement and the attached prospectus.
- -----------------------------------------------------------------------------
To understand the structure of these securities, you must read carefully the
attached prospectus and this supplement in their entirety.
- -----------------------------------------------------------------------------
Summary of Terms
- -----------------------------------------------------------------------------
Trust: Metris Master Trust - "Trust"
Transferor: Metris Receivables, Inc.
Servicer: Direct Merchants Credit Card Bank, National
Association--"Direct
Merchants Bank"
Trustee: The Bank of New York (Delaware)
Pricing Date: _________, ____
Closing Date: _________, ____
Clearance and Settlement: DTC/Cedelbank/Euroclear
Trust Assets: receivables originated in VISA and
MasterCard and co-branded accounts,
including recoveries on charged-off
receivables
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series Structure: Amount % of Total Series
<S> <C> <C>
Class A $___________ __%
Class B $___________ __%
Annual Servicing Fee: ___%
Class A Class B
Anticipated Ratings:*
(Moody's/Standard & Poor's/Fitch IBCA) [Aaa/AAA/AAA] [A2/A/A]
Credit Enhancement: subordination of Class B [_________]
Interest Rate: [1-month LIBOR + ___% p.a.] [1-month LIBOR + ___% p.a.]
Interest Accrual Method: actual/360 actual/360
Interest Payment Dates: monthly ( th) monthly ( th)
Interest Rate Index Reset Date: [2 business days before each [2 business days
before each
interest payment date] interest payment date]
First Interest Payment Date: _________, ___ _________, ___
Scheduled Payment Date: _________, ___ _________, ___
Commencement of
[Accumulation][Amortization] Period
(subject to adjustment): _________, ___ N/A
Series 1999-___ Legal Final Maturity: _________, ___ _________, ___
Application for Exchange Listing: Luxembourg Luxembourg
CUSIP Number: ______________ ______________
ISIN: ______________ ______________
Common Code: ______________ ______________
- ------------------------------
* It is a condition to issuance that one of these ratings be obtained.
</TABLE>
Structural Summary
This summary briefly describes certain major structural components of
Series 1999-__. To fully understand the terms of Series 1999- __ you will
need to read both this supplement and the attached prospectus in their
entirety.
The Series 1999-__ Securities
Your securities represent the right to a portion of collections on the
underlying Trust assets. Your securities will also be allocated a portion
of net losses on receivables, if any. Any collections allocated to your
series will be used to make interest or principal payments, to pay a
portion of the fees of Direct Merchants Credit Card Bank, N.A. as servicer
and to cover net losses allocated to your series. Any collections allocated
to your series in excess of the amount owed to you or Direct Merchants
Credit Card Bank, N.A. as servicer will be shared with other series of
securities issued by Metris Master Trust, or returned to Metris
Receivables, Inc. In no case will you receive more than the principal and
interest owed to you under the terms described in this supplement.
For further information on allocations and payments, see "Description of
the Securities--Allocation Percentages" and "- -Application of Collections"
in this supplement. For further information about the receivables
supporting your securities, see "The Receivables" and "Receivable Yield
Considerations" in this supplement. For a more detailed discussion of the
securities, see "Description of the Securities" in this supplement.
Your securities feature credit enhancement by means of the subordination of
other interests, which is intended to protect you from net losses and
shortfalls in cash flow. Credit enhancement is provided to Class A by the
following:
o subordination of Class B and
o [other enhancement].
Credit enhancement is provided to Class B by the following:
o [enhancement].
The effect of subordination is that the more subordinated interests will
absorb any net losses allocated to Series 1999- __, and make up any
shortfalls in cash flow, before the more senior interests are affected. If
the cash flow, any subordinated interest [and any enhancement] do not cover
all net losses allocated to Series 1999-__, your payments of interest and
principal will be reduced and you may suffer a loss of principal.
For a more detailed description of the subordination provisions of Series
1999-__, see "Description of the Securities--Subordination of the Class B
Securities" in this supplement. For a discussion of losses, see
"Description of the Securities--Defaulted Receivables; Dilution" and
"Investor Charge-Offs" in this supplement. See "Risk Factors" in this
supplement for more detailed discussions of the risks of investing in
Series 1999-__. Metris Master Trust
Your series is one of [eight] series issued by Metris Master Trust. Metris
Master Trust is maintained by the trustee for the benefit of:
o Securityholders of Series 1999-__;
o Securityholders of other series issued by
Metris Master Trust;
o providers of credit enhancements for
Series 1999-__ and other series
issued by Metris Master Trust; and
o Metris Receivables, Inc.
For a summary of the terms of the previously issued series, see "Annex I:
Previously Issued Series."
Each series has a claim to a fixed or variable dollar amount of Metris
Master Trust's assets, regardless of the total amount of receivables in the
Trust at any time. Metris Receivables, Inc. holds the remaining claim to
Metris Master Trust's assets, which fluctuates with the total amount of
receivables in the Trust.
For more information on the Metris Master Trust's assets, see "Direct
Merchants Bank's Credit Card Portfolio" and "The Receivables" in this
supplement and "Direct Merchants Bank's Credit Card Activities" and "The
Receivables" in the attached prospectus.
Scheduled Principal Payments and Potential Later Payments
Metris Master Trust expects to pay the entire principal amount of Class A
in one payment on _________, ____, and the entire principal amount of Class
B in one payment on __________, ____. In order to accumulate the funds to
pay Class A on its scheduled payment date, the Trust will accumulate
principal collections in a principal funding account. The Trust will
deposit funds into the principal funding account during an "accumulation
period." The length of the accumulation period will be as many months as is
expected to be necessary for the accumulation of the Class A payment
amount, but will not be less than one month. The accumulation period will
end on the scheduled payment date for Class A, when the funds on deposit in
the principal funding account will be paid to Class A.
If Class A is not fully repaid on its scheduled payment date, Class A will
begin to amortize by means of monthly payments of all principal collections
allocated to Series 1999- __ until it is fully repaid.
After Class A is fully repaid the Trust will use principal collections on
deposit in the principal funding account allocated to Series 1999-__ to
repay Class B. If Class B is not fully repaid on its scheduled payment
date, Class B will begin to amortize by means of monthly payments of all
principal collections allocated to Series 1999-__ after Class A is fully
repaid.
For more information on scheduled principal payments, the accumulation
period and Class B principal payments, see "Maturity Considerations" and
"Description of the Securities-Principal Payments," "-Postponement of the
Accumulation Period" and "-Application of Collection- Payment of Principal"
in this supplement and "Description of the Securities--Principal" and
"--Accumulation Period" in the attached prospectus.
Prior to the commencement of an accumulation or amortization period for
Series 1999-__, principal collections will be paid to Metris Receivables,
Inc. or shared with other series that are amortizing or in an accumulation
period.
Minimum Yield on the Receivables; Possible Early Principal Repayment of
Series 1999-__
Class A or Class B may be repaid earlier than its scheduled principal
repayment date if collections on the underlying receivables, together with
other amounts available for payment to securityholders, are too low. The
minimum amount that must be available for payment to Series 1999-__ in any
month, referred to as the "base rate," is the sum of the interest payable
to Class A, the interest payable to Class B [and the interest payable to
the holder of any other subordinated class], in each case for the related
interest period, plus the servicing fee for the related month. If the
average yield for Series 1999-_ for any three consecutive months is less
than the average base rate for the same three consecutive months, a "pay
out event" will occur with respect to Series 1999-__ and the Trust will
commence a rapid amortization of Series 1999-__, and holders of Series
1999-__ securities will receive principal payments earlier than the
scheduled principal repayment date.
Series 1999-__ is also subject to several other pay out events, which could
cause Series 1999-__ to amortize, and which are summarized under the
heading "Description of the Securities- -Pay Out Events " in this
supplement. If Series 1999-__ begins to amortize, Class A will receive
monthly payments of principal until it is fully repaid; Class B will then
receive monthly payments of principal until it is fully repaid. In that
event, your securities may be repaid prior to the scheduled payment date.
The final payment of principal and interest will be made no later than
__________, ____, which is the Series 1999-__ final payment date.
For more information on pay out events, the portfolio yield and base rate,
early principal repayment and rapid amortization, see "Maturity
Considerations," "Description of the Securities--Principal Payments" and
"--Pay Out Events" in this supplement and "Description of the Securities--
Principal," "-Early Amortization Period" and "--Final Payment of Principal;
Termination" in the attached prospectus.
Income Tax Status of Class A, Class B and Metris Master Trust
Skadden, Arps, Slate, Meagher & Flom LLP, special federal income tax
counsel to Metris Receivables, Inc., is of the opinion that
o under existing law the Class A and Class
B securities will be characterized as debt
for U.S. federal income tax purposes; and
o that Metris Master Trust will not be an
association or publicly traded partnership
taxable as a corporation for U.S. federal
income tax purposes.
For further information regarding the application of U.S. federal income
tax laws, see "Income Tax Matters" in the attached prospectus.
ERISA Considerations
Class A Securities: The underwriters anticipate that the Class A securities
will meet the criteria for treatment as "publicly-offered securities." If
so, subject to important considerations described under "ERISA
Considerations" in this prospectus supplement and in the attached
prospectus, the Class A securities will be eligible for purchase by persons
investing assets of employee benefit plans or individual retirement
accounts.
Class B Securities: Pension plans and other investors subject to ERISA
cannot acquire Class B securities. Prohibited investors include:
o "employee benefit plans" as defined in
section 3(3) of ERISA;
o any "plan" as defined in section 4975 of
the U.S. Internal Revenue Code; and
o any entity whose underlying assets may be deemed to include
"plan as- sets" under ERISA by reason of any such plan's
investment in the entity, including insurance company
general accounts.
By purchasing any Class B securities, you certify that you are not within
any of those categories.
For further information regarding the application of ERISA, see "ERISA
Considerations" in this supplement and the attached prospectus.
Mailing Address and Telephone Number of Principal Executive Offices
The mailing address of Metris Receivables, Inc. is 600 South Highway 169,
Suite 300, St. Louis Park, Minnesota 55426, and the telephone number is
(612) 417-5645.
Selected Trust Portfolio Summary Data
Geographic Distribution of Receivables in Trust
Portfolio as of [ , 199 ].
[Pie chart]
The chart above shows the geographic distribution of the receivables in the
Trust portfolio among the 50 states. Other than the states specifically
shown in the chart, no state accounts for more than [5]% of receivables in
the Trust portfolio.
Receivables in Trust Portfolio by Age of Account
as of __________, 199_ (months)
[Bar chart]
The chart above shows the percentages of the receivables in the Trust
portfolio arising under accounts within the age brackets shown.
Payment Data
[Line Graph]
The chart above shows the total yield, payment rate and charge-off rate for
the Direct Merchants Bank portfolio for each month from [__________ 199_ to
_________ 199_].
"Total yield" for any month means the total amount of collected finance
allocated to the Metris Master Trust for the month, expressed as a
percentage of outstanding principal receivables for the month.
The "payment rate" for any month is the aggregate amount collected on
receivables during the month, including recoveries on previously charged
off receivables, expressed as a percentage of the total outstanding
receivables of the previous month.
The amount of "charge-offs" for any month is the amount of charged off
receivables recorded in the month expressed as a percentage of average
outstanding principal receivables for the month.
Risk Factors
You should consider the following risk factors in deciding whether
to purchase the asset backed securities described herein.
Potential Early
Repayment or Delayed
Payment due to Reduced
Portfolio Yield If the average Trust portfolio yield
for Series 1999-__ for any three
consecutive months is less than the
average base rate for the same three
consecutive months, a "pay out event"
will occur with respect to Series
1999-__ and the rapid amortization of
Series 1999-__ will commence, and
holders of Series 1999-__ securities
will receive principal payments earlier
than the scheduled principal repayment
date. Moreover, if principal
collections on receivables allocated to
other series are available for
application to a rapid amortization of
any outstanding securities, the period
during which that rapid amortization
occurs may be substantially shortened.
Because of the potential for early
repayment if collections on the
receivables fall below the minimum
amount, any circumstances that tend to
reduce collections may increase the
risk of early repayment of Series
1999-__.
Conversely, any reduction in
collections may cause the period during
which collections are accumulated in
the principal funding account for
payment of Class A to be longer than
otherwise would have been the case.
The following factors could result in
circumstances that tend to reduce
collections:
Direct Merchants Bank May Change the
Terms and Conditions of the Accounts
Direct Merchants Bank will transfer
receivables arising under specified
credit card accounts to Metris
Companies Inc. which will sell those
receivables to Metris Receivables, Inc.
which will transfer those receivables
to Metris Master Trust, but Direct
Merchants Bank will continue to own
those accounts. As the owner of those
accounts, Direct Merchants Bank retains
the right to change various terms and
conditions of those accounts, including
finance charges and other fees it
charges and the required monthly
minimum payment. Direct Merchants Bank
may change the terms of the accounts to
maintain its competitive position in
the credit card industry. Changes in
the terms of the accounts may reduce
the amount of receivables arising under
the accounts, reduce the amount of
collections on those receivables, or
otherwise alter payment patterns.
Direct Merchants Bank has agreed that
it will not reduce the periodic finance
charges it charges on the receivables
or other fees on any account if that
action would cause Direct Merchants
Bank to reasonably expect that the
portfolio yield would be less than the
base rate for any series, unless Direct
Merchants Bank is required by law to
reduce those charges or determines that
reductions are necessary to maintain
its credit card business, based on its
good faith assessment of its business
competition.
Direct Merchants Bank has agreed that
it will not change the terms of the
accounts or its policies relating to
the operation of its credit card
business, including the reduction of
the required minimum monthly payment
and the calculation of the amount or
the timing of finance charges, other
fees and charge-offs, unless it
reasonably believes a pay out event
would not occur for any series and
takes the same action on its other
substantially similar accounts, to the
extent permitted by those accounts.
Metris Receivables, Inc. May Add
Accounts to the Trust Portfolio
In addition to the accounts already
designated for Metris Master Trust,
Metris Receivables, Inc. is permitted
to designate additional accounts for
the Trust portfolio and to transfer the
receivables in those accounts to the
Trust. If certain conditions are
satisfied, Metris Receivables, Inc. can
also elect to automatically designate
additional accounts for the Trust
portfolio and to transfer the
receivables in those accounts to the
Trust. Any new accounts and receivables
may have different terms and conditions
than the accounts and receivables
already in the Trust, such as higher or
lower fees or interest rates, or longer
or shorter principal payment terms.
Credit card accounts purchased by
Metris Receivables, Inc. may be
included as additional accounts, if
certain conditions are satisfied.
Credit card accounts purchased by
Metris Receivables, Inc. will have been
originated using the account
originator's underwriting criteria, not
those of Metris Receivables, Inc. The
account originator's underwriting
criteria may be less or more stringent
than those of Metris Receivables, Inc.
The new accounts and receivables may
produce higher or lower collections or
charge-offs over time than the accounts
and receivables already in the Trust
portfolio and could tend to reduce the
amount of collections allocated to
Series 1999-__.
Also, if Metris Receivables, Inc.'s
percentage interest in the accounts of
the Trust falls to a minimum level,
currently zero, Metris Receivables,
Inc. will be required to maintain that
level by designating additional
accounts for the Trust portfolio and
transferring the receivables in those
accounts to the Trust. If Metris
Receivables, Inc. is required to add
accounts to the Trust portfolio, it may
not have any accounts to be added to
the Trust portfolio. If Metris
Receivables, Inc. fails to add accounts
when required, a "pay out event" will
occur and you could receive payment of
principal sooner than expected. See
"Description of the
Securities--Addition of Trust Assets"
in the attached prospectus.
Security and Receivables Interest Rate
Reset Terms May Differ
Finance charges on certain of the
accounts in Metris Master Trust accrue
at a variable rate above a designated
prime rate or other designated index.
The interest rate of your security is
based on LIBOR. Changes in LIBOR might
not be reflected in the prime rate or
the designated index, resulting in a
higher or lower spread, or difference,
between the amount of collections of
finance charge receivables on the
accounts and the amounts of interest
payable on Series 1999-__ and other
amounts required to be funded out of
collections of finance charge
receivables.
Finance charges on certain of the
accounts of the Trust accrue at a fixed
rate. If LIBOR increases, the amounts
of interest on your security and other
amounts required to be funded out of
collections of finance charge
receivables will increase, while the
amount of collections of finance charge
receivables on the accounts will remain
the same unless and until the rates on
the accounts are reset.
A decrease in the spread between
collections of finance charge
receivables and interest payments on
your security could increase the risk
of early repayment.
Changes to Consumer Protection Laws May
Impede Direct Merchants Bank's
Collection Efforts
Federal and state consumer protection
laws regulate the creation and
enforcement of consumer loans,
including credit card accounts and
receivables. Changes or additions to
those regulations could make it more
difficult for the servicer of the
receivables to collect payments on the
receivables or reduce the finance
charges and other fees that Direct
Merchants Bank can charge on credit
card account balances, resulting in
reduced collections. See "Description
of the Securities--Pay Out Events" in
this supplement and in the attached
prospectus.
Receivables that do not comply with
consumer protection laws may not be
valid or enforceable in accordance with
their terms against the obligors on
those receivables. Direct Merchants
Bank makes representations and
warranties relating to the validity and
enforceability of the receivables
arising under the accounts in the Trust
portfolio. Subject to certain
conditions described under "Description
of the Securities--Representations and
Warranties" in the attached prospectus,
Metris Receivables, Inc. must accept
reassignment of each receivable that
does not comply in all material
respects with all requirements of
applicable law. However, we do not
anticipate that the trustee under the
pooling and servicing agreement will
make any examination of the receivables
or the related records for the purpose
of determining the presence or absence
of defects, compliance with
representations and warranties, or for
any other purpose. The only remedy if
any representation or warranty is
violated, and the violation continues
beyond the period of time Metris
Receivables, Inc. has to correct the
violation, is that Metris Receivables,
Inc. must accept reassignment of the
receivables affected by the violation,
subject to certain conditions described
under "Description of the
Securities--Representations and
Warranties" in the attached prospectus.
See also "Certain Legal Aspects of the
Receivables--Consumer Protection Laws"
in the attached prospectus.
If a cardholder sought protection under
federal or state bankruptcy or debtor
relief laws, a court could reduce or
discharge completely the cardholder's
obligations to repay amounts due on its
account and, as a result, the related
receivables would be written off as
uncollectible. See "Description of the
Securities--Defaulted Receivables;
Dilution" and "--Investor Charge-Offs"
in this supplement and in the attached
prospectus.
Slower Generation of Receivables Could
Reduce Collections
The receivables transferred to Metris
Master Trust may be paid at any time.
We cannot assure the creation of
additional receivables in those
accounts or that any particular pattern
of cardholder payments will occur. A
significant decline in the amount of
new receivables generated by the
accounts in the Trust could result in
reduced collections on those
receivables. See "Maturity
Considerations" in this supplement.
Limited History of Direct
Merchants Bank, the Trust
and the Trust Portfolio Direct Merchants Bank's predecessor
began originating and servicing credit
card accounts in March 1995. Direct
Merchants Bank and its predecessor have
had limited underwriting and servicing
experience, and limited delinquency,
default and loss experience with
respect to the Accounts. See "Direct
Merchants Bank's Credit Card Portfolio"
in this supplement and "Direct
Merchants Bank's Credit Card
Activities" in the attached prospectus.
The Trust's and Metris Receivables,
Inc. were formed in May 1995 and have
no substantial assets other than their
interests in the receivables and the
proceeds from the receivables.
The Trust assets consist primarily of
receivables generated from accounts
originated since March 1995. As of
September 30, 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" in this supplement.
Allocations of Charged-Off
Receivables Could Reduce
Payments to Securityholders Metris Receivables, Inc. anticipates
that it will write off as uncollectible
some portion of the receivables arising
in accounts in the Trust portfolio.
Each class of Series 1999-__ will be
allocated a portion of those
charged-off receivables. See
"Description of the Securities--
Allocation Percentages" and
"Direct Merchants Bank's Credit Card
Portfolio--Delinquency and Loss
Experience" in this supplement. If the
amount of charged-off receivables
allocated to any class of securities
exceeds the amount of other funds
available for reimbursement of those
charge-offs (which could occur if the
limited amount of credit enhancement
for those securities is reduced to
zero) the holders of those securities
may not receive the full amount of
principal and interest due to them. See
"Description of the Securities-
Redirected Cash Flows,"
"-Application of Collections" and
"-Defaulted Receivables; Dilution" and
"-Investor Charge-Offs" in this
supplement.
Limited Ability to
Resell Securities The underwriters may assist in resales
of the Class A and Class B securities
but they are not required to do so. A
secondary market for any such
securities may not develop. If a
secondary market does develop, it might
not continue or it might not be
sufficiently liquid to allow you to
resell any of your securities.
Certain Liens Could
Be Given Priority
Over Your Securities Direct Merchants Bank accounts for the
transfer of the receivables to Metris
Companies Inc. as a sale. Metris
Companies Inc. accounts for the
transfer of the receivables to Metris
Receivables, Inc. as a sale. Metris
Receivables, Inc. accounts for the
transfer of the receivables to the
Trust as a sale. However, a court could
conclude that the Trust holds only a
security interest. Direct Merchants
Bank, Metris Companies Inc. and Metris
Receivables, Inc. will take steps to
give the trustee a "first priority
perfected security interest" in the
receivables in the event a court
concludes Metris Receivables, Inc. or
Metris Companies Inc. or Direct
Merchants Bank still owns the
receivables. If Direct Merchants Bank
became insolvent and the Federal
Deposit Insurance Corporation were
appointed conservator or receiver of
Direct Merchants Bank, the FDIC's
administrative expenses might be paid
from the receivables before the Trust
received any payments on the
receivables. If a court concludes that
the transfer to the Trust is only a
grant of a security interest in the
receivables certain liens on Direct
Merchants Bank, Metris Companies Inc.
or Metris Receivables, Inc.'s property
arising before new receivables come
into existence may get paid before the
Trust's interest in those receivables.
Those liens include a tax or government
lien or other liens permitted under the
law without the consent of Direct
Merchants Bank, Metris Companies Inc.
or Metris Receivables, Inc. See
"Certain Legal Aspects of the
Receivables--Transfer of Receivables"
and "Description of the
Securities--Representations and
Warranties" in the attached prospectus.
Insolvency or Bankruptcy
of Metris Receivables, Inc.
Could Result in Accelerated,
Delayed or Reduced Payments
to Securityholders Under the Federal Deposit Insurance
Act, as amended by the Financial
Institutions Reform, Recovery and
Enforcement Act of 1989, the Trust's
security interest in the receivables
arising under the accounts in the trust
portfolio should be respected by the
FDIC where--
o Direct Merchants Bank's
transfer of the receivables to
Metris Companies Inc. is the
grant of a valid security
interest in the receivables to
Metris Companies Inc., Metris
Companies Inc.'s transfer of
the receivables to Metris
Receivables, Inc. is the grant
of a valid security interest in
the receivables to Metris
Receivables, Inc. and Metris
Receivables, Inc.'s transfer of
the receivables to the Trust is
the grant of a valid security
interest in the receivables to
the Trust;
o Direct Merchants Bank becomes
insolvent and the FDIC is
appointed conservator or
receiver of Direct Merchants
Bank;
o the security interest (a) is
validly perfected before Direct
Merchants Bank's insolvency and
(b) was not taken in
contemplation of Direct
Merchants Bank's insolvency or
with the intent to hinder,
delay or defraud Direct
Merchants Bank or its
creditors; and
o purchase agreements between
Direct Merchants Bank and
Metris Companies Inc., and
Metris Companies Inc. and
Metris Receivables, Inc., and
the pooling and servicing
agreement establishing the
Trust under the Federal Deposit
Insurance Act are each
continuously an official record
of Direct Merchants Bank and
represents a bona fide and
arm's length transaction
undertaken for adequate
consideration in the ordinary
course of business.
Under the Federal Deposit Insurance Act,
the FDIC could--
o require The Bank of New York
(Delaware), as trustee for the
Trust, to go through an
administrative claims procedure
to establish its right to
payments collected on the
receivables in the Trust;
o request a stay of proceedings
with respect to Direct
Merchants Bank; or
o repudiate the pooling and
servicing agreement
establishing the Trust and
limit the Trust's resulting
claim to "actual direct
compensatory damages" measured
as of the date of receivership.
See "Certain Legal Aspects of
the Receivables--Certain
Matters Relating to
Receivership" in the attached
prospectus.
If the FDIC were to take any of those
actions your payments of outstanding
principal and interest could be delayed
and possibly reduced.
If a conservator or receiver were
appointed for Direct Merchants Bank, or
in the event of a bankruptcy of Metris
Companies Inc. or Metris Receivables,
Inc., then a "pay out event" could
occur for all outstanding series. Under
the terms of the pooling and servicing
agreement new principal receivables
would not be transferred to the Trust
and the trustee would sell the
receivables (unless holders of more
than 50% of the investor interest of
each class of outstanding securities
gave the trustee other instructions).
The Trust would then terminate earlier
than was planned and you could have a
loss if the sale of the receivables
produced insufficient net proceeds to
pay you in full.
The conservator, receiver or trustee in
bankruptcy may nonetheless have the
power, regardless of the terms of the
pooling and servicing agreement, (a) to
prevent the beginning of an early
amortization period, (b) to prevent the
early sale of the receivables and
termination of the Trust or (c) to
require new principal receivables to
continue being transferred to the
Trust. See "Certain Legal Aspects of
the Receivables--Certain Matters
Relating to Receivership" in the
attached prospectus.
Negative Carry Any amounts deposited in the Excess
Funding Account and the Principal
Funding Account can be invested in
investments earning a rate less than
the yield from collections of finance
charge receivables, resulting in a
reduction of amounts available to make
payments to securityholders.
Issuance of Additional
Series by the Trust
May Affect the Timing
of Payments Metris Master Trust, as a master trust,
may issue series of securities from
time to time. The Trust may issue
additional series with terms that are
different from your series without the
prior review or consent of any
securityholders. It is a condition to
the issuance of each new series that
each rating agency that has rated an
outstanding series confirm in writing
that the issuance of the new series
will not result in a reduction or
withdrawal of its rating of any class
of any outstanding series.
However, the terms of a new series
could affect the timing and amounts of
payments on any other outstanding
series. See "Description of the
Securities-- Exchanges" in the attached
prospectus.
Individual Securityholders
Will Have Limited Control
of Trust Actions Securityholders of any series or any
class within a series may need the
consent or approval of a specified
percentage of the investor interest of
other series or a class of such other
series to take or direct certain
actions, including to require the
appointment of a successor servicer
after Direct Merchants Bank, as
servicer, defaults on its obligations
under the pooling and servicing
agreement, to amend the pooling and
servicing agreement in some cases, and
to direct a repurchase of all
outstanding series after certain
violations of Metris Receivables,
Inc.'s representations and warranties.
The interests of the securityholders of
any such series may not coincide with
yours, making it more difficult for any
particular securityholder to achieve
the desired results from such vote.
Class B Bears Additional
Credit Risk Because Class B is subordinated to
Class A, principal payments to Class B
will not begin until Class A is repaid.
Additionally, if collections of finance
charge receivables allocated to Series
1999-__ are insufficient to cover
amounts due to Class A, the investor
interest for Class B might be reduced.
This would reduce the amount of the
collections of finance charge
receivables available to Class B in
future periods and could cause a
possible delay or reduction in
principal and interest payments on
Class B. If receivables had to be sold,
the net proceeds of that sale available
to pay principal would be paid first to
Class A and any remaining net proceeds
would be paid to Class B. See
"Description of the Securities--
Subordination of the Class B
Securities" in this supplement.
Direct Merchants Bank's Credit Card Portfolio
Capitalized items are defined in the attached prospectus or in this
supplement. Definitions are indicated by boldface type. Both the attached
prospectus and this supplement contain an index of terms listing the page
numbers where definitions can be found.
General
The receivables (the "Receivables") conveyed or to be conveyed to
the Trust pursuant to a pooling and servicing agreement (as the same may be
amended from time to time, the "Agreement"), among Metris Receivables, Inc.
(the "Transferor"), Direct Merchants Bank, as Servicer of the Receivables,
and The Bank of New York (Delaware), as trustee (the "Trustee"), as
supplemented by the supplement relating to the Securities (the "Series
1999-__ Supplement") (the term "Pooling and Servicing Agreement," unless
the context requires otherwise, refers to the Pooling and Servicing
Agreement as supplemented by the Series 1999-__ Supplement) have been or
will be generated from transactions made by holders of co-branded and other
MasterCard(R) and VISA(R) credit card accounts (the "Accounts") and,
subject to certain conditions, 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. Each Class A [Floating Rate Asset Backed] Security,
Series 1999-_ (collectively, the "Class A Securities") and each Class B
[Asset Backed] Security, Series 1999- (collectively, the "Class B
Securities" and, together with the Class A Securities [and the Credit
Enhancement], the "Securities" or the "Series 1999-_ Securities") will
represent the right to receive certain payments from the Metris Master
Trust, created pursuant to the Pooling and Servicing Agreement. As used in
this prospectus supplement, the term "Securityholders" refers to holders of
the Securities, the term "Class A Securityholders" refers to holders of the
Class A Securities, the term "Class B Securityholders" refers to holders of
the Class B Securities, the term "[Credit Enhancement Providers]" refers to
holder of [Credit Enhancement], and "Transferor" means Metris Receivables,
Inc. As of March 31, 1999, Direct Merchants Bank had approximately 2.9
million credit card accounts and approximately 5.1 billion in managed
loans; Fingerhut Customers represented approximately 36% of the accounts
and approximately 36% of the managed loans.
Growing Credit Card Portfolio by Portfolio Acquisitions
In the first quarter of 1997, Direct Merchants Bank acquired 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. 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. Such accounts
have been designated as Supplemental Accounts the Receivables of which have
been transferred to the Trust.
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. On December 9,
1998, Direct Merchants Bank acquired a portion of the consumer credit card
portfolio of PNC National Bank ("PNC"). The acquired PNC credit card
portfolio had approximately 400,000 accounts and approximately $800 million
in receivables, as of December 9, 1998. 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 as Accounts designated to have their
Receivables transferred to the Trust, such a determination may be made in
the future. Such accounts were originated using criteria different from
those which were applied in originating the Accounts designated on the
Initial Closing Date or to previously-designated Supplemental Accounts
because such accounts were originated at different dates, under different
underwriting criteria and by a different institution. Consequently, there
can be no assurance that Supplemental Accounts designated in the future
from such accounts, if any, will be of the same credit quality as
previously designated Accounts.
On May 10, 1999, Metris announced that it had entered into a
definitive agreement with General Electric Capital Corporation ("GE"), a
unit of General Electric Company, to acquire a portfolio of approximately
563,000 active accounts and approximately $1.3 billion of credit card
receivables (the "GE Portfolio"). Metris intends to finance the GE
Portfolio acquisition with proceeds from the sale
of the portfolio's credit card receivables to one or more commercial paper
conduits. The GE Portfolio acquisition is expected to close in the second
quarter of 1999. The contemplated arrangements described herein are subject
to the negotiation and execution of definitive agreements and the
fulfillment of any business conditions contained therein. Accordingly, no
assurance can be given as to whether or to what extent such arrangements
will be consummated.
Assessment of Fees and Finance and other Charges
A billing statement is sent to cardholders at the end of each
monthly billing cycle in which the account has an outstanding balance
greater than $1.00. Direct Merchants Bank uses third party processors to
process certain cardholder payments. When an account is established, it is
assigned a billing cycle. With minor exceptions, the minimum payment due
each month of each account is equal to the greater of a minimum dollar
amount or a minimum percentage of the outstanding balance shown on the
statement, plus the greater of any amount past due on any amount over the
cardholder's credit line. The Bank assess an annual fee on some credit card
accounts. The 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 the Bank determines a waiver to be
appropriate considering the account's overall profitability. In addition to
the annual fee, the Bank charges accounts certain other fees including: (i)
a late fee with respect to any unpaid monthly payment if the Bank does not
receive the required minimum monthly payment by the payment due date shown
on the monthly billing statement, (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.
Unless otherwise arranged between the Bank and the cardholder, any cash
advance fee, late payment fee, returned check fee, overlimit fee, annual
fee or other administrative fee is added to the account and treated as a
purchase.
Periodic finance charges ("Periodic Finance Charges") are not
assessed in most circumstances if the entire balance on the account is paid
by the due date, which is 25 days from the previous cycle billing date (the
"Payment Date"). Periodic Finance Charges are based upon the average daily
balance outstanding on the account during the monthly billing cycle. 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. If a payment in
full is not received prior to 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. These cash advance
finance charges are applied to the average daily balance. Periodic Finance
Charges are applied to the average daily balance.
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.
Delinquency and Loss Experience
The Bank considers an account delinquent if the minimum payment due
thereunder is not received by the Bank on or before the Payment Date.
Efforts to collect delinquent credit card receivables are made
internally primarily through the collection facilities of the Bank. For a
description of the Bank's collection practices and policies, see "Direct
Merchants Bank's Credit Card Activities--Collection of Delinquent
Accounts" in the attached prospectus.
The Bank's policy is to charge off an account at the end of the
month during which the account becomes contractually one hundred eighty
(180) days past due. If the Bank receives notice that a cardholder is the
subject of a bankruptcy proceeding, the Bank charges off such account upon
the earlier of (a) receipt of such notice and (b) the time period set forth
in the previous sentence.
The following tables set forth the delinquency and loss experience
as of the dates and for each of the periods shown for 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 in the following table 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. In particular, reported loss and delinquency
percentages for the portfolio may be reduced as a result of the addition of
newly originated receivables. Receivables in newly originated accounts
generally have lower delinquency and loss levels than receivables in more
seasoned accounts and the addition of these receivables to a portfolio
increases the outstanding receivables balance for such portfolio which, for
the Direct Merchants Bank Portfolio, is the denominator used to calculate
the percentages set forth below. Whereas all newly originated and newly
acquired accounts become part of the Direct Merchants Bank Portfolio when
originated or acquired, newly originated or acquired accounts do not
automatically become part of the Trust Portfolio but may be added from time
to time at the option of Metris Receivables, Inc.
<TABLE>
<CAPTION>
Delinquency Experience for the Direct Merchants Bank Portfolio
(Dollars in Thousands)
As of _____, As of December 31, As of December 31, As of December 31,
1999 1998 1997 1996
-------------------------- ----------------------- ---------------------- ------------------------
Percentage of Percentage Percentage Percentage
Total of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables Receivables Receivables
----------- ------------- ----------- ----------- ----------- ----------- ----------- -----------
Receivables
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding (1) $ 100.00% $ 100.00% $ 100.00% $ 100.00%
Receivables
Delinquent: % % $ % $ %
30-59 Days
60-89 Days
90 or More Days
----------- ------------- ----------- ----------- ----------- ----------- ----------- -----------
Total % % % %
=========== ============= =========== =========== =========== =========== =========== ===========
- ----------------------
</TABLE>
(1) Receivables Outstanding on the accounts consist of all amounts due
from cardholders as posted to the accounts as of the date shown.
<TABLE>
<CAPTION>
Loss Experience for the Direct Merchants Bank Portfolio(1)
(Dollars in Thousands)
___ Months Ended Year Ended December 31,
----------------------------------
_____, 1999 1998 1997 1996
---------------- ----------------------------------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)
Total Gross Charge-Offs(2)
Total Gross Charge-Offs as a Percentage
of Average Receivables Outstanding
(Annualized)
</TABLE>
- ----------------------
(1) 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.
(2) 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
Bank will be required to transfer to the Trust all of the recoveries on
charged-off accounts in the Direct Merchants Bank Portfolio ("Recoveries").
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. See "-Delinquency and Loss
Experience" and "Direct Merchants Bank's Credit Card Activities--Collection
of Delinquent Accounts" in the attached prospectus.
The Receivables
General
The Receivables conveyed to the Trust arise in Accounts selected by
Metris Receivables, Inc. from the Direct Merchants Bank Portfolio on the
basis of criteria set forth in the Pooling and Servicing Agreement as
applied on or about May 30, 1995 (the "Direct Merchants Initial Closing
Date") and, with respect to Supplemental Accounts, as of the related dates
of their designations (the "Trust Portfolio"). On 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.
Pursuant to the Pooling and Servicing Agreement, Metris
Receivables, Inc. has the right, subject to certain limitations and
conditions set forth therein, to designate from time to time Supplemental
Accounts or Automatic Additional Accounts and to transfer to the Trust all
Receivables of such Supplemental Accounts or Automatic Additional Accounts,
whether such Receivables are then existing or thereafter created. See
"Description of the Securities - Addition of Trust Assets" in the attached
prospectus. 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 Receivable in
such Accounts shall be included as Eligible Receivables if they satisfy the
requirements of the definition of "Eligible Receivables." "Minimum
Transferor Interest" for any period means the product of (a) the sum of (1)
the aggregate Principal Receivables and (2) the amounts on deposit in the
Excess Funding Account and (b) the highest Minimum Transferor Percentage
for any Series. "Minimum Transferor Percentage" means, for Series 1999 -
and each previously issued Series, 0%; provided, however, that in certain
circumstances each such percentage may be increased. "Minimum Aggregate
Principal Receivables" means an amount equal to the sum of the numerators
used to calculate the Investor Percentages with respect to the allocation
of collections of Principal Receivables for each Series then outstanding.
Further, pursuant to the Pooling and Servicing Agreement, Metris
Receivables, Inc. will have the right (subject to certain limitations and
conditions) to designate certain Accounts and to require the Trustee to
reconvey all Receivables in such Accounts (the "Removed Accounts") to
Metris Receivables, Inc., whether such Receivables are then existing or
thereafter created. Throughout the term of the Trust, the Accounts from
which the Receivables arise will be the Accounts designated by Metris
Receivables, Inc. on the Initial Closing Date plus any Supplemental
Accounts and Automatic Additional Accounts minus any Removed Accounts. As
of the Initial Closing Date and, with respect to Receivables in
Supplemental Accounts and Automatic Additional Accounts, as of the related
date of their initial conveyance to the Trust, and on the date any new
Receivables are created, Metris Receivables, Inc. will represent and
warrant to the Trust that the Receivables meet the eligibility requirements
specified in the Pooling and Servicing Agreement. See "Description of the
Securities-- Representations and Warranties" and "-Addition of Trust
Assets" in the attached prospectus.
The Receivables in the Trust Portfolio, as of the beginning of the
day on __________, 1999, included approximately $_____ billion of Principal
Receivables and approximately $____ billion of Finance Charge Receivables.
The Accounts had an average Principal Receivable balance of $_______ and an
average credit limit of $_______. The percentage of the aggregate total
Receivable balance to the aggregate total credit limit was approximately
___%. The average age of the Accounts was approximately __ months. As of
the beginning of the day on _______ __, 1999, cardholders whose Accounts
are included in the Trust Portfolio had billing addresses in all 50 states
and the District of Columbia.
The following tables summarize the Trust Portfolio by various
criteria as of the close of business on _______, 1999. 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 following tables summarize the Receivables which have been
conveyed to the Trust Portfolio by various criteria as of the close of
business on , 199 . 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.
<TABLE>
<CAPTION>
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
- ------------------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
$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............................ 100.0% 100.0%
========== ===========
</TABLE>
<TABLE>
<CAPTION>
Composition by Period of Delinquency
Trust Portfolio
Percentage Percentage
of Total of Total
Period of Delinquency Number of Number of Receivables Receivables
(Days Contractually Delinquent) Accounts Accounts Outstanding Outstanding
- ------------------------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
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%
========== ============
</TABLE>
<TABLE>
<CAPTION>
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
- --------------------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
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%
========= ============
</TABLE>
<TABLE>
<CAPTION>
Composition by Account Age
Trust Portfolio
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Age Accounts Accounts Outstanding Outstanding
- --------------------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Not more than 6 Months...................
Over 6 Months to 12 Months...............
Over 12 Months to 24 Months..............
Over 24 Months...........................
--------- --------- ----------- -----------
Total............................ 100.0% 100.0%
========= ===========
</TABLE>
<TABLE>
<CAPTION>
Composition by Geographic Distribution
Trust Portfolio
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Location Accounts Accounts Outstanding Outstanding
- -------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Alabama ...................................
Alaska ...................................
Arizona ...................................
Arkansas...................................
California.................................
Colorado...................................
Connecticut................................
District of Columbia.......................
Delaware...................................
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%
========== ===========
</TABLE>
Maturity Considerations
The Pooling and Servicing Agreement provides that Class A
Securityholders will not receive payments of principal until the _______
Distribution Date (the "Expected Final Payment Date"), or earlier in the
event of a Pay Out Event which results in the commencement of the Early
Amortization Period. The Pooling and Servicing Agreement also provides that
Class B Securityholders will not receive payments of principal until the
earlier of (a) the _______ Distribution Date, (b) in the event of a Pay Out
Event which results in the commencement of the Early Amortization Period,
the Distribution Date following the Distribution Date on which the Class A
Invested Amount is paid in full or (c) the Distribution Date following a
sale or repurchase of the Receivables pursuant to the Pooling and Servicing
Agreement. The Class B Securityholders will not begin to receive payments
of principal until the final principal payment on the Class A Securities
has been made.
Accumulation Period
The accumulation period (the "Accumulation Period") with respect to
the Securities is scheduled to begin at the close of business of the last
day of the _________ Monthly Period. Subject to the conditions set forth
herein under "--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.
Each Monthly Period during the Accumulation Period prior to the
payment of the Class A Invested Amount in full, an amount equal to, for
each Monthly Period, the least of (a) the Available Series 1999- Principal
Collection for such Monthly Period, (b) the "Controlled Deposit Amount" for
such Monthly Period, which is equal to the sum of the Controlled
Accumulation Amount for such Monthly Period and the Accumulation Shortfall,
if any, for such Monthly Period and (c) the Class A Adjusted Invested
Amount will be deposited in the Principal Funding Account until the
principal amount on deposit in the Principal Funding Account (the
"Principal Funding Account Balance") equals the Class A Invested Amount.
After the Class A Invested Amount has been paid in full, or following the
Distribution Date upon which the amount on deposit in the Principal Funding
is first equal to the Class A Invested Amount, Available Series 1999-
Principal Collections, to the extent required, will be distributed to the
Class B Securityholders on each Distribution Date beginning, during the
Accumulation Period, on the Expected Final Payment Date, until the earlier
of the date the Class B Invested Amount has been paid in full and the
Termination Date. After the Class A Invested Amount and the Class B
Invested Amount have each been paid in full, Available Series 1999-
Principal Collections, to the extent required, will be distributed to the
[credit enhancement] on each [Distribution Date] until the earlier of the
date the [credit enhancement] has been paid in full and the Termination
Date. Amounts in the Principal Funding Account are expected to be available
to pay the Class A Invested Amount on the Expected Final Payment Date. If
the amount on deposit in the Principal Funding Account is insufficient to
pay the Class A Invested Amount in full on the Expected Final Payment Date,
a Pay Out Event will occur and 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. After the payment of the Class A Invested Amount in full, Available
Series 1999- Principal Collections are expected to be available to pay the
Class B Invested Amount on the Expected Final Payment Date. 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 on the Expected Final Payment
Date, no assurance can be given in that regard. Unless a Pay Out Event has
occurred, the Accumulation Period will end on the earliest to occur of (a)
the commencement of the Early Amortization Period, (b) payment of the
Invested Amount in full and (c) the Termination Date. 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 Securities--Application of Collections Payment of
Principal" in this supplement.
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 Securities--Exchanges" in the attached
prospectus for a discussion of the potential terms of other Series. See
"Annex I: Previously Issued Series" at the end of this Supplement for a
description of the terms of the Previously Issued Series.
Early Amortization Period
If a Pay Out Event occurs, the Early Amortization Period will
commence and any amounts on deposit in the Principal Funding Account will
be paid to the Class A Securityholders on the Distribution Date in the
month following the commencement of the Early Amortization Period. In
addition, to the extent that the Class A Invested Amount has not been paid
in full, the Class A Securityholders will be entitled to monthly payments
of principal equal to the Available Series 1999- Principal Collections
until the earlier of the date on which the Class A Securities have been
paid in full and the Series 1999- __ Termination Date. After the Class A
Securities have been paid in full and if the Termination Date has not
occurred, Available Series 1999- Principal Collections will be paid to the
Class B Securities on each Distribution Date until the Class B Securities
have been paid in full.
Pay Out Events
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 Series 1999- 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 and the Class B
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 Securities--Pay Out Events" in this Supplement and in
the attached prospectus. 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.
