<PAGE> 1
Prospectus Supplement to Prospectus dated July 20, 2000 Metris Companies Logo
METRIS MASTER TRUST
$447,514,000 CLASS A FLOATING RATE ASSET BACKED SECURITIES, SERIES 2000-2
$67,956,000 CLASS B FLOATING RATE ASSET BACKED SECURITIES, SERIES 2000-2
METRIS RECEIVABLES, INC.
Transferor
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION
Servicer
<TABLE>
<CAPTION>
CLASS A SECURITIES CLASS B SECURITIES
------------------ ------------------
<S> <C> <C> <C>
Principal Amount $447,514,000 $67,956,000
Price $447,514,000 (100.00%) $67,956,000 (100.00%)
Underwriters' Commissions $1,118,785 (0.250%) $186,879 (0.275%)
Proceeds to the Transferor $446,395,215 (99.750%) $67,769,121 (99.725%)
Interest Rate one-month LIBOR + 0.21% p.a. one-month LIBOR + 0.60% p.a.
Interest Payment Dates monthly on the 20th monthly on the 20th
First Interest Payment Date September 20, 2000 September 20, 2000
Expected Final Payment Date July 21, 2003 August 20, 2003
</TABLE>
The Class B securities are subordinated to the Class A securities. The Trust is
also issuing an interest in the Trust called the excess collateral in the amount
of $147,513,425. The excess collateral will be subordinated to both the Class A
securities and the Class B securities.
These securities are interests in the 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 will have the benefits of interest rate caps.
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-10 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 is a criminal offense.
We will apply to have these securities listed on the Luxembourg Stock Exchange
but we are not sure that they will be listed on the Luxembourg Stock Exchange or
any other stock exchange. Applications to have certain of the Trust's previously
issued securities listed on the Luxembourg Stock Exchange are still pending at
this time.
These securities are offered subject to availability.
We expect that these securities will be delivered in book-entry form on July 27,
2000 through The Depository Trust Company, Clearstream Banking, societe anonyme
and the Euroclear System.
UNDERWRITERS OF THE CLASS A SECURITIES
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
BARCLAYS CAPITAL
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
UNDERWRITERS OF THE CLASS B SECURITIES
DEUTSCHE BANC ALEX. BROWN BEAR, STEARNS & CO. INC.
The date of this Prospectus Supplement is July 20, 2000
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TABLE OF CONTENTS
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PAGE
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<S> <C>
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-10
Potential Early Repayment or
Delayed Payment due to Reduced
Portfolio Yield................ S-10
Limited History of Direct
Merchants Bank, the Trust and
the Trust Portfolio............ S-13
Allocations of Charged-Off
Receivables Could Reduce
Payments to Securityholders.... S-13
Limited Ability to Resell
Securities..................... S-14
Certain Liens Could Be Given
Priority Over Your
Securities..................... S-14
Insolvency or Bankruptcy of Metris
Receivables, Inc., Direct
Merchants Bank or Metris
Companies Inc. Could Result in
Accelerated, Delayed or Reduced
Payments to Securityholders.... S-14
Negative Carry on Amounts on
Deposit in Trust Accounts May
Reduce Yield................... S-16
Issuance of Additional Series by
the Trust May Affect the Timing
of Payments.................... S-16
Individual Securityholders Will
Have Limited Control of Trust
Actions........................ S-16
Rating of Your Securities May be
Reduced........................ S-16
Class B Bears Additional Credit
Risk........................... S-17
TRUST CREDIT CARD PORTFOLIO......... S-18
General........................... S-18
Growing Credit Card Portfolio by
Portfolio Acquisitions......... S-18
Assessment of Fees and Finance and
Other Charges.................. S-19
Delinquency and Loss Experience... S-19
Recoveries........................ S-21
THE RECEIVABLES..................... S-21
General........................... S-21
MATURITY CONSIDERATIONS............. S-25
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Accumulation Period............... S-25
Early Amortization Period......... S-26
Pay Out Events.................... S-27
Payment Rates..................... S-28
RECEIVABLE YIELD CONSIDERATIONS..... S-29
USE OF PROCEEDS..................... S-29
DESCRIPTION OF THE OFFERED
SECURITIES........................ S-29
General........................... S-30
Status of the Securities.......... S-31
Previously Issued Series.......... S-31
Interest Payments................. S-31
Principal Payments................ S-33
Postponement of Accumulation
Period......................... S-34
Subordination..................... S-35
The Interest Rate Caps............ S-36
Interest Rate Cap Providers....... S-36
Allocation Percentages............ S-38
Redirected Cash Flows............. S-40
Redirected Principal
Collections.................... S-41
Application of Collections........ S-42
Coverage of Interest Shortfalls... S-48
Shared Principal Collections...... S-48
Defaulted Receivables; Dilution... S-48
Investor Charge-Offs.............. S-49
Principal Funding Account......... S-49
Accumulation Period Reserve
Account........................ S-50
Paired Series..................... S-51
Defeasance........................ S-51
Final Payment of Principal;
Termination.................... S-52
Pay Out Events.................... S-53
Servicing Compensation and Payment
of Expenses.................... S-54
Reports to Securityholders........ S-55
LISTING AND GENERAL INFORMATION..... S-55
ERISA CONSIDERATIONS................ S-56
Class A Securities................ S-56
Class B Securities................ S-57
Consultation with Counsel......... S-57
UNDERWRITING........................ S-58
INDEX OF TERMS FOR PROSPECTUS
SUPPLEMENT........................ S-60
ANNEX I: PREVIOUSLY ISSUED SERIES... A-I-1
</TABLE>
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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 2000-2 are
described in this supplement.