The "Base Rate" means, with respect to any Monthly Period, (i) the
weighted average of the Class A Interest Rate and the Class B Interest Rate
as of the last day of such Monthly Period (weighted based on the Class A
Invested Amount and the Class B Invested Amount 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 "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 1999- __ Percentage
of the amount then on deposit in the Excess Funding Account. 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 1999- Finance Charge Collections
for such Monthly Period (not including the amounts on deposit in the
Accumulation Period 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
Investment Proceeds 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 1999-
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 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 Securities--Pay Out Events."
Payment Rates
The following table sets forth the highest and lowest cardholder
monthly payment rates for the Direct Merchants Bank Portfolio during any
month in the period shown and the average cardholder monthly payment rates
for all months during the periods shown, in each case calculated as a
percentage of total opening monthly account balances during the periods
shown. Payment rates shown in the table are based on amounts which would be
deemed payments of Principal Receivables and Finance Charge Receivables
with respect to the Accounts (total payments).
<TABLE>
<CAPTION>
Cardholder Monthly Payment Rates for the Direct Merchants Bank Portfolio(1)
___ Months Ended Year Ended December 31,
--------------------- -------------------------------------
_________, 1999 1998 1997 1996
--------------------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Highest Month
Lowest Month
Monthly Average (2)
</TABLE>
(1) The amounts and percentages presented for the Direct Merchants Bank
Portfolio do not include the Mercantile Bank National Association
or Huntington BancShares acquired accounts or Direct Merchants
Bank's minor secured card portfolio. The above amounts and
percentages include the Key Bank USA,
National Association acquired accounts.
(2) Monthly Averages shown are expressed as an arithmetic average of
the payment rate for each month for the period indicated.
The Bank generally determines the minimum monthly payment with
respect to the accounts by multiplying the combined new balance of
purchases and cash advances, less any disputed amounts, by a minimum
percentage of the outstanding balance. If the amount so calculated is less
than a minimum dollar amount, it is increased to such minimum dollar
amount. The sum of such amount and any past due amounts equals the minimum
payment amount. The minimum payment amount, however, is never more than the
new balance.
There can be no assurance that the cardholder monthly payment rates
in the future will be similar to the historical experience set forth above.
The amount of collections of Receivables may vary from month to month due
to seasonal variations, general economic conditions, payment habits of
individual cardholders, the Credit Card Originator's monthly minimum
payment requirements and acts of God. There can be no assurance that
collections of Principal Receivables with respect to the Trust Portfolio
will be similar to the historical experience set forth above or that
deposits into the Principal Funding Account or the Distribution Account, as
applicable, will be made in accordance with the applicable Controlled
Accumulation Amount. If a Pay Out Event occurs, the average life of the
Securities could be significantly reduced or increased.
Because there may be a slowdown in the payment rate below the
payment rates used to determine the Controlled Accumulation Amounts, 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 Class A Securities and the Class B Securities to
the Expected Final Payment Dates will equal the expected number of months.
As described under "Description of the Securities-Postponement of
Accumulation Period" herein, the Servicer may shorten the Accumulation
Period. There can be no assurance that there will be sufficient time to
accumulate all amounts necessary to pay the Class A Invested Amount and the
Class B Invested Amount on the Expected Final Payment Dates , 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 Class A Securities. See "Maturity Considerations" and "Risk Factors" in
this supplement and "Maturity Considerations" in the attached prospectus
herein.
Receivable Yield Considerations
The gross revenues from finance charges and fees billed to accounts
in the Direct Merchants Bank Portfolio for each of the three calendar years
contained in the period ended December 31, 1998 and for the _____-month
period ended ________, 1999, are set forth in the following table. The
historical yield figures in the following tables are calculated and
reported on a billed basis. The Portfolio Yield 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." Revenues vary for each account based on the
type and volume of activity for each account. Because the Trust Portfolio
represents only a portion of the Direct Merchants Bank Portfolio, actual
yield with respect to the Receivables may be different from that set forth
below. See "Direct Merchants Bank's Credit Card Portfolio" and "The
Receivables" herein and "Direct Merchants Bank's Credit Card Activities" in
the attached prospectus. 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.
<TABLE>
<CAPTION>
Yield Experience for the Direct Merchants Bank Portfolio(1)
(Dollars in Thousands)
___ Months Ended Year Ended December 31,
------------------- ---------------------------------------
____ , 1999 1998 1997 1996
------------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(2)
Total Finance Charges and Fees Billed (3)(4)
Average Revenue Yield (Annualized)
</TABLE>
- ----------------------------------
(1) The amounts and percentages presented for the Direct Merchants Bank
Portfolio do not include the Mercantile Bank National Association,
PNC or Huntington BancShares acquired accounts or Direct Merchants
Bank's minor secured card portfolio. The above amounts and
percentages include the Key Bank USA, National Association acquired
accounts.
(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 fees.
(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.
Use of Proceeds
Metris Receivables, Inc. will apply the net proceeds from the sale
of the Securities, which is expected to be approximately $________, [(a) to
repay a portion of the principal of the Series 1998-1 Variable Funding
Securities, (b) to pay the purchase price of Receivables and (c) to make a
deposit to the Interest Funding Account for the payment of the Class A
Monthly Interest and Class B Monthly Interest on the first Distribution
Date. Metris Receivables, Inc. will use such balance of the proceeds for
its general corporate purposes.]
Description of the Securities
The Class A Securities and the Class B Securities (the "Offered
Securities") will be issued pursuant to the Pooling and Servicing
Agreement, and the Series 1999-__ Supplement. Pursuant to the Pooling and
Servicing Agreement, Metris Receivables, Inc. and the Trustee may execute
further Supplements in order to issue additional Series. The following
summary of the Offered Securities does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Pooling and Servicing Agreement and the Series 1999-__
Supplement. See "Description of the Securities" in the attached prospectus
for additional information concerning the Securities and the Pooling and
Servicing Agreement.
General
The Offered Securities will represent interests in certain assets
of the Trust, including the right to the applicable allocation percentage
of all obligor payments on the Receivables in the Trust. Each Class A
Security represents the right to receive payments of interest at the Class
A Interest Rate and payments of principal on the Expected Final Payment
Date or, to the extent of the Class A Invested Amount, on each Distribution
Date during the Early Amortization Period, funded from collections of
Principal Receivables allocated to Series 1999-__. Each Class B Security
represents the right to receive payments of interest at the Class B
Interest Rate and payments of principal on the ______ Distribution Date,
or, to the extent of the Class B Invested Amount, on each Distribution Date
during the Early Amortization Period following payment in full of the Class
A Invested Amount, funded from collections of Principal Receivables
allocated to Series 1999- .
The Transferor will own the Exchangeable Transferor Security and
the Class B Securities. The Exchangeable Transferor Security represents an
undivided interest in the Trust, including the right to receive certain
payments from the assets of the Trust, including the right to a percentage
(the "Transferor Percentage") of all cardholder payments on the Receivables
in the Trust equal to 100% minus the sum of the applicable Investor
Percentages for all Series of securities then outstanding. See "Description
of the Securities--Certain Matters Regarding the Transferor and the
Servicer" in the attached prospectus. During the Revolving Period, the
amount of the Invested Amount in the Trust will remain constant except
under certain limited circumstances. See "--Defaulted Receivables;
Dilution" and "-Investor Charge-Offs" in this Supplement and "Description
of the Securities-Defaulted Receivables; Dilution" and "-Investor
Charge-Offs" in the attached prospectus. 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 Principal
Receivables are deposited into the Principal Funding Account for
distribution to the Securityholders. During the Early Amortization Period,
the Invested Amount will decline as Principal Receivables are distributed
to the related 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 "Description of the
Securities--Exchanges" in the attached prospectus.
In addition to representing the right to payment from collections
of Finance Charge Receivables and Principal Receivables, each Class A
Security also represents the right to receive payments from the Excess
Funding Account, funds on deposit in the Principal Funding Account and the
[Accumulation Period Reserve Account] and certain investment earnings
thereon, Redirected Principal Collections and Shared Principal Collections
and certain other available amounts (including, under certain
circumstances, amounts on deposit in the Excess Funding Account). In
addition to representing the right to payment from collections of Finance
Charge Receivables and Principal Receivables, each Class B Security also
represents the right to receive payments from the Excess Funding Account,
[Redirected [Credit Enhanced] Principal Collections] and Shared Principal
Collections and certain other available amounts (including, under certain
circumstances, amounts on deposit in the Excess Funding Account). Payments
of interest and principal will be made, to the extent of funds available
therefor, on each Distribution Date on which such amounts are due to
Securityholders in whose names the Securities were registered on the last
business day of the calendar month preceding such Distribution Date (each,
a "Record Date").
Beneficial interests in the Class A Securities will be offered for
purchase in minimum denominations of $1,000 and integral multiples thereof.
Application has been made to list the Securities on the Luxembourg
Stock Exchange. The Trustee will maintain a paying agent in Luxembourg for
so long as the Series 1999-__ Securities are outstanding. The name and
address of the paying agent in Luxembourg are set forth at the end of this
prospectus supplement.
The Offered Securities initially will be represented by securities
registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"). Unless and until Definitive Securities are issued, all
references herein to actions by Class A Securityholders or Class B
Securityholders shall refer to actions taken by DTC upon instructions from
DTC Participants and all references herein to distributions, notices,
reports and statements to Class A Securityholders or Class B
Securityholders shall refer to distributions, notices, reports and
statements to DTC or Cede & Co., as the registered holder of the Class A
Securities for distribution to Security Owners in accordance with DTC
procedures. Securityholders may hold their Securities through DTC in the
United States ("US") or Cedelbank, societe anonyme ("Cedelbank") or the
Euroclear System ("Euroclear") in Europe 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.
Cedelbank and Euroclear will hold omnibus positions on behalf of the
Cedelbank Customers and the Euroclear Participants, respectively, through
customers' securities accounts in Cedelbank's and Euroclear's names on the
books of their respective Depositories which in turn will hold such
positions in customers' securities accounts in the Depositories' names on
the books of DTC. See "Description of the Securities- General," "--
Book-Entry Registration" and "-- Definitive Securities" in the attached
prospectus.
Status of the Securities
Upon issuance, Series 1999- will rank pari passu with all other
outstanding Series. Payments on the Class B Securities are subordinated to
payments on the Class A Securities as described herein.
Previously Issued Series
The Trust has previously issued Series bearing the various rates of
interest and having the outstanding principal amounts set forth in "Annex
I: Other Series." [Concurrently with the issuance of the Securities, the
Trust will issue the Series 1999-___ Asset Backed Securities bearing the
rate of interest and having the outstanding principal amount set
forth in "Annex I: Previously Issued Series.]".
Interest Payments
Interest will accrue on the Class A Securities at the Class A
Interest Rate from _______, 1999 (the "Closing Date"). Interest will be
distributed to Class A Securityholders on _______, 1999 and on the __th day
of each following month (or, if such __th day is not a business day, the
next succeeding business day) (each, a "Distribution Date") 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 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 Class A Invested Amount, (b) ___divided
by 360 and (c) the Class A Interest Rate, determined on _______, 1999).
Interest payments on the Class A Securities on any Distribution Date will
be funded from Available Series 1999- 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. The "Interest
Accrual Period," with respect to any Distribution Date, will be the period
from and including the previous Distribution Date through the day preceding
such Distribution Date, except the initial Interest Accrual Period will be
the period from and including the Closing Date through ______, 1999.
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.
"Available Series 1999- Finance Charge Collections" means, with
respect to any Monthly Period, an amount equal to 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 Collections of Finance Charge Receivables and the
amount of overdue Adjustment Payments or, on and after the date on which a
Pay Out Event is deemed to occur, the Fixed/Floating Percentage of the sum
of Collections of Finance Charge Receivables and the amount of overdue
Adjustment Payments, (b) investment earnings on amounts on deposit in the
Collection Account (c) amounts on deposit in the Accumulation Period
Reserve Account, if any, and (d) with respect to the Closing Date, the
amount of the initial deposit by the Transferor to the Interest Funding
Account.
The Class A Securities will bear interest at the rate equal to %
per annum above LIBOR (the "Class A Interest Rate") determined as set forth
below for the period from the Closing Date through , 1999 and each
Interest Accrual Period thereafter. The Class B Securities will bear interest
at the rate equal to % per annum above LIBOR (the "Class B Interest Rate")
determined as set forth below for the period from the Closing Date through
, 1999 and each Interest Accrual Period thereafter.
The Trustee will determine LIBOR for the period from the Closing
Date through , 1999 on , 1999 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).
"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).
"Reference Banks" means four major banks in the London interbank
market selected by the Servicer.
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. The Trustee will cause the Class A Interest Rate and the
Class B Interest Rate as well as the amount of Class A Monthly Interest and
Class B Monthly Interest applicable to an Interest Accrual Period to be
provided to the Luxembourg Stock Exchange as soon as possible after its
determination but in no event later than the first day of such Interest
Accrual Period. Such information will also be included in a statement to
the Securityholders of record prepared by the Servicer. See "Description of
the Securities--Reports to Securityholders" in the attached prospectus.
Principal Payments
On each Distribution Date relating to the period which begins on
the Closing Date and ends at the commencement of the Accumulation Period
or, if earlier, the Early Amortization Period (the "Revolving Period"),
Collections of Principal Receivables allocable to the Invested Amount will,
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, be treated as
Shared Principal Collections.
On each Distribution Date during the Accumulation Period, the
Trustee will deposit in the Principal Funding Account an amount equal to
the least of (a) Available Series 1999- Principal Collections with respect
to such Monthly Period, (b) the applicable Controlled Deposit Amount and
(c) the 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 [Credit Enhancement
Providers] on the Expected Final Payment Date. During the Accumulation
Period, the portion of Available Series 1999- Principal Collections not
required to be deposited in the Principal Funding Account will generally be
treated as Shared Principal Collections.
"Available Series 1999- 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 allocated to the
Securities with respect to such Monthly Period, (iii) the aggregate Series
Default Amount and the percentage of unpaid Adjustment Payments paid from
Available Series 1999- Finance Charge Collections, Transferor Finance
Charge Collections, Excess Finance Charge Collections and Redirected
Principal Collections with respect to such Monthly Period allocated to
Series 1999-_ and any reimbursements from Available Series 1999- Finance
Charge Collections, Transferor Finance Charge Collections, Excess Finance
Charge Collections or Redirected Principal Collections of unreimbursed
Class A Charge-Offs and reductions of the Class B Invested Amount and (iv)
Shared Principal Collections allocated to the Securities.
On each Distribution Date during the Early Amortization Period, the
Class A Securityholders will be entitled to receive Available Series 1999-
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
Securities are 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 Series 1999- 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
[Credit Enhancement Providers] will be entitled to receive Available Series
1999- Principal Collections on each Distribution Date until the earlier of
the date the [credit enhancement] 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" and "Final Payment of
Principal; Termination" below and "Description of the Securities-Pay Out
Events," "--Servicer Default," and "--Final Payment of Principal;
Termination in the attached Prospectus"), 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 [credit enhancement] 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 whole months expected to be required to fully fund the Principal
Funding Account no later than the Expected Final Payment Date, based on (a)
the expected monthly collections of Principal Receivables expected to be
distributable to the securityholders of all Series (excluding certain other
Series), 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 (excluding 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 the invested amounts of certain other Series
which are scheduled to be in their revolving periods during the
Accumulation Period and on increases in the principal payment rate
occurring after the Closing Date. The length of the Accumulation Period
will not be determined to 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 [credit enhancement] 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 [Credit Enhancement] Invested
Amount is reduced, the percentage of Finance Charge Collections allocated
to the [credit enhancement] in subsequent Monthly Periods will be reduced.
Moreover, to the extent the amount of such reduction in the [Credit
Enhancement] Invested Amount is not reimbursed, the amount of principal
distributable to the [credit enhancement] 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 1999- Finance Charge Collections applied to the payment thereof as
described below in clauses [(iv) and (v)] 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 below in "--Redirected Cash Flows," and (c)
the amount of Redirected Principal Collections allocated with respect
thereto as described below in "--Redirected Principal Collections," the
[Credit Enhancement] (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.
In the event that any such reduction of the [credit enhancement]
would cause the [credit enhancement] to be a negative number, the [credit
enhancement] will be reduced to zero and the Class B Invested Amount will
be reduced by the amount by which the [Credit Enhancement] 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 1999- 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 1999- Finance Charge Collections and Excess Finance Charge
Collections allocated and available for that purpose. See "--Redirected
Cash Flows," "--Redirected Principal Collections" and "--Investor
Charge-Offs below."
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
Credit Enhancement Providers'] Interest, the interest of the holders of the
previously issued Series, the interest of Metris Receivables, Inc. (the
"Transferor Interest") and the holders of all 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 and the [Credit Enhancement Providers'] 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
or the [Credit Enhancement] 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," and the "[Credit Enhancement] 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 an 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 or the [Credit
Enhancement] 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" and the "[Credit Enhancement] 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 an 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, the term "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.
As used herein, the term "Class A Invested Amount" means an amount
equal to (a) the Class A Initial Invested Amount minus (b) the aggregate
amount of principal payments 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 below under "--Investor Charge-Offs," and plus (d) the
aggregate amount of Available Series 1999- 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.
As used herein, 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.
As used herein, the term "Class A Initial Invested Amount" means
[$__________].
As used herein, the term "Class B Invested Amount" for any date
means an amount equal to (a) the Class B Initial Invested Amount minus (b)
the aggregate amount of principal payments 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 below under "--Investor Charge-Offs," minus (d) the aggregate
amount of Redirected Class B Principal Collections for which the [Credit
Enhancement] has not been reduced for all prior Distribution Dates, and
plus (e) the aggregate amount of Available Series 1999- Finance Charge
Collections, Transferor Finance Charge Collections, Excess Finance Charge
Collections, Redirected [Credit Enhancement] 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.
As used herein, 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.
As used herein, the term "Class B Initial Invested Amount" means
[$__________].
As used herein, the term "[Credit Enhancement] Invested Amount"
means an amount equal to (a) the initial principal balance of the [Credit
Enhancement], minus (b) the aggregate amount of principal payments made to
[the Credit Enhancement Providers] through and including such date, minus
(c) the aggregate amount of [Credit Enhancement] Charge-Offs for all prior
Distribution Dates, equal to the amount by which the [Credit Enhancement]
Invested Amount has been reduced to fund the Series Default Amount and the
unpaid Adjustment Payments on all prior Distribution Dates as described
below 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 [Credit Enhancement] Invested Amount may not be
reduced below zero.
As used herein, the term "Stated [Credit Enhancement] Invested
Amount" means the greater of (a) zero and (b) a number rounded to the
nearest dollar equal to ____ percent of the AB Adjusted Invested Amount;
provided, however, that in no event shall the Stated [Credit Enhancement]
Invested Amount be less than $______ except that if the AB Adjusted
Invested Amount is equal to zero the "Stated [Credit Enhancement] Amount"
will be zero; and provided further that during the Early Amortization
Period the Stated [Credit Enhancement] Invested Amount shall be equal to
the Stated [Credit Enhancement] Invested Amount immediately preceding the
commencement of the Early Amortization Period.
As used herein, "AB Adjusted Invested Amount" means as of any
business day the sum of the Class A Invested Amount and the Class B
Invested Amount minus the amount then on deposit in the Principal Funding
Account.
As used herein, the term "[Credit Enhancement] Initial Invested
Amount" means [$__________].
As used herein, the term "Invested Amount" means the sum of the
Class A Invested Amount, the Class B Invested Amount and the [Credit
Enhancement] Invested Amount.
As used herein, the "Initial Invested Amount" means the sum of the
Class A Initial Invested Amount, the Class B Initial Invested Amount and
the [Credit Enhancement] Initial Invested Amount
As used herein, "Class A Securityholders' Interest" means the
interest in the assets of the Trust allocated to the Class A
Securityholders.
As used herein, "Class B Securityholders' Interest" means the
interest in the assets of the Trust allocated to the Class B
Securityholders.
As used herein, "[Credit Enhancement Providers'] Interest" means
the interest in the assets of the Trust allocated to the [Credit
Enhancement Providers].
As used herein, "Securityholders Interest" means the interest in
the assets of the Trust allocated to the Securityholders.
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 and [Credit
Enhancement] 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 and the [Credit Enhancement Providers], however, will
remain fixed during an 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 [Credit Enhancement Providers] are
subject to possible redirection for the benefit of the Class A
Securityholders and the Class B Securityholders. See "--Redirected
Principal Collections" below.
Redirected Cash Flows
On each business day, to the extent that any amounts are on deposit
in the Excess Funding Account, 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 (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 are invested. The Servicer will apply an
amount equal to the lesser of (i) the percentage of the Collections of
Finance Charge Receivables allocable to the Exchangeable Transferor
Security ("Transferor Finance Charge Collections") on such business day and
(ii) the Negative Carry Amount for such business day.
On each Distribution Date, the Servicer will determine the amount
(the "Required Amount"), if any, by which the full amount to be paid
pursuant to clauses (i) - (xi) in "--Application of Collections - Payment
of Fees, Interest and Other Items" exceeds the portion of Available Series
1999- Finance Charge Collections and Transferor Finance Charge Collections,
if any, applied to the payment of the amounts described in such clauses.
"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 1999-__ 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 1999- 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 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 1999-__ 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 1999- 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.
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 1999-_ Securities in
an amount equal to the remaining Required Amount. Excess Finance Charge
Collections from other Series allocable to the Series 1999-_ Securities for
any business day will be equal to the product of (a) Excess Finance Charge
Collections available from all other Series for such business day and (b) 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.
"Excess Finance Charge Collections" means any Collections of
Finance Charges Receivables allocable to any Series in excess of the
amounts necessary to make required payments with respect to such Series.
Redirected Principal Collections
On each business day, the Servicer will apply or cause the Trustee
to apply an amount, not to exceed the [Credit Enhancement] Invested Amount,
equal to the product of (a)(i) during the Revolving Period, the [Credit
Enhancement] Floating Percentage or (ii) during an Amortization Period, the
[Credit Enhancement] 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 [Credit Enhancement] Principal
Collections"):
(a) an amount equal to the sum of (i) the Class A Required
Amount with respect to such business day and (ii) the Class B
Required Amount with respect to such business day will be applied
first to the components of the Class A Required Amount and then to
the components of the Class B Required Amount in the same priority
as such components are applied from Available Series 1999- Finance
Charge Collections as described in "--Application of
Collections--Payment of Fees, Interest and Other Items" below; and
(b) any such collections not applied in the foregoing manner
(and therefore not constituting Redirected [Credit Enhancement]
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 Series 1999- 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
[Credit Enhancement] Principal Collections and Redirected Class B Principal
Collections is called "Redirected Principal Collections"):
(a) an amount equal to the Class A Required Amount with
respect to such business day, will be applied to the components of
the Class A Required Amount, as described in "--Application of
Collections--Payment of Fees, Interest and Other Items" below; and
(b) during the Revolving Period, any such collections not
constituting Redirected Principal Collections will be applied as
Shared Principal Collections and during an Amortization Period such
collections will be included in Available Series
1999- Principal Collections.
On each Distribution Date, the Class B Invested Amount will be
reduced by the amount of unreimbursed Redirected Principal
Collections for the related Monthly Period.
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 an 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 allocated to the holders of
Series 1999-_ 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 [Credit Enhancement]
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 clause (xiii) 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 an
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 "Description of the
Securities--Excess Funding Account" in the attached prospectus.
On each business day the Transferor, at its discretion, will direct
that amounts on deposit in the Accumulation Period Reserve Account will be
retained therein, applied as Available Series 1999- 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 Accumulation Period Reserve
Account, if any, if and to the extent the Transferor designates that such
amounts are to be so applied; 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 1999- Finance Charge
Collections) and will distribute such amount in the following priority:
(i) an amount equal to the lesser of (A) the Available
Series 1999- 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 1999- 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
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 1999- 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;
(iv) an amount equal to the lesser of (A) the sum of any
Available Series 1999- 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 an Amortization Period, treated as
Available Series 1999- Principal Collections for the benefit of the
Securities;
(v) an amount equal to the Series 1999-_ 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 an Amortization Period, treated as
Available Series 1999- Principal Collections for the benefit of the
Securities;
(vi) an amount equal to the lesser of (A) any Available
Series 1999- 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 an
Amortization Period, be treated as Available Series 1999-
Principal Collections for the benefit of the Securities;
(vii) an amount equal to the lesser of (A) any Available
Series 1999- 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;
(viii) an amount equal to the lesser of (A) any Available
Series 1999- 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 [Credit Enhancement]
at the [Credit Enhancement] 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 [Credit Enhancement]
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
[Credit Enhancement Providers];
(ix) an amount equal to the lesser of (A) any Available
Series 1999- 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 an
Amortization Period, be treated as Available Series 1999-
Principal Collections for the benefit of the Securities;
(x) an amount equal to the lesser of (A) any Available
Series 1999- Finance Charge Collections remaining and (B)
unreimbursed [Credit Enhancement] Charge-Offs, if any, will be
applied to reimburse [Credit Enhancement] Charge-Offs and
(w) during the Revolving Period, be treated as Shared Principal
Collections and (x) during an Amortization Period, be treated as
Available Series 1999- Principal Collections for the benefit of the
Securities;
(xi) 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
1999- 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;
(xii) an amount equal to the lesser of any remaining
Available Series 1999- Finance Charge Collections and the amount
designated by the Transferor in writing in its instructions to the
Trustee to be deposited in the Payment Period Reserve Account; and
(xiii) any Available Series 1999- 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 Principal Funding Account
and the Accumulation Period Reserve Account will be applied as if such
amounts were Available Series 1999- 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).
"[Credit Enhancement] Monthly Interest" with respect to any
Distribution Date will equal the product of (i) the [Credit Enhancement]
Interest Rate for the related Interest Accrual Period, (ii) the [Credit
Enhancement] 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 [credit enhancement] 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 [Credit Enhancement]
Initial Invested Amount, (y) divided by 360, and (z) the [Credit
Enhancement] Interest Rate for the initial Interest Accrual Period).
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 an
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 [Credit
Enhancement] Principal Payment Commencement Date and
on each Transfer Date thereafter, an amount equal to
the [Credit Enhancement] Principal will be deposited
in the Principal Funding Account for distribution to
the [Credit Enhancement Providers] on the Expected
Final Payment Date (with respect to the Accumulation
Period) or distributed to the [Credit Enhancement
Providers] on each Distribution Date until the
[Credit Enhancement] 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 Series
1999- - Principal Collections not applied pursuant to
(i) and (ii) above, if any, may be applied to the
payment of principal to the [Credit Enhancement
Providers] to the extent that the [Credit
Enhancement] Invested Amount exceeds the Stated
[Credit Enhancement] 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 Series 1999- 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 Series 1999- 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.
"[Credit Enhancement] 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
[Credit Enhancement] Invested Amount, will equal the least of (i) the
Available Series 1999- 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 [Credit Enhancement]
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 [Credit
Enhancement] 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.
As used herein, "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 1999-__
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.
As used herein, "[Credit Enhancement] 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
1999-__ Supplement.
The term "[Credit Enhancement] Invested Amount" for any date means
an amount equal to (a) the [Credit Enhancement] Initial Invested Amount,
minus (b) the aggregate amount of principal payments made to [Credit
Enhancement Providers] through and including such date, minus (c) the
aggregate amount of [Credit Enhancement] Charge-Offs for all prior
Distribution Dates, equal to the amount by which the [Credit Enhancement]
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 Available Series 1999- Finance Charge
Collections, Transferor Finance Charge Collections, Excess Finance Charge
Collections, Redirected 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 [Credit Enhancement] Invested Amount may not be
reduced below zero.
The term "[Credit Enhancement] Adjusted Invested Amount," for any
date of determination, means an amount not less than zero equal to the then
current [Credit Enhancement] 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.
Coverage of Interest Shortfalls
To the extent of any shortfall in the amount of Available Series
1999- Finance Charge Collections due to the accumulation of principal in
the Excess 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.
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
(such collections, "Shared Principal Collections"). Any such redirection
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 "-Applications of Collections" above and
"Description of the Offered Securities--Application of Collections" and
- -"Shared Principal Collections" in the attached prospectus.
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. See "Direct Merchants Bank's Credit
Card Activities--Collection of Delinquent Accounts" in the attached
prospectus and "--Delinquency and Loss Experience" in this supplement. On
each business day, the Servicer will allocate to the Securityholders the
Series Default Amount. The term "Series Default Amount" means a portion of
all Defaulted Receivables in an 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 reduces the amount of any
Principal Receivable without receiving collections therefor or charging off
such amount as uncollectible (any such reduction, a "Dilution"), then the
amount of the Transferor Interest in the Trust will be reduced by the
amount of the Dilution 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 1999- 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 1999-_, 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
1999-_ Percentage of unpaid Adjustment Payments, if any, for all business
days in the preceding Monthly Period exceeds the aggregate amount of
Available Series 1999- Finance Charge Collections, Transferor Finance
Charge Collections, Excess Finance Charge Collections, Redirected Principal
Collections, Principal Funding Account Investment Proceeds and any amounts
withdrawn from the Accumulation Period Reserve Account, and applied with
respect to the Series Default Amount and the Series 1999-_ Percentage of
unpaid Adjustment Payments with respect to such Monthly Period, then the
[Credit Enhancement] 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 1999-_ Percentage of unpaid
Adjustment Payments for such Monthly Period (a "[Credit Enhancement]
Charge-Off"). The [Credit Enhancement] Invested Amount thereafter will be
increased (but not in excess of the unpaid principal balance of the [Credit
Enhancement]) 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 [Credit Enhancement]
Invested Amount would cause the [Credit Enhancement] Invested Amount to be
a negative number, the [Credit Enhancement] 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 1999- 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 (ix) 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 1999-_ 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 (vi ) of
"--Application of Collections--Payment of Fees, Interest and Other Items."
Principal Funding Account
Pursuant to the Series 1999-_ 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 above 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. During the Accumulation
Period, investment earnings (net of investment losses and expenses) on
funds on deposit in the Principal Funding Account (the "Principal Funding
Investment Proceeds") will be applied on each Transfer Date to the extent
of the Covered Amount as if such amounts were Available Series 1999-
Finance Charge Collections on the last business day of the preceding
Monthly Period. If, for any Interest Accrual Period, the Principal Funding
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 1999- Finance Charge Collections on the last business day of the
preceding Monthly Period.
Accumulation Period Reserve Account
Pursuant to the Series 1999-_ Supplement, the Servicer will
establish and maintain with a Qualified Institution 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, the Class B Securities and the [credit enhancement]
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 1999- Finance Charge
Collections allocated to the Securities (to the extent described above
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 [credit
enhancement] 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 1999-_.
"Rating Agency Condition" means the notification in writing by each
Rating Agency that a proposed 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.
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 1999-
Finance Charge Collections on the last 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 1999- Finance Charge Collections on the
last 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
[credit enhancement] 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 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
to be made 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 1999-
Finance Charge Collections.
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 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 "Description of the
Securities--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 1999-_ if such event required reliance by
Series 1999-_ 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 above."
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 [Credit
Enhancement], 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.
Final Payment of Principal; Termination
The Class A Securities, the Class B Securities and the [Credit
Enhancement] 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 [Credit Enhancement]
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 [Credit Enhancement] 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 [Credit Enhancement] Invested
Amount plus accrued and unpaid interest on the [Credit Enhancement], 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, and finally to the [Credit
Enhancement] until paid in full, 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 1999-_ Supplement, in an amount up to 110 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, and then to the [Credit Enhancement Providers] until the
[Credit Enhancement] 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 1999_- 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 clause (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 SEC
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) Series 1999-_ 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 and the [Credit Enhancement],
(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 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 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 and "Description of the Securities-Application of
Collections" in the attached prospectus. 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.
"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 Series 1999-__ Supplement.
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.
Reports to Securityholders
On or after each Distribution Date, the Trustee will forward to
each Securityholder of record, a statement prepared by the Servicer setting
forth the items described in "Description of the Securities--Reports to
Securityholders" in the attached prospectus. In addition, such statement
will include (a) the amount, if any, withdrawn from the Principal Funding
Account for such Transfer Date, and (b) the Transferor Interest, if any,
for such Transfer Date. So long as the Securities are listed on the
Luxembourg Stock Exchange, notices to Securityholders will be given by
publication in a daily newspaper in Luxembourg (expected to be the
Luxemburger Wort). In the event that Definitive Securities are issued,
notices to Securityholders will also be given by mail to their addresses as
they appear on the register maintained by the Trustee.
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 Class A Securities and the
Class B 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 have been accepted for clearance through
the facilities of DTC, Cedelbank and Euroclear. The International
Securities Identification Number (ISIN) for the Class A Securities is and
for the Class B Securities is ; the Common Code number for the Class A
Securities is and for the Class B Securities is .
The transactions contemplated in this prospectus supplement were
authorized by resolutions adopted by Metris Receivables, Inc.'s Board of
Directors on __________, 1999 and on ________, 1999.
Copies of the Pooling and Servicing Agreement, the Series 1999-_
Supplement, the annual report of independent certified public accountants
described in "Description of the Securities -- Evidence as to Compliance"
in the attached prospectus, the documents listed under "Where You Can Find
More Information" and the reports to Securityholders referred to under
"Reports to Securityholders" and "Description of the Securities -- Reports
to Securityholders" in the attached prospectus will be available free of
charge at the office of Banque Generale du Luxembourg S.A. (the "Listing
Agent"), 50 Avenue J.F. Kennedy, L-2951 Luxembourg. Financial information
regarding Transferor is included in the consolidated financial statements
of Metris Companies Inc. in its Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, also available at the office of the Listing
Agent in Luxembourg. For so long as the Securities are outstanding, copies
of each Annual Report on Form 10-K for subsequent fiscal years 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 _______, 199_, the date of the
information with respect to the Trust set forth in this Supplement under
"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.
The Securities, the Pooling and Servicing Agreement and the Series
1999-__ Supplement are governed by the laws of the State of Delaware.
ERISA Considerations
Section 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and Section 4975 of the Code prohibit certain pension,
profit sharing or other employee benefit plans, individual retirement
accounts or annuities and employee annuity plans and Keogh plans
(collectively, "Plans") from engaging in certain transactions involving
"plan assets" with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code (collectively, "Parties in Interest")
with respect to the Plan. A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and Section
4975 of the Code for such persons, unless a statutory, regulatory or
administrative exemption is available. Plans that are 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 ERISA requirements.
Class A Securities
A violation of the prohibited transaction rules could occur if the
Class A Securities were to be purchased with assets of any Plan if the
Transferor, the Trustee, any underwriters of such Series or any of their
affiliates were a Party in Interest with respect to such Plan, unless a
statutory, regulatory or administrative exemption is available or an
exemption applies under a regulation (the "Plan Asset Regulation") issued
by the Department of Labor ("DOL"). The Transferor, the Trustee, any
underwriters of a Series and their affiliates are likely to be Parties in
Interest with respect to many Plans. Before purchasing the Class A
Securities, a Plan fiduciary or other Plan investor should consider whether
a prohibited transaction might arise by reason of the relationship between
the Plan and the Transferor, the Trustee, any underwriters of such Series
or any of their affiliates and consult their counsel regarding the purchase
in light of the considerations described below and in the accompanying
prospectus.
Under certain circumstances, the Plan Asset Regulation treats the
assets of an entity in which a Plan holds an equity interest as "plan
assets" of such Plan. Because the Class A Securities will represent
beneficial interests in the Trust, and despite the agreement of the
Transferor and the Security Owners to treat the Class A Securities as debt
instruments, the Class A Securities are likely to be considered equity
interests in the Trust for purposes of the Plan Asset Regulation, with the
result that the assets of the Trust are likely to be treated as "plan
assets" of the investing Plans for purposes of ERISA and Section 4975 of
the Internal Revenue Code of 1986, as amended (the "Code"), unless the
exception for "publicly-offered securities" is applicable as described in
the accompanying prospectus. The Underwriters anticipate that the Class A
Securities will meet the criteria for treatment as "publicly-offered
securities" as described in the accompanying prospectus. No restrictions
will be imposed on the transfer of the Class A Securities. It is expected
that the Class A Securities will be held by at least 100 or more investors
who were independent of the issuer and of one another ("Independent
Investors") at the conclusion of the initial public offering although no
assurance can be given, and no monitoring or other measures will be taken
to ensure, that such condition is met. The Class A Securities will be sold
as part of an offering pursuant to an effective registration statement
under the Securities Act and then will be timely registered under the
Exchange Act.
If the foregoing exception under the Plan Asset Regulation were not
satisfied, transactions involving the Trust and Parties in Interest with
respect to a Plan that purchases or holds Class A Securities might be
prohibited under Section 406 of ERISA and/or Section 4975 of the Code and
result in excise tax and other liabilities under ERISA and Section 4975 of
the Code unless an exemption were available. The five DOL class exemptions
described in the accompanying prospectus may not provide relief for all
transactions involving the assets of the Trust even if they would otherwise
apply to the purchase of a Class A Security by a Plan.
Class B Securities
The Class B Underwriter currently does not expect that the Class B
Securities will be held by at least 100 Independent Investors and,
therefore, does not expect that the Class B Securities will qualify as
publicly-offered securities under the regulation referred to in the
preceding paragraph. Accordingly, the Class B Securities may not be
acquired or held by (a) any employee benefit plan that is subject to ERISA,
(b) any plan or other arrangement (including an individual retirement
account or Keogh plan) that is subject to Section 4975 of the Code, or (c)
any entity whose underlying assets include "plan assets" under the
regulation by reason of any such plan's investment in the entity. By its
acceptance of a Class B Security, each Class B Securityholder will be
deemed to have represented and warranted that it is not and will not be
subject to the foregoing limitation.
Consultation with Counsel
In light of the foregoing, fiduciaries or other persons
contemplating purchasing the Securities on behalf or with "plan assets" of
any Plan should consult their own counsel regarding whether the Trust
assets represented by the Securities would be considered "plan assets," the
consequences that would apply if the Trust's assets were considered "plan
assets," and the possibility of exemptive relief from the prohibited
transaction rules.
Finally, Plan fiduciaries and other Plan investors should consider
the fiduciary standards under ERISA or other applicable law in the context
of the Plan's particular circumstances before authorizing an investment of
a portion of the Plan's assets in the Securities. Accordingly, among other
factors, Plan fiduciaries and other Plan investors should consider whether
the investment (i) satisfies the diversification requirement of ERISA or
other applicable law, (ii) is in accordance with the Plan's governing
instruments, and (iii) is prudent in light of the "Risk Factors" and other
factors discussed in this prospectus supplement.
Underwriting
Subject to the terms and conditions set forth in the Underwriting
Agreement dated __________, 1999 (the "Underwriting Agreement") between
Metris Receivables, Inc. and the underwriters named below (the
"Underwriters"), Metris Receivables, Inc. has agreed to sell to the
Underwriters of the Class A Securities (the "Class A Underwriters") and
the Underwriter of the Class B Securities
(the "Class B Underwriter"), and each of the Underwriters has severally
agreed to purchase, the principal amount of the Class A Securities and the
Class B Securities, as applicable, set forth opposite its name:
Class A Underwriters Principal Amount of
Class A Securities
_______________ $_______________
Total ______________
Class B Underwriter Principal Amount of
Class B Securities
_______________ $_______________
Total ______________
The price to public, Underwriters' discounts and commissions, the
concessions that the Underwriters may allow to certain dealers, and the
discounts that such dealers may reallow to certain other dealers, each
expressed as a percentage of the principal amount of the Class A and Class
B Securities, shall be as follows:
<TABLE>
<CAPTION>
Selling
Underwriting concessions,
Price to discount and not to Reallowance
public: commissions: exceed: not to exceed:
-------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Class A Securities (%) (%) (%) (%)
Class B Securities (%) (%) (%) (%)
</TABLE>
After the offering is completed, Metris Receivables, Inc. will receive the
proceeds, after deduction of the underwriting and other expenses, listed
below:
<TABLE>
<CAPTION>
Proceeds to Transferor (as % Underwriting
Proceeds to of the principal amount of the discounts and
Transferor Securities) concessions
----------- ------------------------------ -------------
<S> <C> <C> <C>
Class A Securities ($) (%) ($)
Class B Securities ($) (%) ($)
</TABLE>
After the public offering, the public offering price and other
selling terms may be changed by the Class A Underwriters and Class B
Underwriter, as the case may be. Additional offering expenses are estimated
to be $_______.
Each Underwriter has represented and agreed that (a) it 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 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 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.
Metris Receivables, Inc. will indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
The Underwriters may engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids
with respect to the 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 Securities so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Securities in the open market after
the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the Securities originally sold by
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 Securities
to be higher than they would otherwise be in the absence of such
transactions. Neither the Transferor, the Trust nor any of the Underwriters
represent that the Underwriters will engage in any such transactions nor
that such transactions, once commenced, will not be discontinued without
notice.
In the ordinary course of business, one or more 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.
Exchange Listing
We have applied to list the Securities on the Luxembourg Stock
Exchange. We cannot guaranty that the application for the listing will be
accepted. You should consult with Banque Generale du Luxembourg S.A., the
Luxembourg listing agent for the Securities, 50 Avenue J.F. Kennedy, L-2951
Luxembourg, phone number (352) 42421, to determine whether or not the
Securities are listed on the Luxembourg Stock Exchange.
Index of Terms for Prospectus Supplement
Term Page
- ---- ----
ABC Adjusted Invested Amount...........................................S-31
Accounts...............................................................S-15
Floating Percentage....................................................S-30
Accumulation Period....................................................S-22
Accumulation Period Length.............................................S-28
Accumulation Period Reserve Account....................................S-39
Accumulation Shortfall...........................................S-22, S-37
Adjusted Invested Amount...............................................S-23
Adjustment Payment.....................................................S-38
Agreement..............................................................S-15
Amortization Period Commencement Date".................................S-30
Available Investor Principal Collections...............................S-28
Available Reserve Account Amount.......................................S-40
Available Series Finance Charge Collections............................S-27
Base Rate..............................................................S-23
Cedelbank..............................................................S-26
Class A Adjusted Invested Amount.......................................S-30
Class A Charge-Off.....................................................S-39
Class A Fixed/Floating Percentage......................................S-30
Class A Floating Percentage............................................S-30
Class A Initial Invested Amount........................................S-30
Class A Interest Rate..................................................S-27
Class A Invested Amount................................................S-30
Class A Monthly Interest...............................................S-36
Class A Principal......................................................S-37
Class A Required Amount................................................S-32
Class A Securities.....................................................S-15
Class A Securityholders................................................S-15
Class A Securityholders' Interest......................................S-31
Class A Underwriters...................................................S-45
Class B Adjusted Invested Amount.......................................S-30
Class B Charge-Off.....................................................S-39
Class B Fixed/Floating Percentage......................................S-30
Class B Floating Percentage............................................S-30
Class B Initial Invested Amount........................................S-31
Class B Interest Rate..................................................S-27
Class B Invested Amount................................................S-30
Class B Monthly Interest...............................................S-36
Class B Principal......................................................S-37
Class B Principal Payment Commencement Date............................S-37
Class B Required Amount................................................S-32
Class B Securities.....................................................S-15
Class B Securityholders................................................S-15
Class B Securityholders' Interest......................................S-31
Class B Underwriter....................................................S-45
Closing Date...........................................................S-26
Code...................................................................S-45
Controlled Accumulation Amount.........................................S-37
Controlled Deposit Amount..............................................S-22
Covered Amount.........................................................S-40
[Credit Enhancement] Invested Amount..................................S-37
[Credit Enhancement] Adjusted Invested Amount..........................S-37
[Credit Enhancement] Charge-Off........................................S-38
[Credit Enhancement] Fixed/Floating Percentage.........................S-30
[Credit Enhancement] Floating Percentage...............................S-30
[Credit Enhancement] Initial Invested Amount...........................S-31
[Credit Enhancement] Invested Amount...................................S-31
[Credit Enhancement] Monthly Interest..................................S-36
[Credit Enhancement] Principal.........................................S-37
[Credit Enhancement Providers'] Interest...............................S-31
Credit Enhancement Providers...........................................S-15
CTO Interest Rate......................................................S-37
Defeasance.............................................................S-41
Determination Date.....................................................S-38
Dilution...............................................................S-38
Direct Merchants Initial Closing Date..................................S-17
Distribution Date......................................................S-26
DOL....................................................................S-44
DTC....................................................................S-26
ERISA..................................................................S-44
Euroclear..............................................................S-26
Excess Finance Charge Collections................................S-32, S-38
Expected Final Payment Date............................................S-22
Fixed/Floating Percentage..............................................S-30
GE.....................................................................S-15
GE Portfolio...........................................................S-15
Independent Investors..................................................S-45
Initial Invested Amount................................................S-31
Insolvency Event.......................................................S-42
Interest Accrual Period................................................S-27
Invested Amount........................................................S-31
LIBOR..................................................................S-27
LIBOR Determination Date...............................................S-27
Listing Agent..........................................................S-44
Metris Receivables.....................................................S-15
Minimum Aggregate Principal Receivables................................S-18
Minimum Transferor Interest............................................S-18
Minimum Transferor Percentage..........................................S-18
Monthly Servicing Fee..................................................S-43
Negative Carry Amount..................................................S-31
Offered Securities.....................................................S-25
Paired Series..........................................................S-40
Parties in Interest....................................................S-44
Pay Out Event..........................................................S-42
Payment Date...........................................................S-16
Periodic Finance Charges...............................................S-16
Plan Asset Regulation..................................................S-44
Plans..................................................................S-44
PNC....................................................................S-15
Pooling & Servicing Agreement..........................................S-15
Portfolio Yield........................................................S-23
Principal Funding Account..............................................S-39
Principal Funding Account Balance......................................S-22
Principal Funding Investment Proceeds..................................S-39
Rating Agency Condition................................................S-40
Receivables............................................................S-15
Record Date............................................................S-26
Recoveries.............................................................S-17
Redirected Class B Principal Collections...............................S-33
Redirected Principal Collections.......................................S-33
Redirected [Credit Enhancement] Principal Collections..................S-32
Reference Banks........................................................S-27
Removed Accounts.......................................................S-18
Required Amount........................................................S-32
Required Reserve Account Amount........................................S-39
Reserve Account Funding Date...........................................S-39
Revolving Period.......................................................S-28
Securities.............................................................S-15
Securityholders........................................................S-15
Securityholders Interest...............................................S-31
Series 1999-_ Securities...............................................S-15
Series 1999-__ Supplement..............................................S-15
Series Default Amount..................................................S-38
Servicing Fee Percentage...............................................S-43
Shared Principal Collections...........................................S-38
Stated [Credit Enhancement] Invested Amount............................S-31
Telerate Page 3750.....................................................S-27
Termination Date.......................................................S-41
Transfer Date..........................................................S-33
Transferor.............................................................S-15
Transferor Finance Charge Collections..................................S-32
Transferor Interest....................................................S-29
Transferor Percentage............................................S-25, S-30
Transferor Retained Finance Charge Collections.........................S-35
Trigger Event..........................................................S-42
Trust Portfolio..................................................S-17, S-18
Trustee................................................................S-15
Underwriters...........................................................S-45
Underwriting Agreement.................................................S-45
US.....................................................................S-26
ANNEX I
PREVIOUSLY ISSUED SERIES
The Trust has previously issued seven other Series that the
Transferor anticipates will be outstanding on the Closing Date. The table
below sets forth the principal characteristics of such Series: Series
1996-1, Series 1997-1, Series 1997-2, Series 1998-1, Series 1998-2, Series
1998-3 and Series 1999-A. 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.
<TABLE>
<CAPTION>
Series 1996-1
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 C 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 C 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
Interest Rate................................... LIBOR + 1.05%
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 , 1999......... $
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............. August 20, 2001 (extendible)
Annual Servicing Fee Percentage................. 2.00%
Enhancement..................................... Subordination of Class B Securities,
Collateralized Trust
Obligations and Class D Securities
Scheduled Series Termination Date............... August 20, 2005 (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 , 1999......... $
Expected Invested Amount as of Closing Date $
(after reduction of Class A Invested Amount).
Maximum Permitted Invested Amount............... $52,350,000
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
Series 1998-2
Class A Securities
Initial Invested Amount......................... $500,000,000
Interest Rate................................... LIBOR + 0.55%
Commencement of Accumulation Period............. Last day of April 2000 Monthly Period or later
date as determined in the Agreement
Annual Servicing Fee Percentage................. 2.0%
Enhancement..................................... Subordination of Class B Securities and
Financial Guaranty Insurance Policy
Scheduled Series Termination Date............... October 2004
Series Issuance Date............................ December 4, 1998
Class B Securities
Initial Invested Amount......................... $49,450,550
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
Series 1998-3
Class A Securities
Initial Invested Amount......................... $500,000,000
Interest Rate................................... LIBOR + 0.65%
Commencement of Accumulation Period............. Last day of January 2001 Monthly Period or
later date as determined in the Agreement
Annual Servicing Fee Percentage................. 2.0%
Enhancement..................................... Subordination of Class B Securities and
Financial Guaranty Insurance Policy
Scheduled Series Termination Date............... April 2006
Series Issuance Date............................ December 4, 1998
Class B Securities
Initial Invested Amount......................... $49,450,550
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
Series 1999-A
Class A Securities
Invested Amount as of , 1999......... $
Expected Invested Amount as of Closing Date..... $
Maximum Permitted Invested Amount............... $469,262,500
Interest Rate................................... A1/P1 Commercial Paper/LIBOR + 0. % Blended
Commencement of Amortization Period............. (extendible)
Annual Servicing Fee Percentage................. 2.0%
Enhancement..................................... Subordination of Class B Securities and Class C
Securities
Scheduled Series Termination Date............... February 2004 (extendible)
Series Issuance Date............................ April 23, 1999
Class B Securities
Invested Amount as of , 1999............ $
Expected Invested Amount as of Closing Date..... $
Maximum Outstanding Principal Amount............ $84,770,000
Interest Rate................................... A1/P1 Commercial Paper/LIBOR + 0. % Blended
Commencement of Amortization Period.............
Annual Servicing Fee Percentage................. Same as above for the Class A Securities
Enhancement..................................... Subordination of Class B Securities
Scheduled Series Termination Date...............
Series Issuance Date............................ April 23, 1999
Class C Securities
Initial Invested Amount......................... $34,500,000
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>
[Flag]
The information in this prospectus is not complete and may be changed. We
cannot sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 28, 1999
[Text Box]
- ------------------------------------------------------------------------------
A security is not a deposit and neither the securities nor the underlying
accounts or receivables are insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
The securities will represent interests in the trusts only and do not
represent interests in or recourse obligations of Metris Receivables, Inc.,
Metris Companies Inc., Direct Merchants Credit Card Bank, National
Association or any affiliate thereof.
This prospectus may be used to offer and sell any series of securities only
if accompanied by the prospectus supplement for that series.
- ------------------------------------------------------------------------------
Prospectus
METRIS MASTER TRUST
Issuer
Metris Receivables, Inc.
Transferor
Direct Merchants Credit Card Bank, National Association
Servicer
Asset Backed Securities
---------------------------------------------------
The trust -
o may periodically issue asset backed securities in one or more
series with one or more classes; and
o will own -
o receivables in a portfolio of consumer revolving credit card
accounts;
o payments due on those receivables; and
o other property described in this prospectus and in the
prospectus supplement.
The securities -
o will represent interests in the trust and will be paid only from
the assets of the trust;
o offered by this prospectus will be rated in one of the four
highest rating categories by at least one nationally recognized
rating organization;
o may have one or more forms of enhancement; and
o will be issued as part of a designated series which may include
one or more classes of securities and enhancement.
The securityholders -
o will receive interest and principal payments from a varying
percentage of credit card collections.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the disclosures in this prospectus and the attached
prospectus supplement. Any representation to the contrary is a criminal
offense.
The date of this Prospectus is ______, 1999
Table of Contents
Overview Of The Information In This Prospectus
And The Prospectus Supplement..............................iii
The Trust............................................................2
Direct Merchants Credit Card Bank, N.A.
Activities...................................................2
General......................................................2
New Account Underwriting.....................................3
Acquisition of Credit Card Accounts..........................4
Billing and Payments.........................................4
Collection of Delinquent Accounts............................5
Description of FDR...........................................6
Recoveries ..................................................6
Year 2000 Compliance.........................................6
The Receivables......................................................8
Maturity Considerations..............................................8
Use of Proceeds......................................................9
Metris Companies Inc................................................10
Certain Litigation..........................................10
The Transferor......................................................11
Direct Merchants Credit Card Bank, National
Association.................................................11
Fingerhut Corporation...............................................11
Description of the Securities.......................................13
General ....................................................13
Book-Entry Registration.....................................14
Definitive Securities.......................................17
Interest....................................................18
Principal...................................................18
Revolving Period............................................19
Controlled Amortization Period..............................19
Principal Amortization Period...............................19
Accumulation Period.........................................19
Early Amortization Period...................................20
Discount Option.............................................20
Transfer and Assignment of Receivables......................21
Exchanges...................................................21
Representations and Warranties..............................23
Certain Covenants...........................................25
Eligible Accounts...........................................25
Eligible Receivables........................................25
Addition of Trust Assets....................................26
Collection and Other Servicing
Procedures...........................................28
Trust Accounts..............................................28
Deposits in Collection Account..............................29
Investor Percentage and Transferor
Percentage...........................................30
Application of Collections..................................30
Shared Principal Collections................................31
Shared Excess Finance Charge
Collections..........................................31
Excess Funding Account......................................31
Paired Series...............................................32
Funding Period..............................................32
Defaulted Receivables; Dilution.............................33
Investor Charge-Offs........................................33
Defeasance..................................................33
Final Payment of Principal;
Termination..........................................34
Pay Out Events..............................................34
Servicing Compensation and Payment of
Expenses.............................................35
Certain Matters Regarding the Transferor
and the Servicer.....................................36
Servicer Default............................................37
Reports to Securityholders..................................38
Evidence as to Compliance...................................38
Amendments..................................................39
List of Securityholders.....................................40
The Trustee.................................................40
Enhancement.........................................................40
General ....................................................40
Subordination...............................................41
Letter of Credit............................................41
Cash Collateral Guaranty or Account.........................41
Collateral Interest ........................................42
Surety Bond or Insurance Policy ............................42
Spread Account .............................................42
Reserve Account.............................................42
Description of the Purchase Agreements..............................43
Purchases of Receivables....................................43
Representations and Warranties..............................43
Certain Covenants...........................................44
Purchase Termination Date...................................45
Security Ratings....................................................46
Certain Legal Aspects of the Receivables............................46
Transfer of Receivables.....................................46
Certain Matters Relating to
Receivership.........................................47
Consumer Protection Laws....................................48
Claims and Defenses of Obligors
Against the Trust....................................49
Income Tax Matters..................................................50
General.....................................................50
Treatment of the Securities as Debt.........................50
Taxation of Interest Income of U.S.
Securityholders......................................51
Sale, Exchange or Retirement of
Securities...........................................52
Possible Alternative Characterizations......................53
Non-U.S. Securityholders....................................53
Information Reporting and Backup
Withholding..........................................54
FASIT Legislation...........................................54
New Withholding Regulations.................................54
State and Local Taxation....................................54
Employee Benefit Plan Considerations................................55
Plan of Distribution................................................57
Legal Matters.......................................................57
Reports to Securityholders..........................................57
Other Information...................................................58
Cautionary Notice Regarding Forward-looking
Statements..................................................58
Where Can You Find More Information.................................59
Index of Terms for the Prospectus...................................60
ANNEX I .........................................................A-1-1
Overview Of The Information In This Prospectus
And The Prospectus Supplement
We provide information to you about the securities in two separate
documents that progressively provide more detail: (a) this prospectus,
which provides general information, some of which may not apply to a
particular series of securities, including your series, and (b) the
prospectus supplement, which will describe the specific terms of your
series of securities, including:
o the timing and amount of interest and principal payments;
o information about the receivables;
o information about credit enhancement for each offered class;
o credit ratings; and
o the method for selling the securities.
You should rely only on the information provided in this prospectus and the
prospectus supplement, including the information incorporated by reference.
We have not authorized anyone to provide you with different information.
We include cross-references in this prospectus to captions in these
materials where you can find further related discussions. The preceding
table of contents provides the pages on which these captions are located.
You can find a listing of the pages where capitalized terms are defined
under the caption "Index of Terms for the Prospectus" beginning on page 59
in this prospectus.
The Trust
Metris Master Trust (the "Trust") was formed pursuant to a pooling
and servicing agreement in accordance with the laws of the State of
Delaware (the "Pooling and Servicing Agreement") among Metris Receivables,
Inc. as transferor (the "Transferor"), Direct Merchants Credit Card Bank,
National Association (the "Bank" or "Direct Merchants Bank"), as servicer
(the "Servicer"), and The Bank of New York (Delaware), as trustee (the
"Trustee"), relating to the Asset Backed Securities (collectively, the
"Securities") of one or more series (each, a "Series") representing
undivided interests in the Trust in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (a "Prospectus Supplement"). The Trust has not and will not
engage in any business activity other than acquiring and holding the
receivables (the "Receivables") that arise under certain MasterCard(R) and
VISA(R)* accounts and may arise under other revolving credit consumer
credit card accounts (the "Accounts") and the proceeds thereof arising
under the Accounts from time to time, issuing Series of Securities and the
related security that evidences the Transferor Interest (the "Exchangeable
Transferor Security"), making payments thereon and engaging in related
activities (including, with respect to any Series, obtaining any
Enhancement and entering into an Enhancement agreement relating thereto).
As a consequence, the Trust is not expected to have any need for additional
capital resources other than the assets of the Trust.
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* MasterCard(R) and VISA(R) are federally registered servicemarks
of MasterCard International Inc. and VISA USA Incorporated,
respectively.
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 of 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, (a) 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
(b) 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 may be paid to the holder of the Exchangeable Transferor
Security or paid to the securityholders of any other Series then
outstanding. See "Description of the Securities--Application of
Collections" in this Prospectus and "Description of the
Securities--Application of Collections--Payment of Fees, Interest and Other
Items" in the related Prospectus Supplement.
Direct Merchants Credit Card Bank, N.A. Activities
General
The portfolio of credit card accounts serviced by Direct Merchants
Bank (the "Direct Merchants Bank Portfolio") consists of co-branded and
other MasterCard(R) credit card and VISA(R) credit card accounts. The
Receivables which the Bank will convey to the Trust have been and will be
generated from transactions made by holders of co-branded and other
MasterCard(R) and VISA(R) credit card accounts and, subject to certain
conditions, may also include, receivables generated from transactions made
by holders of other general purpose credit card accounts originated or
acquired by Direct Merchants Bank. The Bank services these accounts at its
facilities in Tulsa, Oklahoma, Baltimore, Maryland, Scottsdale, Arizona and
Jacksonville, Florida. Certain data processing, administrative and other
functions associated with the servicing of the Receivables are performed on
behalf of Direct Merchants Bank through First Data Resources, Inc. ("FDR").
See "--Description of FDR." In addition, the collection and management of
delinquent accounts are performed by Metris Direct, Inc., a subsidiary of
Metris Companies Inc.
New Account Underwriting
Direct Merchants Bank targets moderate income consumers whom it
believes are underserved by traditional providers of consumer credit.
Prospects for solicitation include both existing customers of Fingerhut
Corporation ("Fingerhut") and individuals who are not Fingerhut Customers
for whom credit bureau information is available. 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 the 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.
Prior to July 1997, substantially all of the Accounts were
generated under a license from MasterCard International Inc. ("MasterCard
International") and were originated or purchased by the Bank. Direct
Merchants Bank is a member of MasterCard International Inc. and of VISA
USA., Inc. ("VISA"). MasterCard International and VISA license their
respective marks permitting financial institutions to issue credit cards to
their customers. In addition, MasterCard International and VISA provide
clearing services facilitating exchange of payments among member
institutions and networks linking members' credit authorization systems.
MasterCard(R) and VISA(R) credit cards are issued as part of the
worldwide MasterCard International and VISA systems, and the transactions
creating the receivables through the use of the credit cards are processed
through the MasterCard International and VISA authorization and settlement
systems.
The MasterCard(R) and VISA(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
merchandise or services. A cash advance is made when a credit card is used
to obtain cash from a financial institution, from 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 requests a Fingerhut Score for prospective
customers in the Fingerhut Database. Direct Merchants Bank also requests
credit bureau information for all existing customers of Fingerhut,
including risk scores provided by Fair, Isaacs & Company, a third party
provider of risk scorecards ("FICO scores"). For those existing customers
of Fingerhut who have FICO scores, Direct Merchants Bank uses the Fingerhut
Score to further segment such 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. See "Fingerhut Corporation-The Fingerhut
Database."
The Bank has developed a proprietary modeling system for
individuals for whom credit bureau information is available (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 such individuals into narrower ranges within each FICO score
subsegment, allowing the Bank to better evaluate individual credit risk and
to tailor its risk-based pricing accordingly. The Bank also uses this
segmentation to exclude certain individuals from its marketing
solicitations.
Direct Merchants Bank solicits individuals who are not Fingerhut
Customers 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 individuals who fall within this range.
The files are incorporated into the Proprietary Modeling System, which
further segments such individuals 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 any individuals who are
not Fingerhut Customers and who do not have FICO scores.
The 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 prospective customer's risk profile prior to
solicitation. Each prospective customer is evaluated to determine credit
needs, credit risk, and existing credit availability. A customized offer is
developed to include 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 credit performance is actively monitored and their risk scores
are periodically recalculated. Over time, the lending relationship can
evolve to include more competitive (or more restrictive) pricing and
product configurations.
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).
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.
Acquisition of Credit Card Accounts
Direct Merchants Bank has made portfolio acquisitions in the past
and such acquisitions are possible in the future. Prior to acquiring a
portfolio, Direct Merchants Bank reviews the historical performance and
seasoning of the portfolio and the policies and practices of the selling
institution, but individual accounts are not requalified by Direct
Merchants Bank. There can be no assurance that acquired credit card
accounts were originated in a manner consistent with Direct Merchants
Bank's policies as described above under "--New Account Underwriting" or
that the underwriting and qualification of such credit card accounts
conformed to any given standards. The Accounts include credit card accounts
previously acquired by Direct Merchants Bank. Such accounts and any
accounts acquired in the future may become Additional Accounts provided
that, at such time, they constitute Eligible Accounts. See "Description of
the Securities--Addition of Trust Assets."
Billing and Payments
The Accounts have various billing and payment structures, including
varying minimum payment levels and fees. The following information reflects
the current billing and payment characteristics of the Accounts.
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 randomly 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 greater of a minimum dollar amount, or a minimum
percentage of the outstanding balance, the finance charge or the balance of
the account if the balance is less than such minimum dollar amount. If the
minimum payment is not collected within 25 days after the Payment Date, the
account is considered delinquent. The Bank generally determines the minimum
monthly payment with respect to the accounts by multiplying the combined
new balance of purchases and cash advances, less any disputed amounts,
by such minimum percentage of the outstanding balance. If the amount so
calculated is less than the minimum dollar amount, it is increased to such
minimum dollar amount. The sum of such amount and any past due amounts
equals the minimum payment amount.
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 ("Periodic Finance Charges"). For most cardholders,
if the entire balance on the account is paid by the due date, no finance
charge is imposed. These finance charges are based upon the average daily
balance outstanding on the account during the monthly billing cycle. 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. 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. These cash advance finance charges are applied to
the average daily balance.
Direct Merchants Bank assesses an annual fee on some of its
accounts. Direct Merchants Bank may waive or lessen the annual membership
fees, in connection with the solicitation of new accounts. 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 the required minimum monthly payment is not received by the Payment
Date, (ii) a fee for cash advances equal to the greater of a percentage of
each cash advance or a minimum dollar amount, (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 for principal and
finance charges, in respect of purchases and cash advances exceeds the
cardholder's credit line by a minimum dollar amount.
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.
Most merchant transactions by cardholders are authorized online by
FDR. The remaining transactions generally are low dollar amounts, typically
below $50.00. All authorizations are handled through the Adaptive Control
System.
Collection of Delinquent Accounts
Direct Merchants Bank considers an account delinquent if the
minimum 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 675 collection
personnel, and the Baltimore facility employs approximately 830 collection
personnel. 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 Inc.'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 Inc.'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.
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.
Description of FDR
FDR provides data processing, credit card reissuance, statementing,
some 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.
Recoveries
Pursuant to the terms of the Pooling and Servicing Agreement, the
Servicer will be required to transfer all amounts received by the Servicer
with respect to Receivables in Accounts that previously became Defaulted
Accounts to the Trust ("Recoveries"). 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.
Year 2000 Compliance
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, but as a cautionary measure
Metris has begun testing such internal systems for year 2000 compliance. In
addition, Metris has created a project team to identify, address, and
monitor internal systems and vendor issues related to year 2000, consistent
with recommendations and guidelines set forth by the Office of the
Comptroller of the Currency (the "Comptroller") and the Federal Financial
Institutions Examination Council. 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
Fingerhut Companies Inc. ("FCI") and card and statement generation, among
other services, provided by FDR. The project team has been working with its
material vendors, including FCI and FDR, to determine the status of each
vendor's plans for becoming year 2000 compliant. The project team is
striving to obtain test results showing year 2000 compliance by material
vendors in the second quarter of 1999 and has developed high level
contingency plans to address non-compliance by its material vendors, which
may include replacing such vendors. 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 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 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 (the "Obligors") 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 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, and, if the context requires, the
prior versions thereof, including the Amended and Restated Bank Receivables
Purchase Agreement dated as of May 26, 1995 (the "Bank Purchase Agreement,"
and together with the Purchase Agreement, the "Purchase Agreements"), 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.
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, any provider of
Enhancement, 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
Securities--Investor Percentage and Transferor Percentage" in this
Prospectus and "Description of the Securities--Allocation Percentages" in
the related Prospectus Supplement.
Maturity Considerations
Unless otherwise specified in the related Prospectus Supplement,
for each Series, following the Revolving Period, Principal Collections are
expected to be distributed to the Securityholders of such Series or any
specified Class thereof on each specified Distribution Date during the
Controlled Amortization Period or the Principal Amortization Period, or are
expected to be accumulated for payment to Securityholders of such Series or
any specified Class thereof during the Accumulation Period and distributed
on the date specified in the related Prospectus Supplement (the "Expected
Final Payment Date"); provided, however, that, if the Early Amortization
Period commences, Principal Collections will be paid to Securityholders in
the manner described herein and in the related Prospectus Supplement. The
related Prospectus Supplement will specify the date on which the Controlled
Amortization Period, the Principal Amortization Period or the Accumulation
Period, as applicable, will commence, the principal payments expected or
available to be received or accumulated during such Controlled Amortization
Period, Principal Amortization Period or Accumulation Period, or on the
Expected Final Payment Date, as applicable, the manner and priority of
principal accumulations and payments among the Classes of a Series of
Securities and the Pay Out Events which, if any were to occur, would lead
to the commencement of an Early Amortization Period or, if so specified in
the related Prospectus Supplement, an Accumulation Period.
The related Prospectus Supplement will provide certain historical
data relating to payments by cardholders, total charge-offs and other
related information relating to the Direct Merchants Bank Portfolio. There
can be no assurance that future events will be consistent with such
historical data.
The amount of Collections may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that Principal
Collections with respect to the Trust Portfolio, and thus the rate at which
the related Securityholders could expect to receive or accumulate payments
of principal on their Securities during an Amortization Period, or on any
Expected Final Payment Date, as applicable, will be similar to any
historical experience set forth in a related Prospectus Supplement. If a
Pay Out Event occurs, the average life and maturity of such Series of
Securities could be significantly reduced.
Because, for any Series of Securities, there may be a slowdown in
the payment rate below the payment rate used to determine the amount of
Principal Collections scheduled or available to be distributed or
accumulated for later payment to Securityholders or a specified Class
thereof during the Controlled Amortization Period, the Principal
Amortization Period or the Accumulation Period or on the Expected Final
Payment Date, as applicable, or a Pay Out Event may occur which would
initiate the Early Amortization Period or, if so specified in the related
Prospectus Supplement, the Accumulation Period, there can be no assurance
that the actual number of months elapsed from the date of issuance of such
Series of Securities to the final Distribution Date with respect to the
Securities will equal the expected number of months, that yield to maturity
will be as anticipated or that Securityholders will be able to reinvest
funds in an instrument with a comparable interest rate in the event the
Securities are paid sooner than anticipated.
"Amortization Period" shall mean, with respect to any Series, the
period following the Revolving Period for such Series, which shall be the
Accumulation 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.
Use of Proceeds
Unless otherwise specified in the related Prospectus Supplement,
the net proceeds from the sale of each Series of Securities offered hereby
will be paid to the Transferor. The Transferor will use such proceeds for
its general corporate purposes.
Metris Companies Inc.
Metris Companies Inc. ("Metris") is an information-based direct
marketer of consumer credit products and fee-based services primarily to
moderate income consumers. Metris' consumer credit products are primarily
unsecured credit cards issued by its indirect subsidiary, Direct Merchants
Credit Card Bank, National Association. Metris' customers and prospects
include existing customers of a prior 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, membership
programs and third party insurance, to its credit card customers, and
customers of third parties.
Metris is a Delaware corporation incorporated on August 20, 1996.
Metris became a publicly held company in October 1996 after completing an
initial public offering. Until September 25, 1998, Metris was an indirect
subsidiary of Fingerhut Companies, Inc. ("FCI"). Prior to the initial
public offering, Metris' business was operated as a division of FCI. On
September 25, 1998, FCI distributed its shares in Metris to FCI's
shareholders in a tax free spin off (the "Spin Off"). Metris' principal
subsidiaries are Direct Merchants Bank, Metris Direct, Inc. ("Metris
Direct"), Metris Funding Co., Metris Receivables, Inc. and Metris Asset
Funding Co.
On November 13, 1998, Metris entered into agreements with
affiliates of the Thomas H. Lee Company (the "Lee Company") to invest $300
million in Metris. The terms of the transaction provided that the Lee
Company investment would convert into 0.8 million shares of Series C
Perpetual Convertible Preferred Stock (the "Series C Preferred") upon
shareholder approval and receipt of notice that there was no regulatory
objection to the transaction. Metris determined that this conversion might
result in a "Change of Control" as defined in certain agreements between
Metris and Fingerhut, which would permit Fingerhut to terminate any or all
of the agreements. Therefore, on December 8, 1998, Metris obtained an
agreement (the "Waiver Agreement") from Fingerhut to waive its right to
terminate the agreements if a Change of Control occurred as a result of the
conversion.
Pursuant to the Waiver Agreement, Metris and Fingerhut amended
certain of their other agreements. The most significant change occurred in
the database access agreement. Metris' exclusive license to use Fingerhut's
customer database to market financial service products will become
non-exclusive after October 31, 2001.
On March 12, 1999, Metris shareholders approved the conversion of
the Lee Company investment into the Series C Preferred. If Metris receives
notice that there is no regulatory objection to the transaction, the
conversion will occur and the Lee Company will own approximately 30% of
Metris on a diluted basis.
Certain Litigation
Metris has developed and implemented compliance functions to
monitor its operations to ensure that it 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.
An action 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.
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 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, 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. 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").
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 during the term of one of these agreements, Fingerhut or FCI,
as the case may be, has the right to terminate these agreements. As
described above (see "Metris Companies Inc."), in December 1998, Metris and
Fingerhut amended certain of their agreements. Pursuant to an amendment to
the database access agreement, Metris' exclusive license to use Fingerhut's
customer database to market financial service products will become
non-exclusive after October 31, 2001. 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.
The Fingerhut Database. The Fingerhut Database contains
information on more than 31 million individuals. 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 individuals about whom
it has information relating to 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.
On February 11, 1999, FCI announced that it had agreed to be
acquired by Federated Department Stores, Inc. This transaction was
completed on March 18, 1999, and the separate corporate existence of FCI
ceased. Although Metris' agreements with FCI and Fingerhut will not be
terminated by this transaction, Metris cannot predict how this change in
status for FCI may impact the relationship of Metris with FCI and
Fingerhut. In addition, on March 12, 1999, Metris' shareholders approved an
amendment to Metris' Amended and Restated Certificate of Incorporation to
eliminate the detailed restrictions concerning the business activities in
which Metris is permitted to engage. These restrictions were originally
adopted to address certain potential conflicts of interest between FCI and
Metris.
Description of the Securities
The Securities will be issued in Series. Each Series will represent
an interest in the Trust other than the interests represented by any other
Series of Securities issued by the Trust (which may include Series offered
pursuant to this Prospectus) and the Exchangeable Transferor Security. Each
Series will be issued pursuant to the Pooling and Servicing Agreement among
the Transferor, Direct Merchants Bank, as Servicer and the Trustee, and a
supplement (each, a "Supplement") to the Pooling and Servicing Agreement.
The Prospectus Supplement for each Series will describe any provisions of
the Pooling and Servicing Agreement relating to such Series which may
differ materially from the Pooling and Servicing Agreement filed as an
exhibit to the Registration Statement. The following summaries describe
certain provisions common to each Series of Securities or which may be
applicable to any Series of Securities. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Pooling and Servicing Agreement
and relevant Supplement.
General
The assets of the Trust will be allocated among the Securityholders
of each Series (the "Investor Interest") and the holder of the Exchangeable
Transferor Security and, in certain circumstances, the related Enhancement
providers. The aggregate principal amount of the interest of the
Securityholders of a Series in the Trust is referred to herein as the
"Invested Amount" and is based on the aggregate amount of the Principal
Receivables in the Trust allocated to such Series. The aggregate principal
amount of the interest of the Transferor in the Trust is referred to herein
as the "Transferor Interest," and is based on the aggregate amount of
Principal Receivables (the "Transferor Amount") in the Trust not allocated
to the Securityholders or any Enhancement provider. The certificate that
evidences the Transferor Interest is referred to herein as the
"Exchangeable Transferor Security."
The 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.
The Transferor currently owns the Exchangeable Transferor Security.
The Exchangeable Transferor Security represents 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." Unless otherwise
specified in the related Prospectus Supplement, during the Revolving
Period, following the Funding Period, if any, 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 or
charged-off. 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. When a Series is amortizing, the Invested Amount will decline
as Obligor payments of Principal Receivables are collected and distributed
to the related 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 an
Amortization Period for any Series to reflect the reductions in 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 also reduced as the result of an Exchange. See
"--Exchanges."
Each Series of Securities may consist of one or more classes (each,
a "Class"), one or more of which may be senior Securities and one or more
of which may be subordinated Securities. Each Class of a Series will
evidence the right to receive a specified portion of each distribution of
principal or interest or both. The Invested Amount with respect to a Series
with more than one Class will be allocated among the Classes as described
in the related Prospectus Supplement. The Securities of a Class may differ
from Securities of other Classes of the same Series in, among other things,
the amounts allocated to principal payments, maturity date, Security Rate
and the availability of Enhancement. If so specified in the Prospectus
Supplement relating to a Series, a Series of Securities ("Variable Funding
Securities") may be issued pursuant to the Pooling and Servicing Agreement
and a related supplement ("Variable Funding Supplement"), in one or more
classes.
For each Series of Securities, payments of interest and principal
will be made on Distribution Dates specified in the related Prospectus
Supplement to Securityholders in whose names the Securities were registered
on the record dates (each, a "Record Date") specified in the related
Prospectus Supplement. Interest will be distributed to Securityholders in
the amounts, for the periods and on the dates specified in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
Securities of each Series 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. Unless otherwise specified in the related Prospectus
Supplement, with respect to each Series of Securities, beneficial interests
in the 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 Securities. Unless and until Definitive Securities
are issued under the limited circumstances described herein, no owner of a
beneficial interest in the Securities (a "Security Owner") acquiring an
interest in the 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 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 will refer to
distributions, notices, reports and statements to the Depository or its
nominee, as the registered holder of the Securities, for distribution to
Security Owners in accordance with the Depository's procedures. See
"--Book-Entry Registration" and "--Definitive Securities."
If so specified in the Prospectus Supplement relating to a Series,
application will be made to list the Series of Securities of such Series,
or all or a portion of any Class thereof, on the Luxembourg Stock Exchange
or any other specified exchange.
Book-Entry Registration
Unless otherwise specified in the related Prospectus Supplement,
with respect to each Series of Securities in book-entry form,
Securityholders may hold their Securities through DTC (in the United
States) or Cedelbank 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.
Cedelbank and Euroclear will hold omnibus positions on behalf of the
Cedelbank Customers and the Euroclear Participants, respectively, through
customers' securities accounts in Cedelbank'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 Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC holds securities for its participants ("DTC Participants") and
facilitates the clearance and settlement among DTC Participants of
securities transactions, such as transfers and pledges, in deposited
securities through electronic book-entry changes in DTC Participants'
accounts, thereby eliminating the need for physical movement of securities.
DTC 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 DTC Participant, either directly
or indirectly ("Indirect Participants"). The rules applicable to DTC and
its Participants are on file with the Securities and Exchange Commission
(the "SEC").
DTC management is aware that some computer applications and systems
used for processing data were written using two digits rather than four to
define the applicable year, and therefore may not recognize a date using
"00" as the year 2000. This could result in the inability of these systems
to properly process transactions with dates in the year 2000 and
thereafter. DTC has developed and is implementing a program to address this
problem so that its applications and systems relating to the payment of
distributions (including principal and interest payments) to
securityholders, book-entry deliveries and settlement of trades within DTC
continue to function properly. This program includes a technical assessment
and a remediation plan, each of which is complete. DTC plans to implement a
testing phase of this program which is expected to be completed within
appropriate time frames.
In addition, DTC is contacting (and will continue to contact) third
party vendors that provide services to DTC to determine the extent of their
year 2000 compliance, and DTC will develop contingency plans as it deems
appropriate to address failures in year 2000 compliance on the part of
third party vendors. However, there can be no assurance that the systems of
third party vendors will be timely converted and will not adversely affect
the proper functioning of DTC's services.
The information set forth in the preceding two paragraphs has been
provided by DTC for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
The Transferor makes no representations as to the accuracy or completeness
of such information.
Transfers between DTC Participants will occur in accordance with
DTC rules. Transfers between Cedelbank Customers 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 Cedelbank Customers 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. Cedelbank
Customers and Euroclear Participants may not deliver instructions directly
to the Depositaries.
Because of time-zone differences, credits of securities received in
Cedelbank 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 Cedelbank Customers or Euroclear Participant on
such business day. Cash received in Cedelbank or Euroclear as a result of
sales of securities by or through a Cedelbank Customers 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 Cedelbank 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 DTC 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 DTC 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 DTC
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 DTC
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 DTC 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 DTC Participants shall be the responsibility of DTC, and
disbursement of such payments to the Security Owners shall be the
responsibility of DTC 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.
Cedelbank, 67 Bd Grande-Duchesse Charlotte, L-1331 Luxembourg
("Cedelbank"), was incorporated in 1970 as a limited company under
Luxembourg law (a societe anonyme). Cedelbank is owned by a parent
corporation, Cedelbank International, societe anonyme, the shareholders of
which are banks, securities dealers and financial institutions. Cedelbank
International currently has about 100 shareholders, including U.S.
financial institutions or their subsidiaries. No single entity may own more
then twenty percent of Cedelbank International's stock. Cedelbank is
registered as a bank in Luxembourg, and as such is subject to regulation by
the Luxembourg Commission for the Supervision of the Financial Sector,
which supervises Luxembourg banks.
Cedelbank holds securities for its customers and facilitates the
clearance and settlement of securities transactions by electronic
book-entry transfers between their accounts. Cedelbank provides various
services, including safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Cedelbank also deals with domestic securities market in over 30 countries
through established depository and custodial relationships. Cedelbank has
established an electronic bridge with Morgan Guaranty Trust as the Operator
of the Euroclear System ("MGT/EOC") in Brussels to facilitate settlement of
trades between Cedelbank and MGT/EOC. Cedelbank currently accepts over
110,000 securities issues on its books.
Cedelbank's customers ("Cedelbank Customers") are world-wide
financial institutions including underwriters, securities brokers and
dealers, banks, trust companies and clearing corporations, Cedelbank's U.S.
customers are limited to securities brokers and dealers, and banks.
Currently, Cedelbank has approximately 2,000 customers located in over 80
countries, including all major European countries, Canada, and the United
States. Indirect access to Cedelbank is available to other institutions
that clear through or maintain a custodial relationship with an account
holder of Cedelbank.
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 Cedelbank or
Euroclear will be credited to the cash accounts of Cedelbank Customers or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. Such distributions
will be subject to tax reporting in accordance with relevant United States
tax laws and regulations. Cedelbank or the Euroclear Operator, as the case
may be, will take any other action permitted to be taken by a
Securityholder under the Pooling and Servicing Agreement on behalf of a
Cedelbank Customer 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, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among
participants of DTC, Cedelbank 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
Unless specified in the related Prospectus Supplement, the
Securities for each Series will not be issued in fully registered,
certificated form to the Security Owners or their nominees ("Definitive
Securities"), rather than to the Depository or its nominee, unless (i) the
Transferor advises the Trustee for each Series in writing that the
Depository is no longer willing or able to discharge properly its
responsibilities as Depository with respect to the Securities, 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 (or such other percentage specified in the related
Prospectus Supplement) of the Invested Amount 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.
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 and instructions for registration, the Trustee
will issue the Securities 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 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
("Securityholders"). 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 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.
Interest
For each Series of Securities and Class thereof, interest will
accrue from the relevant Closing Date on the applicable principal balance
of the Securities (or other amount specified in the related Prospectus
Supplement), at the applicable rate, which may be a fixed, floating or
variable rate as specified in the related Prospectus Supplement (the
"Security Rate"). Interest will be distributed to Securityholders on the
dates (Which may be monthly, quarterly, semiannually or otherwise as
specified in the related Prospectus Supplement) (each, a "Distribution
Date"). Interest payments on any Distribution Date will generally be funded
from collections of Finance Charge Receivables allocated to the
Securityholders' Interest during the preceding fiscal month of the
Transferor (each, a "Monthly Period") and may be funded from certain
investment earnings on funds held in accounts of the Trust, from any
applicable Enhancement, if necessary, or certain other amounts as specified
in the related Prospectus Supplement. If the Distribution Dates for payment
of interest for a Series or Class occur less frequently than monthly, such
collections or other amounts (or the portion thereof allocable to the
Securityholders' Interest of such Class) may be deposited in one or more
trust accounts (each, an "Interest Funding Account") pending distribution
to the Securityholders of such Series or Class, as described in the related
Prospectus Supplement. If a Series has more than one Class of Securities,
each such Class may have a separate Interest Funding Account. The
Prospectus Supplement relating to each Series of Securities and each Class
thereof will describe the amounts and sources of interest payments to be
made, the Security Rate, and, for a Series or Class thereof bearing
interest at a floating or a variable Security Rate, the initial Security
Rate, the dates and the manner for determining subsequent Security Rates,
and the formula, index or other method by which such Security Rates are
determined.
Principal
Except to the extent specified in the related Prospectus
Supplement, during the Revolving Period (which begins on the Closing Date
relating to such Series and ends on the day before an Amortization Period
begins) for each Series of Securities offered hereby, no principal payments
will be made to the Securityholders of such Series. During the Controlled
Amortization Period, Principal Amortization Period or Accumulation Period,
as applicable, which will be scheduled to begin on the date specified or
determined as described in the related Prospectus Supplement, and during
the Early Amortization Period, which will begin upon the occurrence of a
Pay Out Event or, if so specified in the related Prospectus Supplement,
following the Accumulation Period, principal will be paid to the
Securityholders in the amounts and on Distribution Dates specified in the
related Prospectus Supplement or will be accumulated in a Principal Account
for later distribution to Securityholders on the Expected Final Payment
Date in the amounts specified in the related Prospectus Supplement. During
the Accumulation Period, the Trustee at the direction of the Servicer will
transfer from the Principal Account to one or more applicable segregated
trust accounts held for the benefit of the securityholders (each a
"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" Principal payments
for any Series or Class thereof will be funded from Principal Collections
received during the related Monthly Period or periods as specified in the
related Prospectus Supplement and allocated to the Securityholders'
Interest of such Series or Class and from certain other sources specified
in the related Prospectus Supplement. In the case of a Series with more
than one Class of Securities, the Securityholders of one or more Classes
may receive payments of principal at different times. The related
Prospectus Supplement will describe the manner, timing and priority of
payments of principal to Securityholders of each Class.
Funds on deposit in any Principal Funding Account applicable to a
Series may be subject to a guaranteed rate or investment agreement or other
arrangement specified in the related Prospectus Supplement intended to
assure a specified rate of return on the investment of such funds. In order
to enhance the likelihood of the payment in full of the principal amount of
a Series of Securities or Class thereof at the end of an Accumulation
Period, such Series of Securities or Class thereof may be subject to a
principal guaranty or other similar arrangement specified in the related
Prospectus Supplement.
Revolving Period
Unless otherwise specified in the related Prospectus Supplement,
for the period beginning on the Closing Date and ending with the
commencement of an Amortization Period or an Accumulation Period (the
"Revolving Period"), Principal Collections otherwise allocable to the
Invested Amount will, subject to certain limitations, be paid from the
Trust to the holder of the Exchangeable Transferor Security or, under
certain circumstances and if so specified in the related Prospectus
Supplement, will be paid to the holders of other Series of Securities
issued by such Trust ("Shared Principal Collections"), as described herein
and in the related Prospectus Supplement. See "Description of the
Securities--Pay Out Events" in this Prospectus and the related Prospectus
Supplement for a discussion of the events which might lead to early
termination of the Revolving Period.
Controlled Amortization Period
If the Prospectus Supplement relating to a Series so specifies,
unless an Early Amortization Period with respect to such Series commences,
the Securities of such Series or any Class thereof will have an
amortization period (the "Controlled Amortization Period") during which
Principal Collections allocable to the Invested Amount of such Series (and
certain other amounts if so specified in the related Prospectus Supplement)
will be used on each Distribution Date to make principal distributions in
amounts determined in the manner specified in the related Prospectus
Supplement to the Securityholders of such Series or any Class of such
Series then scheduled to receive such distributions. The amount to be
distributed on any Distribution Date during the Controlled Amortization
Period will be limited to an amount (the "Controlled Distribution Amount")
equal to an amount specified in the related Prospectus Supplement (the
"Controlled Amortization Amount") plus any existing deficit controlled
amortization amount arising from prior Distribution Dates. If a Series has
more than one Class of Securities, each Class may have a separate
Controlled Amortization Amount. In addition, the related Prospectus
Supplement may describe certain priorities among such Classes with respect
to such distributions. The Controlled Amortization Period will commence at
the close of business on a date specified in the related Prospectus
Supplement and continue until the earliest of (a) the commencement of the
Early Amortization Period, (b) payment in full of the Invested Amount of
the Securities of such Series or Class and, if so specified in the related
Prospectus Supplement, of the Collateral Interest, if any, with respect to
such Series and (c) the Termination Date with respect to such Series.
Principal Amortization Period
If the Prospectus Supplement relating to a Series so specifies,
unless an Early Amortization Period with respect to such Series commences,
the Securities of such Series or any Class thereof will have an
amortization period (the "Principal Amortization Period") during which
Principal Collections allocable to the Invested Amount of such Series (and
certain other amounts if so specified in the related Prospectus Supplement)
will be used on each Distribution Date to make principal distributions in
an amount specified in the Prospectus Supplement to the Securityholders of
such Series or any Class of such Series then scheduled to receive such
distributions. If a Series has more than one Class of Securities, the
related Prospectus Supplement may describe certain priorities among such
Classes with respect to such distributions. The Principal Amortization
Period will commence at the close of business on a date specified in the
related Prospectus Supplement and continue until the earliest of (a) the
commencement of the Early Amortization Period, (b) payment in full of the
Invested Amount of the Securities of such Series or Class and, if so
specified in the related Prospectus Supplement, of the Collateral Interest,
if any, with respect to such Series and (c) the Termination Date with
respect to such Series.
Accumulation Period
If the Prospectus Supplement relating to a Series so specifies,
unless an Early Amortization Period with respect to such Series commences,
the Securities of such Series or any Class thereof will have an
accumulation period (the "Accumulation Period") during which Principal
Collections allocable to the Invested Amount of such Series (and certain
other amounts if so specified in the related Prospectus Supplement) will be
transferred on the business day immediately prior to each Distribution Date
or other business day specified in the related Prospectus Supplement (each,
a "Transfer Date") from a Principal Account to a Principal Funding Account
and used to make distributions of principal to the Securityholders of such
Series or Class on the Scheduled Payment Date. The amount to be deposited
in the Principal Funding Account on any Transfer Date will be limited to an
amount (the "Controlled Deposit Amount") equal to an amount specified in
the related Prospectus Supplement (the "Controlled Accumulation Amount")
plus any deficit controlled accumulation amount arising from prior
Distribution Dates. If a Series has more than one Class of Securities, each
Class may have a separate Principal Funding Account and Controlled
Accumulation Amount. In addition, the related Prospectus Supplement may
describe certain priorities among such Classes with respect to deposits of
principal into such Principal Funding Accounts. The Accumulation Period
will commence at the close of business on a date specified in or determined
in the manner specified in the related Prospectus Supplement and continue
until the earliest of (a) the commencement of the Early Amortization
Period, or, if so specified in the related Prospectus Supplement, the
Accumulation Period, (b) payment in full of the Invested Amount of the
Securities of such Series or Class and, if so specified in the related
Prospectus Supplement, of the Collateral Interest, if any, with respect to
such Series and (c) the Termination Date with respect to such Series.