This supplement begins with several introductory sections describing your
series and the Trust in abbreviated form:
- Summary of Terms provides important amounts, dates and other terms of
your series;
- Structural Summary gives a brief introduction of the key structural
features of your series and directions for locating further information;
- Selected Trust Portfolio Summary Data gives certain financial information
about the assets of the Trust; and
- 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 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.
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SUMMARY OF TERMS
<TABLE>
<S> <C>
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)
Interest Rate Cap Providers: Bank of America, N.A., Barclays Bank PLC, or any Branch or
Agency thereof, and The Chase Manhattan Bank
Pricing Date: July 19, 2000
Closing Date: July 27, 2000
Clearance and Settlement: DTC/Clearstream/Euroclear
Trust Assets: receivables originated in MasterCard and VISA accounts,
including recoveries on charged-off receivables
</TABLE>
<TABLE>
<S> <C> <C>
Series Structure: Amount % of Total Series
Class A $447,514,000 67.50%
Class B $67,956,000 10.25%
Excess Collateral $147,513,425 22.25%
Annual Servicing Fee: 2.0%
CLASS A CLASS B
Anticipated Ratings: Aaa/AAA/AAA Aa3/A/A+
(Moody's/Standard & Poor's/
Fitch)
Credit Enhancement: subordination of Class B and subordination of the excess
the excess collateral and collateral and interest rate
interest rate caps caps
Interest Rate: one-month LIBOR + 0.21% p.a. one-month LIBOR + 0.60% p.a.
Interest Accrual Method: actual/360 actual/360
Interest Payment Dates: monthly on the 20th monthly on the 20th
Interest Rate Index Reset 2 London business days before 2 London business days before
Date: each interest payment date each interest payment date
First Interest Payment Date: September 20, 2000 September 20, 2000
Expected Final Payment Date: July 21, 2003 August 20, 2003
Commencement of Accumulation
Period (subject to Last day of July 2002 N/A
adjustment):
Series 2000-2 Legal Final
Maturity: January 22, 2007 January 22, 2007
CUSIP Number: 59159U AS 7 59159U AT 5
ISIN: US59159UAS78 US59159UAT51
Common Code: 011492851 011492860
</TABLE>
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STRUCTURAL SUMMARY
This summary briefly describes certain major structural components of
Series 2000-2. To fully understand the terms of Series 2000-2 you will need to
read both this supplement and the attached prospectus in their entirety.
THE SERIES 2000-2 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
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 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
and the attached prospectus.
At the same time as the Class A securities and the Class B securities are
issued, the trust will issue an interest in the trust called the excess
collateral in the amount of $147,513,425 as part of Series 2000-2. The excess
collateral will have certain rights as if the excess collateral were a
subordinated class of securities. The excess collateral is not offered by this
prospectus supplement.
For further information on allocations and payments, see "Description of the
Offered 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 Offered Securities" in this supplement and "Description of
the Securities" in the attached prospectus.
CREDIT ENHANCEMENT
Your securities feature credit enhancement by means of the subordination of
other interests and payments under interest rate caps, which are intended to
protect you from losses and shortfalls in cash flow. Credit enhancement for your
series is for your series' benefit only. Credit enhancement is provided to Class
A by the following:
- subordination of Class B;
- subordination of the excess collateral; and
- payments under one or more interest rate caps.