Funds on deposit in any Principal Funding Account may be invested
in cash equivalents or subject to a guaranteed rate or investment contract
or other arrangement intended to assure a minimum return on the investment
of such funds. Investment earnings on such funds may be applied to pay
interest on the related Series of Securities. In order to enhance the
likelihood of payment in full of principal at the end of an Accumulation
Period with respect to a Series of Securities, such Series or any Class
thereof may be subject to a principal payment guaranty or other similar
arrangement.
Early Amortization Period
During the period from the day on which a Pay Out Event has
occurred with respect to a Series or, if so specified in the Prospectus
Supplement relating to a Series with a controlled Accumulation Period, from
such time specified in the related Prospectus Supplement after a Pay Out
Event has occurred and the Accumulation Period has commenced, to the
earlier of (a) the date on which the Invested Amount of the Securities of
such Series and the Enhancement Invested Amount or the Collateral Interest,
if any, with respect to such Series have been paid in full and (b) the
related Termination Date (the "Early Amortization Period"), Principal
Collections allocable to the Invested Amount of such Series (and certain
other amounts if so specified in the related Prospectus Supplement) will be
distributed as principal payments to the Securityholders of such Series
and, in certain circumstances, to the Enhancement provider, monthly on or
before each Distribution Date with respect to such Series in the manner and
order of priority set forth in the related Prospectus Supplement. During
the Early Amortization Period with respect to a Series, distributions of
principal will not be limited by any Controlled Deposit Amount or
Controlled Distribution Amount. In addition, upon the commencement of the
Early Amortization Period with respect to a Series, any funds on deposit in
a Principal Funding Account with respect to such Series or any Class
thereof will be paid to the Securityholders of such Series or Class on the
first Distribution Date in the Early Amortization Period. See "Description
of the Securities--Pay Out Events" in this Prospectus and the related
Prospectus Supplement for a discussion of the events which might lead to
commencement of the Early Amortization Period.
Discount Option
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 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) Principal Collections,
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 (as defined in the Pooling and Servicing Agreement or
related Supplement) to a rate below the average base rate for such period
(as defined in the Pooling and Servicing Agreement or related Supplement)
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.
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 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 and, if the
context requires, the prior versions thereof, including the original
Purchase Agreement dated as of May 26, 1995 (the "Purchase Agreement", and
together with the Bank Purchase Agreement, the "Purchase Agreements"), 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 and related Supplement provides
for the Trustee to issue two types of securities: (i) 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 ("Investor Securities")
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 (the
"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. The
Transferor may offer any Series to the public or other investors in
transactions either registered under the Securities Act of 1933, as amended
(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 such that each Series issued under the Trust has a 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.
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 equals or exceeds the minimum
Retained Interest, as defined in the relevant Supplement. "Retained
Interest" means, on any Determination Date, the sum of the Transferor
Interest and the interest in the Trust represented by any class of Investor
Securities retained by the Transferor. "Determination Date" shall mean the
second business day prior to any Distribution Date.
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 related
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 related 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
related Series 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
and related Supplement 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). "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. 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 the 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 related 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 related 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 and related
Supplement, (vi) the Transferor is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the "Investment
Company Act") (or is exempt from all provisions of the Investment Company
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 related
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 Receivable, 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 sale, 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. An
"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.
"Credit Card Originator" means Direct Merchants Bank, including its
predecessor in interest, Utah 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.
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). "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.
"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).
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." "Minimum Transferor Interest" for any period means the
product of (a) the sum of (1) the aggregate Principal Receivables and (2)
the amounts on deposit in the Excess Funding Account and (b) the highest
Minimum Transferor Percentage for any Series. "Minimum Transferor
Percentage" for any Series will have the meaning specified in the related
Prospectus Supplement. "Minimum Aggregate Principal Receivables" means an
amount equal to the sum of the numerators used to calculate the Investor
Percentages with respect to the allocation of Principal Collections for
each Series then outstanding.
"Excluded Accounts" means, on any date of determination (a) 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 (b) 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. "Additional
Accounts" 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 July 30, 1998 (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. "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.
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 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 (each, an "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. Unless
otherwise specified in the Prospectus Supplement relating to the Trust,
"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. 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--Collection of Delinquent Accounts." 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 certified
public accountants to prepare and deliver the annual reports described in
"--Evidence as to Compliance."
Trust Accounts
Unless otherwise specified in the Prospectus Supplement relating to
the Trust, the Trustee will establish and maintain with a Qualified
Institution in the name of the Trust, for the benefit of the
Securityholders of each Series, at least three separate accounts, each in a
segregated trust account, consisting of an "Interest Funding Account," a
"Principal Account," and an "Excess Funding 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 Investors Service, Inc. ("Moody's") and of A-1+ by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("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
Federal Deposit Insurance Corporation ("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 certificates 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 certificates 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 United States federal
bankruptcy code, as amended, 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 above in
"--Application of Collections" and in "Description of the
Securities--Application of Collections" in the related Prospectus
Supplement. 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.
Deposits in Collection Account
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.
Investor Percentage and Transferor Percentage
For each Trust, the Servicer will allocate between the Invested
Amount of each Series issued by such Trust (and between each Class of each
Series) and the Transferor Interest, and, in certain circumstances, the
interest of certain Enhancement providers, all amounts collected on Finance
Charge Receivables, all amounts collected on Principal Receivables and all
Receivables in Defaulted Accounts. The Servicer will make each allocation
by reference to the applicable Investor Percentage of each Series and the
Transferor Percentage, and, in certain circumstances, the percentage
interest of certain Enhancement providers (the "Enhancement Percentage")
with respect to such Series. The Prospectus Supplement relating to a Series
will specify the Investor Percentage and the Enhancement Percentage (or the
method of calculating such percentage) with respect to the allocations of
Principal Collections, Finance Charge Receivables and Receivables in
Defaulted Accounts during the Revolving Period, any Amortization Period and
the Accumulation Period, as applicable. In addition, for each Series of
Securities having more than one Class, the related Prospectus Supplement
will specify the method of allocation between each Class.
"Investor Percentage" shall mean, (a) with respect to Finance
Charge Collections, Receivables in Defaulted Accounts and Principal
Collections, the percentage specified in the related Prospectus Supplement.
The Transferor Percentage will, in all cases, be equal to 100% minus the
aggregate Investor Percentages and, if applicable, the Enhancement
Percentages, for all Series then outstanding.
Application of Collections
Unless otherwise specified in the related Prospectus Supplement,
except as otherwise provide below, 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 the Pooling and Servicing Agreement
and the related Supplement.
Throughout the existence of the Trust, unless otherwise stated in
any Prospectus 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 the Pooling
and Servicing Agreement and related Supplement 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.
Shared Principal Collections
If specified in the related Prospectus Supplement, 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.
"Principal Shortfall" shall mean, with respect to any business day and any
outstanding Series, the amount which the related Prospectus Supplement
specifies as the principal shortfall for such business day. 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.
In addition, if so specified in the related Prospectus Supplement,
Principal Collections and Finance Charge Receivables otherwise payable to
the Transferor may be designated to be paid to the Securityholders of the
applicable Series.
Shared 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. If so specified in the related Prospectus Supplement,
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. Unless
otherwise provided in the related Prospectus Supplement, with respect to
any Series, "Excess Finance Charge Collections" for any Monthly Period
shall mean 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
The Trustee has established and will maintain in the name of the
Trust, for the benefit of the securityholders of all Series, a segregated
account with a Qualified Institution (the "Excess Funding Account"). The
Servicer has 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 the Trustee's duties. 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. 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 for any Series will be deposited in the Principal
Account as part of principal 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.
Paired Series
If so provided in the Prospectus Supplement relating to a Series,
such Series may be subject to being paired with another Series (in such
case, a "Paired Series"). The Prospectus Supplement for such Series and the
Prospectus Supplement for the Paired Series will each specify the
relationship between the 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 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 above 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.
Funding Period
For any Series of Securities, the related Prospectus Supplement may
specify that for a period beginning on the Closing Date and ending on a
specified date before the commencement of an Amortization Period or
Accumulation Period with respect to such Series (the "Funding Period"), the
aggregate amount of Principal Receivables in the Trust allocable to such
Series may be less than the aggregate principal amount of the Securities of
such Series and that the amount of such deficiency (the "Pre- Funding
Amount") will be held in a trust account established with the Trustee for
the benefit of the Securityholders of such Series (the "Pre-Funding
Account") pending the transfer of additional Receivables to the Trust or
pending the reduction of the Invested Amounts of other Series. The related
Prospectus Supplement will specify the initial Invested Amount with respect
to such Series, the aggregate principal amount of such Series (the "Full
Invested Amount") and the date by which the Invested Amount is expected to
equal the Full Invested Amount. The Invested Amount will increase as
Receivables are delivered to the Trust or as the Invested Amounts of other
Series are reduced. The Invested Amount may also decrease due to Investor
Charge- Offs as provided in the related Prospectus Supplement.
During the Funding Period, funds on deposit in the Pre-Funding
Account for a Series of Securities will be withdrawn and paid to the
Transferor to the extent of any increases in the Invested Amount. In the
event that the Invested Amount does not for any reason equal the Full
Invested Amount by the end of the Funding Period, any amount remaining in
the Pre-Funding Account and any additional amounts specified in the related
Prospectus Supplement will be payable to the Securityholders of such Series
in the manner and at such time as set forth in the related Prospectus
Supplement.
If so specified in the related Prospectus Supplement, monies in the
Pre-Funding Account will be invested by the Trustee in Cash Equivalents or
will be subject to a guaranteed rate or investment agreement or other
similar arrangement, and, in connection with each Distribution Date during
the Funding Period, investment earnings on funds in the Pre-Funding Account
during the related Monthly Period will be withdrawn from the Pre-Funding
Account and deposited, together with any applicable payment under a
guaranteed rate or investment agreement or other similar arrangement, into
the Collection Account for distribution in respect of interest on the
Securities of the related Series in the manner specified in the related
Prospectus Supplement.
Defaulted Receivables; Dilution
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 (a "Defaulted Account"). 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 an Account that are ineligible Receivables shall be treated
as ineligible Receivables rather than Receivables in Defaulted Accounts.
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--Collection of Delinquent Accounts"
in this Prospectus and "Direct Merchants Bank's Credit Card
Portfolio--Delinquency and Loss Experience" in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus
Supplement, the "Default Recognition Date" for each Series shall be 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. 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 Investor Percentage applicable to
Defaulted Receivables 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. To the extent
that Finance Charge Collections and certain other amounts as more fully
described in the related Prospectus Supplement for any Series are not
sufficient to cover the Series Default Amount allocated to such Series,
there will be an Investor Charge-Off. "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.
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 Finance
Charge Collections designated for such purpose as more fully described in
the related Prospectus Supplement for any Series. To the extent that such
amounts are not sufficient to cover the portion of the unpaid Adjustment
Payments allocated to the related Series, there will be an Investor
Charge-Off for such Series.
Investor Charge-Offs
With respect to each Series of Securities, if the sum of the Series
Default Amount and the portion of the unpaid Adjustment Payments allocated
to such Series exceeds the Finance Charge Collections and other amounts
allocated to cover such amounts on any Distribution Date, then the Invested
Amount with respect to such Series will be reduced by the amount of such
excess (an "Investor Charge-Off"). Investor Charge-Offs will be reimbursed
on any subsequent Distribution Date to the extent of Finance Charge
Collections and other amounts allocated and amounts available therefor.
Such reimbursement of Investor Charge-Offs will result in an increase in
the Invested Amount with respect to such Series. In the case of a Series of
Securities having more than one Class, the related Prospectus Supplement
will describe the manner and priority of allocating Investor Charge-Offs
and reimbursements thereof among the Invested Amounts of the Classes.
Defeasance
The Transferor may, at its option, be discharged from its
obligations with respect to any Series or all outstanding Series (each, a
"Defeased Series") on the date that the following conditions shall have
been satisfied: (i) the Transferor shall have deposited with the Trustee,
pursuant to an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust for making the
payments described below, Cash Equivalents which through the scheduled
payment of principal and interest in respect thereof will provide, no later
than the due date of payment thereon, a dollar amount sufficient to pay and
discharge all remaining scheduled interest and principal payments on all
outstanding Securities of the Defeased Series on the dates scheduled for
such payments and any amounts owing to any Enhancement providers with
respect to the Defeased Series; (ii) prior to any exercise of its right to
substitute Cash Equivalents for Receivables, the Transferor shall have
delivered to the Trustee a Tax Opinion with respect to such deposit and
termination of obligations and 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; (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 cause a Pay Out Event or any event that, with the
giving of notice or the lapse of time, would constitute a Pay Out Event to
occur with respect to any Series; and (iv) a Ratings Effect will not occur.
Subject to the foregoing, the Transferor may cause Collections allocated to
the Defeased Series and available to purchase additional Receivables to be
applied to purchase Cash Equivalents, rather than additional Receivables.
Final Payment of Principal; Termination
With respect to each Series, the Securities will be subject to
optional repurchase by the Transferor on any Distribution Date if on such
Distribution Date the Invested Amount of such Series would be reduced to an
amount less than or equal to 10 percent of the initial Invested Amount, if
any (or such other amount specified in the related Prospectus Supplement)
if certain conditions set forth in the Pooling and Servicing Agreement and
the related Supplement are satisfied, together with interest thereon, have
been paid. The repurchase price will be equal to the total Invested Amount
of such Series (less the amount, if any, on deposit in any Principal
Funding Account with respect to such Series), plus accrued and unpaid
interest on the Securities, 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. Each Prospectus Supplement
will specify the final date on which principal and interest with respect to
the related Series of Securities will be scheduled to be distributed (the
"Termination Date"); provided, however that the Securities may be subject
to prior termination as provided above. 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
interests in the Receivables or certain Receivables, as specified in the
Pooling and Servicing Agreement and the related Supplement, in an amount up
to 110 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.
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 May 26, 2095. 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
Unless otherwise specified in the related Prospectus Supplement, as
described above, the Revolving Period will continue through the dates
specified in the related Prospectus Supplement unless a Pay Out Event
occurs prior to such date. A "Pay Out Event" occurs with respect to all
Series issued by the Trust upon the occurrence of any of the
following events:
(i) certain events of bankruptcy or insolvency relating to
the Transferor, Direct Merchants Bank or Metris; or
(ii) the Trust shall become subject to regulation by the SEC
as an "investment company" within the meaning of the Investment
Company Act.
In addition, a Pay Out Event may occur with respect to any Series
upon the occurrence of any other event specified in the related Prospectus
Supplement. On the date on which a Pay Out Event is deemed to have
occurred, the Early Amortization Period will commence. In such event,
unless otherwise specified in the related Prospectus Supplement,
distributions of principal to the Securityholders of such Series 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,
unless otherwise specified in the related Prospectus Supplement, if
pursuant to certain provisions of federal law, the Transferor voluntarily
enters liquidation or a trustee-in-bankruptcy is appointed for the
Transferor (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" and in the related Prospectus Supplement. "Retained
Percentage" shall mean, on any Determination Date, 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 Determination
Date plus amounts on deposit in the Excess Funding Account (but not
including investment earnings on such amounts).
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
Unless otherwise specified in the related Prospectus Supplement,
for each Series of Securities, the Servicer's compensation for its
servicing activities and reimbursement for its expenses will take the form
of the payment to it of a fee (the "Monthly Servicing Fee") payable at the
times and in the amounts specified in the related Prospectus Supplement.
The Monthly Servicing Fee will be funded from collections of Finance Charge
Collections allocated to the Investor Interest and will be paid each month,
or on such other specified periodic basis, from amounts allocated for such
purpose. The remainder of the servicing fee will be allocable to the
Transferor Interest, the Investor Interests of any other Series issued by
such Trust and the interest represented by the Enhancement Invested Amount
or the Collateral Interest, if any, with respect to such Series, as
described in the related Prospectus Supplement. Neither the Trust nor the
Securityholders will have any obligation to pay the portion of the
servicing fee allocable to the Transferor Interest.
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 related Trust or the Securityholders other than federal, state and
local income and franchise taxes, if any, of the Trust.
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 and related Supplement. 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 and related Supplement, (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
and any Supplement 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 Act 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.
The Pooling and Servicing Agreement provides that, in addition to
Exchanges, the Transferor may transfer its interest in all or a portion of
the Exchangeable Transferor Security, provided that prior to any such
transfer (a) the Trustee receives written notification from each Rating
Agency that such transfer will not result in a Ratings Event and (b) the
Trustee receives an opinion of counsel that such transfer would 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.
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
For each Series of Securities, 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 Securities, (c) the amount of such distribution allocable
to interest on the Securities, (d) the amount of Principal Collections
processed during the related Monthly Period and allocated in respect of the
Securities, (e) the amount of Finance Charge Collections processed during
the preceding Monthly Period and allocated in respect of the Securities,
(f) the aggregate amount of Principal Receivables, the Invested Amount and
the Invested Amount as a 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 for each Series, (i) the aggregate amount of
Investor Charge-Offs for each Class of such Series, for the preceding
Monthly Period, (j) the amount of the Monthly Servicing Fee for the
preceding Monthly Period, and (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.
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.
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 certified 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 certified 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 related 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 Supplement or of modifying in any manner
the rights of such Securityholders, unless otherwise specified in the
related Prospectus Supplement; 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
Securities, 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 any 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 (i) in
"--Pay Out Events" above.
The Pooling and Servicing Agreement and any 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 any 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 "Income
Tax Matters--FASIT 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 not requiring Securityholder consent, the Trustee
will furnish written notice of the substance of such amendment
to each Securityholder.
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. "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.
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
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.
Enhancement
General
For any Series, "Enhancement" may be provided with respect to one
or more Classes thereof. Enhancement may be in the form of the
subordination of one or more Classes of the Securities of such Series, a
letter of credit, the establishment of a cash collateral guaranty or
account, a collateral interest, a surety bond, an insurance policy, a
spread account, a reserve account, the use of cross support features or
another method of Enhancement described in the related Prospectus
Supplement, or any combination of the foregoing. If so specified in the
related Prospectus Supplement, any form of Enhancement may be structured so
as to be drawn upon by more than one Class to the extent described therein.
The type, characteristics and amount of the Enhancement for any
Series or Class will be determined based on several factors, including the
characteristics of the Receivables and Accounts included in the Trust
Portfolio as of the Closing Date with respect to such Series and the
desired rating for each Class, and will be established on the basis of
requirements of each Rating Agency rating the Securities of such Series or
Class.
Unless otherwise specified in the related Prospectus Supplement for
a Series, the Enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of
the Securities and interest thereon. If losses occur which exceed the
amount covered by the Enhancement or which are not covered by the
Enhancement, Securityholders will bear their allocable share of
deficiencies.
If Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable
under such Enhancement, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the
amount payable under such Enhancement may be reduced and under which such
Enhancement may be terminated or replaced and (d) any material provision of
any agreement relating to such Enhancement. Additionally, the related
Prospectus Supplement may set forth information with respect to any
Enhancement provider, including (i) a brief description of its principal
business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed
to do business, (iii) if applicable, the identity of regulatory agencies
which exercise primary jurisdiction over the conduct of its business and
(iv) certain summary financial information as of the date specified in the
Prospectus Supplement. If so specified in the related Prospectus
Supplement, Enhancement with respect to a Series may be available to pay
principal of the Securities of such Series following the occurrence of
certain Pay Out Events with respect to such Series. In such event, the
Enhancement provider may have an interest in certain cash flows in respect
of the Receivables to the extent described in such Prospectus Supplement
(the "Enhancement Invested Amount").
Subordination
If so specified in the related Prospectus Supplement, one or more
Classes of any Series, including classes that are described as
Collateralized Trust Obligations will be subordinated as described in the
related Prospectus Supplement to the extent necessary to fund payments with
respect to the Senior Securities. The rights of the holders of any such
Subordinated Securities to receive distributions of principal and/or
interest on any Distribution Date for such Series will be subordinated in
right and priority to the rights of the holders of Senior Securities, but
only to the extent set forth in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, subordination may apply
only in the event of certain types of losses not covered by another
Enhancement. The related Prospectus Supplement will also set forth
information concerning the amount of subordination of a Class or Classes of
Subordinated Securities in a Series, the circumstances in which such
subordination will be applicable, the manner, if any, in which the amount
of subordination will be applicable, the manner, if any, in which the
amount of subordination will decrease over time, and the conditions under
which amounts available from payments that would otherwise be made to
holders of such Subordinated Securities will be distributed to holders of
Senior Securities. If collections of Receivables otherwise distributable to
holders of a subordinated Class of a Series will be used as support for a
Class of another Series, the related Prospectus Supplement will specify the
manner and conditions for applying such a cross- support feature.
Letter of Credit
If so specified in the related Prospectus Supplement, support for a
Series or one or more Classes thereof will be provided by one or more
letters of credit. A letter of credit may provide limited protection
against certain losses in addition to or in lieu of other Enhancement. The
issuer of the letter of credit (the "L/C Bank") will be obligated to honor
demands with respect to such letter of credit, to the extent of the amount
available thereunder, to provide funds under the circumstances and subject
to such conditions as are specified in the related Prospectus Supplement.
Cash Collateral Guaranty or Account
If so specified in the related Prospectus Supplement, support for a
Series or one or more Classes thereof will be provided by a guaranty (the
"Cash Collateral Guaranty") secured by the deposit of cash or Cash
Equivalents in an account (the "Cash Collateral Account") reserved for the
beneficiaries of the Cash Collateral Guaranty or by a Cash Collateral
Account alone. The amount available pursuant to the Cash Collateral
Guaranty or the Cash Collateral Account will be the lesser of amounts on
deposit in the Cash Collateral Account and an amount specified in the
related Prospectus Supplement. The related Prospectus Supplement will set
forth the circumstances under which payments are made to beneficiaries of
the Cash Collateral Guaranty from the Cash Collateral Account or from the
Cash Collateral Account directly.
Collateral Interest
If so specified in the related Prospectus Supplement, support for a
Series or one or more Classes thereof will be provided initially by an
undivided interest in the Trust (the "Collateral Interest") in an amount
initially equal to a percentage of the Securities of such Series as
specified in the Prospectus Supplement. Such Series may also have the
benefit of a Cash Collateral Guaranty or Cash Collateral Account with an
initial amount on deposit therein, if any, as specified in the related
Prospectus Supplement which will be increased (i) to the extent the
Transferor elects, subject to certain conditions specified in such
Prospectus Supplement, to apply Principal Collections allocable to the
Collateral Interest to decrease the Collateral Interest, (ii) to the extent
Principal Collections allocable to the Collateral Interest are required to
be deposited into the Cash Collateral Account as specified in such
Prospectus Supplement and (iii) to the extent excess collections of Finance
Charge Receivables are required to be deposited into the Cash Collateral
Account as specified in such Prospectus Supplement. The total amount of the
Enhancement available pursuant to the Collateral Interest and, if
applicable, the Cash Collateral Guaranty or Cash Collateral Account will be
the lesser of the sum of the Collateral Interest and the amount on deposit
in the Cash Collateral Account and an amount specified in the related
Prospectus Supplement. The related Prospectus Supplement will set forth the
circumstances under which payments which otherwise would be made to holders
of the Collateral Interest will be distributed to holders of Securities
and, if applicable, the circumstances under which payment will be made
under the Cash Collateral Guaranty or under the Cash Collateral Account.
Surety Bond or Insurance Policy
If so specified in the related Prospectus Supplement, insurance
with respect to a Series or one or more Classes thereof will be provided by
one or more insurance companies. Such insurance will guarantee, with
respect to one or more Classes of the related Series, distributions of
interest or principal in the manner and amount specified in the related
Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond
will be purchased for the benefit of the holders of any Series or Class of
such Series to assure distributions of interest or principal with respect
to such Series or Class of Securities in the manner and amount specified in
the related Prospectus Supplement.
Spread Account
If so specified in the related Prospectus Supplement, support for a
Series or one or more Classes thereof will be provided by the periodic
deposit of certain available excess cash flow from the Trust assets into an
account (the "Spread Account") intended to assist with subsequent
distribution of interest and principal on the Securities of such Class or
Series in the manner specified in the related Prospectus Supplement.
Reserve Account
If so specified in the related Prospectus Supplement, support for a
Series or one or more Classes thereof will be provided by the establishment
of a reserve account (the "Reserve Account"). The Reserve Account may be
funded, to the extent provided in the related Prospectus Supplement, by an
initial cash deposit, the retention of certain periodic distributions of
principal or interest or both otherwise payable to one or more Classes of
Securities, including the Subordinated Securities, or the provision of a
letter of credit, guaranty, insurance policy or other form of credit or any
combination thereof. The Reserve Account will be established to assist with
the subsequent distribution of principal or interest on the Securities of
such Series or Class in the manner provided in the related Prospectus
Supplement.
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.
Unless otherwise specified in the Prospectus Supplement relating to
a Series of Securities, 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 and related Supplement.
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."
Security Ratings
Any rating of the Securities by a Rating Agency will indicate:
o its view on the likelihood that Securityholders will receive
required interest and principal payments; and
o its evaluation of the Receivables and the availability of any
Enhancement for the Securities.
Among the things a rating will not indicate are:
o the likelihood that principal payments will be paid on a
scheduled date;
o the likelihood that a Pay Out Event will occur;
o the likelihood that a United States withholding tax will be
imposed on non-U.S. Securityholders;
o the marketability of the Securities;
o the market price of the Securities; or
o whether the Securities are an appropriate investment for any
purchaser.
A rating will not be a recommendation to buy, sell or hold the Securities.
A rating may be lowered or withdrawn at any time by a Rating Agency.
The Transferor will request a rating of the Securities offered by
this Prospectus and the Prospectus Supplement from at least one Rating
Agency. It will be a condition to the issuance of the Securities of each
Series or Class offered pursuant to this Prospectus and the related
Prospectus Supplement (including each Series that includes a Pre-Funding
Account) that they be rated in one of the four highest rating categories by
at least one nationally recognized rating organization (each such rating
agency selected by the Transferor to rate any Series, a "Rating Agency").
The rating or ratings applicable to the Securities of each Series or Class
offered hereby will be set forth in the related Prospectus Supplement.
Rating agencies other than those requested could assign a rating to the
Securities and such a rating could be lower than any rating assigned by a
Rating Agency chosen by the Transferor.
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 is
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 the
interest of the Transferor as holder of the Exchangeable Transferor
Security and any other Investor Security of any Series then held by the
Transferor, 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 Uniform Commercial Code as in effect in the State of
Delaware (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, except for
certain tax and other governmental liens, subject to the limitations
described below. For a discussion of the Trust's rights arising from a
breach of these warranties, see "Description of the
Securities--Representations and Warranties."
The Transferor has represented that the Receivables are "accounts"
or "general intangibles" or "chattel paper" for purposes of the UCC. Both
the transfer and assignment 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 is required to perfect the security interest of the Trust. If a
transfer of general intangibles is deemed to create a security interest,
the UCC applies and filing of an appropriate financing statement or
statements is also required in order to perfect the Trust's security
interest. Financing statements covering the Receivables have been and will
be filed with the appropriate governmental authority to protect the
interests of the Trust in the Receivables. If a transfer of general
intangibles is deemed to be a sale, then the UCC is not applicable and no
further action under the UCC is required to protect the Trust's interest
from third parties.
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 the 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 on any Receivable (or any
interest therein) other than to the Trust. A tax or government lien or
other nonconsensual 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. If the FDIC were appointed as
receiver of the Transferor, certain administrative expenses of the receiver
may also have priority over the interest of the Trust in such Receivable.
While the Bank is the Servicer, collections will be commingled with the
Bank's general funds and used for the Bank's benefit prior to each
Distribution Date. Accordingly, in the event of the insolvency of Direct
Merchants Bank, the Trust may not have a perfected security interest in
such collections. If the short-term deposit rating of the Bank is reduced
below A-1 or P-1 by the applicable Rating Agency, the Bank will be
obligated to cease commingling collections and commence depositing
collections into the Collection Account within two business days after the
date of processing.
Certain Matters Relating to Receivership
The Bank is chartered as a national banking association and is
subject to regulation and supervision by the Comptroller. If the Bank
becomes insolvent or is in an unsound condition or if certain other
circumstances occur, the Comptroller is authorized to appoint the FDIC as
receiver.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") sets forth certain powers that the FDIC may exercise as
receiver for the 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) the
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 Trustee would 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 Trustee to establish its right to those payments by
submitting to and completing the administrative claims procedure
established under FIRREA, or the FDIC as 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
December 18, 1998, the FDIC proposed a statement of policy regarding the
treatment of asset-backed securitization transactions in the event of
conservatorship or receivership in which the FDIC stated that a claim for
"actual direct compensatory damages" is limited to such damages determined
as of the date of appointment of the FDIC as conservator or receiver. Since
the FDIC may delay repudiation or disaffirmation for up to 180 days
following such appointment, investors may not have a claim for interest
accrued during this 180 day period. In addition, in one case involving the
repudiation by the Resolution Trust Corporation, formerly a sister agency
of the FDIC, of certain secured zero-coupon bonds issued by a savings
association, a United States Federal district court held that "actual
direct compensatory damages" in the case of a marketable security meant the
market value of the repudiated bonds as of the date of repudiation. If that
court's view were applied to determine the Trust's "actual direct
compensatory damages" in the event the FDIC repudiated the Transferor's
obligations under the Pooling and Servicing 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.
Upon the appointment of a conservator or receiver or upon a
voluntary liquidation with respect to the Transferor, Direct Merchants Bank
or Metris, the Transferor will promptly give notice thereof to the Trustee,
and a Pay Out Event will occur with respect to all Series then outstanding.
Pursuant to the Pooling and Servicing Agreement and related Supplement,
newly created Principal Receivables will not be transferred to the Trust on
and after such appointment or voluntary liquidation, and the Trustee will
proceed to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms, 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 (or if any Series has more than
one Class, of each Class, and any other person specified in a related
Supplement), or unless required by the FDIC as receiver or conservator of
the Bank. Under the Pooling and Servicing Agreement and related Supplement,
the proceeds from the sale of the Receivables would be treated as
collections of the Receivables and the Investor Percentage of such proceeds
would be distributed to the Securityholders. If the only Pay Out Event to
occur is either the insolvency of the Transferor or the appointment of a
conservator or receiver for the Transferor, such receiver or conservator
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 conservator or receiver may have
the power to cause the early sale of the Receivables and the early
retirement of the Securities or to prohibit the continued transfer of
Principal Receivables to the Trust. However, if no Servicer Default other
than the conservatorship or receivership of the Servicer exists, the
conservator or receiver for the Servicer may have the power to prevent
either the Trustee and the Securityholders from appointing a successor
Servicer. See "Description of the 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.
Consumer Protection Laws
The relationship of the cardholder and credit card issuer is
extensively regulated by federal and state consumer protection laws. With
respect to credit cards issued by 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. 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. In addition, these statutes limit customer
liability for unauthorized use, prohibit certain discriminatory practices
in extending credit, and impose certain limitations on the type of
account-related charges that may be assessed. Cardholders are entitled
under these laws to have payments and credits applied to the credit card
accounts promptly, to receive prescribed notices and to require billing
errors to be resolved promptly. A Trust may be liable for certain
violations of consumer protection laws that apply to the Receivables,
either as assignee from the Transferor with respect to obligations arising
before transfer of the Receivables to the Trust 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 his obligation to pay the amount of Receivables owing. The
Transferor has warranted and will warrant in the Pooling and Servicing
Agreement that all related Receivables have been and will be created in
compliance with the requirements of such laws. The Servicer has also agreed
in the Pooling and Servicing Agreement to indemnify the Trust, among other
things, for any liability arising from such violations caused by the
Servicer. For a discussion of the Trust's rights arising from the breach of
these warranties, see "Description of the Securities--Representations and
Warranties."
Various proposed laws and amendments to existing laws have from
time to time been introduced in Congress and certain state and local
legislatures that, if enacted, would further regulate the credit card
industry, certain of which would, among other things, impose a ceiling on
the rate at which a financial institution may assess finance charges and
fees on credit card accounts that would be substantially below the rates of
the finance charges and fees the Bank currently assesses on its accounts.
In particular, on May 5, 1999, an amendment to the Federal Truth-in-Lending
Act was passed by the House of Representatives as part of the bankruptcy
reform bill and referred to the Senate. This amendment, among other things,
requires (i) disclosure as to the time it would take the consumer to repay
a balance if the Consumer makes only the minimum payments, (ii) disclosure
as to when any introductory rate will expire, as well as the rate that will
then apply and (iii) disclosure in internet based solicitations identical
to that contained in direct mail solicitations. In addition, on May 4,
1999, President Clinton proposed similar legislation to require additional
disclosure in credit card bills and solicitations. The potential effect of
any legislation which limits the amount of finance charges and fees that
may be charged on credit cards could be to reduce the portfolio yield on
the Accounts. If such portfolio yield is reduced, a Pay Out Event may
occur, and the Early Amortization Period would commence.
Application of federal and state bankruptcy and debtor relief laws
would affect the interests of the Securityholders if such laws result in
any Receivables of the Trust being written off as uncollectible when the
amount available under any Enhancement is equal to zero. See "Description
of the Securities--Defaulted Receivables; Dilution."
Claims and Defenses of Obligors 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 Obligors on
the Accounts in connection with the transfer of the Receivables to the
Trust.
Income Tax Matters
General
Set forth below is a general discussion of the material United
States federal income tax consequences of the purchase, ownership and
disposition of the 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 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
Securities. This discussion is intended as an explanatory discussion of the
possible effects of the classification of the Securities as indebtedness on
investors generally and of related income 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 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 Securities in the initial distribution thereof, who are citizens
or residents of the United States, including domestic corporations and
partnerships, and who hold the 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.
Treatment of the Securities as Debt
The Transferor, the Servicer and each Security Owner will express
in the Pooling and Servicing Agreement and related Supplement the intent
that, for federal, state and local income and franchise tax purposes, the
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 related Supplement, and each
Security Owner, by acquiring an interest in a Security, will agree to treat
the 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 and related Supplement, 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 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 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 Securities as
debt for federal income tax purposes or otherwise makes the rationale of
those cases inapplicable to this situation.
Taxation of Interest Income of U.S. 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 the Securities will be
issued with OID. Based upon the foregoing opinions, and assuming that all
of the Securities are treated as debt, the stated interest on 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 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 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 Security 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 Securities in advance of the receipt of cash
attributable to such income.
While it is not anticipated that the Securities will be issued at a
discount from their stated principal amount that is greater than a de
minimis amount, under Treasury Regulations the 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 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
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 Securities if they are issued at a
price that is less than a de minimis discount from their stated principal
amount.
If the 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 a 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 Securities are sold to the public) will
constitute OID. A Security Owner must include OID in income as interest
over the term of the 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 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 Securities are issued with OID. Any Security issued with de
minimis OID must include such OID in income proportionately as principal
payments are made on such Security.
Discount and Premium. A subsequent holder who purchases a 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
Security, and for the deferral of interest deductions with respect to debt
incurred to acquire or carry the market discount 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 a 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 other taxable disposition.
A subsequent holder who purchases a Security at a premium may elect
to amortize and deduct this premium over the remaining term of the 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 a 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 Securityholders, and other interest income must be
reported by Securityholders that report income on the accrual method, as it
accrues, whether or not such 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 OID in excess of de minimis
OID, the amount of income reported by a Securityholder in any period could
exceed the amount of cash distributed to such holder in that period. A
Securityholder generally will realize a loss where either principal or
previously accrued interest are determined to be uncollectible with respect
to the 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.
Sale, Exchange or Retirement of Securities
Generally, capital gain or loss will be recognized on a sale or
other taxable disposition of 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 Securities. A Security Owner's tax basis in a 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 Security and decreased by any bond premium previously
amortized and any principal payments previously received by such Security
Owner with respect to the Security. Subject to the market discount rules of
the Code discussed above under "--Taxation of Interest Income of U.S.
Securityholders--Discount and Premium", any such gain or loss will be
capital gain or loss if the 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 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.)
Possible Alternative Characterizations
Although, as described above, it is the opinion of Special Tax
Counsel that the Securities will properly be characterized as indebtedness
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. If,
however, the IRS were to contend successfully that the 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 and 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 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 Securities.
Non-U.S. Securityholders
As noted above, Special Tax Counsel will render its opinion,
subject to the analysis and assumptions contained therein, that the
Securities will properly be characterized as indebtedness secured by the
Receivables for federal income tax purposes. Based upon that opinion, the
following information describes the U.S. federal income tax treatment of
investors in Securities that are Foreign Persons. 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 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 a 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 a 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 the 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
Securities were recharacterized as interests in a "publicly traded
partnership" taxable as a corporation, to the extent distributions on the
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.
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 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 are
not explained in the FASIT legislation.
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, 2000, subject to certain transition
rules. Prospective investors are urged to consult their own tax advisors
regarding the New Regulations.
State and Local Taxation
Because of the differences in state tax laws and their
applicability to different investors, it is not possible to summarize the
potential state and local tax consequences of holding the Securities.
ACCORDINGLY, PURCHASERS OF SECURITIES SHOULD CONSULT THEIR RESPECTIVE TAX
ADVISORS REGARDING THE STATE AND LOCAL TAX CONSEQUENCES OF PURCHASING ANY
CLASS OF SECURITIES.
Employee Benefit Plan Considerations
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on those employee
benefit plans to which they apply ("Plans") and on those persons who are
fiduciaries with respect to such Plans. In accordance with ERISA's general
fiduciary standards, before investing in Securities, a Plan fiduciary
should determine whether such an investment (a) is permitted under the
governing Plan instruments; (b) is appropriate for the Plan in view of its
overall investment policy and the composition and diversification of its
portfolio; and (c) is prudent considering the factors discussed in this
Prospectus.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ("parties in interest" within the
meaning of ERISA or "disqualified persons" within the meaning of the Code).
Prohibited transactions may generate excise taxes and other liabilities.
Thus, a Plan fiduciary considering an investment in the Securities should
also consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code.
For example, regardless of whether the Trust was deemed to hold
"plan assets" of Plans that are Security Owners (as discussed below), the
purchase of Securities by a Plan with respect to which the Transferor, the
Trustee, or underwriters or any of their affiliates is a "party in
interest" under ERISA or a "disqualified person" under the Code could
constitute a prohibited transaction under the Code or ERISA unless an
exemption is applicable. Accordingly, fiduciaries of a Plan with respect to
which the Transferor, the Trustee, or underwriters or any of their
affiliates is a "party in interest" or "disqualified person" should consult
their own counsel concerning the propriety of the investment prior to
making the purchase.
Certain transactions involved in the operation of the Trust might
also be deemed to constitute prohibited transactions under ERISA and the
Code, if assets of the Trust were deemed to be assets of an investing Plan.
The U.S. Department of Labor (the "DOL") has issued a regulation (the
"Regulation") concerning whether or not a Plan's assets would be deemed to
include an interest in the underlying assets of an entity (such as the
Trust) for purposes of the reporting and disclosure and fiduciary
responsibility provisions of ERISA. If assets of the Trust were deemed to
be assets of an investing Plan, any person who is a "fiduciary," as
described in the preceding paragraph, with respect to Trust assets will be
a fiduciary of the investing Plan, thus increasing the scope of activities
which could be considered prohibited transactions under ERISA and the Code.
If investments by Plans are made in the Trust, the Trust could be deemed to
hold plan assets unless one of the exceptions contained in the Regulation
is applicable to the Trust.
The Regulation contains an exception which provides that if a Plan
acquires a "publicly-offered security," the issuer of the security is not
deemed to hold plan assets solely by reason of such acquisition. A
publicly-offered security is a security that is (i) freely transferable,
(ii) part of a class of securities that is 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 the 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 SEC) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred.
Although it is anticipated that the conditions of this exception may be met
with respect to certain Classes of Securities, no assurance can be given,
and no monitoring or other measures will be taken to ensure that the
exception will be met with respect to any such Class.
The Regulation also states that an entity's assets will not be
deemed to be plan assets if equity participation in the entity by "benefit
plan investors" (e.g., employee welfare benefit plans and employee pension
benefit plans defined pursuant to Section 3(3) of ERISA, trusts described
in Section 401(a) of the Code or a plan described in Section 403(a) of the
Code, which trust or plan is exempt from tax under Section 501(a) of the
Code, an individual retirement account or annuity under Section 408 of the
Code and any entity whose underlying assets include plan assets by reason
of a plan's investment in the entity) is not "significant." Equity
participation in an entity by benefit plan investors is not significant on
any date if, immediately after the most recent acquisition of any equity
interests in the entity, less than 25% of the value of each class of equity
interests in the entity (excluding the value of any equity interests held
by the Transferor, the Trustee, or underwriters or any of their affiliates)
is held by benefit plan investors. No assurance can be given as to whether
the value of any class of equity interests in the Trust held by benefit
plan investors will be less than 25%, or whether the value will remain
below 25%.
If interests in the Securities of a Series fail to meet the
criteria of publicly-offered securities or investment by benefit plan
investors becomes significant and the Trust's assets are deemed to include
assets of Benefit Plans that are Securityholders, transactions involving
the Trust and "parties in interest" or "disqualified persons" with respect
to such plans might be prohibited under Section 406 of ERISA and Section
4975 of the Code. In addition, the Transferor or any underwriter of such
Series may be considered to be a party in interest, disqualified person or
fiduciary with respect to an investing Benefit Plan. Accordingly, an
investment by a Benefit Plan in Securities may be a prohibited transaction
under ERISA and the Code. Thus, for example, if a participant in any
Benefit Plan is a cardholder of one of the Accounts, under DOL
interpretations the purchase of interests in Securities by such plan could
constitute a prohibited transaction. Such transactions may, however, be
subject to statutory or administrative exemptions from the penalties
normally associated with prohibited transactions. Five class exemptions
issued by DOL that could apply in such event are DOL Prohibited Transaction
Exemption ("PTE") 84-14 (Class Exemption for Plan Asset Transactions
Determined by Independent Qualified Professional Asset Managers), 91-38
(Class Exemption for Certain Transactions Involving Bank Collective
Investment Funds), 90-1 (Class Exemption for Certain Transactions Involving
Insurance Company Pooled Separate Accounts), 95-60 (Class Exemption for
Certain Transactions Involving Insurance Company General Accounts) and
96-23 (Class Exemption for Plan Asset Transactions Determined by In-House
Asset Managers). There is no assurance that these exemptions, even if all
of the conditions specified therein are satisfied, or any other exemption
will apply to all transactions involving the Trust's assets.
IN LIGHT OF THE FOREGOING, FIDUCIARIES OF A BENEFIT PLAN
CONSIDERING THE PURCHASE OF INTERESTS IN SECURITIES OF ANY SERIES SHOULD
CONSULT THEIR OWN COUNSEL AS TO WHETHER THE ASSETS OF THE TRUST WHICH ARE
REPRESENTED BY SUCH INTERESTS WOULD BE CONSIDERED PLAN ASSETS, AND WHETHER,
UNDER THE GENERAL FIDUCIARY STANDARDS OF INVESTMENT PRUDENCE AND
DIVERSIFICATION, AN INVESTMENT IN SECURITIES OF ANY SERIES IS APPROPRIATE
FOR THE BENEFIT PLAN TAKING INTO ACCOUNT THE OVERALL INVESTMENT POLICY OF
THE BENEFIT PLAN AND THE COMPOSITION OF THE BENEFIT PLAN'S INVESTMENT
PORTFOLIO. In addition, fiduciaries should consider the consequences that
would apply if the Trust's assets were considered plan assets, the
applicability of exemptive relief from the prohibited transaction rules and
whether all conditions for such exemptive relief would be satisfied.
In particular, insurance companies considering the purchase of
Securities of any Series should consult their own employee benefits counsel
or other appropriate counsel with respect to the United States Supreme
Court's decision in John Hancock Mutual Life Insurance Co. v. Harris Trust
& Savings Bank, 114 S. Ct. 517 (1993) ("John Hancock"). In John Hancock,
the Supreme Court held that assets held in an insurance company's general
account may be deemed to be "plan assets" of plans that were issued
policies supported by such general account under certain circumstances;
however, the Small Business Job Protection Act of 1996 added a 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. Section 401(c)
provides that assets underlying general account policies issued before
December 31, 1998 will not be considered "plan assets" to the extent
criteria set forth in DOL regulations are satisfied. Section 401(c) also
requires the DOL to issue regulations establishing such criteria. On
December 22, 1997, the DOL published proposed regulations (the "General
Account Regulations") for this purpose. The General Account Regulations
provide that when a plan acquires a transition policy issued by an
insurance company on or before December 31, 1998, which is supported by
assets of the insurance company's general account, the plan's assets will
include the policy but not the underlying assets of the general account to
the extent the requirements set forth in the General Account Regulations
are satisfied. The General Account Regulations also require an independent
fiduciary who has the authority to manage the plan's assets to expressly
authorize the acquisition of such a transition policy. If adopted as
proposed, the General Account Regulations would not apply to any general
account policies issued after December 31, 1998. Accordingly, investors
should analyze whether John Hancock, Section 401(c) and the General Account
Regulations may have an impact with respect to their purchase of the
Securities of any Series.
Plan of Distribution
The Transferor may sell Securities (a) through underwriters or
dealers, (b) directly to one or more purchasers, or (c) through agents. The
related Prospectus Supplement will set forth the terms of the offering of
any Securities offered hereby, including, without limitation, the names of
any underwriters, the purchase price of such Securities and the proceeds to
the Transferor from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price
and any discounts or concessions allowed or reallowed or paid to dealers.
If underwriters are used in a sale of any Securities of a Series
offered hereby, such Securities will be acquired by the underwriters for
their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices to be determined at the time of sale or at the
time of commitment therefor. Such Securities may be offered to the public
either through underwriting syndicates represented by managing underwriters
or by underwriters without a syndicate. Unless otherwise set forth in the
related Prospectus Supplement, the obligations of the underwriters to
purchase such Securities will be subject to certain conditions precedent,
and the underwriters will be obligated to purchase all of such Securities
if any of such Securities are purchased. Any initial public offering price
and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
Securities may also be sold directly by the Transferor or through
agents designated by the Transferor from time to time. Any agent involved
in the offer or sale of Securities will be named, and any commissions
payable by the Transferor to such agent will be set forth, in the related
Prospectus Supplement. Unless otherwise indicated in the related Prospectus
Supplement, any such agent will act on a best efforts basis for the period
of its appointment.
Any underwriters, agents or dealers participating in the
distribution of Securities may be deemed to be underwriters, and any
discounts or commissions received by them on the sale or resale of
Securities may be deemed to be underwriting discounts and commissions,
under the Securities Act. Agents and underwriters may be entitled under
agreements entered into with the Transferor to indemnification by the
Transferor against certain civil liabilities, including liabilities under
the Securities Act, or to contribution with respect to payments that the
agents or underwriters may be required to make in respect thereof. Agents
and underwriters may be affiliates or customers of, engage in transactions
with, or perform services for, the Transferor or its affiliates in the
ordinary course of business.
Each underwriting agreement will provide that the Transferor will
indemnify the related underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
Legal Matters
Certain legal matters relating to the 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 issuance of the Securities will be passed upon for the
underwriters by Orrick, Herrington & Sutcliffe, Washington, D.C.
Reports to Securityholders
Unless and until Definitive Securities are issued, monthly and
annual reports, containing information concerning the Trust and prepared by
the Servicer, will be sent on behalf of the Trust to Cede & Co. as nominee
of DTC and registered holder of the related Securities, pursuant to the
Pooling and Servicing Agreement. See "Description of the
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. The Servicer does not intend to send any financial reports of
Metris Receivables, Inc. or Direct Merchants Bank to Securityholders or to
the Security Owners. The Servicer will file with the SEC such periodic
reports with respect to each Trust as are required under the Exchange Act
and the rules and regulations of the SEC thereunder.
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
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" in the attached Prospectus
Supplement.
Where Can You Find More Information
We filed a registration statement relating to the Securities with
the SEC. This Prospectus is part of the registration statement, but the
registration statement includes additional information.
The Servicer will file with the SEC all required annual, monthly
and special SEC reports and other information about each Trust.
You may read and copy any reports, statements or other information
we file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents, upon
payment of a duplicating fee, by writing to the SEC. Please call the SEC at
(800) SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings are also available to the public on the
SEC Internet site (http://www.sec.gov).
The SEC allows us to "incorporate by reference" information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference
is considered to be part of this Prospectus. Information that we file later
with the SEC will automatically update the information in this Prospectus.
In all cases, you should rely on the later information over different
information included in this Prospectus or the Prospectus Supplement. We
incorporate by reference any future annual, monthly and special SEC reports
and proxy materials filed by or on behalf of the Trust until we terminate
our offering of the Securities.
As a recipient of this Prospectus, you may request a copy of any
document we incorporate by reference, except exhibits to the documents
(unless the exhibits are specifically incorporated by reference), at no
cost, by writing or calling us at: Metris Receivables, Inc., 600 South
Highway 169, Suite 300, St. Louis Park, Minnesota 55426, (612) 417-5645.
Index of Terms for the Prospectus
Term Page
- ---- ----
Accounts.................................................................2
Additional Accounts.....................................................26
Approved Account........................................................25
Accumulation Period.....................................................19
Adaptive Control System..................................................4
Addition Date...........................................................27
Adjustment Payment......................................................33
Amendment Closing Date..................................................27
Amortization Period......................................................9
Assignment..............................................................27
Automatic Additional Accounts...........................................26
Bank.....................................................................2
Bank Purchase Agreement..................................................8
Cash Collateral Account.................................................41
Cash Collateral Guaranty................................................41
Cash Equivalents........................................................29
Cedelbank...............................................................16
Cedelbank Customers.....................................................16
Change of Control.......................................................10
Class...................................................................13
Code....................................................................50
Collateral Interest.....................................................42
Collection Account......................................................28
Collections..............................................................8
Comptroller..............................................................6
Contract................................................................26
Controlled Accumulation Amount..........................................20
Controlled Amortization Amount..........................................19
Controlled Amortization Period..........................................19
Controlled Deposit Amount...............................................20
Controlled Distribution Amount..........................................19
Cooperative.............................................................16
Credit and Collection Policy............................................28
Credit Card Originator..................................................25
Default Recognition Date................................................33
Default Recognition Percentage..........................................33
Defaulted Account.......................................................33
Defaulted Receivable....................................................33
Defeased Series.........................................................33
Definitive Securities...................................................17
Depositaries............................................................14
Depository..............................................................14
Determination Date......................................................23
Dilution................................................................33
Direct Merchants Bank Portfolio..........................................2
Discount Option Receivables.............................................20
Discount Percentage.....................................................20
Distribution Account....................................................28
Distribution Date.......................................................18
DOL.....................................................................55
DTC..................................................................A-1-1
DTC Participants........................................................14
Early Amortization Period...............................................20
Eligible Account........................................................25
Eligible Receivable.....................................................25
Enhancement.............................................................40
Enhancement Invested Amount.............................................41
Enhancement Percentage..................................................30
ERISA...................................................................55
Euroclear...............................................................16
Euroclear Operator......................................................16
Euroclear Participants..................................................16
Euroclear System........................................................16
Excess Finance Charge Collections.......................................31
Excess Funding Account..............................................28, 31
Exchange................................................................22
Exchange Act............................................................14
Exchangeable Transferor Security.....................................2, 13
Excluded Accounts.......................................................26
Expected Final Payment Date..............................................8
External Prospects......................................................10
FASIT...................................................................54
FASIT Provisions........................................................54
FCI.....................................................................10
FDIC....................................................................28
FDR......................................................................2
FICO scores..............................................................3
Finance Charge Collections...............................................2
Finance Charge Receivables...............................................8
Fingerhut................................................................3
Fingerhut Customers.....................................................10
Fingerhut Database......................................................11
Fingerhut Scores........................................................11
FIRREA..................................................................47
Foreign Person..........................................................53
Full Invested Amount....................................................32
Funding Period..........................................................32
General Account Regulations.............................................56
Global Securities....................................................A-1-1
Indirect Participants...................................................14
Initial Closing Date....................................................21
Insolvency Event........................................................35
Interest Funding Account............................................18, 28
Invested Amount.........................................................13
Investment Company Act..................................................24
Investor Charge-Off.....................................................33
Investor Interest.......................................................13
Investor Percentage.....................................................30
Investor Securities.....................................................21
IRS.....................................................................50
John Hancock............................................................56
L/C Bank................................................................41
Lee Company.............................................................10
MasterCard International.................................................3
Metris..................................................................10
Metris Direct...........................................................10
MGT/EOC.................................................................16
Minimum Aggregate Principal Receivables.................................26
Minimum Transferor Interest.............................................26
Minimum Transferor Percentage...........................................26
Monthly Period .........................................................18
Monthly Servicing Fee...................................................35
Moody's.................................................................28
New Regulations.........................................................54
Notice Date.............................................................27
Obligors.................................................................8
OID.....................................................................51
OID Regulations.........................................................51
Paired Series...........................................................32
Participants............................................................14
Pay Out Event...........................................................34
Paying Agent............................................................29
Payment Date.............................................................5
Periodic Finance Charges.................................................5
Permitted Lien..........................................................23
Plans...................................................................55
Pooling and Servicing Agreement..........................................2
Pre-Funding Account.....................................................32
Pre-Funding Amount......................................................32
Prepayable Instrument...................................................52
Principal Account.......................................................28
Principal Amortization Period...........................................19
Principal Collections....................................................2
Principal Funding Account...............................................18
Principal Receivables....................................................8
Principal Shortfall.....................................................31
Principal Terms.........................................................22
Proprietary Modeling System..............................................3
Proprietary Score........................................................3
Prospectus Supplement....................................................2
PTE.....................................................................56
Purchase Agreement......................................................21
Purchase Agreements..................................................8, 21
Purchase Termination Date...............................................45
Qualified Institution...................................................28
Rating Agency...........................................................46
Ratings Event...........................................................27
Receivables..............................................................2
Record Date.............................................................14
Recoveries...............................................................6
Regulation..............................................................55
Related Person..........................................................40
Relevant UCC State......................................................26
Reserve Account.........................................................42
Restart Date............................................................26
Retained Interest.......................................................23
Retained Percentage.....................................................35
Revolving Period........................................................19
SEC.....................................................................14
Securities...............................................................2
Securities Act..........................................................22
Security Owner..........................................................14
Security Rate...........................................................18
Securityholders.........................................................17
Series...................................................................2
Series C Preferred......................................................10
Series Default Amount...................................................33
Service Transfer........................................................37
Servicer.................................................................2
Servicer Default........................................................37
Shared Principal Collections............................................19
SIPC....................................................................29
Special Tax Counsel.....................................................50
Spin Off................................................................10
Spread Account..........................................................42
Standard & Poor's.......................................................28
Supplement..............................................................13
Supplemental Accounts...................................................26
Supplemental Security...................................................23
Suppress File...........................................................11
Tax Certificate......................................................A-1-3
Tax Opinion.............................................................23
Termination Date........................................................34
Terms and Conditions....................................................17
Transfer Agent and Registrar............................................18
Transfer Date.......................................................19, 30
Transferor...........................................................2, 11
Transferor Amount.......................................................13
Transferor Interest.....................................................13
Treasury Regulations....................................................50
Trigger Event...........................................................35
Trust....................................................................2
Trust Accounts..........................................................28
Trustee..................................................................2
U.S. Person..........................................................A-1-3
UCC.....................................................................46
Utah Bank...............................................................11
Variable Funding Securities.............................................13
Variable Funding Supplement.............................................13
VISA.....................................................................3
Waiver Agreement........................................................10
ANNEX I
Global Clearance, Settlement and
Tax Documentation Procedures
Except in certain limited circumstances, the globally offered
Metris Master Trust Asset Backed Trust Securities (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"), Cedelbank 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 Cedelbank 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 Cedelbank or Euroclear and
DTC Participants holding Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of
Cedelbank 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,
Cedelbank 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
Cedelbank 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 Cedelbank Customers and/or Euroclear Participants.
Secondary market trading between Cedelbank Customers or Euroclear
Participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC seller and Cedelbank customer or Euroclear
participant. When Global Securities are to be transferred from the account
of a DTC Participant to the accounts of a Cedelbank Customer or a Euroclear
Participant, the purchaser will send instructions to Cedelbank or Euroclear
through a Cedelbank Customers or Euroclear Participant at least one
business day prior to settlement. Cedelbank 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 Cedelbank Customer'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 Cedelbank or Euroclear cash debit will be valued instead as of
the actual settlement date.
Cedelbank Customers 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
Cedelbank or Euroclear. Under this approach, they may take on credit
exposure to Cedelbank or Euroclear until the Global Securities are credited
to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of
credit to them, Cedelbank Customers 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, Cedelbank Customers 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 Cedelbank Customer'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 Cedelbank
Customers 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 Cedelbank or Euroclear seller and DTC purchaser.
Due to time zone differences in their favor, Cedelbank Customer 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 Cedelbank or Euroclear
through a Cedelbank Customer or Euroclear Participant at least one business
day prior to settlement. In these cases, Cedelbank 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 Cedelbank Customer or Euroclear Participant the
following day, and receipt of the cash proceeds in the Cedelbank Customer'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 Cedelbank Customer 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 Cedelbank
Customer's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Cedelbank or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Cedelbank
Customers 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 Cedelbank or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Cedelbank 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
Cedelbank 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 Cedelbank Customers or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Cedelbank 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
Banque Generale du Luxembourg S.A.
50, Avenue J.F. Kennedy
L-2951 Luxembourg
LISTING AGENT
Banque Generale du Luxembourg S.A.
50, Avenue J.F. Kennedy
L-2951 Luxembourg
LEGAL ADVISOR TO THE TRANSFEROR
as to United States Law
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
LEGAL ADVISOR TO THE UNDERWRITERS
as to United States Law
Orrick, Herrington & Sutcliffe
3050 K Street N.W.
Suite 200
Washington, D.C. 20007
INDEPENDENT ACCOUNTANTS TO THE TRANSFEROR
KPMG Peat Marwick LLP
4200 Norwest Center
90 South 7th Street
Minneapolis, Minnesota 55402-3900
PART II
Item 14. Other Expenses of Issuance and Distribution
Registration Fee................................................$1,251,000
Printing and Engraving.............................................720,000
Trustee's Fees......................................................50,000
Legal Fees and Expenses..........................................1,900,000
Blue Sky Fees and Expenses..........................................90,000
Accountants' Fees and Expenses.....................................180,000
Rating Agency Fees...............................................2,355,000
Miscellaneous Fees..................................................23,000
Total.................................................$ 6,569,000
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 (incorporated herein by reference to Registration
Statement No. 333-61343).
4(b) --Form of Series 1999- Supplement.
4(c) --Amended and Restated Bank Receivables Purchase Agreement
dated as of July 30, 1998 between Direct Merchants Bank and
Metris (incorporated herein by reference to Registration
Statement No. 333-61343).
4(d) --Amended and Restated Receivables Purchase Agreement dated as
of July 30, 1988 between Metris and the Transferor
(incorporated herein by reference to Registration Statement No.
333-61343).
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 income 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).
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 Amendment No. 1 to the 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 May , 1999.
METRIS RECEIVABLES, INC.
By: /s/ Paul T. Runice
-----------------------------
Paul T. Runice
Senior Vice President and
Treasurer
METRIS MASTER TRUST
(Co-Registrant)
By: METRIS RECEIVABLES, INC.
(Originator of the Trust)
By: /s/ Paul T. Runice
----------------------------
Paul T. Runice
Senior Vice President and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to the Registration Statement has been signed
by the following persons in the capacities indicated on May , 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C> <C>
_________________________* President (Principal Executive Officer)
David D. Wesselink
/s/ Paul T. Runice Senior Vice President and (Principal Financial Officer)
Paul T. Runice Treasurer
_________________________* Vice President and (Principal Accounting Officer)
Jean C. Benson Controller
_________________________* Director
David D. Wesselink
_________________________* Director
Jean C. Benson
_________________________* Director
Jeffrey Grosklags
_________________________* Director
James B. O'Neill
_________________________* Director
Ruth K. Lavelle
*By: /s/ Paul T. Runice
-------------------
Paul T. Runice
Attorney-in-fact
</TABLE>
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. 333-61343).
4(b) --Form of Series 1999- Supplement.
4(c) --Amended and Restated Bank Receivables Purchase Agreement
dated as of July 30, 1998 between Direct Merchants Bank and
Metris (incorporated herein by reference to Registration
Statement No. 333-61343).
4(d) --Amended and Restated Receivables Purchase Agreement dated
as of July 30, 1998 between Metris and the Transferor
(incorporated herein by reference to Registration
Statement No. 333-61343).
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 income 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).
EXHIBIT 1
$[ ]
Floating Rate Asset Backed Securities
Series 1999- , Class A
$[ ]
Floating Rate Asset Backed Securities
Series 1999- , Class B
METRIS MASTER TRUST
UNDERWRITING AGREEMENT
----------------------
Dated __________, 1999
[ ]
as Representative of the
several Underwriters
New York, New York 10___
Ladies and Gentlemen:
Section 1. Introductory. Metris Receivables, Inc. (the
"Transferor") , a Delaware corporation, and a wholly owned subsidiary of
Metris Companies Inc. ("Metris") , proposes to sell $[ ] Floating Rate
Asset Backed Securities, Series 1999- , Class A (the "Class A Securities")
and $[ ] Floating Rate Asset Backed Securities, Series 1999- , Class B (the
"Class B Securities" and together with the Class A Securities, the "Offered
Securities") of the Metris Master Trust (the "Trust"). Each Offered
Security will represent a fractional undivided interest in the Trust. The
assets of the Trust will include, among other things, a pool of receivables
(the "Receivables") arising under certain MasterCard, VISA or other
revolving consumer credit accounts (the "Accounts") transferred and sold by
Direct Merchants Credit Card Bank, National Association ("Direct Merchants
Bank" or, in its capacity as servicer under the P&S (as hereinafter
defined) , the "Servicer") to Metris pursuant to an Amended and Restated
Bank Receivables Purchase Agreement dated as of July 30, 1998 between
Metris and Direct Merchants Bank (as supplemented and amended from time to
time, the "Bank Purchase Agreement"), then subsequently sold by Metris to
the Transferor pursuant to an Amended and Restated Purchase Agreement dated
as of July 30, 1998 between Metris and the Transferor (as supplemented and
amended from time to time, the "Purchase Agreement") and then transferred
by the Transferor to the Trust pursuant to an Amended and Restated Pooling
and Servicing Agreement dated as of July 30, 1998 (as supplemented and
amended from time to time, the "P&S") among the Transferor, the Servicer
and The Bank of New York (Delaware), as trustee, (the "Trustee"). The
Offered Securities will be issued pursuant to the P&S and the Series 1999-
Supplement to the P&S (the "Supplement") to be dated the Closing Date (as
defined herein), among the Transferor, the Servicer and the Trustee. The
P&S and the Supplement are collectively referred to as the "Pooling and
Servicing Agreement". Certain distributions with respect to the Offered
Securities will be enhanced by [Credit Enhancement] which, together with
the Offered Securities, are referred to herein as the "Investor
Securities." The Bank Purchase Agreement, the Purchase Agreement and the
Pooling and Servicing Agreement are collectively referred to as the
"Designated Agreements".
The Transferor has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
333- 76047), including the related prospectus, for the registration under
the Securities Act of 1933, as amended (the "Act"), of the Offered
Securities, in the form heretofore delivered to the Underwriters. The
registration statement (including the prospectus constituting a part
thereof, all documents incorporated by reference therein and the
information, if any, deemed to be part thereof pursuant to Rule 430(b) of
the rules and regulations of the Commission under the Act (the "1933 Act
Regulations")) in the form in which it becomes effective under the Act (the
date on which it becomes effective being the "Effective Date"), including
the exhibits thereto, is referred to herein as the "Registration
Statement", and the prospectus dated _____, 1999 in the form in which it is
filed with the Commission (including all documents incorporated by
reference therein and the information, if any, deemed to be part thereof
pursuant to Rule 430A(b) of the 1933 Act Regulations) is referred to herein
as the "Prospectus", except that if any revised prospectus shall be
provided to you by the Transferor for use in connection with the offering
of the Offered Securities which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective
(whether or not such revised prospectus is required to be filed by the
Transferor pursuant to Rule 424(b) of the rules and regulations of the
Commission under the Act (the "1933 Act Regulation"), the term "Prospectus"
shall refer to such revised prospectus from and after the time it is first
provided to you for such use.
Capitalized terms used herein and not otherwise defined shall
have the meanings given them in the Pooling and Servicing Agreement.
Section 2. Representations, Warranties and Covenants of the
Transferor and Metris. Each of the Transferor and Metris, as applicable
(the representations and warranties as to Direct Merchants Bank being given
by Metris), represents and warrants to, and agrees with, [ ] ("[ ]")
and any other Underwriters named in Schedule A hereto (collectively, the
"Underwriters", which term shall also include any underwriter substituted
as hereinafter provided in Section 10 hereof), for whom [ ] is acting as
representative (in such capacity, [ ] shall hereinafter be referred to as
the "Representative"), as of the date hereof that:
(i) On the date hereof and the Effective Date, the
Registration Statement did and will comply, in all material
respects, with the requirements of the Act and the 1933 Act
Regulations, and did not and will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, at the
Effective Date (unless the term "Prospectus" refers to a
prospectus which has been provided to you by the Transferor
which differs from the Prospectus on file at the Commission at
the time the Registration Statement becomes effective, in which
case at the time it is first provided to you for such use) and
at the Closing Date, will not include an untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
provided, however, that these representations and warranties
shall not apply to any statement or omission made in reliance
upon and in conformity with information furnished in writing to
the Transferor by any Underwriter through the Representative
expressly for use in the Registration Statement or the
Prospectus.
(ii) Metris is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware, and
is duly qualified to transact business and is in good standing
in any state in which the conduct of its business requires such
qualification, except where the failure to so qualify does not
have a material adverse effect on the financial condition or
business of Metris, and Metris has the corporate power to own
and conduct its business as it is currently conducted.
(iii) The Transferor is a corporation duly incorporated,
validly existing and in good standing under the laws of
Delaware, and is duly qualified to transact business and is in
good standing in any state in which the conduct of its business
requires such qualification, except where the failure to so
qualify does not have a material adverse effect on the
financial condition or business of the Transferor, and the
Transferor has the corporate power to own and conduct its
business as it is currently conducted.
(iv) Direct Merchants Bank is a national banking
association formed under the laws of the United States of
America and is authorized to conduct the business of a special
purpose credit card bank, as described in the Prospectus, and
had at all relevant times and now has the power, authority and
legal right to acquire, own and service the Accounts and the
Receivables.
(v) Each of the Transferor, Metris and Direct Merchants
Bank had or has the requisite power to execute and deliver each
Designated Agreement to which it is a party and, in the case of
the Transferor and Metris, this Agreement and to perform their
respective obligations thereunder and hereunder.
(vi) Each of the Designated Agreements to which it is a
party, has been duly authorized and, as of the Closing Date,
will be duly executed and delivered by the Transferor, Metris
and Direct Merchants Bank, as applicable, and each of the
Designated Agreements to which it is a party shall, as of the
Closing Date, constitute the valid, legal and binding
obligation of the Transferor, Metris and Direct Merchants Bank,
as applicable, enforceable against the Transferor, Metris and
Direct Merchants Bank, as applicable, 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).
(vii) This Agreement has been duly authorized, executed
and delivered by the Transferor and Metris.
(viii) As of the Closing Date referred to below, the
Investor Securities will be duly and validly authorized, and,
when duly and validly executed by the Transferor and
authenticated by the Trustee and delivered to the Transferor in
accordance with the Pooling and Servicing Agreement, and
following delivery to and payment therefor by the Underwriters
as provided herein, will be validly issued and outstanding and
entitled to the benefits of the Pooling and Servicing
Agreement.
(ix) The execution and delivery of any Designated
Agreement or of this Agreement and the performance of the
transactions contemplated thereby and hereby do not (i)
contravene the Transferor's, Metris' or Direct Merchants Bank's
charter or by-laws, (ii) violate any material provision of law
applicable to the Transferor, Metris or Direct Merchants Bank
or require any filing (except for filings under the UCC) or
registration under, any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently
in effect having applicability to the Transferor, Metris or
Direct Merchants Bank, except for such filings or registrations
as have already been made and are in full force and effect. The
execution and delivery of any Designated Agreement or of this
Agreement and the execution and delivery to the Trustee of the
Investor Securities, the performance of the transactions
contemplated by this Agreement or any Designated Agreement and
the fulfillment of the terms hereof or thereof will not violate
any Requirement of Law applicable to the Transferor, Metris or
Direct Merchants Bank, 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 material indenture, contract, agreement, mortgage,
deed of trust or other instrument to which the Transferor,
Metris or Direct Merchants Bank, is a party or by which it is
bound.
(x) There are no proceedings or investigations pending
or, to the best knowledge of the Transferor, Metris or Direct
Merchants Bank, threatened against the Transferor, Metris or
Direct Merchants Bank, before any Governmental Authority (i)
asserting the invalidity of any Designated Agreement or of this
Agreement, (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 Transferor, Metris or Direct
Merchants Bank 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.
(xi) All approvals, authorizations, consents, orders or
other actions of any Governmental Authority required in
connection with the execution and delivery of any Designated
Agreement or of this Agreement and the Investor Securities, the
performance of the transactions contemplated by any Designated
Agreement and by this Agreement and the fulfillment of the
terms hereof, have been obtained.
(xii) Each of the Transferor, Metris and Direct Merchants
Bank possesses all material licenses, certificates, authorities
or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business
now conducted by it and as described in the Prospectus, except
to the extent that the failure to have such licenses,
certificates, authorities or permits does not have a material
adverse effect on the Receivables, the Investor Securities or
the financial condition of the Transferor, Metris or Direct
Merchants Bank, and neither the Transferor, Metris nor Direct
Merchants Bank has received any notice of proceedings relating
to the revocation or modification of any such license,
certificate, authority or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the Receivables
or the conduct of its business, operations or financial
condition.
(xiii) On the Closing Date the Trust will have good and
marketable title to, or a perfected first priority security
interest in, the Receivables, free of Liens other than any Lien
permitted under the Pooling and Servicing Agreement.
(xiv) The businesses of each of the Transferor, Metris
and Direct Merchants Bank conform, in all material respects, to
the descriptions thereof contained in the Prospectus.
Section 3. Purchase, Sale and Delivery of Offered Securities.
(a) On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Transferor agrees to sell to each Underwriter, severally and not jointly,
and each Underwriter, severally and not jointly, agrees to purchase from
the Transferor, on [ ], 1999, or on such other date as shall be mutually
agreed upon by the Transferor and the Representative (the "Closing Date") ,
the principal amount, if any, of the Class A Securities and Class B
Securities set forth in Schedule A opposite the name of such Underwriter.
The Class A Securities shall be purchased at a purchase price equal to [ .
%] of the principal amount thereof, and the Class B Securities shall be
purchased at a price equal to [ . %] of the principal amount thereof.
(b) Against payment of the purchase price in same day
funds drawn to the order of the Transferor, the Transferor will
deliver the Offered Securities to the Underwriters at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, at 10:00 a.m. New York City
time, on the Closing Date. The Offered Securities to be so delivered
will be initially represented by one or more Offered Securities
registered in the name of Cede & Co., the nominee of The Depository
Trust Company ("DTC"). The interests of beneficial owners of the
Offered Securities will be represented by book entries on the records
of DTC and participating members thereof.
Section 4. Public Offering of the Offered Securities. It is
understood by the parties hereto that, after the Registration Statement
becomes effective, the Underwriters propose to offer the Offered Securities
for sale to the public (which may include selected dealers), as set forth
in the Prospectus.
Section 5. Covenants of the Transferor. The Transferor
covenants and agrees with each Underwriter:
(a) If required, to file the Prospectus with the
Commission pursuant to and in accordance with Rule 424(b) not later
than the time specified therein. The Transferor will advise the
Underwriters promptly of any such filing pursuant to Rule 424(b).
(b) To file no amendment to the Registration Statement
and to make no amendment or any supplement to the Prospectus as
amended or supplemented, or, during such period as a Prospectus is
required by law to be delivered in connection with sales of Offered
Securities by any Underwriter or a dealer, to file no document which,
upon filing becomes incorporated by reference in the Registration
Statement other than monthly Form 8-Ks containing the
Securityholders' statement or information regarding the addition of
Accounts as contemplated in the Prospectus, without furnishing the
Representative with a copy of the proposed form thereof and providing
the Representative with a reasonable opportunity to review the same
and not to file any such amendment or supplement to which the
Representative shall reasonably object; and to advise the
Representative, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus as amended
or supplemented or any amended Prospectus has been filed or mailed
for filing, of the issuance of any stop order by the Commission, of
the suspension of the qualification of the Offered Securities for
offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request
by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus as amended or supplemented
or for additional information; and, in the event of the issuance of
any such stop order or of any order preventing or suspending the use
of any prospectus relating to the Offered Securities or suspending
any such qualification, promptly to use its best efforts to obtain
its withdrawal.
(c) From time to time to take such action as the
Representative may reasonably request in order to qualify the Offered
Securities for offering and sale under the securities laws of such
states as the Representative may request and to continue such
qualifications in effect so long as necessary under such laws for the
distribution of such Offered Securities; provided, that in connection
therewith neither the Transferor nor Metris shall be required to
qualify as a foreign corporation or partnership, respectively, to do
business, or to file a general consent to service of process in any
jurisdiction.
(d) To furnish the Representative with copies of the
Registration Statement (including exhibits) and copies of the
Prospectus as amended or supplemented in such quantities as the
Representative may from time to time reasonably request; and if the
delivery of a prospectus shall be at the time required by law in
connection with sales of any Offered Securities, either (i) any event
shall have occurred as a result of which the Prospectus would include
any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or
(ii) for any other reason it shall be necessary during such same
period to amend or supplement the Prospectus as amended or
supplemented, to notify the Representative and to prepare and furnish
to the Representative as the Representative may from time to time
reasonably request an amendment or a supplement to the Prospectus
which will correct such statement or omission or effect such
compliance.
(e) To make generally available to Securityholders an
earnings statement of the Trust complying with Rule 158 under the Act
and covering a period of at least twelve consecutive months beginning
after the Effective Date of the Registration Statement (as such date
is defined in Rule 158 (c) under the Act) as soon as practicable
after such period.
(f) To furnish to the Representative a copy of the
Registration Statement (which will be signed and will include all
exhibits) , each related preliminary prospectus, the Prospectus and
all amendments and supplements to such documents, in each case as
soon as available and in such quantities as such Underwriter
reasonably requests for the purposes contemplated by the Act or the
1933 Act Regulations.
(g) To pay all expenses incident to the performance of
the obligations under this Agreement, including:
(i) the word processing, printing and filing of the
Registration Statement as originally filed and of each
amendment thereto;
(ii) the reproduction of this Agreement;
(iii) the preparation, printing, issuance and delivery of
the Offered Securities to the Underwriters;
(iv) the reasonable fees and disbursements of counsel and
accountants for the Transferor;
(v) the qualification of the Offered Securities under
state securities laws in accordance with the provisions of
Section 5(c) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of
the Blue Sky Survey;
(vi) the printing and delivery to the Underwriters of
copies of the Registration Statement as originally filed and of
each amendment thereto, of the preliminary prospectuses, and of
the Prospectus and any amendments or supplements thereto;
(vii) the reproduction and delivery to the Underwriters
of copies of the Blue Sky Survey;
(viii) the fees of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Services, a division
of the McGraw Hill Companies, Inc. ("S&P") and any other Rating
Agencies rating the Offered Securities for rating the Offered
Securities; and
(ix) the fees and expenses of the Trustee and its
counsel.
It is understood, however, that except as provided in this Section, and
Sections 7 and 8 hereof or as provided in the next succeeding sentence,
each Underwriter will pay all of its own costs and expenses, including the
fees of its counsel, transfer taxes on resale of any of the Offered
Securities by it, and any advertising expenses connected with any offers it
may make. If this Agreement is terminated by the Representative in
accordance with the provisions of Section 6 hereof, the Transferor and
Metris, jointly and severally, shall reimburse the Representative for all
of its out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Representative.
(h) For a period from the date of this Agreement until
the retirement of the Offered Securities, or until such time as each
Underwriter shall cease to maintain a secondary market in the Offered
Securities, whichever occurs first, to deliver to the Representative
the annual statements of compliance, the Annual Servicer's
Certificate and the annual independent certified public accountants'
servicing reports furnished to the Trustee pursuant to Section 3.5
and Section 3.6, respectively, of the P&S and the monthly
Distribution Date Statement pursuant to Section 5.2 of the Series
1999- Supplement as soon as such statements and reports are furnished
to the Trustee.
(i) From and after the Closing Date, not to take any
action inconsistent with the Trust's ownership of the Receivables
other than as permitted by the Pooling and Servicing Agreement.
(j) To the extent, if any, that the rating provided with
respect to the Offered Securities by the rating agency or agencies
that initially rate the Offered Securities is conditional upon the
furnishing of documents or the taking of any other actions by the
Transferor, to furnish such documents and take any such other
actions.
Section 6. Conditions Precedent to the Obligations of the
Underwriter. The obligation of the Underwriters to purchase and pay for the
Offered Securities are subject to the accuracy of the representations and
warranties on the part of the Transferor and Metris, to the accuracy of the
statements of officers of the Transferor and Metris made pursuant to the
provisions hereof, to the performance by the Transferor of its obligations
hereunder and to the following additional conditions precedent:
(a) The Registration Statement shall have become
effective not later than 4:00 p.m., New York time, on the second
Business Day following the date of this Agreement or such later date
as shall have been consented to by the Representative; and prior to
the Closing Date no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or, to the knowledge of the
Transferor or Metris, shall be contemplated by the Commission. If the
Transferor has elected to rely upon Rule 430A of the 1933 Act
Regulations, the price of the Offered Securities and any
price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of
the 1933 Act Regulations within the prescribed time period, and prior
to the Closing Date the Company shall have provided evidence
satisfactory to the Representative of such timely filing, or a
post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the
requirements of Rule 430A of the 1933 Act Regulations.
(b) Each of the Transferor and Metris shall have
delivered to the Representative a certificate, dated the Closing
Date, signed by its president, a senior vice president or a vice
president to the effect that the signer of such certificate has
carefully examined the Registration Statement, the Prospectus, each
Designated Agreement and this Agreement and that:
(i) (A) the representations and warranties of the
Transferor and Metris, as applicable, in this Agreement are
true and correct in all material respects at and as of the
Closing Date with the same effect as if made on the Closing
Date and (B) the representations and warranties of the
Transferor, Metris and Direct Merchants Bank, as applicable, in
each Designated Agreement are true and correct in all material
respects at and as of the Closing Date with the same effect as
if made on and as of the Closing Date except that to the extent
that any such representation or warranty in this clause (B)
expressly relates to an earlier date, such representation or
warranty is true and correct in all material respects at and as
of such earlier date;
(ii) the Transferor or Metris, as applicable, has
complied in all material respects with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied under this Agreement at or prior to the Closing Date;
(iii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been initiated or, to the Transferor's or
Metris's knowledge, threatened by the Commission as of the
Closing Date; and
(iv) nothing has come to such person's attention that
would lead such person to believe that the Prospectus contains
an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(c) Since the respective dates as of which information is
given in the Prospectus, there shall not have occurred any material
adverse change, or any development involving a prospective material
adverse change, in or affecting the business or assets of the Trust,
the Transferor, or Direct Merchants Bank or any material adverse
change in the financial position or results of operations of the
Trust, the Transferor, or Direct Merchants Bank otherwise than as set
forth or contemplated in the Prospectus which in any such case makes
it impracticable or inadvisable in the Representative's good faith
judgment to proceed with the public offering or the delivery of the
Offered Securities on the terms and in the manner contemplated in the
Prospectus as amended or supplemented.
(d) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any material adverse
change in the financial markets for asset backed securities in the
United States or any outbreak of hostilities or other calamity or
crisis or (ii) the suspension of trading generally by either the
American Stock Exchange or the New York Stock Exchange, or the
establishment of minimum or maximum prices or ranges of prices by
either of such exchanges or by order of the Commission or any other
governmental authority, or any banking moratorium declared by federal
or New York authorities, the effect of which with respect to clause
(i) or (ii) is such as to make it, in the good faith judgment of the
Representative, impracticable to market the Offered Securities or to
enforce contracts for the sale of the Offered Securities.
(e) The Representative shall have received:
(1) The favorable opinion of Jill B. Barclift, general counsel
of Metris, dated the Closing Date and addressed to the Underwriters
and satisfactory in form and substance to the Representative and to
counsel to the Representative, to the effect that:
(i) Metris is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware.
(ii) The Transferor is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware and is duly qualified to transact business
and is in good standing in each state in which the conduct of
its business requires such qualification except where the
failure to so qualify does not have a material adverse effect
on the financial condition or business of the Transferor.
(iii) Direct Merchants Bank is a national banking
association formed under the laws of the United States of
America and is authorized to conduct the business of a special
purpose credit card bank, as described in the Prospectus, and
had at all relevant times and now has the power, authority and
legal right to acquire, own and service the Accounts and the
Receivables;
(iv) Each Designated Agreement to which Metris, Direct
Merchants Bank or the Transferor is a party and this Agreement
has been duly and validly authorized, executed and delivered by
each of Metris, Direct Merchants Bank and the Transferor, as
applicable.
(v) The sale of the Investor Securities and the direction
by the Transferor to the Trustee to execute, authenticate and
deliver the Investor Securities have been duly authorized by
the Transferor. The Investor Securities have been duly and
validly authorized and executed by the Transferor.
(vi) The execution and delivery of any Designated
Agreement or of the Underwriting Agreement and the execution
and delivery to the Trustee of the Investor Securities, the
performance of the transactions contemplated by this Agreement
or any Designated Agreement and the fulfillment of the terms
thereof will not (i) violate any Applicable Laws (assuming
compliance with all applicable state securities and Blue Sky
laws, as to which such counsel expresses no opinion), (ii)
require any Governmental Approval (except for filings under the
UCC, compliance with all applicable state securities and Blue
Sky laws, as to which such counsel expresses no opinion, and
such filings or registrations as have already been made and are
in full force and effect or (iii) 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 currently existing material indenture, contract,
agreement, mortgage, deed of trust or other instrument which
has been attached as an exhibit to the report on Form 10-K
filed by Metris. For purposes of this paragraph (vi),
"Applicable Laws" means those laws, rules and regulations of
the State of Minnesota and the United States of America which,
in such counsel's experience, are normally applicable to the
ordinary business operations of Metris or the Transferor and
transactions of the type contemplated by the Designated
Agreements. For the purposes of this paragraph (vi), the term
"Governmental Approval" means any consent, approval, license,
authorization or validation of, or filing, recording or
registration with, any Governmental Authority pursuant to
Applicable Laws, and the term "Governmental Authority" means
any Minnesota or federal executive, legislative, judicial,
administrative or regulatory body.
(vii) There are no legal or governmental proceedings
pending or, to such counsel's knowledge, threatened that are
required to be disclosed in the Registration Statement, other
than those disclosed therein. There are no proceedings or
investigations pending or, to the best of such counsel's
knowledge, threatened against Metris or the Transferor, before
any Governmental Authority (i) asserting the invalidity of any
Designated Agreement or of this Agreement, (ii) seeking to
prevent the consummation of any of the transactions
contemplated hereby, (iii) seeking any determination or ruling
that would materially and adversely affect the performance by
Metris or 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 or
the Investor Securities.
(viii) No consent, approval, authorization or order of,
or registration, filing (except for filings under the UCC) or
declaration with, any court or governmental agency or body is
required in connection with (i) the execution, delivery and
performance by Metris or the Transferor of any Designated
Agreement or of this Agreement or (ii) the offer, sale or
delivery of the Investor Securities, except such as shall have
been obtained or made, as the case may be, or will be obtained
or made, as the case may be, prior to the Closing Date and
except such as may be required under state securities or Blue
Sky laws.
(ix) Metris has full corporate power and authority to
sell and assign the Receivables to the Transferor pursuant to
the terms of the Purchase Agreement and has duly authorized
such sale and assignment by all necessary corporate action. The
Transferor has full corporate power and authority to transfer
the Receivables to the Trust pursuant to the terms of the
Pooling and Servicing Agreement and has duly authorized such
transfer by all necessary corporate action.
(x) Direct Merchants Bank has the power and authority to
execute and deliver the Bank Purchase Agreement and the Pooling
and Servicing Agreement and to consummate the transactions
contemplated therein;
(xi) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required for the consummation by Direct Merchants Bank of the
transactions contemplated in the Bank Purchase Agreement or the
Pooling and Servicing Agreement, except for such consents,
approvals, orders or filings as may be required under federal
or state securities laws and except for such filings as may be
required to perfect interests in the Receivables pursuant to
the Bank Purchase Agreement;
(xii) Neither the execution, delivery and performance by
Direct Merchants Bank of its obligations under the Bank
Purchase Agreement or the Pooling and Servicing Agreement, the
transfer of the Receivables to Metris, the issuance and sale of
the Investor Securities, nor the consummation of any other of
the transactions contemplated in the Bank Purchase Agreement or
the Pooling and Servicing Agreement will conflict with, result
in a breach of or violation of any of the terms of, or
constitute a default under, the Articles of Association or
by-laws of the Bank, each as amended, or any Applicable Laws or
the terms of any material indenture or other material agreement
or instrument known to such counsel to which Direct Merchants
Bank is a party or by which it or its properties are bound. For
purposes of this paragraph (xii), "Applicable Laws" means those
laws, rules and regulations of the United States of America
which, in such counsel's experience, are normally applicable to
the ordinary business operations of Direct Merchants Bank and
transactions of the type contemplated by the Designated
Agreements; and
(xiii) There are no actions, proceedings or
investigations pending or, to the best of such counsel's
knowledge, threatened before any court, administrative agency
or other tribunal (x) asserting the invalidity of the Bank
Purchase Agreement or the Pooling and Servicing Agreement or
(y) seeking to prevent the issuance of the Investor Securities
or the consummation of any of the transactions contemplated by
the Bank Purchase Agreement or the Pooling and Servicing
Agreement or the Investor Securities, which might materially
and adversely affect the performance by Direct Merchants Bank
of its obligations under, or the validity or enforceability of,
the Bank Purchase Agreement or the Pooling and Servicing
Agreement or the Investor Securities.
(xiv) Metris is duly qualified to transact business and
is in good standing in each state in which the conduct of its
business requires such qualification except where the failure
to so qualify does not have a material adverse effect on the
financial condition or business of Metris.
(xv) Each of Metris and the Transferor possesses all
material licenses, certificates, authorities or permits issued
by the appropriate state or federal regulatory agencies or
bodies necessary to conduct the business now conducted by it
and as described in the Prospectus, except to the extent that
the failure to have such licenses, certificates, authorities or
permits does not have a material adverse effect on the
Receivables or the Investor Securities or the financial
condition of Metris or the Transferor, and neither Metris nor
the Transferor has received any notice of proceedings relating
to the revocation or modification of any such license,
certificate, authority or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the conduct of
its business, operations or financial condition.
(2) The favorable opinion of Skadden, Arps, Slate, Meagher &
Flom LLP, special counsel for the Transferor and Metris, dated the
Closing Date and addressed to the Underwriters and satisfactory in
form and substance to the Representative and counsel to the
Representative; to the effect that:
(i) Each of the Purchase Agreement and the Pooling and
Servicing Agreement (including, with respect to the Pooling and
Servicing Agreement, the allocation provisions thereof) to
which any of Metris, the Transferor, the Bank and the Servicer
(the "Companies") is a party, constitutes a valid and binding
obligation of each of them, as applicable, enforceable against
each of Metris, the Transferor and Direct Merchants Bank, as
applicable, in accordance with their respective terms under the
laws of the State of Delaware;
(ii) Neither the execution, delivery or performance by
any of the Companies of any of the Purchase Agreement or the
Pooling and Servicing Agreement to which it is a party nor the
compliance by any of the companies with the terms and
provisions thereof will contravene any provision of any
Applicable Laws. For purposes of this paragraph (ii) and
paragraph (iii) below, "Applicable Laws" means those laws,
rules and regulations of the States of New York and Delaware
and the United States of America which, in such counsel's
experience, are normally applicable to transactions of the type
contemplated by the Purchase Agreement and the Pooling and
Servicing Agreement, without such counsel having made any
special investigation as to the applicability of any specific
law, rule or regulation, and which are not the subject of a
specific opinion given by such counsel referring expressly to a
particular law or laws;
(iii) No Governmental Approval, which has not been
obtained or taken and is not in full force and effect, is
required to authorize or is required in connection with the
execution, delivery or performance of any of the Purchase
Agreement, the Pooling and Servicing Agreement or this
Agreement, except for (a) filings of Uniform Commercial Code
financing statements with respect to the transfer of the
Receivables from Direct Merchants Bank to Metris pursuant to
the Bank Purchase Agreement, from Metris to the Transferor
pursuant to the Purchase Agreement and with respect to the
transfer of the Receivables from the Transferor to the Trust
pursuant to the Pooling and Servicing Agreement and (b) such
Governmental Approvals as may be required under the securities
or blue sky laws of any jurisdiction. For the purposes of this
paragraph (iii), the term "Governmental Approval" means any
consent, approval, license, authorization or validation of, or
filing, recording or registration with, any governmental
authority pursuant to Applicable Laws.