Credit enhancement is provided to Class B by the following:
- subordination of the excess collateral; and
- payments under one or more interest rate caps.
The effect of subordination is that the more subordinated interests will absorb
any losses allocated to Series 2000-2, and make up any shortfalls in cash flow,
before the more senior interests are affected. On the closing date the excess
collateral will be $147,513,425, or 22.25% of the sum of the initial Class A
invested amount, the initial Class B invested amount and the initial excess
collateral amount. The interest rate caps provide an additional resource for
interest payments if LIBOR is greater than 8.50%. If the cash flow, any
subordinated interest and the proceeds from the interest rate caps do not cover
all losses allocated to Series 2000-2, your payments of interest and principal
will be reduced and you may suffer a loss of principal.
In addition to being subject to reduction as described in "Description of the
Offered Securities--Subordination" and "--Redirected Principal Collections" in
this supplement, if certain conditions are satisfied, the Excess Collateral
Amount may be reduced to a minimum level with the consent of the rating agencies
selected by Metris Receivables, Inc. to rate your securities.
For a more detailed description of the subordination provisions of Series
2000-2, see
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"Description of the Offered Securities--Subordination" in this supplement. For a
more detailed description of the other credit enhancement provided to your
securities, see "Description of the Offered Securities--The Interest Rate Caps"
in this supplement. For a discussion of losses, see "Description of the Offered
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 2000-2.
METRIS MASTER TRUST
Your series is one of ten series issued by Metris Master Trust that will be
outstanding on the date of issuance of your series. Metris Master Trust is
maintained by the trustee for the benefit of:
- securityholders of Series 2000-2;
- securityholders of other series issued by Metris Master Trust;
- providers of credit enhancements for Series 2000-2 and other series
issued by Metris Master Trust; and
- 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 Metris Master Trust's assets, see "Trust Credit Card
Portfolio" and "The Receivables" in this supplement and "Direct Merchants Credit
Card Bank, N.A. Activities" and "The Receivables" in the attached prospectus.
SCHEDULED PRINCIPAL PAYMENTS AND POTENTIAL EARLIER OR LATER PAYMENTS
Prior to the commencement of an accumulation or early amortization period for
Series 2000-2, principal collections will be paid to Metris Receivables, Inc. or
shared with other series that are amortizing or in an accumulation period.
Metris Master Trust is expected to pay the entire principal amount of Class A in
one payment on July 21, 2003 and the entire principal amount of Class B in one
payment on August 20, 2003, in each case if the early amortization period has
not begun. In order to accumulate the funds to pay Class A on its expected final
payment date, the Trust will accumulate principal collections in a principal
funding account during an "accumulation period." Prior to the Class A expected
final payment date, 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. On the Class A expected final
payment date, funds on deposit in the Principal Funding Account will be paid to
the Class A securityholders.
If Class A is not fully repaid on its expected final payment date, Class A will
begin to amortize by means of monthly payments of all principal collections
allocated to Series 2000-2 until it is fully repaid.
After Class A is fully repaid, Class B will receive a principal payment on its
expected final payment date. If Class B is not fully repaid on its expected
final payment date, Class B will begin to amortize by means of monthly payments
of all principal collections allocated to Series 2000-2 until it is fully
repaid.
For more information on expected principal payments and the accumulation period,
see "Maturity Considerations," "Description of the Offered Securities--Principal
Payments," "--Postponement of Accumulation Period" and "--Application of
Collections--Payment of Principal" in this supplement and "Description of the
Securities--Principal" and "--Accumulation Period" in the attached prospectus.
MINIMUM YIELD ON THE RECEIVABLES; POSSIBLE EARLY PRINCIPAL REPAYMENT OF SERIES
2000-2
Your securities may be repaid earlier than their expected 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 2000-2 in any month, referred to as the
"base rate," is the sum of the weighted average of the Class A interest rate,
the Class B interest rate and the excess
S-6
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collateral minimum rate, in each case for the related interest accrual period,
plus the servicing fee for the related month. If the average yield after
reduction for receivable defaults for Series 2000-2 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 2000-2 and the Trust will
commence an "early amortization period" for Series 2000-2, and you may receive
principal payments earlier than your expected final payment date.