(iv) The Investor Securities, the Purchase Agreement, the
Pooling and Servicing Agreement and this Agreement conform in
all material respects to the descriptions thereof contained in
the Registration Statement and the Prospectus;
(v) The Pooling and Servicing Agreement is not required
to be qualified under the Trust Indenture Act of 1939, as
amended; neither Metris, the Transferor nor the Trust is
required to be registered under the Investment Company Act of
1940, as amended;
(vi) The statements in the Prospectus under the headings
["Risk Factors -- [Transfer of the Receivables]," "--
Insolvency or Bankruptcy of Metris Receivables, Inc. Could
Result in Accelerated, Delayed or Reduced Payments to
Securityholders,"] "Certain Legal Aspects of the Receivables,"
and "Tax Matters", and "Employee Benefit Plan Considerations"
to the extent that they constitute matters of law or legal
conclusions with respect thereto, have been reviewed by such
counsel and are correct in all material respects;
(vii) Each of the Registration Statement, as of its
effective date and the Prospectus, as of its date, appeared on
its face to be appropriately responsive in all material
respects to the requirements of the Act and the General Rules
and Regulations under the Act, except that in each case such
counsel need not express any opinion as to the financial and
statistical data included therein or excluded therefrom or the
exhibits to the Registration Statement and, except as and, to
the extent set forth in paragraphs (iv), (vi) and (viii) such
counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus;
(viii) The information in the Prospectus under the
heading "Description of the Securities", insofar as it
constitutes a summary of certain provisions of the Offered
Securities and the Pooling and Servicing Agreement, summarizes
fairly such provisions;
(ix) When duly and validly executed by the Transferor and
authenticated by the Trustee and delivered to the Transferor in
accordance with the Pooling and Servicing Agreement, will be
validly issued and outstanding and entitled to the benefits of
the Pooling and Servicing Agreement;
(x) The execution and delivery of any of the Purchase
Agreement, the Pooling and Servicing Agreement or this
Agreement and the performance by the Transferor of the
transactions contemplated thereby will not constitute a
violation of, or default under, any agreements or instruments
identified to such counsel in writing by the Transferor as
being material to the Transferor.
Such counsel's opinions may be subject to the following
assumptions and qualifications:
(a) enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles
of equity (regardless of whether enforcement is sought in
equity or at law);
(b) certain of the remedial provisions, including
waivers, contained in any agreement, may be unenforceable in
whole or in part, but the inclusion of such provisions does not
affect the validity of any such agreement taken as a whole, and
each of the agreements, together with applicable law, contains
adequate provisions for the practical realization of the
benefits of the security created by such agreements;
(c) rights to indemnity and contribution contained in any
agreements may be limited by applicable laws or the policies
underlying such laws; and
(d) each of the agreements constitutes the valid and
binding obligation of each party to such agreement (other than
Metris, the Transferor and Direct Merchants Bank) enforceable
against such other party in accordance with its terms.
Such counsel shall have been advised by the Commission that the
Registration Statement was declared effective and, to the best of such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that purpose
has been instituted or threatened by the Commission.
Such counsel also shall state that they have participated in
conferences with officers and representatives of Metris and the Transferor,
counsel for Metris and the Transferor, representatives of the independent
accountants of Metris and the Transferor, and representatives of the
Underwriters, at which the contents of the Registration Statement, the
Prospectus and related matters were discussed and, although they are not
passing upon, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus and have made no independent check or
verification thereof except as and to the extent set forth in paragraphs
(iv) , (vi) and (viii) above, on the basis of the foregoing, no facts have
come to such counsel's attention that have led such counsel to believe that
the Registration Statement, at the time it became effective, contained an
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading or the Prospectus, as of its date, contained an untrue
statement of a material fact or omitted to state a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that in each case such
counsel need express no belief with respect to financial and statistical
data included therein or excluded therefrom or the exhibits to the
Registration Statement.
Such counsel shall also deliver to the Underwriters their
opinion, dated the Closing Date and addressed to the Underwriters and
satisfactory in form and substance to the Representative and counsel to the
Representative, to the effect that for federal income tax purposes (i) the
Offered Securities would be treated as debt for federal income tax purposes
and (ii) any entity constituted by the Trust will not be an association
taxable as a corporation or publicly traded partnership treated as a
corporation;
(f) The Representative shall have received an opinion or
opinions of Dorsey & Whitney with respect to Minnesota law, O'Connor,
Cavanagh, Anderson, Killingsworth & Beshears with respect to Arizona
law and Skadden, Arps, Slate, Meagher & Flom LLP with respect to
federal and Delaware law, dated the Closing Date, in form and
substance satisfactory to the Representatives and their counsel, with
respect to certain matters relating to the transfers of the
Receivables to Metris, the Transferor and the Trust and the
perfection of Metris', the Transferor's and the Trust's interest in
the receivables and certain other matters relating to insolvency
considerations and with respect to other related matters in a form
previously approved by you and your counsel.
(g) The Representative shall have received from each of
Dorsey & Whitney in respect of Minnesota, O'Connor, Cavanagh,
Anderson, Killingsworth & Beshears in respect of Arizona, Johnson,
Allen, Jones & Dornblasser in respect of Oklahoma and Skadden, Arps,
Slate, Meagher & Flom LLP in respect of Delaware, an opinion, dated
the Closing Date and satisfactory in form and substance to the
Representative and to counsel to the Underwriters, to the effect that
the Offered Securities will be characterized for such state's income
and franchise tax purposes as indebtedness secured by the Receivables
and Securityholders not otherwise subject to taxation in such state
will not be subject to tax in respect of the Offered Securities.
(h) The Representative shall have received from Skadden,
Arps, Slate, Meagher & Flom LLP, special counsel to the Transferor
and Metris, opinions, dated the Closing Date, addressed to the
Underwriters and satisfactory in form and substance to the
Representative and to counsel to the Underwriters, relating to
certain insolvency and bankruptcy matters.
(i) The Representative shall have received from Richards,
Layton & Finger, Delaware counsel for the Trustee, and Emmet, Marvin
& Martin, New York counsel for the Trustee, as appropriate, opinions,
dated the Closing Date and addressed to the Underwriters, the
Transferor and Metris and satisfactory in form and substance to the
Representative and to counsel to the Underwriters.
(j) The Representative shall have received an officer's
certificate dated the Closing Date of the chairman of the board, the
president, an executive vice president or the treasurer of the Trustee
in which such officer shall state that, to the best of his/her knowledge
after reasonable investigation, the representations and warranties of the
Trustee contained in the Pooling and Servicing Agreement are true and
correct in all material respects, and that the Trustee has complied
in all material respects with all agreements and satisfied all
conditions on its part to be performed or satisfied under the Pooling
and Servicing Agreement at or prior to the Closing Date.
(k) The Representative shall have received copies of
rating letters confirming that the Class A Securities have been rated
in the highest rating category by S&P and Moody's and the Class B
Securities have been rated at least "A" by S&P and "A2" by Moody's,
and such ratings shall not have been reduced or withdrawn;
(l) Counsel to the Transferor and Metris shall have
furnished to the Representative any opinions supplied to the rating
agencies relating to certain matters with respect to the Offered
Securities.
(m) On or prior to the date of this Agreement, the
Representative shall have received a copy of a letter, dated the
Closing Date and addressed to the Underwriters, from KPMG Peat
Marwick LLP certified public accountants, substantially in the form
heretofore approved by the Underwriters and counsel to the
Underwriters. On the Closing Date, the Representative shall have
received from KPMG Peat Marwick LLP such letter (which may be in a
bring-down format) dated the Closing Date.
(n) The Representative shall have received (i) a copy of
the financing statements on Form UCC-1 filed with the Secretary of
State of the State of Arizona with respect to the transfer of the
Receivables by Direct Merchants Bank to Metris pursuant to the Bank
Purchase Agreement, identifying the Receivables as collateral and
naming Direct Merchants Bank as debtor and Metris as secured party,
(ii) a copy of the financing statements on Form UCC-1 filed with the
Secretary of State of the State of Minnesota with respect to the
transfer of the Receivables by Metris to the Transferor pursuant to
the Purchase Agreement, identifying the Receivables as collateral and
naming Metris as debtor and the Transferor as the secured party and
(iii) a copy of the financing statements on Form UCC-1 filed with the
Secretary of State of the State of Minnesota with respect to the
transfer of the Receivables by the Transferor to the Trust pursuant
to the Pooling and Servicing Agreement, identifying the Receivables
as collateral and naming the Transferor as the debtor and the Trust
as the secured party.
(o) The Representative shall have received an opinion
addressed to the Underwriters from Orrick, Herrington & Sutcliffe,
counsel to the Underwriters, dated the Closing Date, with respect to
the validity of the Investor Securities and other related matters and
the Transferor shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to render
such opinions.
The Transferor will furnish the Representative with such
conformed copies of such certificates, letters and documents as the
Representative may
reasonably request.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Representative by notice to the Seller at any time at or
prior to Closing Time, and such termination shall be without liability of
any party to any other party except as provided in Section 5 hereof.
Section 7. Indemnification and Contribution. (a) Each of Metris
and the Transferor shall, jointly and severally, indemnify and hold
harmless each Underwriter and each person who controls any Underwriter
within the meaning of Section 15 of the Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment
thereto), or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to
make the statements therein not misleading, or arising out of
any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based
upon any such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is effected
with the written consent of the Transferor and Metris; and
(iii) against any and all expense whatsoever (including,
subject to Section 7(c) hereof, the fees and disbursements of
counsel chosen by the Representative) reasonably incurred in
investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, to the extent that
any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with written information furnished to
the Transferor by any Underwriter through the Representative expressly for
use in the Registration Statement (or any amendment thereto) or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) and provided, further, that the foregoing indemnity is subject to
the condition that, insofar as it relates to any untrue statement or
omission, or any alleged untrue statement or omission, made in the
preliminary prospectus (as amended or supplemented) but eliminated,
corrected or remedied in the Prospectus (as amended or supplemented), it
shall not inure to the benefit of any Underwriter (or to the benefit of any
person who controls such Underwriter) if a copy of the Prospectus (as
amended or supplemented) was not delivered by such Underwriter to the
person asserting any loss, claim, damage, or liability arising out of or
based upon such untrue statement or omission, or such alleged untrue
statement or omission, at or prior to the time required by the Securities
Act.
(b) Each Underwriter severally agrees to indemnify and
hold harmless Metris, the Transferor, each of their respective
directors and officers, each of the Transferor's officers who signed
the Registration Statement, and each person, if any, who controls the
Transferor and Metris, respectively, within the meaning of Section 15
of the Act against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements
or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written
information furnished to the Transferor by such Underwriter through
the Representative expressly for use in the Registration Statement
(or any amendment thereto) or such preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under subsection (a) or (b) above,
notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party
under subsection (a) or (b) above unless the indemnifying party has
been materially prejudiced by such failure to notify. In case any
such action is brought against any indemnified party and it notifies
the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that
it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with
the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The
indemnifying person shall not be responsible for the settlement of
any proceeding made without its prior consent.
Section 8. Contribution. If the indemnification provided for in
Section 7 is unavailable or insufficient to hold harmless an indemnified
party under subsection (a) or (b) of Section 7, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities referred to
in subsection (a) or (b) of Section 7 (i) in such proportion as is
appropriate to reflect the relative benefits received by the Transferor and
Metris on the one hand and the Underwriters on the other from the offering
of the Offered Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Transferor and Metris on the
one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Transferor and Metris on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Transferor bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Transferor or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the
first sentence of this Section shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of
this Section. Notwithstanding the provisions of this Section, no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount or commission applicable to the Offered Security
purchased by it hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 9. Survival of Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of each of the Transferor, Metris or its officers and of the
Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation or statement as to
the results thereof, made by or on behalf of any Underwriter, the
Transferor, Metris or any of their respective representatives, officers or
directors of any controlling person, and will survive delivery of and
payment for the Offered Securities.
Section 10. Default by One or More of the Underwriters. If one
or more of the Underwriters shall fail on the Closing Date to purchase the
Offered Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representative shall have the
right, within 24 hours thereafter, to make arrangements for one or more of
the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as
may be agreed upon and upon the terms herein set forth; if, however, the
Representative shall not have completed such arrangements within such
24-hour period, then:
(a) if the principal amount of Defaulted Securities does
not exceed 10% of the principal amount of Offered Securities, each of
the non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the principal amount of Defaulted Securities
exceeds 10% of the principal amount of Offered Securities, this
Agreement shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Representative or the Transferor
shall have the right to postpone the Closing Date for a period not
exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or
arrangements.
Section 11. Representations and Warranties of the Underwriters.
Each Underwriter represents and warrants to, and agrees with, Metris and
the Transferor 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.
(c) If it 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.
Section 12. Notices. All communications hereunder will
be in writing and:
(i) if sent to the Underwriters, will be mailed,
delivered or sent by facsimile transmission and confirmed to
the Representative at:
[ ]
(ii) if sent to the Transferor, will be mailed, delivered
or sent by facsimile transmission, and confirmed to it at:
Metris Receivables, Inc.
600 South Highway 169
St. Louis Park, MN 55426
Attention: Treasurer
Telephone: (612) 417-5645
Facsimile: (612) 417-5660
(iii) if sent to Metris, will be mailed, delivered or
sent by facsimile transmission, and confirmed to it at:
Metris Companies Inc.
600 South Highway 169
St. Louis Park, MN 55426
Attention: General Counsel
Telephone: (612) 525-5090
Facsimile: (612) 525-5070;
or to such other address as the Transferor, Metris or the
Underwriter may designate in writing to the other parties hereto.
Section 13. Successors. This Agreement will inure to the
benefit of and be binding upon the Underwriters, Metris and the Transferor
and their respective successors and the officers and directors and
controlling persons referred to in Section 7 hereof, and no other person
will have any right or obligations hereunder.
Section 14. GOVERNING LAW. THIS AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
Section 15. Severability of Provisions. Any covenant,
provision, agreement or term of this Agreement that is prohibited or is
held to be void or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
Section 16. Entire Agreement. This Agreement constitutes the
entire agreement and understanding of the parties hereto with respect to
the matters and transactions contemplated hereby and supersedes all prior
agreements and understandings whatsoever relating to such matters and
transactions.
Section 17. Amendment. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
Section 18. Headings. The headings in this Agreement are for
the purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 19. Counterparts. This Agreement may be executed by
each of the parties hereto in any number of counterparts, and by each of
the parties hereto on separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original, but all
such counterparts shall together constitute but one and the same
instrument.
* * *
If the foregoing is in accordance with your understanding,
please sign and return to us a counterpart hereof, whereupon this letter
and your acceptance hereof shall constitute a binding agreement between the
Underwriters, the Transferor and Metris.
Very truly yours,
METRIS RECEIVABLES, INC.
By: _________________________
Name: Paul T. Runice
Title: Senior Vice President and
Treasurer
METRIS COMPANIES INC.
By: _________________________
Name: Paul T. Runice
Title: Senior Vice President and
Treasurer
Accepted in New York, New York,
as of the date hereof:
[ ]
By: _____________________
Name:
Title:
For itself and as Representative
of the other Underwriters named in
Schedule A hereto.
Schedule A
Principal Amount of Principal Amount of
Name of Underwriter Class A Securities Class B Securities
- ------------------- ------------------- -------------------
EXHIBIT 4(b)
METRIS RECEIVABLES, INC.
Transferor
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION
Servicer
and
THE BANK OF NEW YORK (DELAWARE)
Trustee
on behalf of the Series 1999- Securityholders
SERIES 1999- SUPPLEMENT
Dated as of , 1999
to
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT
Dated as of July 30, 1998
------------------------------------
METRIS MASTER TRUST
$ Floating Rate Asset Backed
Securities, Series 1999- , Class A
$ Floating Rate Asset Backed
Securities, Series 1999- , Class B
$ Credit Enhancement
TABLE OF CONTENTS
PAGE
SECTION 1. Designation................................................1
SECTION 2. Definitions................................................2
SECTION 3. Reassignment Terms........................................25
SECTION 4. Delivery and Payment for the Series 1999-
Securities..........................................25
SECTION 5. Form of Delivery of Series 1999- Securities;
Denominations.......................................25
SECTION 6. Article IV of Agreement...................................26
ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.4 Rights of Securityholders.....................26
SECTION 4.5 Collections and Allocation; Payments on
Exchangeable Transferor Security..............26
SECTION 4.6 Determination of Interest for the
Series 1999- Securities.................28
SECTION 4.7 Determination of Principal Amounts............30
SECTION 4.8 Shared Principal Collections..................32
SECTION 4.9 Application of Funds..........................32
SECTION 4.10 Coverage of Required Amount for the
Series 1999- Securities.................41
SECTION 4.11 Payment of Interest...........................42
SECTION 4.12 Payment of Principal..........................42
SECTION 4.13 Charge-Offs...................................45
SECTION 4.14 Redirected Principal Collections for
the Series 1999- Securities.............46
SECTION 4.15 Determination of LIBOR........................47
SECTION 4.16 Payment Reserve Account.......................47
SECTION 4.17 Principal Funding Account.....................48
SECTION 4.18 Accumulation Period Reserve Account...........50
SECTION 4.19 Postponement of Accumulation Period...........52
SECTION 4.20 Defeasance....................................52
SECTION 7. Article V of the Agreement...............................53
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
SECURITYHOLDERS
SECTION 5.1 Distributions.................................53
SECTION 5.2 Securityholders' Statement....................55
SECTION 8. Series 1999- Pay Out Events..............................58
SECTION 9. Series 1999- Termination.................................60
SECTION 10. Legends; Transfer and Exchange; Restrictions
on Transfer of Series 1999- Securities.............60
SECTION 11. Ratification of Agreement.................................62
SECTION 12. Registration of the Class A Securities and
Class B Securities under the Securities
Exchange Act of 1934................................62
SECTION 13. Counterparts..............................................62
SECTION 14. GOVERNING LAW.............................................62
SECTION 15. Instructions in Writing...................................62
SECTION 16. Amendment for FASIT Purposes..............................62
SECTION 17. Paired Series.............................................63
EXHIBITS
Exhibit A-1 Form of Class A Security
Exhibit A-2 Form of Class B Security
Exhibit B Form of Monthly Securityholder's Statement
SERIES 1999- SUPPLEMENT, dated as of , 1999 (this "Series
Supplement") by and among METRIS RECEIVABLES, INC., a corporation organized
and existing under the laws of the State of Delaware, as Transferor (the
"Transferor"), DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION, a
national banking association organized under the laws of the United States,
as Servicer (the "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 (together with its successors in trust
thereunder as provided in the Agreement referred to below, the "Trustee"),
under the Amended and Restated Pooling and Servicing Agreement dated as of
July 30, 1998 as amended, supplemented or otherwise modified from time to
time (the "Agreement") among the Transferor, the Servicer and the Trustee.
Section 6.9 of the Agreement provides, among other things, that
the Transferor and the Trustee may at any time and from time to time enter
into a supplement to the Agreement for the purpose of authorizing the
issuance by the Trustee to the Transferor, for execution and redelivery to
the Trustee for authentication, of one or more Series of Securities.
Pursuant to this Series Supplement, the Transferor and the
Trustee shall create a new Series of Investor Securities and shall specify
the Principal Terms thereof.
SECTION 1. Designation. There is hereby created a Series of
Investor Securities to be issued pursuant to the Agreement and this Series
Supplement to be known generally as the "Series 1999- Securities." The
Series 1999- Securities shall be issued in two Classes, which shall be
designated generally as the Floating Rate Asset Backed Securities, Series
1999- , Class A (the "Class A Securities") and the Floating Rate Asset
Backed Securities, Series 1999- , Class B (the "Class B Securities"), and
shall include the Credit Enhancement.
SECTION 2. Definitions. In the event that any term or provision
contained herein shall conflict with or be inconsistent with any provision
contained in the Agreement, the terms and provisions of this Series
Supplement shall govern with respect to the Series 1999- Securities. All
Article, Section or subsection references herein shall mean Articles,
Sections or subsections of the Agreement, as amended or supplemented by
this Series Supplement, except as otherwise provided herein. All
capitalized terms not otherwise defined herein are defined in the
Agreement. Each capitalized term defined herein shall relate only to the
Series 1999- Securities and no other Series of Securities issued by the
Trust.
"AB Adjusted Invested Amount" shall mean as of any Business Day
the sum of the Class A Invested Amount and the Class B Invested Amount
minus the amount then on deposit in the Principal Funding Account.
"Accumulation Period" shall mean, unless a Pay Out Event shall
have occurred prior thereto, the period commencing at the close of business
on the last day of the Monthly Period or such later date as is determined
in accordance with Section 4.19 of the Agreement and ending on the first to
occur of (a) the commencement of the Early Amortization Period and (b) the
Series 1999- Termination Date.
"Accumulation Period Factor" shall mean, for any Monthly
Period, a fraction, the numerator of which is equal to the sum of the
numerators with respect to all Classes of all Series then outstanding used
to calculate the allocation percentages applicable for Principal
Collections, and the denominator of which is equal to the sum of (a) the
sum of the Class A Invested Amount and Class B Invested Amount, (b) the sum
of the numerators with respect to all Classes of all Series then
outstanding used to calculate the allocation percentages applicable for
Principal Collections (other than Series 1999- and any Class of any such
Series retained by the Transferor) which are not expected to be in their
revolving periods during such Monthly Period, and (c) the sum of the
numerators used to calculate the allocation percentages applicable for
Principal Collections of all Classes of other outstanding Series which are
not allocating Shared Principal Collections and are expected to be in their
revolving periods during such Monthly Period.
"Accumulation Period Length" shall have the meaning assigned
such term in Section 4.19 of the Agreement.
"Accumulation Period Reserve Account" shall have the meaning
specified in Section 4.18 of the Agreement.
"Accumulation Shortfall" shall initially mean zero and
thereafter shall mean, 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 pursuant to Section 4.12 of the Agreement with
respect to the Series 1999- Securities for the previous Monthly Period.
"Additional Interest" shall mean, at any time of determination,
the sum of the Class A Additional Interest, Class B Additional Interest and
Credit Enhancement Additional Interest.
"Adjusted Invested Amount" shall mean as of any Business Day
the Invested Amount minus the sum of the amounts then on deposit in the
Principal Account and the Principal Funding Account and the Series 1999-
Percentage of the amount then on deposit in the Excess Funding Account.
"Amortization Period" shall mean [the Accumulation Period or
the Early Amortization Period] [the period commencing on the Amortization
Period Commencement Date and continuing until the Series 1999- Termination
Date].
"Amortization Period Commencement Date" shall mean the earlier
of the first day of the Accumulation Period and the Pay Out Commencement
Date.
"Available Reserve Account Amount" shall mean, with respect to
any Transfer Date, the lesser of (a) the amount on deposit in the
Accumulation Period Reserve Account as of such date (before giving effect
to any withdrawal made or to be made pursuant to subsection 4.18(c) of the
Agreement from the Accumulation Period Reserve Account on such Transfer
Date) and (b) the Required Reserve Account Amount for such Transfer Date.
"Available Series 1999- Finance Charge Collections" shall have
the meaning specified in subsection 4.9(a) of the Agreement.
"Available Series 1999- Principal Collections" shall mean, with
respect to any Monthly Period [or portion thereof commencing on the
Amortization Period Commencement Date], 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 allocated to the Series 1999- Securities pursuant to
subsection 4.9(d) of the Agreement with respect to such Monthly Period,
(iii) the aggregate amount allocated with respect to the Series Default
Amount and the Series 1999- Percentage of any Adjustment Payments paid
pursuant to subsections 4.9(a)(iv) and 4.9(a)(v) of the Agreement with
respect to such Monthly Period, any reimbursements of unreimbursed
Charge-Offs pursuant to subsections 4.9(a)(vi), (ix) and (x) of the
Agreement with respect to such Monthly Period and further in each case,
pursuant to subsections 4.10(a) and (b), 4.14(a) and (b), 4.17(b) and
4.18(b), (c) and (d) of the Agreement, and (iv) the aggregate Shared
Principal Collections allocated to the Series 1999- Securities pursuant to
Section 4.8 of the Agreement with respect to such Monthly Period.
"Base Rate" shall mean, with respect to any Monthly Period, the
sum of (i) the weighted average of the Class A Interest Rate and the Class
B Interest Rate, each as of the last day of such Monthly Period (weighted
based on the Class A Invested Amount and the Class B Invested Amount, each
as of the last day of such Monthly Period) plus (ii) the product of 2.00%
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.
"Carryover Class A Interest" shall mean with respect to any
Business Day (a) any Class A Monthly Interest due but not paid on any
previous Distribution Date plus (b) any Class A Additional Interest due on
the next succeeding Distribution Date.
"Carryover Class B Interest" shall mean with respect to any
Business Day (a) any Class B Monthly Interest due but not paid on any
previous Distribution Date plus (b) any Class B Additional Interest due on
the next succeeding Distribution Date.
"Carryover Credit Enhancement Interest" shall mean with respect
to any Business Day (a) any Credit Enhancement Monthly Interest due but not
paid on any previous Distribution Date plus (b) any Credit Enhancement
Additional Interest due on the next succeeding Distribution Date.
"Charge-Offs" shall mean the sum of the Class A Charge-Offs,
Class B Charge-Offs and Credit Enhancement Charge-Offs.
"Class A Additional Interest" shall have the meaning
specified in subsection 4.6(a) of the Agreement.
"Class A Adjusted Invested Amount" shall mean, for any date of
determination, an amount not less than zero equal to the then current Class
A Invested Amount minus the sum of the Principal Funding Account Balance
and the amount then on deposit in the Principal Account for the benefit of
the Class A Securities on such date of determination.
"Class A Charge-Offs" shall have the meaning specified in
subsection 4.13(c) of the Agreement.
"Class A Floating Percentage" shall mean, with respect to any
Business Day, the percentage equivalent of a fraction, the numerator of
which is the Class A Adjusted Invested Amount as of 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 in the Trust and
the 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" shall mean the aggregate
initial principal amount of the Class A Securities, which is $ .
"Class A Interest Rate" shall mean % per annum from the Closing
Date through and including , 1999 and with respect to each Interest Accrual
Period thereafter, a per annum rate % in excess of LIBOR as determined on
the related LIBOR Determination Date.
"Class A Interest Shortfall" shall have the meaning specified
in subsection 4.6(a) of the Agreement.
"Class A Invested Amount" shall mean, when used with respect to
any Business Day, the greater of (x) zero and (y) an amount equal to (a)
the Class A Initial Invested Amount, minus (b) the aggregate amount of
principal payments made to Class A Securityholders through and including
such Business Day, minus (c) the aggregate amount of Class A Charge-Offs
for all prior Distribution Dates, plus (d) the sum of the aggregate amount
allocated with respect to Class A Charge-Offs and available on all prior
Distribution Dates pursuant to subsection 4.9(a)(vi) of the Agreement and,
with respect to such subsection, pursuant to subsections 4.10(a) and (b),
4.14(a) and (b), 4.17(b) and 4.18(b), (c) and (d) of the Agreement, for the
purpose of reinstating amounts reduced pursuant to the foregoing clause
(c).
"Class A Monthly Interest" shall mean the interest
distributable in respect of the Class A Securities as calculated in
accordance with subsection 4.6(a) of the Agreement.
"Class A Outstanding Principal Amount" shall mean with respect
to the Class A Securities, when used with respect to any Business Day, an
amount equal to (a) the Class A Initial Invested Amount minus (b) the
aggregate amount of principal payments made to the Class A Securityholders
on or prior to such Business Day.
"Class A Percentage" shall mean 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 and the Class B Initial
Invested Amount.
"Class A Principal" shall mean the principal distributable in
respect of the Class A Securities as calculated in accordance with
subsection 4.7(a) of the Agreement.
"Class A Required Amount" shall mean the amount determined by
the Servicer on each Business Day equal to the excess, if any, of (x) the
sum of (i) Class A Monthly Interest for the then current Monthly Period,
(ii) any Carryover Class A Interest, (iii) the Class A Floating Percentage
of the Servicing Fee for the then current Monthly Period, (iv) the Class A
Floating Percentage of the Default Amount, if any, for such Business Day
and, to the extent not previously paid, for any previous Business Day in
such Monthly Period, (v) the Class A Percentage of the Series 1999-
Percentage of the Adjustment Payment required to be made by the Transferor
but not made on the related Transfer Date and (vi) the unreimbursed amount
by which the Class A Invested Amount has been reduced on prior Business
Days pursuant to clause (c) of the definition of Class A Invested Amount
over (y) the Available Series 1999- Finance Charge Collections plus any
Excess Finance Charge Collections from other Series and any Transferor
Finance Charge Collections allocated with respect to the amounts described
in clauses (x)(i) through (vi) above.
"Class A Securities" shall mean any of the securities executed
by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A-1 hereto.
"Class A Securityholder" shall mean the Person in whose name a
Class A Security is registered in the Security Register.
"Class A Securityholders' Interest" shall mean the portion of
the Series 1999- Securityholders' Interest evidenced by the Class A
Security.
"Class B Additional Interest" shall have the meaning specified
in subsection 4.6(b) of the Agreement.
"Class B Adjusted Invested Amount" shall mean, for any date of
determination, an amount not less than zero equal to the then current Class
B Invested Amount minus the excess, if any, of the Principal Funding
Account Balance over the Class A Invested Amount on such date of
determination.
"Class B Charge-Offs" shall have the meaning specified in
subsection 4.13(b) of the Agreement.
"Class B Fixed/Floating Percentage" shall mean for any Business
Day the percentage equivalent of a fraction, the numerator of which is the
Class B Invested Amount 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 amount on deposit in the Excess
Funding Account at the end of the preceding Business Day and (b) the sum of
the numerators with respect to all Classes of all series then outstanding
used to calculate the applicable allocation percentage.
"Class B Floating Percentage" shall mean, with respect to any
Business Day, the percentage equivalent of a fraction, the numerator of
which is the Class B Adjusted Invested Amount as of 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 in the Trust and
the amount 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" shall mean the aggregate
initial principal amount of the Class B Securities, which is $ .
"Class B Interest Rate" shall mean % per annum from
the Closing Date through and including , 1999 and with respect to
each Interest Accrual Period thereafter, a per annum rate % in excess of
LIBOR as determined on the related LIBOR Determination Date.
"Class B Interest Shortfall" shall have the meaning specified
in subsection 4.6(b) of the Agreement.
"Class B Invested Amount" shall mean, when used with respect to
any Business Day, the greater of (x) zero and (y) an amount equal to (a)
the Class B Initial Invested Amount, minus (b) the aggregate amount of
principal payments made to Class B Securityholders through and including
such Business Day, minus (c) the aggregate amount of Class B Charge-Offs
for all prior Distribution Dates, minus (d) the aggregate amount of
Redirected Class B Principal Collections for which the Credit Enhancement
Invested Amount has not been reduced for all prior Business Days, plus (e)
the sum of the aggregate amount allocated and available on all prior
Business Days pursuant to subsection 4.9(a)(ix) of the Agreement and, with
respect to such subsection, pursuant to subsections 4.10(a) and (b),
4.14(a), 4.19(b) and 4.18 (b), (c) and (d) of the Agreement, for the
purpose of reinstating amounts reduced pursuant to the foregoing clauses
(c) and (d).
"Class B Monthly Interest" shall mean the interest
distributable in respect of the Class B Securities as calculated in
accordance with subsection 4.6(b) of the Agreement.
"Class B Outstanding Principal Amount" shall mean with respect
to the Class B Securities, when used with respect to any Business Day, an
amount equal to (a) the Class B Initial Invested Amount minus (b) the
aggregate amount of principal payments made to the Class B Securityholders
on or prior to such Business Day.
"Class B Percentage" shall mean 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 and the Class B Initial
Invested
Amount.
"Class B Principal" shall mean the principal distributable in
respect of the Class B Securities as calculated in accordance with
subsection 4.7(b) of the Agreement.
"Class B Principal Payment Commencement Date" shall mean 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 the Series 1999-
Securities remaining after payments have been made to the Class A
Securities on such Distribution Date, the Distribution Date following the
first Distribution Date on which the Class A Invested Amount is paid in
full and (b) the Distribution Date following a sale or repurchase of the
Receivables as set forth in Section 2.4(e), 9.2, 10.2(a), 12.1 or 12.2 of
the Agreement or Section 3 of this Series Supplement.
"Class B Required Amount" shall mean the amount determined by
the Servicer on each Business Day equal to the excess, if any, of (x) the
sum of (i) the Class B Monthly Interest for the then current Monthly
Period, (ii) any Carryover Class B Interest, (iii) the Class B Floating
Percentage of the Servicing Fee for the then current Monthly Period, (iv)
the Class B Floating Percentage of the Default Amount, if any, for such
Business Day and, to the extent not previously paid, for any previous
Business Day in such Monthly Period, (v) the Class B Percentage of the
Series 1999- Percentage of the Adjustment Payment required to be made by
the Transferor but not made on the related Transfer Date and (vi) the
unreimbursed amount by which the Class B Invested Amount has been reduced
on prior Business Days pursuant to clauses (c) and (d) of the definition of
Class B Invested Amount over (y) the Available Series 1999- Finance Charge
Collections plus any Excess Finance Charge Collections from other Series
and any Transferor Finance Charge Collections allocated with respect to the
amounts described in clauses (x)(i) through (vi) above.
"Class B Securities" shall mean any of the securities executed
by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A-2 hereto.
"Class B Securityholder" shall mean the Person in whose name a
Class B Security is registered in the Security Register.
"Class B Securityholders' Interest" shall mean the portion of
the Series 1999- Securityholders' Interest evidenced by the Class B
Securities.
"Closing Date" shall mean , 1999.
"Controlled Accumulation Amount" shall mean, 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 and the Class B Invested Amount,
$ ; provided, however, that if the Accumulation Period Length is determined
to be less than 12 months pursuant to subsection 4.17 of the Agreement, the
Controlled Accumulation Amount for each Transfer Date with respect to the
Accumulation Period prior to the payment in full of the sum of the Class A
Invested Amount and the Class B Invested Amount, will be equal to (i) the
product of (x) the sum of the Class A Initial Invested Amount and the Class
B Initial Invested Amount and (y) the Accumulation Period Factor for the
Monthly Period preceding such Transfer Date divided by (ii) the Required
Accumulation Factor Number.
"Controlled Deposit Amount" shall mean, with respect to any
Transfer Date, the sum of (a) the Controlled Accumulation Amount for such
Transfer Date and (b) any existing Accumulation Shortfall.
"Covered Amount" shall mean, with respect to any Interest
Accrual Period during the Accumulation Period prior to the payment in full
of the sum of the Class A Invested Amount and the Class B Invested Amount,
the product of (a) the weighted average of the Class A Interest Rate and
the Class B Interest Rate, each in effect with respect to such Interest
Accrual Period, (b) 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 and (c) the Principal Funding Account Balance (up to the sum of the
Class A Invested Amount and the Class B Invested Amount) as of the last day
of the Monthly Period preceding the Monthly Period in which such Interest
Accrual Period ends.
"Credit Enhancement" shall mean any credit enhancement
initially provided by the Transferor.
"Credit Enhancement Additional Interest" shall have the meaning
specified in subsection 4.6(c) of the Agreement.
"Credit Enhancement Charge-Offs" shall have the meaning
specified in subsection 4.13(a) of the Agreement.
"Credit Enhancement Excess Amounts" shall mean with respect to
any Business Day, the excess of the Credit Enhancement Invested Amount over
the Stated Credit Enhancement Amount on such day after taking into account
all adjustments of the AB Adjusted Invested Amount on such day.
"Credit Enhancement Fixed/Floating Allocation Percentage" shall
mean for any Business Day the percentage equivalent of a fraction, the
numerator of which is the Credit Enhancement Invested Amount 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 amount 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.
"Credit Enhancement Initial Invested Amount" shall mean the
aggregate initial principal amount of the Credit Enhancement which is $ .
"Credit Enhancement Interest Rate" shall mean % per annum from
the Closing Date through and including , 1999 and with respect to each
Interest Accrual Period thereafter, a per annum rate of % in excess of
LIBOR as determined on the related LIBOR Determination Date.
"Credit Enhancement Interest Shortfall" shall have the meaning
specified in subsection 4.6(c) of the Agreement.
"Credit Enhancement Invested Amount" shall mean, when used with
respect to any Business Day, the greater of (x) zero and (y) an amount
equal to (a) the initial principal balance of the Credit Enhancement, minus
(b) the aggregate amount of principal payments made to Credit Enhancement
Providers through and including such Business Day, minus (c) the aggregate
amounts by which the Transferor has reduced the Credit Enhancement Invested
Amount pursuant to subsection [4.12(d)] of the Agreement, minus (d) the
aggregate amount of Credit Enhancement Charge-Offs for all prior
Distribution Dates, minus (e) the aggregate amount of Redirected Principal
Collections for all prior Business Days, plus (f) the sum of the aggregate
amount allocated and available on all prior Business Days pursuant to
subsection 4.9(a)(x) of the Agreement and, with respect to such subsection,
pursuant to subsections 4.10(a) and (b), 4.17(b) and 4.18(b), (c) and (d)
of the Agreement, for the purpose of reinstating amounts reduced pursuant
to the foregoing clauses (d) and (e).
"Credit Enhancement Monthly Interest" shall mean the interest
distributable in respect of the Credit Enhancement as calculated in
accordance with subsection 4.6(c) of the Agreement.
"Credit Enhancement Outstanding Principal Amount" shall mean,
when used with respect to any Business Day, an amount equal to (a) the
Credit Enhancement Initial Invested Amount minus (b) the aggregate amount
of principal payments made to Credit Enhancement Providers prior to such
Business Day.
"Credit Enhancement Percentage" shall mean with respect to any
Business Day the percentage equivalent of a fraction, the numerator of
which is the Credit Enhancement Invested Amount on such day after taking
into account all adjustments of the Credit Enhancement Invested Amount on
such day and the denominator of which is the greater of (a) the sum of the
aggregate amount of Principal Receivables and the amount on deposit in the
Excess Funding Account at the end of the preceding Business Day and (b) the
sum of the numerators with respect to all Classes of all Series then
outstanding used to calculate the applicable allocation percentage.
"Credit Enhancement Principal" shall mean the principal
distributable in respect of the Credit Enhancement as specified in
subsection 4.7(c) of the Agreement.
"Credit Enhancement Principal Payment Commencement Date" shall
mean the earlier of (a) during the 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 the Series 1999-
Securities remaining after payments have been made to the Class B
Securities on such Distribution Date, the Distribution Date following the
first Distribution Date on which the Class B Invested Amount is paid in
full and (b) the Distribution Date following a sale or repurchase of the
Receivables as set forth in Section 2.4(e), 9.2, 10.2(a), 12.1 or 12.2 of
the Agreement or Section 3 of this Series Supplement.
"Credit Enhancement Provider" shall mean the Person providing
the Credit Enhancement.
"Credit Enhancement Providers' Interest" shall mean the portion
of the Series 1999- Securityholders' Interest allocated to the Credit
Enhancement Provider.
"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.
"Distribution Date" shall mean , 1999, and the fifteenth day of
each month thereafter, or if such day is not a Business Day, the next
succeeding Business Day.
"DTC" shall mean The Depository Trust Company.
"Early Amortization Period" shall mean 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 Credit Enhancement
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, Class B
Invested Amount and the Credit Enhancement Invested Amount have been paid
in full and (ii) the Scheduled Series 1999- Termination Date.
"Enhancement" shall mean, with respect to the Class A
Securities, the subordination of the Class B Invested Amount and the Credit
Enhancement, and, with respect to the Class B Securities, the subordination
of the Credit Enhancement.
"Excess Finance Charge Collections" shall mean, with respect to
any Business Day, as the context requires, either (x) the amount described
in subsection 4.9(a)(xiii) of the Agreement allocated to the Series 1999-
Securities but available to cover shortfalls in amounts paid from Finance
Charge Collections for other Series, if any, or (y) the aggregate amount of
Finance Charge Collections allocable to other Series in excess of the
amounts necessary to make required payments with respect to such Series, if
any, and available to cover shortfalls with respect to the Series 1999-
Securities.
"Expected Final Payment Date" shall mean the Distribution Date.
"FASIT" shall have the meaning specified in Section 16 of this
Series Supplement.
"Fixed/Floating Percentage" shall mean for any Business Day the
percentage equivalent of a fraction, the numerator of which is the Invested
Amount 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 amount 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; provided, however, that,
on and after the Pay Out Commencement Date, with respect to the allocations
of Collections of Finance Charge Receivables, the numerator used in the
above calculation shall be the Adjusted Invested Amount as of the day
immediately preceding the Pay Out Commencement Date.
"Floating Percentage" shall mean for any Business Day the sum
of the applicable Class A Floating Percentage, Class B Floating Percentage
and Credit Enhancement Floating Percentage for such Business Day.
"Full Invested Amount" shall mean $ .
"Initial Invested Amount" shall mean an amount equal to the sum
of (i) the Class A Initial Invested Amount, (ii) the Class B Initial
Invested Amount and (ii) the Credit Enhancement Initial Invested Amount.
"Interest Accrual Period" shall mean, 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.
"Invested Amount" shall mean, when used with respect to any
Business Day, an amount equal to the sum of (a) the Class A Invested Amount
as of such Business Day, (b) the Class B Invested Amount as of such
Business Day and (c) the Credit Enhancement Invested Amount as of such
Business Day.
"Investment Earnings" shall mean, with respect to any Business
Day, the investment earnings on amounts on deposit in (i) the Payment
Reserve Account, deposited in the Collection Account pursuant to subsection
4.16(c) of the Agreement, (ii) the Principal Funding Account, deposited in
the Collection Account pursuant to subsection 4.17(b) of the Agreement and
(iii) the Accumulation Period Reserve Account, deposited in the Collection
Account pursuant to subsection 4.18(b) of the Agreement.
"Investor Securities" shall mean the Class A Securities and the
Class B Securities.
"Investor Securityholder" shall mean the Holder of record of an
Investor Security of Series 1999- .
"LIBOR" shall mean, as of any LIBOR Determination Date, the
London interbank offered quotations for one-month Dollar deposits
determined by the Trustee for each Interest Accrual Period in accordance
with the provisions of Section 4.15 of the
Agreement.
"LIBOR Determination Date" shall mean the second Business Day
prior to the commencement of each Interest Accrual Period; provided,
however, that with respect to the period from the Closing Date through
, 1999, LIBOR Determination Date shall mean , 1999. For
purposes of this definition, a Business Day is any day on which banks in
London and New York are open for the transaction of international business.
"Minimum Retained Percentage" shall mean 2%.
"Minimum Transferor Percentage" shall mean 0%; provided,
however, that in certain circumstances such percentage may be increased.
"Monthly Period" shall have the meaning specified in the
Agreement, except that the first Monthly Period with respect to the Series
1999- Securities shall begin on and include the Closing Date and shall end
on and include , 1999.
"Negative Carry Amount" shall have the meaning specified in
subsection 4.10(a) of the Agreement.
"Paired Series" shall have the meaning specified in Section 17
of this Series Supplement.
"Paying Agent" shall mean, for the Series 1999- Securities,
[The Bank of New York][initially, The Bank of New York and, in certain
limited circumstances, the Banque Generale du Luxembourg, S.A.].
"Payment Reserve Account" shall have the meaning specified in
subsection 4.16 of the Agreement.
"Pay Out Commencement Date" shall mean the date on which a
Trust Pay Out Event is deemed to occur pursuant to Section 9.1 of the
Agreement or a Series 1999- Pay Out Event is deemed to occur pursuant to
Section 8 of this Series Supplement.
"Portfolio Adjusted Yield" shall mean, with respect to any
Monthly Period, the average of the percentages obtained for each of the
three preceding Monthly Periods by subtracting the Base Rate for such
Monthly Period from the Portfolio Yield for such Monthly Period.
"Portfolio Yield" shall mean for the Series 1999- Securities,
with respect to any Monthly Period, the annualized percentage equivalent of
a fraction, the numerator of which is an amount equal to the sum of the
aggregate amount of Available Series 1999- 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,
and amounts withdrawn from the Accumulation Period Reserve Account, if any,
with respect to such Monthly Period calculated on a cash basis, minus the
aggregate Series Default Amount for such Monthly Period and the Series
1999- Percentage of any Adjustment Payments which the Transferor is
required but fails to make pursuant to the Agreement for such Monthly
Period, and the denominator of which is the average daily Invested Amount;
provided, however, that Excess Finance Charge Collections applied for the
benefit of the Securityholders may be added to the numerator if a Ratings
Event with respect to the Series 1999- Securities would not occur as a
result thereof.
"Principal Funding Account" shall have the meaning set forth in
subsection 4.17 of the Agreement.
"Principal Funding Account Balance" shall mean, with respect to
any date of determination during the Accumulation Period, the principal
amount, if any, on deposit in the Principal Funding Account on such date of
determination.
"Principal Funding Account Investment Proceeds" shall mean,
with respect to each Interest Accrual Period during the Accumulation
Period, the investment earnings on funds on deposit in the Principal
Funding Account (net of investment losses and expenses) for such Interest
Accrual Period.
"Principal Shortfalls" shall mean on any Business Day (x) for
Series 1999- , (i) during the Accumulation Period, the amount, if any, by
which the Controlled Deposit Amount for the Transfer Date immediately
following the then current Monthly Period exceeds the total of the amounts
described in clauses (v), (w), (x) and (y) of subsection 4.9(c)(i), and
(ii) at all other times, the Invested Amount of the class then receiving
principal payments after the application of Principal Collections on such
Business Day or (y) for any other Series the amounts specified as such in
the Supplement for such other Series.
"QIB" shall mean a "qualified institutional buyer" within the
meaning of Rule 144A under the Securities Act.
"Rating Agency" shall mean Standard & Poor's, a Division of the
McGraw-Hill Companies, and Moody's Investors Service, Inc.
"Redirected Class B Principal Collections" shall have the
meaning specified in subsection 4.14(b) of the Agreement.
"Redirected Credit Enhancement Principal Collections" shall
have the meaning specified in subsection 4.14(a) of the Agreement.
"Redirected Principal Collections" shall mean the sum of
Redirected Class B Principal Collections and Redirected Credit Enhancement
Collections.
"Reference Banks" shall mean four major banks in the London
interbank market selected by the Trustee.
"Reimbursement Required Amount" shall have the meaning
specified in subsection 4.01(b) of the Agreement.
"Required Accumulation Factor Number" shall be equal to a
fraction, rounded upwards to the nearest whole number, the numerator of
which is one and the denominator of which is equal to the lowest monthly
principal payment rate on the Receivables, expressed as a decimal, for the
12 months preceding the date of such calculation.
"Required Amount" shall have the meaning specified in
subsection 4.10(b) of the Agreement.
"Required Reserve Account Amount" shall mean, with respect to
any Transfer Date on or after the Reserve Account Funding Date, an amount
equal to (a) 0.50% of the sum of the Class A Invested Amount and the Class
B Invested Amount or (b) any other amount designated by the Transferor;
provided, however, that if such designation is of a lesser amount, the
Transferor shall have (i) provided the Servicer and the Trustee with
evidence that the Rating Agency Condition has been satisfied and (ii)
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 the giving of notice or the lapse of
time, would cause a Pay Out Event to occur with respect to Series 1999- .
"Reserve Account Funding Date" shall mean the earliest of (a)
the first day of the third Monthly Period preceding the first full day of
the Accumulation Period; (b) the Determination Date occurring in the first
Monthly Period for which the Portfolio Adjusted Yield is less than 2.0%,
but in such event the Reserve Account Funding Date shall not be required to
occur earlier than the first day of the Monthly Period which commences 12
months prior to the first full day of the Accumulation Period; (c) the
Determination Date occurring in the first Monthly Period for which the
Portfolio Adjusted Yield is less than 3.0%, but in such event the Reserve
Account Funding Date shall not be required to occur earlier than the first
day of the Monthly Period which commences 6 months prior to the first full
day of the Accumulation Period; or (d) the Determination Date occurring in
the first Monthly Period for which the Portfolio Adjusted Yield is less
than 3.5%, but in such event the Reserve Account Funding Date shall not be
required to occur earlier than the first day of the Monthly Period which
commences 4 months prior to the first full day of the Accumulation Period.
"Revolving Period" shall mean the period from and including the
Closing Date to, but not including, the Amortization Period Commencement
Date.
"Scheduled Series 1999- Termination Date" shall mean the
Distribution Date.
"Series Default Amount" shall mean, with respect to each
Business Day, an amount equal to the product of the Default Amount
identified since the prior reporting date and the Floating Percentage
applicable for such Business Day.
"Series 1999- " shall mean the Series of the Metris Master
Trust represented by the Series 1999- Securities.
"Series 1999- Pay Out Event" shall have the meaning specified
in Section 8 of this Series Supplement.
"Series 1999- Percentage" shall mean, 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 relating to all other Series then outstanding.
"Series 1999- Securities" shall mean the Class A Securities,
the Class B Securities and the Credit Enhancement.
"Series 1999- Securityholder" shall mean the holder of record
of any Series 1999- Security or, with respect to the Credit Enhancement,
the Credit Enhancement Provider.
"Series 1999- Securityholders' Interest" shall have the meaning
specified in Section 4.4 of the Agreement.
"Series 1999- Termination Date" shall mean the earlier to occur
of (i) the day after the Distribution Date on which the Series 1999-
Securities are paid in full, or (ii) the Scheduled Series 1999- Termination
Date.
"Series Servicing Fee Percentage" shall mean 2.00% per annum.
"Servicing Fee" shall mean for any Monthly Period, an amount
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.
"Shared Principal Collections" shall mean, as the context
requires, either (a) the amount allocated to the Series 1999- Securities
which, in accordance with subsections 4.9(b) and 4.9(c)(v) of the
Agreement, may be applied in accordance with Section 4.3(d) of the
Agreement or (b) the amounts allocated to the investor securities of other
Series which the applicable Series Supplements for such Series specify are
to be treated as "Shared Principal Collections" and which may be applied to
cover Principal Shortfalls with respect to the Series 1999- Securities.
"Stated Credit Enhancement Amount" shall mean the greater of
(i) zero and (ii) a number rounded to the nearest Dollar equal to the
product of % percent and the AB Adjusted Invested Amount; provided,
however, that in no event shall the Stated Credit Enhancement Amount be
less than $ , except that if the AB Adjusted Invested Amount is equal to
zero, the Stated Credit Enhancement Amount shall be zero; and provided
further that during any Early Amortization Period the Stated Credit
Enhancement Amount shall be equal to the Stated Credit Enhancement Amount
immediately preceding the commencement of the Early Amortization Period.
"Targeted Holder" shall mean (i) each holder of a right to
receive interest or principal with respect to investor securities (or other
interests in the Trust), [including the Credit Enhancement], other than
securities (or other such interests) with respect to which an opinion is
rendered that such securities (or other such interests) will be treated as
debt for Federal income tax purposes and (ii) any holder of a right to
receive any amount in respect of the Transferor Interest; provided, that
any Person holding more than one interest each of which would cause such
Person to be a Targeted Holder shall be treated as a single Targeted
Holder.
"Termination Payment Date" shall mean the earlier of the first
Distribution Date following the liquidation or sale of the Receivables as a
result of an Insolvency Event and the occurrence of the Scheduled Series
1999- Termination Date.
"Transfer" shall have the meaning specified in subsection 10(a)
of this Series Supplement.
"Transferor Finance Charge Collections" shall mean on any
Business Day the product of (a) the Finance Charge Collections for such
Business Day, (b) the Transferor Percentage and (c) the Series 1999-
Percentage.
"Transferor Retained Securities" shall mean investor securities
of any Series, [which may include the Credit Enhancement], which the
Transferor retains or provides, but only to the extent that and for so long
as the Transferor is the holder or provider of such Securities.
"Transferor Retained Finance Charge Collections" shall mean
with respect to each Business Day other than a Default Recognition Date,
the amount specified in subsection 4.9(a)(xiii) of the Agreement.
"Weighted Average Invested Amount" shall mean 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" shall mean 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.
SECTION 3. Reassignment Terms. The Series 1999- Securities
shall be subject to termination by the Transferor at its option, in
accordance with the terms specified in subsection 12.2(a) of the Agreement,
on any Distribution Date on or after the Distribution Date on which the sum
of the Class A Invested Amount, the Class B Invested Amount and the Credit
Enhancement Invested Amount would be reduced to an amount less than or
equal to 10% of the sum of the highest Class A Invested Amount, the highest
Class B Invested Amount and the highest Credit Enhancement Invested Amount
during the Revolving Period. The deposit required in connection with any
such termination and final distribution shall be equal to the sum of the
unpaid Class A Invested Amount, unpaid Class B Invested Amount and unpaid
Credit Enhancement plus accrued and unpaid interest on the Class A
Securities, Class B Securities and Credit Enhancement through the day prior
to the Distribution Date on which the final distribution occurs, in each
case after giving effect to any payments on such date.
SECTION 4. Delivery and Payment for the Series 1999-
Securities. The Transferor shall execute and deliver the Series 1999-
Securities to the Trustee for authentication in accordance with Section 6.1
of the Agreement. The Trustee shall deliver the Series 1999- Securities to
or upon the order of the Transferor when authenticated in accordance with
Section 6.2 of the Agreement.
SECTION 5. Form of Delivery of Series 1999- Securities;
Denominations. (a) The Class A Securities and the Class B Securities shall
be delivered as Book- Entry Securities as provided in Sections 6.1 and 6.10
of the Agreement and shall be issued in minimum denominations of $ and
integral multiples thereof. Evidence of the Credit Enhancement shall be
delivered as provided in Section 6.1 of the Agreement.
(b) The Depositary for Series 1999- shall be The
Depository Trust Company and the Class A Securities and Class B Securities
shall be initially registered in the name of Cede & Co., its nominee.
SECTION 6. Article IV of Agreement. Sections 4.1, 4.2 and 4.3
of the Agreement shall read in their entirety as provided in the Agreement.
Article IV of the Agreement (except for Sections 4.1, 4.2 and 4.3 thereof)
shall read in its entirety as follows and shall be applicable only to the
Series 1999- Securities:
ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.4 Rights of Securityholders. The Series 1999-
Securities shall represent undivided interests in the Trust, including the
right to receive, to the extent necessary to make the required payments
with respect to such Series 1999- Securities at the times and in the
amounts specified in this Agreement, (a) the Floating Percentage and the
Fixed/Floating Percentage (as applicable from time to time) of Collections
(including Finance Charge Collections) available in the Collection Account,
(b) funds allocable to the Series 1999- Securities on deposit in the Excess
Funding Account and (c) funds on deposit in the Interest Funding Account,
the Principal Account, the Principal Funding Account, the Accumulation
Period Reserve Account, the Distribution Account and the Payment Reserve
Account (for such Series, the "Series 1999- Securityholders' Interest").
The Class B Invested Amount and the Credit Enhancement Invested Amount
shall be subordinated to the Class A Securities, and the Credit Enhancement
Invested Amount shall be subordinate to the Class B Invested Amount, to the
extent provided in this Article IV. The Class B Securities will not have
the right to receive payments of principal until the Class A Invested
Amount has been paid in full and, except in connection with the payment of
Credit Enhancement Excess Amounts, the Credit Enhancement will not have the
right to receive payments of principal until the Class B Invested Amount
has been paid in full.
SECTION 4.5 Collections and Allocation; Payments on
Exchangeable Transferor Security.
(a) Collections and Allocations. The Servicer will apply or
will instruct the Trustee to apply all funds on deposit in the Collection
Account and the Excess Funding Account allocable to the Series 1999-
Securities, and all funds on deposit in the Interest Funding Account, the
Principal Account, the Principal Funding Account, the Accumulation Period
Reserve Account, the Distribution Account and the Payment Reserve Account
maintained for this Series, as described in this Article IV. On each
Business Day, (i) the amount of Finance Charge Collections available in the
Collection Account allocable to Series 1999- Securities shall be determined
by multiplying the aggregate amount of such Finance Charge Collections by
(x) prior to the Pay Out Commencement Date, the Floating Percentage and (y)
on and after the Pay Out Commencement Date, the Fixed/Floating Percentage,
(ii) the amount of Principal Collections available in the Collection
Account allocable to the Series 1999- Securities shall be determined by
multiplying the aggregate amount of such Principal Collections by (x)
during the Revolving Period, the Floating Percentage and (y) during any
Amortization Period, the Fixed/Floating Percentage, and (iii) the
Receivables in Defaulted Accounts allocable to the Series 1999- Securities
shall be determined by multiplying the aggregate amount of such Receivables
in Defaulted Accounts by the Floating Percentage. In addition, on the
Closing Date the Transferor shall make a deposit to the Interest Funding
Account in the amount of $ to be allocated to the Series 1999- Securities
and applied as Available Series 1999- Finance Charge Collections in
accordance with subsection 4.9(a) of the Agreement.
(b) Payments to the Holder of the Exchangeable Transferor
Security. On each Business Day, the Servicer shall allocate and pay
Collections in accordance with the Daily Report with respect to such
Business Day to the Holder of the Exchangeable Transferor Security in
accordance with subsection 4.3(b) of the Agreement; provided, however, that
such amounts shall be applied in accordance with Section 4.10 of the
Agreement to the extent specified therein.
Notwithstanding the foregoing and any other provisions of the
Agreement, amounts payable to the Transferor 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.
SECTION 4.6 Determination of Interest for the Series 1999-
Securities. (a) The amount of monthly interest (the "Class A Monthly
Interest") allocable to the Class A Securities with respect to any Interest
Accrual Period shall be an amount equal to the product of (i) the Class A
Interest Rate, (ii) 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 and (iii) the Class A Outstanding Principal Amount as of the close
of business on the first day of such Interest Accrual Period (or in the
case of the initial Distribution Date, an amount equal to the product of
(u) the Class A Initial Invested Amount, (v) __ divided by 360, and (w) the
Class A Interest Rate determined on __________, 1999).
On the Determination Date preceding each Distribution Date, the
Servicer shall determine an amount (the "Class A Interest Shortfall") equal
to the excess, if any, of (x) the Class A Monthly Interest for the Interest
Accrual Period applicable to the Distribution Date over (y) the amount
available to be paid to the Class A Securityholders in respect of interest
on such Distribution Date. If there is a Class A Interest Shortfall with
respect to any Distribution Date, an additional amount ("Class A Additional
Interest") shall be payable as provided herein with respect to the Class A
Securities on each Distribution Date following such Distribution Date, to
and including the Distribution Date on which such Class A Interest
Shortfall is paid to Class A Securityholders, equal to the product of (i)
the Class A Interest Rate, (ii) 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 and (iii) such Class A Interest Shortfall
remaining unpaid. Notwithstanding anything to the contrary herein, Class A
Additional Interest shall be payable or distributed to Class A
Securityholders only to the extent permitted by applicable law.
(b) The amount of monthly interest (the "Class B Monthly
Interest") allocable to the Class B Securities with respect to any Interest
Accrual Period shall be an amount equal to the product of (i) the Class B
Interest Rate, (ii) 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 and (iii) the Class B Invested Amount as of the close of business on
the first day of such Interest Accrual Period (or in the case of the
initial Distribution Date, an amount equal to the product of (u) the Class
B Initial Invested Amount, (v) __ divided by 360, and (w) the Class B Interest
Rate determined on __________, 1999).
On the Determination Date preceding each Distribution Date, the
Servicer shall determine an amount (the "Class B Interest Shortfall") equal
to the excess, if any, of (x) the aggregate Class B Monthly Interest for
the Interest Accrual Period applicable to the Distribution Date over (y)
the amount available to be paid to the Class B Securityholders in respect
of interest on such Distribution Date. If there is a Class B Interest
Shortfall with respect to any Distribution Date, an additional amount
("Class B Additional Interest") shall be payable as provided herein with
respect to the Class B Securities on each Distribution Date following such
Distribution Date, to and including the Distribution Date on which such
Class B Interest Shortfall is paid to Class B Securityholders, equal to the
product of (i) the Class B Interest Rate, (ii) 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 and (iii) such Class B Interest
Shortfall remaining unpaid. Notwithstanding anything to the contrary
herein, Class B Additional Interest shall be payable or distributed to
Class B Securityholders only to the extent permitted by applicable law.
(c) The amount of monthly interest (the "Credit Enhancement
Monthly Interest") allocable to the Credit Enhancement with respect to any
Interest Accrual Period shall be an amount equal to the product of (i) the
Credit Enhancement Interest Rate, (ii) 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 and (iii) the Credit Enhancement Outstanding
Principal Amount as of the close of business on the first day of such
Interest Accrual Period (or in the case of the initial Distribution Date,
an amount equal to the product of (u) the Credit Enhancement Initial
Invested Amount, (v) __ divided by 360, and (w) the Class A Interest Rate
determined on __________, 1999).
On the Determination Date preceding each Distribution Date, the
Servicer shall determine an amount (the "Credit Enhancement Interest
Shortfall") equal to the excess, if any, of (x) the Credit Enhancement
Monthly Interest for the Interest Accrual Period applicable to the
Distribution Date over (y) the amount available to be paid to the Credit
Enhancement Providers in respect of interest on such Distribution Date. If
there is a Credit Enhancement Shortfall with respect to any Distribution
Date, an additional amount ("Credit Enhancement Additional Interest") shall
be payable as provided herein with respect to the Credit Enhancement on
each Distribution Date following such Distribution Date, to and including
the Distribution Date on which such Credit Enhancement Interest Shortfall
is paid to Credit Enhancement Providers, equal to the product of (i) the
Credit Enhancement Interest Rate, (ii) 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 and (iii) such Credit Enhancement Interest
Shortfall remaining unpaid. Notwithstanding anything to the contrary
herein, Credit Enhancement Additional Interest shall be payable or
distributed to Credit Enhancement Providers only to the extent permitted by
applicable law.
SECTION 4.7 Determination of Principal Amounts. (a) The amount
of principal (the "Class A Principal") distributable from the Distribution
Account or available for deposit into the Principal Funding Account with
respect to the Class A Securities for each Distribution Date with respect
to the Amortization Period shall be equal to the least of (i) the Available
Series 1999- Principal Collections on deposit in the Principal Account with
respect to the related Transfer Date, (ii) for each Distribution Date with
respect 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.
(b) The amount of principal (the "Class B Principal")
distributable from the Distribution Account or available for deposit into
the Principal Funding Account with respect to the Class B Securities for
each Distribution Date, beginning with the Class B Principal Payment
Commencement Date, shall be equal to the least of (i) the Available Series
1999- Principal Collections remaining on deposit in the Principal Account
with respect to the related Transfer Date after application thereof to
Class A Principal, if any, (ii) for each Distribution 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.
(c) The amount of principal (the "Credit Enhancement
Principal") distributable from the Distribution Account with respect to the
Credit Enhancement for each Distribution Date, beginning with the Credit
Enhancement Principal Payment Commencement Date, or, in the case of
distributions of Credit Enhancement Excess Amounts, on each Distribution
Date during the Accumulation Period, shall be equal to the lesser of (i)
the Available Series 1999- Principal Collections remaining on deposit in
the Principal Account with respect to the related Transfer Date after
application thereof to Class A Principal and Class B Principal, if any,
(ii) the Credit Enhancement Invested Amount on such Transfer Date and (iii)
in the case of distributions of Credit Enhancement Excess Amounts, the
Credit Enhancement Excess Amount.
SECTION 4.8 Shared Principal Collections. Shared Principal
Collections allocated to Available Series 1999- Principal Collections for
the Series 1999- Securities and to be applied to Class A Principal, Class B
Principal and Credit Enhancement Principal pursuant to subsection
4.9(c)(i)(z) of the Agreement for any Business Day with respect to the
Amortization Period shall mean an amount equal to the product of (x) Shared
Principal Collections for all Series for such Business Day and (y) a
fraction, the numerator of which is the Principal Shortfall for the Series
1999- Securities for such Business Day and the denominator of which is the
aggregate amount of Principal Shortfalls for all Series for such Business
Day. For any Business Day with respect to the Revolving Period, Shared
Principal Collections allocated to Available Series 1999- Principal
Collections for the Series 1999- Securities shall be zero.
SECTION 4.9 Application of Funds. (a) On each Business Day, the
Servicer shall deliver to the Trustee a Daily Report in which it shall
instruct the Trustee to withdraw, and the Trustee, acting in accordance
with such instructions, shall withdraw from the Collection Account, to the
extent of the sum of (w) prior to the Pay Out Commencement Date, 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,
available in the Collection Account or, on and after the Pay Out
Commencement Date, 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 by not
made in a prior Monthly Period, available in the Collection Account, (x)
Investment Earnings on deposit in the Collection Account and (y) 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 1999- Finance Charge Collections"; provided, that with
respect to the Closing Date the amount deposited by the Transferor into the
Interest Funding Account pursuant to subsection 4.5(a) of the Agreement
shall also constitute Available Series 1999- Finance Charge Collections)
the amounts required to be withdrawn from the Collection Account pursuant
to subsections 4.9(a)(i) through 4.9(a)(xiii) of the Agreement.
(i) Class A Monthly Interest. On each Business Day during
a Monthly Period, the Trustee, acting in accordance with instructions
from the Servicer, shall withdraw first from the Collection Account
and then from the Payment Reserve Account, and deposit into the
Interest Funding Account for distribution on the next Distribution
Date to the Class A Securityholders, to the extent of the Available
Series 1999- Finance Charge Collections for such Business Day, an
amount equal to the lesser of (x) the Available Series 1999- Finance
Charge Collections and (y) the excess of (1) the sum of Class A
Monthly Interest and Carryover Class A Interest over (2) any amounts
with respect thereto previously deposited into the Interest Funding
Account on any prior Business Day during such Monthly Period.
Notwithstanding anything to the contrary herein, the portion of
Carryover Class A Interest that constitutes Class A Additional
Interest shall be payable or distributable to Class A Securityholders
only to the extent permitted by applicable law.
(ii) Class B Monthly Interest. On each Business Day
during a Monthly Period, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from the
Collection Account and then from the Payment Reserve Account, and
deposit into the Interest Funding Account for distribution on the
next Distribution Date to the Class B Securityholders, to the extent
of any Available Series 1999- Finance Charge Collections remaining
after giving effect to the withdrawal pursuant to subsection
4.9(a)(i) of the Agreement, an amount equal to the lesser of (x) any
such remaining Available Series 1999- Finance Charge Collections and
(y) the excess of (1) the sum of Class B Monthly Interest and
Carryover Class B Interest over (2) any amounts with respect thereto
previously deposited into the Interest Funding Account on any prior
Business Day during such Monthly Period. Notwithstanding anything to
the contrary herein, the portion of Carryover Class B Interest that
constitutes Class B Additional Interest shall be payable or
distributable to Class B Securityholders only to the extent permitted
by applicable law.
(iii) Servicing Fee. On each Business Day, the Trustee,
acting in accordance with instructions from the Servicer, shall
withdraw first from the Collection Account and then from the Payment
Reserve Account, and distribute to the Servicer, to the extent of any
Available Series 1999- Finance Charge Collections remaining after
giving effect to the withdrawals pursuant to subsections 4.9(a)(i)
through (ii) of the Agreement, an amount equal to the lesser of (x)
any such remaining Available Series 1999- Finance Charge Collections
and (y) the excess of (i) the Servicing Fee for such Monthly Period
plus any unpaid Servicing Fees from prior Monthly Periods over (ii)
any amounts with respect thereto previously distributed to the
Servicer during such Monthly Period.
(iv) Series Default Amount. On each Business Day, first
if such day is the Default Recognition Date for the related Monthly
Period, the Transferor will deposit (as described below) Transferor
Retained Finance Charge Collections for each prior day in the Current
Monthly Period and second the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from the
Collection Account and then from the Payment Reserve Account, to the
extent of any Available Series 1999- Finance Charge Collections
remaining after giving effect to the withdrawals pursuant to
subsections 4.9(a)(i) through (iii) of the Agreement, an amount equal
to the lesser of (x) any such remaining Available Series 1999-
Finance Charge Collections and, if such day is the related Default
Recognition Date for such Monthly Period, an amount equal to the
aggregate Transferor Retained Finance Charge Collections for each
prior day during the related Monthly Period and (y) the sum of (1)
the aggregate Series Default Amount for such Business Day plus (2)
the unpaid Series Default Amount for each previous Business Day
during such Monthly Period, such amount to be (A) treated as Shared
Principal Collections during the Revolving Period, and (B) to be
treated as Available Series 1999- Principal Collections during the
Amortization Period.
(v) Adjustment Payment Shortfalls. On each Business Day,
the Trustee, acting in accordance with instructions from the
Servicer, shall withdraw first from the Collection Account and then
from the Payment Reserve Account, to the extent of any Available
Series 1999- Finance Charge Collections remaining after giving effect
to the withdrawals pursuant to subsections 4.9(a)(i) through (iv) of
the Agreement, an amount equal to the lesser of (x) any such
remaining Available Series 1999- Finance Charge Collections and (y)
an amount equal to the Series 1999- Percentage of any Adjustment
Payment which the Transferor is required but fails to make pursuant
to subsection 3.8(a) of the Agreement, such amount, (i) during the
Revolving Period, to be treated as Shared Principal Collections, and
(ii) during the Amortization Period, to be treated as Available
Series 1999- Principal Collections.
(vi) Reimbursement of Class A Charge- Offs. On each
Business Day, the Trustee, acting in accordance with instructions
from the Servicer, shall withdraw first from the Collection Account
and then from the Payment Reserve Account, to the extent of any
Available Series 1999- Finance Charge Collections remaining after
giving effect to the withdrawals pursuant to subsections 4.9(a)(i)
through (v) of the Agreement, an amount equal to the lesser of (x)
any such remaining Available Series 1999- Finance Charge Collections
and (y) the unreimbursed Class A Charge-Offs, if any, will be applied
to reimburse Class A Charge-Offs, such amount during the Revolving
Period, to be treated as Shared Principal Collections, and during the
Amortization Period, to be treated as Available Series 1999-
Principal Collections.
(vii) Unpaid Class B Monthly Interest. On each Business
Day, the Trustee, acting in accordance with the instructions from the
Servicer, shall withdraw first from the Collection Account and then
from the Payment Reserve Account, and deposit in the Interest Funding
Account for distribution to the Class B Securityholders on the next
Distribution Date, to the extent of any Available Series 1999-
Finance Charge Collections remaining after giving effect to the
withdrawals pursuant to subsections 4.9(a)(i) through (vi) of the
Agreement, an amount equal to the lesser of (x) any such remaining
Available Series 1999- Finance Charge Collections and (y) the sum of
(1) the amount of interest which has accrued with respect to the
Class B Outstanding Principal Amount at the Class B Interest Rate but
which has not been deposited into the Interest Funding Account or
paid to the Class B Securityholders and (2) any additional interest
(to the extent permitted by applicable law) at the Class B Interest
Rate for interest that has accrued on interest that was due during a
prior Monthly Period pursuant to this subsection but was not
deposited in the Interest Funding Account or paid to the Class B
Securityholders.
(viii) Credit Enhancement Monthly Interest. On each
Business Day during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer, shall withdraw first
from the Collection Account and then from the Payment Reserve
Account, and deposit into the Interest Funding Account for
distribution on the next Distribution Date to the Credit Enhancement
Providers, to the extent of any Available Series 1999- Finance Charge
Collections remaining after giving effect to the withdrawals pursuant
to subsections 4.9(a)(i) through (vii) of the Agreement, an amount
equal to the lesser of (x) any such remaining Available Series 1999-
Finance Charge Collections and (y) the excess of (1) the sum of
Credit Enhancement Monthly Interest and Carryover Credit Enhancement
Interest over (2) any amounts with respect thereto previously
deposited into the Interest Funding Account on any prior Business Day
during such Monthly Period. Notwithstanding anything to the contrary
herein, the portion of Carryover Credit Enhancement Interest that
constitutes Credit Enhancement Additional Interest shall be payable
or distributable to Credit Enhancement Providers only to the extent
permitted by applicable law.
(ix) Reimbursement of Class B Charge- Offs. On each
Business Day, the Trustee, acting in accordance with instructions
from the Servicer, shall withdraw first from the Collection Account
and then from the Payment Reserve Account, to the extent of any
Available Series 1999- Finance Charge Collections remaining after
giving effect to the withdrawals pursuant to subsections 4.9(a)(i)
through (viii) of the Agreement, an amount equal to the lesser of (x)
any such remaining Available Series 1999- Finance Charge Collections
and (y) the unreimbursed amount by which the Class B Invested Amount
has been reduced on prior Business Days pursuant to clauses (c) and
(d) of the definition of Class B Invested Amount, if any, such
amount, (i) during the Revolving Period, to be treated as Shared
Principal Collections, and (ii) during the Amortization Period, to be
treated as Available Series 1999- Principal Collections.
(x) Reimbursement of Credit Enhancement Charge-Offs. On
each Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from the
Collection Account and then from the Payment Reserve Account, to the
extent of any Available Series 1999- Finance Charge Collections
remaining after giving effect to the withdrawals pursuant to
subsections 4.9(a)(i) through (ix) of the Agreement, an amount equal
to the lesser of (x) any such remaining Available Series 1999-
Finance Charge Collections and (y) the unreimbursed amount by which
the Credit Enhancement Invested Amount has been reduced on prior
Business Days pursuant to clauses (c) and (d) of the definition of
Credit Enhancement Invested Amount, if any, such amount, (i) during
the Revolving Period, to be treated as Shared Principal Collections,
and (ii) during the Amortization Period, to be treated as Available
Investor Principal Collections.
(xi) Accumulation Period Reserve Account. On each
Business Day on and after the Reserve Account Funding Date, but prior
to the date on which the Accumulation Period Reserve Account
terminates pursuant to subsection 4.18(d) of the Agreement, the
Trustee, acting in accordance with instructions from the Servicer,
shall withdraw first from the Collection Account and then from the
Payment Reserve Account, and distribute to the Servicer, to the
extent of any Available Series 1999- Finance Charge Collections
remaining after giving effect to the withdrawals pursuant to
subsections 4.9(a)(i) through (x) of the Agreement, an amount equal
to the lesser of (x) any such remaining Available Series 1999-
Finance Charge Collections and (y) the excess, if any, of the
Required Reserve Account Amount over the Available Reserve Account
Amount and the Servicer shall deposit such amount, if any, in the
Accumulation Period Reserve Account.
(xii) Payment Reserve Account. On each Business Day, the
Trustee, acting in accordance with instructions from the Transferor,
shall withdraw first from the Collection Account and then from the
Payment Reserve Account, and distribute to the Servicer, to the
extent of any Available Series 1999- Finance Charge Collections
remaining after giving effect to the withdrawals pursuant to
subsections 4.9(a)(i) through (xii) of the Agreement, an amount equal
to the lesser of (x) any such remaining Available Series 1999-
Finance Charge Collections and (y) the amount designated by the
Transferor in writing (which includes facsimile transmission) in its
instructions to the Trustee on such Business Day and the Servicer
shall deposit such amount, if any, in the Payment Reserve Account.
(xiii) Excess Finance Charge Collections. Any amounts
remaining in the Collection Account and the Payment Reserve Account,
to the extent of any Available Series 1999- Finance Charge
Collections remaining after giving effect to the withdrawals pursuant
to subsection 4.9(a)(i) through (xii) of the Agreement, shall be
treated as Excess Finance Charge Collections, and the Servicer shall
direct the Trustee in writing on each Business Day to withdraw such
amounts from the Collection Account and to first make such amounts
available to pay to Securityholders of other Series to the extent of
shortfalls, if any, in amounts payable to such Securityholders from
Finance Charge Collections allocated to such 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 pay to the Transferor to be treated
as "Transferor Retained Finance Charge Collections," and, on each
Default Recognition Date, to pay any remaining Excess Finance Charge
Collections to the Transferor.
Notwithstanding the foregoing, if on any Default Recognition Date the sum
of the amount of Available Series 1999- Finance Charge Collections
(including, all amounts on deposit in the Payment Reserve Account) and
Transferor Retained Finance Charge Collections is less than the Series
Default Amount for such Default Recognition Date, the Servicer shall apply
amounts deposited in the Accumulation Period Reserve Account pursuant to
subsection 4.9(a)(xi) of the Agreement during the then current Monthly
Period in accordance with subsection 4.9(a)(iv) of the Agreement to the
extent of such shortfall.
(b) For each Business Day with respect to the Revolving Period,
the funds on deposit in the Collection Account to the extent of the product
of (i) the Floating Percentage and (ii) Principal Collections with respect
to such Business Day (less the amount of Redirected Principal Collections
on such Business Day) will be treated as Shared Principal Collections and
applied, pursuant to the written direction of the Servicer in the Daily
Report for such Business Day, as provided in Section 4.3(d) of the
Agreement.
(c) For each Business Day on and after the Amortization Period
Commencement Date, the amount of funds on deposit in the Collection Account
or the Excess Funding Account and other accounts as described below will be
distributed, pursuant to the written direction of the Servicer in the Daily
Report for such Business Day in the following priority:
(i) an amount (not in excess of the Invested Amount)
equal to the sum of (v) the product of the Fixed/Floating Percentage
and Principal Collections in the Collection Account at the end of the
preceding Business Day (less the amount thereof applied as Redirected
Principal Collections on such Business Day), (w) any amount on
deposit in the Excess Funding Account allocated to the Series 1999-
Securities on such Business Day pursuant to subsection 4.9(d) of the
Agreement, (x) amounts to be paid pursuant to subsections 4.9(a)(iv),
(v), (vi), (ix), (xi) and (xii) of the Agreement from Available
Series 1999- Finance Charge Collections and from amounts available
pursuant to subsections 4.10(a) and (b), 4.14(a), (b) and (c),
4.17(b) and 4.18(b), (c) and (d) of the Agreement on such Business
Day, and (y) the amount of Shared Principal Collections allocated to
the Series 1999- Securities in accordance with Section 4.8 of the
Agreement on such Business Day, will be deposited into the Principal
Account; provided, however that with respect to any Monthly Period
during the Controlled Accumulation Period, the aggregate amount
required to be deposited in the Principal Account pursuant to this
subsection 4.9(c)(i) shall not exceed the sum of the Controlled
Deposit Amount and, at the option of the Transferor, the Credit
Enhancement Excess Amount; and
(ii) an amount equal to the excess, if any, of (A) the
sum of the amounts described in clauses (i)(v) and (x) above over (B)
the sum of Class A Principal and Class B Principal will be treated as
Shared Principal Collections and applied as provided in subsection
4.3(d) of the Agreement.
(d) On the first Business Day of the Amortization Period funds
on deposit in the Excess Funding Account will be deposited in the Principal
Account to the extent of the lesser of (x) the Invested Amount and (y) the
product of (i) the amount on deposit in the Excess Funding Account at the
beginning of the Amortization Period and (ii) a fraction, the numerator of
which is equal to the Invested Amount and the denominator of which is equal
to the sum of the invested amounts of all Series in amortization periods on
such day.
SECTION 4.10 Coverage of Required Amount for the Series 1999-
Securities. (a) To the extent that any amounts are on deposit in the Excess
Funding Account on any Business Day, the Servicer shall apply, in the
manner specified for application of Available Series 1999- Finance Charge
Collections in subsections 4.9(a)(i) through (xi) of the Agreement,
Transferor Finance Charge Collections in an amount (the "Negative Carry
Amount") equal to the excess of (x) the product of (a) the Base Rate, (b)
the amounts on deposit in the Excess Funding Account and (c) the number of
days elapsed since the previous Business Day divided by the actual number
of days in such year over (y) the aggregate amount of all earnings since
the previous Business Day available from the Cash Equivalents in which
funds on deposit in the Excess Funding Account are invested.
(b) To the extent that on any Business Day payments are being
made pursuant to any of subsections 4.9(a)(i) through (xi) of the
Agreement, respectively, and the full amount to be paid pursuant to any
such subsection receiving payments on such Business Day is not paid in full
on such Business Day, the Servicer shall apply, in the manner specified for
application of Available Series 1999- Finance Charge Collections in
subsections 4.9(a)(i) through (xi) of the Agreement, all or a portion of
the Excess Finance Charge Collections from other Series with respect to
such Business Day allocable to the Series 1999- Securities in an amount
equal to the excess of the full amount to be allocated or paid pursuant to
the applicable subsection over the amount applied with respect thereto from
Available Series 1999- Finance Charge Collections and Transferor Finance
Charge Collections on such Business Day (the "Required Amount").
Excess Finance Charge Collections allocated to the Series 1999-
Securities for any Business Day shall mean an amount 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 and the denominator of which is the
aggregate amount of shortfalls in required amounts or other amounts to be
paid from Finance Charge Collections for all Series for such Business Day.
SECTION 4.11 Payment of Interest. On each Transfer Date, the
Trustee, acting in accordance with instructions from the Servicer set forth
in the Daily Report for such day, shall withdraw the amount on deposit in
the Interest Funding Account with respect to the preceding Monthly Period
allocable to the Series 1999- Securities and deposit such amount in the
Distribution Account. On each Distribution Date, the Paying Agent shall pay
in accordance with Section 5.1 of the Agreement to (x) the Class A
Securityholders from the Distribution Account such amount deposited into
the Distribution Account on the related Transfer Date allocable thereto
pursuant to subsection 4.9(a)(i) of the Agreement, (y) the Class B
Securityholders from the Distribution Account the amount deposited into the
Distribution Account on the related Transfer Date allocable thereto
pursuant to subsections 4.9(a)(ii) and (vii) of the Agreement and (z) the
Credit Enhancement Providers from the Distribution Account the amount
deposited into the Distribution Account on the related Transfer Date
allocable thereto pursuant to subsection 4.9(a)(viii) of the Agreement.
SECTION 4.12 Payment of Principal.
(a) On the Transfer Date preceding each Distribution Date with
respect to the Amortization Period, the Trustee, acting in accordance with
instructions from the Servicer set forth in the Daily Report for such day,
shall withdraw from the Principal Account and deposit into the Distribution
Account with respect to the Early Amortization Period, or the Principal
Funding Account with respect to the Accumulation Period, to the extent of
funds available, an amount equal to the Class A Principal for such
Distribution Date. On each Distribution Date with respect to the Early
Amortization Period until the Class A Invested Amount is paid in full, or
on the Expected Final Payment Date with respect to the Accumulation Period
following any deposit to the Distribution Account pursuant to subsection
4.12(d) of the Agreement, the Paying Agent shall pay in accordance with
Section 5.1 of the Agreement to the Class A Securityholders from the
Distribution Account such amounts deposited with respect to Class A Principal
into the Distribution Account on the related Transfer Date.
(b) On the Transfer Date preceding the Class B Principal
Payment Commencement Date and each Transfer Date thereafter, the Trustee,
acting in accordance with instructions from the Servicer set forth in the
Daily Report for such day, shall withdraw from the Principal Account and
deposit in the Distribution Account with respect to the Early Amortization
Period, or the Principal Funding Account with respect to the Accumulation
Period, to the extent of funds available, an amount equal to the Class B
Principal for the related Distribution Date. On and after the Class B
Principal Payment Commencement Date, on each Distribution Date with respect
to the Early Amortization Period until the Class B Invested Amount is paid
in full or on the Expected Final Payment Date with respect to the
Accumulation Period following any deposit to the Distribution Account
pursuant to subsection 4.12(d), the Paying Agent shall pay in accordance
with Section 5.1 of the Agreement to the Class B Securityholders from the
Distribution Account such amounts deposited with respect to Class B
Principal into the Distribution Account on the related Transfer Date.
(c) On the Transfer Date preceding the Credit Enhancement
Principal Payment Commencement Date and each Transfer Date thereafter, or,
in the case of distributions of Credit Enhancement Excess Amounts, on each
Transfer Date during the Accumulation Period preceding a Distribution Date
on which a distribution shall be made with respect to Credit Enhancement
Excess Amounts, the Trustee, acting in accordance with instructions from
the Servicer set forth in the Daily Report for such day, shall withdraw
from the Principal Account and deposit in the Distribution Account, to the
extent of funds available, an amount equal to the Credit Enhancement
Principal for the related Distribution Date. On the Credit Enhancement
Principal Payment Commencement Date after the payment of any principal
amounts to the Class A Securities and the Class B Securities on such day,
and on each Distribution Date thereafter until the Credit Enhancement
Invested Amount is paid in full and on each Distribution Date during the
Accumulation Period on which amounts are to be distributed with respect to
Credit Enhancement Excess Amounts, the Paying Agent shall pay in accordance
with Section 5.1 of the Agreement to the Credit Enhancement Provider from
the Distribution Account such amounts deposited with respect to Credit
Enhancement Principal into the Distribution Account on the related Transfer
Date; provided, however, that, if so designated in writing by the
Transferor with respect to any such Transfer Date, any such payment of
Credit Enhancement Principal shall not be made to the Credit Enhancement
Provider and such amount shall be subtracted from the Credit Enhancement
Invested Amount and added to the Transferor Interest.
(d) Any amounts remaining in the Principal Account and
allocable to the Series 1999- Securities, after the Credit Enhancement
Invested Amount has been paid in full, will be treated as Shared Principal
Collections and applied in accordance with Section 4.3(d) of the Agreement.
(e) On the earlier to occur of (i) the first Transfer Date with
respect to the Early Amortization Period and (ii) the Transfer Date
immediately preceding the Expected Final Payment Date, the Trustee, acting
in accordance with instructions from the Servicer, shall withdraw from the
Principal Funding Account and deposit in the Distribution Account the
amount on deposit in the Principal Funding Account for distribution first
to Class A Securityholders up to an amount equal to the Class A Invested
Amount and then to Class B Securityholders up to an amount equal to the
Class B Invested Amount.
SECTION 4.13 Charge-Offs. (a) If, on any Determination Date,
the aggregate Series Default Amount and the Series 1999- Percentage of
unpaid Adjustment Payments, if any, for each Business Day in the preceding
Monthly Period exceeded the Available Series 1999- Finance Charge
Collections applied to the payment thereof pursuant to subsections
4.9(a)(iv) and (v) of the Agreement, the amount of Transferor Finance
Charge Collections and Excess Finance Charge Collections allocated thereto
pursuant to Section 4.10 of the Agreement, the amount of Redirected
Principal Collections applied with respect thereto pursuant to Section 4.14
of the Agreement, the amount of Principal Funding Account Investment
Proceeds applied with respect thereto pursuant to subsection 4.17(b),
amounts withdrawn from the Accumulation Period Reserve Account and applied
with respect to the Series Default Amount pursuant to subsection 4.18(c)
and the Series 1999- Percentage of unpaid Adjustment Payments with respect
to such Monthly Period, the Credit Enhancement Invested Amount will be
reduced by the amount by which the remaining aggregate Series Default
Amount and Series 1999- Percentage of unpaid Adjustment Payments exceed the
amount applied with respect thereto during such preceding Monthly Period (a
"Credit Enhancement Charge-Off").
(b) In the event that any such reduction of the Credit
Enhancement Invested Amount would cause the Credit Enhancement Invested
Amount to be a negative number, the Credit Enhancement Invested Amount will
be reduced to zero, and the Class B Invested Amount will be reduced by the
amount by which the Credit Enhancement Invested Amount would have been
reduced below zero, but in no case more than the sum of (i) the remaining
aggregate Series 1999- Default Amount and (ii) the remaining Series 1999-
Percentage of unpaid Adjustment Payments for such Monthly Period (a "Class
B Charge-Off")
(c) 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 in no case more
than the sum of (i) the remaining aggregate Series 1999- Default Amount and
(ii) the remaining Series 1999- Percentage of unpaid Adjustment Payments
for such Monthly Period (a "Class A Charge-Off").
SECTION 4.14 Redirected Principal Collections for the Series
1999- Securities. (a) On each Business Day, the Servicer will determine an
amount equal to the least of (i) the Credit Enhancement Invested Amount,
(ii) the product of (x)(I) during the Revolving Period, the Credit
Enhancement Floating Percentage or (II) during an Amortization Period, the
Credit Enhancement Fixed/Floating Percentage and (y) the amount of
Principal Collections with respect to such Business Day and (iii) an amount
equal to the sum of (a) the Class A Required Amount for such Business Day
and (b) the Class B Required Amount for such Business Day (such amount
called "Redirected Credit Enhancement Principal Collections") and shall
apply Principal Collections in an amount equal to such amount first to the
components of the Class A Required Amount and then to the components of the
Class B Required Amount in the same priority as amounts are applied to such
components from Available Series 1999- Finance Charge Collections pursuant
to subsection 4.9(a) of the Agreement.