Series 2000-2 is also subject to several other pay out events, which could cause
Series 2000-2 to amortize, and which are summarized under the heading
"Description of the Offered Securities--Pay Out Events" in this supplement. If
Series 2000-2 begins to amortize, Class A will receive monthly payments of
principal until it is fully repaid and, after Class A is fully repaid, Class B
will receive monthly payments of principal until it is fully repaid. In that
event, your securities may be repaid prior to your expected final payment date.
The final payment of principal and interest on Class A and Class B will be made
no later than January 22, 2007, which is the Series 2000-2 legal final maturity
date.
For more information on pay out events, the portfolio yield and base rate, early
principal payment and early amortization, see "Maturity Considerations,"
"Description of the Offered Securities--Principal Payments," "--Final Payment of
Principal; Termination" 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
Orrick, Herrington & Sutcliffe LLP, special federal income tax counsel to Metris
Receivables, Inc., is of the opinion that:
- under existing law the Class A and the Class B securities will be
characterized as debt for U.S. federal income tax purposes; and
- Metris Master Trust will not be an association or publicly traded
partnership taxable as a corporation for U.S. federal income tax
purposes.
For more information regarding the application of U.S. federal income tax laws,
see "Income Tax Matters" in the attached prospectus.
ERISA CONSIDERATIONS
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 supplement and
"ERISA Considerations" 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.
It is not anticipated that the Class B securities will meet the criteria for
treatment as "publicly-offered securities." As such, employee benefit and other
plans subject to ERISA or Section 4975 of the U.S. Internal Revenue Code cannot
acquire Class B securities. Prohibited investors include:
- "employee benefit plans" as defined in Section 3(3) of ERISA;
- any "plan" as defined in Section 4975 of the U.S. Internal Revenue Code;
and
- any entity whose underlying assets may be deemed to include "plan assets"
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 more information regarding the application of ERISA, see "ERISA
Considerations" in this supplement and "ERISA Considerations" in 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.
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SELECTED TRUST PORTFOLIO SUMMARY DATA
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS IN TRUST PORTFOLIO
AS OF MAY 31, 2000
[PIE CHART]
<TABLE>
<CAPTION>
CALIFORNIA NEW YORK TEXAS FLORIDA OTHER
---------- -------- ----- ------- -----
<S> <C> <C> <C> <C>
12 7.9 7.0 7.5 65.6
</TABLE>
The chart above shows the geographic distribution of the accounts in the Trust
portfolio among the 50 states and the District of Columbia. Other than the
states specifically shown in the chart, no state accounts for more than 5% of
the accounts in the Trust portfolio.
RECEIVABLES IN TRUST PORTFOLIO BY AGE OF ACCOUNT
AS OF MAY 31, 2000
[PIE CHART]
<TABLE>
<CAPTION>
0-6 MONTHS 7-12 MONTHS 13-24 MONTHS 25+ MONTHS
---------- ----------- ------------ ----------
<S> <C> <C> <C>
1 9.9 23.3 65.8
</TABLE>
The chart above shows the percentage of the receivables in the Trust portfolio
arising under accounts within the age brackets shown.
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[LINE GRAPH]
<TABLE>
<CAPTION>
TOTAL YIELD CHARGE-OFFS PAYMENT RATE
----------- ----------- ------------
<S> <C> <C> <C>
Jan 25.21 10.42 6.68
29.82 12.26 7.07
Mar 30.45 11.34 8.04
27.17 12.84 7.16
May 27.39 11.62 7.29
27.03 12.12 7.03
Jul 25.99 11.72 7.09
26.80 10.66 7.52
Sep 25.90 10.93 6.82
27.21 10.56 7.45
Nov 28.02 10.62 7.27
26.54 10.00 7.07
Jan 25.81 10.37 6.74
29.85 11.39 7.25
Mar 28.75 11.86 7.81
27.21 10.84 7.03
May 27.69 11.07 7.37
</TABLE>
The chart above shows the total yield, charge-off rate and payment rate for the
Trust portfolio for each month from January 1999 to May 2000.
"TOTAL YIELD" for any month means the total amount of collected finance charge
receivables, including annual fees and other charges, allocated to the Trust for
the month, expressed as a percentage of average outstanding principal
receivables for the month.
The amount of "CHARGE-OFFS" for any month is the amount of charged-off principal
receivables recorded in the month expressed as a percentage of average
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 at
the end of the previous month.
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RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the Class A or Class B securities described in this supplement.