(b) On each Business Day, the Servicer will determine an amount
equal to the least of (i) the Class B Invested Amount, (ii) the product of
(x)(I) during the Revolving Period, the Class B Floating Percentage or (II)
during an Amortization Period, the Class B Fixed/Floating Percentage and
(y) the amount of Principal Collections for such Business Day and (iii) an
amount equal to the excess, if any, of the Class A Required Amount for such
Business Day over the sum of the amount of Redirected Credit Enhancement
Principal Collections applied with respect thereto for such Business Day
(such amount called "Redirected Class B Principal Collections") and shall
apply Principal Collections equal to such amount to the remaining
components of the Class A Required Amount in the same priority as amounts
are applied to such components from Available Series 1999- Finance Charge
Collections pursuant to subsection 4.9(a) of the Agreement.
SECTION 4.15 Determination of LIBOR. (a) "LIBOR" shall mean, 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
period) which appears on Telerate Page 3750 as of 11:00 A.M., London time,
on the LIBOR Determination Date for such interest 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 the
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 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 the 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 such interest period).
(b) On each LIBOR Determination Date, the Trustee shall send to
the Servicer by facsimile notification of LIBOR for such LIBOR
Determination Date.
SECTION 4.16 Payment Reserve Account.
(a) The Servicer shall establish and maintain or cause to be
established and maintained with a Qualified Institution, which may be the
Trustee, in the name of the Trustee, on behalf of the Securityholders, the
"Payment Reserve Account," which shall be a segregated trust account with
the corporate trust department of such Qualified Institution, bearing a
designation clearly indicating that the funds deposited therein are held
for the benefit of the Securityholders. The Trustee shall possess all
right, title and interest in all funds on deposit from time to time in the
Payment Reserve Account and in all proceeds thereof. The Payment Reserve
Account shall be under the sole dominion and control of the Trustee for the
benefit of the Securityholders. If, at any time, the institution holding
the Payment Reserve Account ceases to be a Qualified Institution, the
Trustee shall within 10 Business Days establish a new Payment Reserve
Account meeting the conditions specified above with a Qualified
Institution, and shall transfer any cash or any investments to such new
Payment Reserve Account. From the date such new Payment Reserve Account is
established, it shall be the "Payment Reserve Account."
(b) The Transferor, at its discretion, may on any Business Day
withdraw all or a part of any amounts then on deposit in the Payment
Reserve Account and apply such funds in accordance with Section 4.9(a) of
the Agreement.
(c) Funds on deposit in the Payment Reserve Account shall be
invested in Cash Equivalents by the Trustee (or, at the direction of the
Trustee, by the Servicer on behalf of the Trustee) at the direction of the
Servicer. Funds on deposit in the Payment Reserve Account on any Business
Day, after giving effect to any withdrawals from the Payment Reserve
Account, shall be invested in Cash Equivalents that will mature so that
such funds will be available for withdrawal on or prior to the following
Business Day. The proceeds of any such investments shall be invested in
Cash Equivalents that will mature so that such funds will be available for
withdrawal on or prior to the following Business Day. On each Business Day
following a deposit of funds to the Payment Reserve Account, the aggregate
proceeds of any such investment shall be deposited in the Collection
Account and treated as Investment Proceeds for application as Available
Series 1999- Finance Charge Collections.
SECTION 4.17 Principal Funding Account.
(a) The Servicer shall establish and maintain or cause to be
established and maintained with a Qualified Institution, which may be the
Trustee, in the name of the Trustee, on behalf of the Securityholders, the
"Principal Funding Account," which shall be a segregated trust account with
the corporate trust department of such Qualified Institution, bearing a
designation clearly indicating that the funds deposited therein are held
for the benefit of the Series 1999- Securityholders. The Trustee shall
possess all right, title and interest in all funds on deposit from time to
time in the Principal Funding Account and in all proceeds thereof. The
Principal Funding Account shall be under the sole dominion and control of
the Trustee for the benefit of the Series 1999- Securityholders. If, at any
time, the institution holding the Principal Funding Account ceases to be a
Qualified Institution, the Trustee shall within 10 Business Days establish
a new Principal Funding Account meeting the conditions specified above with
a Qualified Institution, and shall transfer any cash or any investments to
such new Principal Funding Account. From the date such new Principal
Funding Account is established, it shall be the "Principal Funding
Account." The Trustee, at the written direction of the Servicer, shall (i)
make withdrawals from the Principal Funding Account from time to time, in
the amounts and for the purposes set forth in this Series Supplement, and
(ii) on each Transfer Date (from and after the commencement of the
Accumulation Period) prior to termination of the Principal Funding Account
make a deposit into the Principal Funding Account in the amount specified
in, and otherwise in accordance with, subsection 4.12 of the Agreement.
(b) Funds on deposit in the Principal Funding Account shall be
invested by the Trustee at the direction of the Servicer in Cash
Equivalents maturing no later than the following Transfer Date. On the
Transfer Date occurring in the month following the commencement of the
Accumulation Period and on each Transfer Date thereafter with respect to
the Accumulation Period, the Trustee, at the Servicer's written direction,
shall transfer from the Principal Funding Account to the Collection Account
the Principal Funding Account Investment Proceeds on deposit in the
Principal Funding Account, but not in excess of the Covered Amount, and
shall apply such amount as if such amounts were Available Series 1999-
Finance Charge Collections available to be applied pursuant to subsection
4.9(a) on the last Business Day of the preceding Monthly Period. Principal
Funding Account Investment Proceeds (including reinvested interest) shall
not be considered part of the amounts on deposit in the Principal Funding
Account for purposes of this Series Supplement.
SECTION 4.18 Accumulation Period Reserve Account.
(a) The Servicer shall establish and maintain or cause to be
established and maintained with a Qualified Institution, which may be the
Trustee, in the name of the Trustee, on behalf of the Securityholders, the
"Accumulation Period Reserve Account," which shall be a segregated trust
account with the corporate trust department of such Qualified Institution,
bearing a designation clearly indicating that the funds deposited therein
are held for the benefit of the Series 1999- Securityholders. The Trustee
shall possess all right, title and interest in all funds on deposit from
time to time in the Accumulation Period Reserve Account and in all proceeds
thereof. The Accumulation Period Reserve Account shall be under the sole
dominion and control of the Trustee for the benefit of the Series 1999-
Securityholders. If, at any time, the institution holding the Accumulation
Period Reserve Account ceases to be a Qualified Institution, the Trustee
shall within 10 Business Days establish a new Accumulation Period Reserve
Account meeting the conditions specified above with a Qualified
Institution, and shall transfer any cash or any investments to such new
Accumulation Period Reserve Account. From the date such new Accumulation
Period Reserve Account is established, it shall be the "Accumulation Period
Reserve Account." The Trustee, at the written direction of the Servicer,
shall (i) make withdrawals from the Accumulation Period Reserve Account
from time to time, in the amounts and for the purposes set forth in this
Series Supplement, and (ii) on each Transfer Date (from and after the
Reserve Account Funding Date) prior to termination of the Accumulation
Period Reserve Account make a deposit into the Accumulation Period Reserve
Account in the amount specified in, and otherwise in accordance with,
subsection 4.9(a)(xi) of the Agreement.
(b) Funds on deposit in the Accumulation Period Reserve Account
shall 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 deposited in the Collection
Account and treated as Investment Proceeds for application as Available
Series 1999- Finance Charge Collections available to be applied pursuant to
subsection 4.9(a) on the last Business Day of the preceding Monthly Period.
(c) 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, the Trustee at the direction of the Servicer
shall withdraw from the Accumulation Period Reserve Account, up to the
Available Reserve Account Amount, an amount equal to the excess of the
Covered Amount for the related Interest Accrual Period over the Principal
Funding Account Investment Proceeds with respect to such Transfer Date, and
the amount of such withdrawal shall be applied as if such amount were
Available Series 1999- Finance Charge Collections available to be applied
pursuant to subsection 4.9(a) on the last Business Day of the preceding
Monthly Period.
(d) The Accumulation Period Reserve Account shall be terminated
following the earliest to occur of (a) the termination of the Trust
pursuant to the 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 Series 1999- 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) shall be applied as if they were Available Series 1999-
Finance Charge Collections available to be applied pursuant to subsection
4.9(a) on the last Business Day of the preceding Monthly Period.
SECTION 4.19 Postponement of Accumulation Period. The
Accumulation Period is scheduled to commence at the close of business on
the last day of the Monthly Period; provided, however, that, if the
Accumulation Period Length (determined as described below) is less than 12
months, the date on which the Accumulation Period actually commences may,
at the option of the Servicer, upon written notice to the Trustee, be
delayed to the first Business Day of the month that is the number of months
prior to the Expected Final Payment Date at least equal to the Accumulation
Period Length and, as a result, the number of Monthly Periods in the
Accumulation Period will at least equal the Accumulation Period Length. On
each Determination Date until the Accumulation Period begins, the Servicer
will determine the "Accumulation Period Length" which will equal the number
of months such that the sum of the Accumulation Period Factors for each
Monthly Period during such period will be equal to or greater than the
Required Accumulation Factor Number; provided, however, that the
Accumulation Period Length will not be less than one month.
SECTION 4.20 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 such that the
amount on deposit in the Principal Funding Account following such deposit
is equal to the sum of the Class A Outstanding Principal Amount and the
Class B Outstanding Principal Amount, 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 such deposit
to the Principal Funding Account through the Expected Final Payment Date;
(ii) the Transferor shall have delivered to the Trustee (a) an opinion of
counsel to the effect that such deposit will not result in the Trust being
required to register as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, (b) 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, (c) a certificate of an officer of the Transferor stating that
the Transferor reasonably believes that such deposit will not cause a Pay
Out Event or any event that, with the giving of notice or the lapse of
time, would constitute a Pay Out Event, to occur; and (iv) a Ratings Event
will not occur, the Series 1999- Securities will no longer be entitled to
security interest of the Trust in the Receivables and, except those set
forth in clause (i) above, other Trust assets and the percentages
applicable to the allocation to the Series 1999- Securityholders of
Principal Collections, Finance Charge Collections and Defaulted Receivables
will be reduced to zero. Upon the satisfaction of the foregoing conditions,
the Credit Enhancement Invested Amount will be reduced to zero.
SECTION 7. Article V of the Agreement. Article V of the
Agreement shall read in its entirety as follows and shall be applicable
only to the Series 1999- Securities:
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
SECURITYHOLDERS
SECTION 5.1 Distributions. (a) On each Distribution Date, the
Paying Agent shall distribute (in accordance with the Settlement Statement
delivered by the Servicer to the Trustee and the Paying Agent pursuant to
subsection 3.4(c)) to each Class A Securityholder of record on the
preceding Record Date (other than as provided in subsection 2.4(e) or in
Section 12.3 respecting a final distribution) such Securityholder's pro
rata share (based on the aggregate Undivided Interests represented by each
Class A Security held by such Securityholder) of amounts on deposit in the
Distribution Account as are payable to each Class A Securityholders
pursuant to Sections 4.11 and 4.12 of the Agreement by check mailed to each
Class A Securityholder at such Securityholder's address as it appears on
the Security Register or, in the case of Class A Securityholders holding
Class A Securities evidencing Undivided Interests aggregating not less than
80% of the Class A Invested Amount, by wire transfer, at the expense of
such Class A Securityholder, to an account or accounts designated by such
Class A Securityholder by written notice given to the Paying Agent not less
than five days prior to related Distribution Date; provided, however, that
the final payment in retirement of the Class A Securities will be made only
upon presentation and surrender of the Class A Securities at the office or
offices specified in the notice of such final distribution delivered by the
Trustee pursuant to Section 12.3 of the Agreement.
(b) On each Distribution Date, the Paying Agent shall
distribute (in accordance with the Settlement Statement delivered by the
Servicer to the Trustee and the Paying Agent pursuant to subsection 3.4(c))
to each Class B Securityholder of record on the preceding Record Date
(other than as provided in subsection 2.4(e) or in Section 12.3 respecting
a final distribution) such Securityholder's pro rata share (based on the
aggregate Undivided Interests represented by Class B Securities held by
such Securityholder) of amounts on deposit in the Distribution Account as
are payable to the Class B Securityholders pursuant to Sections 4.11 and
4.12 of the Agreement by check mailed to each Class B Securityholder at
such Securityholder's address as it appears on the Security Register or, in
the case of Class B Securityholders holding Class B Securities evidencing
Undivided Interest aggregating not less than 80% of the Class B Invested
Amount, by wire transfer, at the expense of such Class B Securityholder, to
an account or accounts designated by such Class B Securityholder by written
notice given to the Paying Agent not less than five days prior to the
related Distributed Date; provided, however, that the final payment in
retirement of the Class B Securities will be made only upon presentation
and surrender of the Class B Securities at the office or offices specified
in the notice of such final distribution delivered by the Trustee pursuant
to Section 12.3 of the Agreement.
(d) On each Distribution Date, the Paying Agent shall
distribute (in accordance with the Settlement Statement delivered by the
Servicer to the Trustee and the Paying Agent pursuant to subsection 3.4(c)
of the Agreement) to each Credit Enhancement Provider of record on the
preceding Record Date (other than as provided in subsection 2.4(e) of the
Agreement or in Section 12.3 of the Agreement respecting a final
distribution) such Credit Enhancement Provider's pro rata share (based on
the aggregate Undivided Interests represented by Credit Enhancement held by
such Credit Enhancement Provider) of amounts on deposit in the Distribution
Account as are payable to the Credit Enhancement Providers pursuant to
Sections 4.11 and 4.12 of the Agreement by wire transfer to each Credit
Enhancement Provider to an account or accounts designated by such Credit
Enhancement Provider by written notice given to the Paying Agent not less
than five days prior to the related Distribution Date; provided, however,
that the final payment in retirement of the Credit Enhancement will be made
only upon presentation and surrender of the evidence of the Credit
Enhancement at the office or offices specified in the notice of such final
distribution delivered by the Trustee pursuant to Section 12.3.
SECTION 5.2 Securityholders' Statement. (a) On the 15th day of
each calendar month (or if such day is not a Business Day the next
succeeding Business Day), the Paying Agent shall forward to each
Securityholder and the Rating Agencies a statement substantially in the
form of Exhibit B prepared by the Servicer and delivered to the Trustee and
the Paying Agent on the preceding Determination Date setting forth the
following information (which, in the case of (i), (ii) and (iii) below,
shall be stated on the basis of an original principal amount of $1,000 per
Security and, in the case of (ix) and (x), shall be stated on an aggregate
basis and on the basis of an original principal amount of $1,000 per
Security):
(i) the total amount distributed;
(ii) the amount of such distribution allocable to Class A
Principal and Class B Principal;
(iii) the amount of such distribution allocable to Class
A Monthly Interest, Carryover Class A Interest, Class B Monthly
Interest, Carryover Class B Interest, Credit Enhancement Interest and
Carryover Credit Enhancement Interest;
(iv) the amount of Principal Collections received in the
Collection Account during the preceding Monthly Period and allocated
in respect of the Class A Securities, Class B Securities and
Credit Enhancement;
(v) the amount of Finance Charge Collections processed
during the preceding Monthly Period and allocated in respect of the
Class A Securities, Class B Securities and Credit Enhancement, and
the amount of Principal Funding Account Investment Proceeds and
investment earnings on amounts on deposit in the Accumulation Period
Reserve Account;
(vi) the aggregate amount of Principal Receivables, the
Invested Amount, the Class A Invested Amount, the Class B Invested
Amount, the Credit Enhancement Invested Amount, the Floating
Percentage and, during the Amortization Period, the Fixed/Floating
Percentage or Class B Fixed/Floating Percentage, as applicable, as of
the end of the day on the last day of the related Monthly Period;
(vii) the aggregate outstanding balance of Receivables
which are current, 30-59, 60-89, and 90 days and over delinquent as
of the end of the day on the last day of the related Monthly Period;
(viii) the aggregate Series Default Amount for the
preceding Monthly Period;
(ix) the aggregate amount of Class A Charge-Offs, Class B
Charge-Offs and Credit Enhancement Charge-Offs for the preceding
Monthly Period;
(x) the amount of the Servicing Fee for the preceding
Monthly Period;
(xi) the amount of unreimbursed Redirected Class B
Principal Collections and Redirected Credit Enhancement Principal
Collections for the related Monthly Period;
(xii) the aggregate amount of funds in the Excess Funding
Account as of the last day of the Monthly Period immediately
preceding the Distribution Date;
(xiii) the number of new Accounts the Receivables in
which have been added to the Trust during the related Monthly Period;
(xiv) the Portfolio Yield for the related Monthly Period;
(xv) the Base Rate for the related Monthly Period;
(xvi) the Principal Funding Account Balance on the
related Transfer Date;
(xvii) the Accumulation Shortfall;
(xviii) the scheduled date for the commencement of the
Accumulation Period and the Accumulation Period Length; and
(xix) the amount of Principal Funding Account Investment
Proceeds deposited in the Collection Account on the related Transfer
Date, the Required Reserve Account Amount and the Available Reserve
Account Amount as of the related Transfer Date, and the Covered
Amount for the related Interest Accrual Period.
(b) Annual Securityholders' Tax Statement. On or before January
31 of each calendar year, beginning with calendar year 2000, the Paying
Agent shall distribute to each Person who at any time during the preceding
calendar year was a Series 1999- Securityholder, a statement prepared by
the Servicer containing the information required to be contained in the
regular report to Series 1999- Securityholders, as set forth in subclauses
(i), (ii) and (iii) above, aggregated for such calendar year or the
applicable portion thereof during which such Person was a Series 1999-
Securityholder, together with, on or before January 31 of each year,
beginning in 2000, such other customary information (consistent with the
treatment of the Securities as debt) as the Trustee or the Servicer deems
necessary or desirable to enable the Series 1999- Securityholders to
prepare their tax returns. Such obligations of the Trustee shall be deemed
to have been satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to any requirements
of the Internal Revenue Code as from time to time in effect.
SECTION 8. Series 1999- Pay Out Events. If any one of the
following events shall occur with respect to the Series 1999- Securities:
(a) failure on the part of the Transferor (i) to make any
payment or deposit required to be made by the Transferor by the terms of
(A) the Agreement or (B) this Series Supplement, on or before the date
occurring five Business Days after the date such payment or deposit is
required to be made herein, (ii) 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 (iii) duly to
observe or perform in any material respect any covenants or agreements of
the Transferor set forth in the Agreement or this Series Supplement, which
failure has a material adverse effect on the Series 1999- Securityholders
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 Transferor by the Trustee, or to the
Transferor and the Trustee by the Holders of Series 1999- Securities
evidencing Undivided Interests aggregating not less than 50% of the
Invested Amount of this Series 1999- , and continues to affect materially
and adversely the interests of the Series 1999- Securityholders for such
period;
(b) any representation or warranty made by the Transferor in
the Agreement or this Series Supplement, (i) shall prove to have been
incorrect in any material respect when made, 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 Transferor by the Trustee, or to the
Transferor and the Trustee by the Holders of the Series 1999- Securities
evidencing Undivided Interests aggregating more than 50% of the Invested
Amount of this Series 1999- , and (ii) as a result of which the interests
of the Series 1999- Securityholders are materially and adversely affected
and continue to be materially and adversely affected for such period;
provided, however, that a Series 1999- Pay Out Event pursuant to this
subsection 8(b) shall not be deemed to have occurred hereunder if the
Transferor has accepted reassignment of the related Receivable, or all of
such Receivables, if applicable, during such period (or such longer period
as the Trustee may specify) in accordance with the provisions of the
Agreement;
(c) the average of the Portfolio Yields for any three
consecutive Monthly Periods is reduced to a rate which is less than the
weighted average Base Rates for such three consecutive Monthly Periods;
(d) (i) the Transferor Interest shall be less than the Minimum
Transferor Interest, (ii) the Series 1999- Percentage of the sum of the
total amount of Principal Receivables plus amounts on deposit in the Excess
Funding Account shall be less than the sum of the Class A Outstanding
Principal Amount, the Class B Outstanding Principal Amount and the Credit
Enhancement Outstanding Principal Amount,(iii) 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 (iv) the Retained Percentage shall be
equal to or less than 2%, in each case as of any Determination Date; or
(e) any Servicer Default shall occur which would have a
material adverse effect on the Series 1999- Securityholders;
then, in the case of any event described in subparagraph (a), (b) or (e),
after the applicable grace period, if any, set forth in such subparagraphs,
the Holders of Series 1999- Securities evidencing Undivided Interests
aggregating more than 50% of the Invested Amount of this Series 1999- , by
notice then given in writing to the Trustee, the Transferor and the
Servicer may declare that a pay out event (a "Series 1999- Pay Out Event")
has occurred as of the date of such notice, and in the case of any event
described in subparagraphs (c) or (d), a Series 1999- Pay Out Event shall
occur without any notice or other action on the part of the Trustee or the
Series 1999- Securityholders immediately upon the occurrence of such event.
SECTION 9. Series 1999- Termination. The right of the Series
1999- Securityholders to receive payments from the Trust will terminate on
the first Business Day following the Series 1999- Termination Date unless
such Series is an Affected Series as specified in Section 12.1(c) of the
Agreement and the sale contemplated therein has not occurred by such date,
in which event the Series 1999- Securityholders shall remain entitled to
receive proceeds of such sale when such sale occurs.
SECTION 10. Legends; Transfer and Exchange;
Restrictions on Transfer of Series 1999- Securities.
(a) Each Class A Security or Class B Security that is a Global
Security deposited with DTC, or a custodian on behalf of DTC, shall bear
the following legend:
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
(b) Each Class B Security will bear a legend or legends in
substantially the following form:
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF
METRIS RECEIVABLES, INC. AND THE TRUSTEE THAT SUCH PURCHASER IS NOT
(I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA,
(II) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (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 29 C.F.R. SECTION 2510.3-101 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
WITHOUT LIMITATION, 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 OF 1940, AS
AMENDED).
Each Security Owner by virtue of its beneficial interest in the
Class A Securities or Class B Securities shall be deemed to have made the
representations and warranties stated in such legend.
SECTION 11. Ratification of Agreement. As supplemented by this
Series Supplement, the Agreement is in all respects ratified and confirmed
and the Agreement as so supplemented by this Series Supplement shall be
read, taken, and construed as one and the same instrument. The Transferor
hereby confirms the conveyance of the Trust Property to the Trustee for the
benefit of the Series 1999- Securityholders.
SECTION 12. Registration of the Class A Securities and Class B
Securities under the Securities Exchange Act of 1934. The Transferor shall
cause the Class A Securities and Class B Securities to be registered under
the Securities Exchange Act of 1934, as amended, on or before , 1999 and
thereafter maintain such registration until the Class A Invested Amount and
Class B Invested Amount have each been reduced to zero.
SECTION 13. Counterparts. This Series Supplement may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all of such counterparts shall together
constitute but one and the same instrument.
SECTION 14. GOVERNING LAW. THIS SERIES SUPPLEMENT 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 15. Instructions in Writing. All instructions or other
communications given by the Servicer or any other person to the Trustee
pursuant to this Series Supplement shall be in writing, and, with respect
to the Servicer, may be included in a Daily Report or Settlement Statement.
SECTION 16. Amendment for FASIT Purposes. Each Series 1999-
Securityholder, by acquiring an interest in a Series 1999- Security, is
deemed to consent to any amendment to the Agreement or this Series
Supplement necessary for the Transferor to elect for the Trust or any
portion thereof to be treated as a financial asset securitization
investment trust ("FASIT") within the meaning of Section 860L of the
Internal Revenue Code (or any successor provision thereto), provided, that
such election may not be made unless the Transferor delivers an opinion to
the Trustee and the Servicer to the effect that such election 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.
SECTION 17. Paired Series. Subject to obtaining confirmation by
each Rating Agency of the then existing ratings of each class of Securities
which is then rated, and prior to the commencement of the Early
Amortization Period, the Series 1999- Securities may be paired with one or
more other Series (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
principal is paid with respect to the Series 1999- Securities, 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
Series 1999- 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 in
subsection 6.9(b) of the Agreement.
IN WITNESS WHEREOF, the Transferor, the Servicer and the
Trustee have caused this Series 1999- Supplement 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:
Exhibit A-1
FORM OF CLASS A INVESTOR SECURITY
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
No. ___ $_________
CUSIP NO.
-------------
METRIS MASTER TRUST
FLOATING RATE ASSET BACKED
SECURITY, SERIES 1999- , CLASS A
Evidencing an undivided interest in a trust, the corpus of
which consists of receivables generated from time to time in the ordinary
course of business from a portfolio of revolving consumer credit card
accounts transferred or to be transferred by Metris Receivables, Inc. (the
"Transferor") and other assets and interests constituting the Trust under
the 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 _________ (the "Securityholder") 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 between the Transferor, Direct Merchants Credit Card Bank, National
Association, as Servicer (the "Servicer"), and The Bank of New York
(Delaware) as Trustee (the "Trustee"), and the Series 1999- Supplement,
dated as of , 1999 (the Series 1999- Supplement"), among the Transferor,
the Servicer and the Trustee. The Pooling and Servicing Agreement, as
supplemented by the Series 1999- Supplement, is herein referred to as the
"Agreement"). The corpus of the Trust consists of all of the Transferor's
right, title and interest in, to and under the Trust Property (as defined
in the Agreement).
This Security does not purport to summarize the Agreement and
reference is made to that Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the Trustee. To the extent
not defined herein, the capitalized terms used herein have the meanings
ascribed to them in the Agreement. This Security is one of a series of
Securities entitled "Metris Master Trust Floating Rate Asset Backed
Securities, Series 1999- , Class A" (the "Class A Securities"), each of
which represents a fractional undivided interest in the Trust, and is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement, as amended from time to time, the
Securityholder by virtue of the acceptance hereof assents and by which the
Securityholder is bound.
The Transferor has structured the Agreement, the Class A
Securities and the Metris Master Trust Floating Rate Asset Backed
Securities, Series 1999- , Class B (the "Class B Securities" and
collectively with the Class A Securities, the "Offered Securities") with
the intention that the Offered Securities will qualify under applicable tax
law as indebtedness, and both the Transferor and each holder of a Class A
Security (a "Class A Securityholder") or any interest therein by acceptance
of its Security or any interest therein, agrees to treat the Class A
Securities for purposes of federal, state and local income or franchise
taxes and any other tax imposed on or measured by income, as indebtedness.
No principal will be payable to the Class A Securityholders
until the earlier of the Expected Final Payment Date and, upon the
occurrence of a Pay Out Event, the Distribution Date following the Monthly
Period in which the Pay Out Event occurs. No principal will be payable to
the Class B Securityholders or the Credit Enhancement Providers (other than
with respect to Credit Enhancement Excess Amounts) until all principal
payments have been made to the Class A Securityholders.
Interest on the Class A Securities will be payable on , 1999
and on the 15th 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 the product of (i) the Class A Interest Rate,
(ii) 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 and
(iii) the outstanding principal balance of the Class A Securities as of the
close of business on the first day of such Interest Accrual Period provided
that interest for the first Distribution Date will be an amount equal to
the product of (u) the Class A Initial Invested Amount, (v) divided by 360,
and (w) the Class A Interest Rate determined on , 1999.
Interest payments on the Class A Securities on each
Distribution Date will be funded from Available Series 1999- 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 , 1999 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.
"Class A Invested Amount" shall mean, when used with respect to
any Business Day, the greater of (x) zero and (y) an amount equal to (a)
the Class A Initial Invested Amount, minus (b) the aggregate amount of
principal payments made to Class A Securityholders through and including
such Business Day, minus (c) the aggregate amount of Class A Charge-Offs
for all prior Distribution Dates, plus (d) the sum of the aggregate amount
allocated with respect to Class A Charge-Offs and available on all prior
Distribution Dates pursuant to subsection 4.9(a)(vi) of the Agreement and,
with respect to such subsection, pursuant to subsections 4.10(a) and (b),
4.14 (a) and (b), 4.17(b) and 4.18(b), (c) and (d) of the Agreement, for
the purpose of reinstating amounts reduced pursuant to the foregoing clause
(c).
Subject to the Agreement, payments of principal are limited to
the unpaid Class A Invested Amount of the Class A Securities, which may be
less than the unpaid balance of the Class A Securities pursuant to the
terms of the Agreement. All principal on the Class A Securities is due and
payable no later than the Distribution Date (or if such day is not a
Business Day, the next succeeding Business Day) (the "Scheduled Series
1999- Termination Date"). After the earlier to occur of (i) the Scheduled
Series 1999- Termination Date and (ii) the day after the Distribution Date
on which the Series 1999- Securities are paid in full (the "Series 1999-
Termination Date") neither the Trust nor the Transferor will have any
further obligation to distribute principal or interest on the Class A
Securities. In the event that the Class A Invested Amount is greater than
zero on the Series 1999- Termination Date, the Trustee will sell or cause
to be sold, to the extent necessary, an amount of interests in the
Receivables or certain of the Receivables up to 110% of the Class A
Invested Amount, the Class B Invested Amount and the Credit Enhancement
Invested Amount at the close of business on such date (but not more than
the total amount of Receivables allocable to the Investor Securities), and
shall pay the proceeds to the Class A Securityholders pro rata in final
payment of the Class A Securities, then to the Class B Securityholders pro
rata in final payment of the Class B Securities and, finally, to the Credit
Enhancement Providers pro rata in final payment of the Credit Enhancement.
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 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:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Securities referred to in the
within-mentioned Amended and Restated Pooling and Servicing Agreement.
THE BANK OF NEW YORK (DELAWARE)
By:______________________________
Name:
Title:
Exhibit A-2
FORM OF CLASS B INVESTOR SECURITY
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE TRUSTEE OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF
METRIS RECEIVABLES, INC. AND THE TRUSTEE THAT SUCH PURCHASER IS NOT
(I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA,
(II) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (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 29 C.F.R. SECTION 2510.3-101 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
WITHOUT LIMITATION, 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 OF 1940, AS
AMENDED).
No. ___ $__________
CUSIP NO.
--------------
METRIS MASTER TRUST
FLOATING RATE ASSET BACKED
SECURITY, SERIES 1999- , CLASS B
Evidencing an undivided interest in a trust, the corpus of
which consists of receivables generated from time to time in the ordinary
course of business from a portfolio of revolving consumer credit card
accounts transferred or to be transferred by Metris Receivables, Inc. (the
"Transferor") and other assets and interests constituting the Trust under
the 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 __________ (the "Securityholder") 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 between the Transferor, Direct Merchants Credit Card Bank, National
Association, as the Servicer (the "Servicer"), and The Bank of New York
(Delaware), as Trustee (the "Trustee"), and the Series 1999- Supplement,
dated as of , 1999 (the "Series 1999- Supplement"), among the Transferor,
the Servicer and the Trustee. The Pooling and Servicing Agreement, as
supplemented by the Series 1999- Supplement, is herein referred to as the
"Agreement". The corpus of the Trust consists of all of the Transferor's
right, title and interest in, to and under the Trust Property (as defined
in the Agreement).
This Security does not purport to summarize the Agreement and
reference is made to that Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the Trustee. To the extent
not defined herein, the capitalized terms used herein have the meanings
ascribed to them in the Agreement. This Security is one of a series of
Securities entitled "Metris Master Trust Floating Rate Asset Backed
Securities, Series 1999- , Class B" (the "Class B Securities"), each of
which represents a fractional undivided interest in the Trust, and is
issued under and is subject to the terms, provisions and conditions of the
Agreement, to which Agreement, as amended from time to time, the
Securityholder by virtue of the acceptance hereof assents and by which the
Securityholder is bound.
The Transferor has structured the Agreement, the Class B
Securities and the Metris Master Trust Floating Rate Asset Backed
Securities, Series 1999- , Class A (the "Class A Securities" and
collectively with the Class B Securities the "Offered Securities") with the
intention that the Offered Securities will qualify under applicable tax law
as indebtedness, and both the Transferor and each holder of a Class B
Security (a "Class B Securityholder") or any interest therein by acceptance
of its Security or any interest therein, agrees to treat the Class B
Securities for purposes of federal, state and local income or franchise
taxes and any other tax imposed on or measured by income, as indebtedness.
No principal will be payable to the Class B Securityholders
until the earlier of the Expected Final Payment Date and, upon the
occurrence of a Pay Out Event, the Distribution Date following the Monthly
Period in which the Pay Out Event occurs but in no event earlier than the
Distribution Date either on or following the Distribution Date on which the
Class A Invested Amount had been paid in full. No principal will be payable
to the Class B Securityholders until all principal payments have been made
to the Class A Securityholders. No principal payments will be made to the
Credit Enhancement Providers (other than with respect to Credit Enhancement
Excess Amounts) until the Distribution Date either on or following the
Distribution Date on which the Class B Invested Amount has been paid in
full.
Interest on the Offered Securities will be payable on , 1999
and on the 15th 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 (1) with respect to the Class A Securities an
amount equal to the product of (i) the Class A Interest Rate, (ii) 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 and (iii) the
outstanding principal balance of the Class A Securities as of the close of
business on the first day of such Interest Accrual Period and (2) with
respect to the Class B Securities (a) the product of (i) the Class B
Interest Rate, (ii) 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 and (iii) the outstanding principal balance of the Class B
Securities as of the close of business on the first day of such Interest
Accrual Period (or in the case of the initial Distribution Date, an amount
equal to the product of (u) the Class B Initial Invested Amount, (v)
divided by 360, and (w) the Class B Interest Rate determined on , 1999).
Interest payments on the Class A Securities on each
Distribution Date will be funded from Available Series 1999- 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 , 1999 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.
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 1999-
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.
"Class B Invested Amount" shall mean, when used with respect to
any Business Day, the greater of (x) zero and (y) an amount equal to (a)
the Class B Initial Invested Amount, minus (b) the aggregate amount of
principal payments made to Class B Securityholders through and including
such Business Day, minus (c) the aggregate amount of Class B Charge-Offs
for all prior Distribution Dates, minus (d) the aggregate amount of
Redirected Class B Principal Collections for which the Credit Enhancement
Invested Amount has not been reduced for all prior Business Days, and plus
(e) the sum of the aggregate amount allocated and available on all prior
Business Days pursuant to subsection 4.9(a)(ix) of the Agreement and, with
respect to such subsection, pursuant to subsections 4.10(a) and (b),
4.14(a), 4.17(b) and 4.18(b), (c) and (d) of the Agreement, for the purpose
of reinstating amounts reduced pursuant to the foregoing clauses (c) and
(d).
Subject to the Agreement, payments of principal are limited to
the unpaid Class B Invested Amount of the Class B Securities, which may be
less than the unpaid balance of the Class B Securities pursuant to the
terms of the Agreement. All principal on the Class B Securities is due and
payable no later than the Distribution Date (or if such day is not a
Business Day, the next succeeding Business Day) (the "Scheduled Series
1999- Termination Date"). After the earlier to occur of (i) the Scheduled
Series 1999- Termination Date and (ii) the day after the Distribution Date
on which the Series 1999- Securities are paid in full (the "Series 1999-
Termination Date") neither the Trust nor the Transferor will have any
further obligation to distribute principal or interest on the Class B
Securities. In the event that the Class B Invested Amount is greater than
zero on the Series 1999- Termination Date, the Trustee will sell or cause
to be sold, to the extent necessary, an amount of interests in the
Receivables or certain of the Receivables up to 110% of the Class A
Invested Amount, the Class B Invested Amount and the Credit Enhancement
Invested Amount at the close of business on such date (but not more than
the total amount of Receivables allocable to the Investor Securities), and
shall pay the proceeds to the Class A Securityholders pro rata - in final
payment of the Class A Securities, then to the Class B Securityholders pro
rata in final payment of the Class B Securities and, finally, to the Credit
Enhancement Providers pro rata in final payment of the Credit Enhancement.
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 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:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Securities referred to in the
within-mentioned Amended and Restated Pooling and Servicing Agreement.
THE BANK OF NEW YORK (DELAWARE)
By:______________________________
Name:
Title:
<TABLE>
<CAPTION>
EXHIBIT B
Metris Receivables, Inc. Metris Master Monthly Report
Securityholders' Statement Trust Month-Year
Series 1999-__
Section 5.2 Class A* Class B Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Security Amount
============================== ==============
(i) Total Security Amount Distributed
============================== ==============
(ii) Security Principal Distributed
============================== ==============
(iii) Security Interest Distributed
============================== ==============
* Based on monthend level. Certificate amount varied
during the month.
(iv) Principal Collections
(v) Finance Charge Collections
Recoveries
Initial Interest Funding Account Deposit
Interest Earned on Accounts
------------------------------ --------------
Total Finance Charge Collections
------------------------------ --------------
Total Collections
============================== ==============
(vi) Aggregate Amount of Principal
Receivables
==============
Invested Amount (End of Month)
============================== ==============
Floating Allocation Percentage
============================== ==============
Invested Amount (Beg. of Mthly
Period-___)
============================== ==============
Average Daily Invested Amount
==============
(vii) Receivable Delinquencies (As a %
of Total Receivables)
Current
30 Days to 59 Days (1 to 29 Days Contractually Delinquent)
60 Days to 90 Days (30 to 59 Days Contractually Delinquent)
90 Days and Over (60+ Days Contractually Delinquent)
------------- --------------
Total Receivables 100.00%
============= ==============
(viii)Aggregate Investor Default Amount
==============
As a % of Average Daily Invested Amount
(Annualized based on 365 days/year)
==============
(ix) Charge-Offs
------------------------------ ==============
(x) Servicing Fee
==============
(xi) Unreimbursed Redirected Principal Collections
------------- ==============
(xii) Excess Funding Account Balance
==============
Specified Reserve Amount
--------------
Reserve Account Balance
--------------
Average Gross Portfolio Yield
==============
Average Net Portfolio Yield
==============
Minimum Base Rate
==============
Excess Spread
==============
</TABLE>
Exhibit 5
May 28, 1999
Metris Receivables, Inc.
600 South Highway 169
Suite 300
St. Louis Park, Minnesota 55426
Re: Registration Statement on Form S-3
Registration No. 333-76047
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Metris Receivables, Inc.,
as transferor (the "Transferor"), in connection with (a) the transfer and
assignment of a portfolio of MasterCard and VISA or other revolving
consumer credit card accounts, and all monies due or to become due in
payment of such receivables (collectively, the "Receivables"), by the
Transferor to The Bank of New York (Delaware), as trustee (the "Trustee")
for the Metris Master Trust (the "Trust"), formed pursuant to an Amended
and Restated Pooling and Servicing Agreement dated as of July 30, 1998, as
amended (the "Pooling and Servicing Agreement") by and among the
Transferor, Direct Merchants Credit Card Bank, National Association, as
servicer (the "Servicer") and the Trustee, to be allocated by the Trust
among the interests of the holders of certain Series of Securities to be
outstanding from time to time including securities to be offered and sold
pursuant to Registration Statement No. 333-76047 on Form S-3, as amended
from time to time (the "Registration Statement" and such offered
securities, the "Offered Securities").
In connection with our engagement, we have examined and relied
upon the forms of the Pooling and Servicing Agreement and the Underwriting
Agreement included as exhibits to the Registration Statement. In addition,
we have examined and considered executed originals or counterparts, or
certified or other copies identified to our satisfaction as being true
copies of such certificates, instruments, documents and other corporate
records of the Transferor and matters of fact and law as we deem necessary
for the purposes of the opinion expressed below. Capitalized terms not
otherwise defined herein have the respective meanings assigned to such
terms in the form of Underwriting Agreement filed as an exhibit to the
Registration Statement.
In our examination we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the original of
such latter documents. As to any facts material to the opinions expressed
herein that we did not independently establish or verify, we have relied
upon statements and representations of officers and other representatives
of the Transferor and others. In addition, we have assumed that the
Underwriting Agreement will be executed and delivered in substantially the
form filed as an exhibit to the Registration Statement, and that the
Securities will be sold as described therein.
We express no opinion as to the laws of any jurisdiction other
than the laws of the State of Delaware and the laws of the United States of
America to the extent specifically referred to herein.
Based upon and subject to the foregoing, we are of the opinion
that, when a particular Series of Securities to be issued pursuant to the
Pooling and Servicing Agreement have been duly and validly authorized by
the Transferor and when such Securities are executed and delivered by the
Transferor and authenticated by the Trustee in accordance with the
provisions of the Pooling and Servicing Agreement, and when such Securities
are paid for by the Underwriters in accordance with the terms of the
Underwriting Agreement, such Series of Securities will be legally issued,
fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to Skadden, Arps, Slate,
Meagher & Flom LLP under the caption "Legal Matters" in the Prospectus
included in the Registration Statement.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
Exhibit 8
May 28, 1999
Metris Receivables, Inc.
600 South Highway 169
Suite 300
St. Louis Park, Minnesota 55426
Re: Metris Master Trust
-------------------
Ladies and Gentlemen:
In connection with the filing of Registration Statement No.
333-76047 on Form S-3 relating to the Metris Master Trust (the "Trust), as
amended from time to time, (the "Registration Statement") with the
Securities and Exchange Commission, you have requested our opinion
regarding certain descriptions of tax consequences contained in the form of
prospectus (the "Prospectus") included in the Registration Statement.
We have acted as special counsel to Metris Receivables, Inc.,
as transferor (the "Transferor"), in connection with (a) the transfer and
assignment of a pool of certain receivables generated or acquired from time
to time in the ordinary course of business in a portfolio of MasterCard and
VISA or other revolving consumer credit card accounts, and all monies due
or to become due in payment of such receivables, (collectively, the
"Receivables") by the Transferor to The Bank of New York (Delaware), as
trustee (the "Trustee") for the Trust, to be formed pursuant to an Amended
and Restated Pooling and Servicing Agreement dated as of July 30, 1998,
(the "Amended and Restated Pooling and Servicing Agreement") by and among
the Transferor, Direct Merchants Credit Card Bank, National Association, as
servicer (the "Servicer") and the Trustee, to be allocated by the Trust
among the interests of the holders of certain Series of Securities to be
outstanding from time to time including securities to be offered and sold
pursuant to Registration Statement No. 333-76047 on Form S-3, as amended
from time to time (the "Registration Statement" and such offered
securities, the "Offered Securities").
In connection with our engagement, we have examined and relied
upon the forms of the Pooling and Servicing Agreement and the Underwriting
Agreement included as exhibits to the Registration Statement. In addition,
we have examined and considered executed originals or counterparts, or
certified or other copies identified to our satisfaction as being true
copies of such certificates, instruments, documents and other corporate
records of each of the Transferor and the Servicer and matters of fact and
law as we deem necessary for the purposes of the opinion expressed below,
and we have assumed (i) that such documents will not be amended and (ii)
that the parties to such documents will comply with the terms thereof.
Capitalized terms not otherwise defined herein have the respective meanings
assigned to such terms in the Registration Statement.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of
such latter documents. As to any facts material to the opinions expressed
herein which were not independently established or verified, we have relied
upon statements, representations, and certifications of officers and other
representatives of the Transferor, the Servicer, the Underwriters, and
others.
In rendering our opinion, we have also considered and relied
upon the Internal Revenue Code of 1986, as amended, and administrative
rulings, judicial decisions, Treasury regulations, and such other
authorities as we have deemed appropriate, all as in effect as of the date
hereof. The statutory provisions, regulations and interpretations upon
which our opinion is based are subject to changes, and such changes could
apply retroactively. In addition, there can be no assurance that positions
contrary to those stated in our opinion may not be taken by the Internal
Revenue Service.
We also note that the Prospectus and the Agreement do not
relate to a specific transaction. Accordingly, the above-referenced
description of Federal income tax consequences may, under certain
circumstances, require modification in the context of an actual
transaction.
We express no opinions as to the laws of any jurisdiction other
than the federal laws of the United States of America to the extent
specifically referred to herein.
Based upon and subject to the foregoing, we are of the opinion
that the statements in the Prospectus under the heading "Tax Matters"
subject to the qualifications set forth therein, accurately describe the
material federal income tax consequences to holders of the Offered
Securities, under existing law and the assumptions stated therein.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to Skadden, Arps, Slate,
Meagher & Flom LLP under the captions "Structural Summary--Tax Status of
the Class A, Class B and Metris Master Trust" in the Prospectus Supplement
and "Tax Matters" and "Legal Matters" in the Prospectus.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