POTENTIAL EARLY REPAYMENT OR
DELAYED PAYMENT DUE TO REDUCED
PORTFOLIO YIELD If the average Trust portfolio yield after
reduction for receivable defaults for Series
2000-2 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 2000-2 and
the early amortization of Series 2000-2 will
commence, and you may receive principal
payments earlier than your expected final
payment date. Moreover, if principal
collections on receivables allocated to other
series are available for application to an
early amortization of any outstanding
securities, the period during which that early
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 2000-2. Conversely, any reduction in
collections may cause the period during which
collections are retained for payment of your
securities 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 minimum
monthly 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.
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<PAGE> 11
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 receivables
purchased by Metris Receivables, Inc.
generated in accounts not currently designated
for the Trust may be included as additional
accounts, if certain conditions are satisfied.
The account originator's underwriting criteria
may be less or more stringent than those
applied to accounts currently designated for
the Trust. 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 2000-2.
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 available 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
the Metris Master Trust accrue at a variable
rate above a designated prime rate. The
interest rate of your security is based on
LIBOR. Changes in LIBOR might not be reflected
in the prime rate, resulting in a higher or
lower spread, or difference, between the
amount of collections of finance charge
receivables on the accounts and the
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<PAGE> 12
amounts of interest payable on your securities
and other amounts required to be funded out of
collections of finance charge receivables.
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 and the potential for reduced
portfolio yield, which could result in a pay
out event. See "Description of the Offered
Securities--Pay Out Events" in this supplement
and "Description of the Securities--Pay Out
Events" 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 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. See "Description of the
Securities--Representations and Warranties"
and "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 Offered Securities--Defaulted
Receivables; Dilution" and "--Investor
Charge-Offs" in this supplement and
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<PAGE> 13
"Description of the Securities--Defaulted
Receivables; Dilution" and "--Investor
Charge-Offs" in the attached prospectus.
SLOWER GENERATION OF RECEIVABLES COULD REDUCE
COLLECTIONS
The receivables transferred to the 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 and in the attached
prospectus.
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 "Trust Credit Card
Portfolio" in this supplement and "Direct
Merchants Credit Card Bank, N.A. Activities"
in the attached prospectus.
The Trust 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 May 31, 2000
approximately 16% of the accounts in the Trust
portfolio had been originated within the last
12 months and approximately 38% 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
"Receivables in Trust Portfolio by Age of
Account" pie chart in "Selected Trust
Portfolio Summary Data" 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 2000-2
will be allocated a portion of those
charged-off receivables. See "Description of
the Offered Securities--Allocation
Percentages" and "Trust 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 Offered
Securities--Redirected Cash Flows,"
"--Application of
S-13
<PAGE> 14
Collections," "--Defaulted Receivables;
Dilution" and "--Investor Charge-Offs" in this
supplement.
LIMITED ABILITY TO RESELL
SECURITIES The underwriters may assist in resales of your
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 (the "FDIC") 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's, Metris Companies Inc.'s 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
governmental lien or other liens imposed 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.,
DIRECT MERCHANTS BANK OR
METRIS COMPANIES INC. COULD
RESULT IN ACCELERATED, DELAYED
OR REDUCED PAYMENTS TO
SECURITYHOLDERS The Federal Deposit Insurance Act, as amended
by the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (the "FDIA"),
provides that a security interest granted by
Direct Merchants Bank would be respected to
the extent that--
- the grant of the security interest and the
related transaction documents comply with
the regulatory requirements of the FDIA;
S-14
<PAGE> 15
- the security interest was perfected before
the FDIC is appointed as conservator or
receiver for Direct Merchants Bank; and
- the security interest was not taken in
contemplation of Direct Merchant Bank's
insolvency or with the intent to hinder,
delay or defraud Direct Merchant Bank or its
creditors.
Opinions and policy statements issued by the
FDIC suggest that, because of the manner in
which these transactions are structured, the
FDIC would respect the security interest
granted by Direct Merchants Bank in the
receivables. If the FDIC were to assert a
contrary position, however, payments of
outstanding principal and interest could be
delayed or possibly reduced. Furthermore, the
FDIC could--
- 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;
- request a stay of any actions by the trustee
to enforce the security interest, any
transaction document or the securities
against Direct Merchants Bank; or
- repudiate the transaction documents to which
Direct Merchants Bank is a party and limit
the Trust's resulting claim to "actual
direct compensatory damages" measured as of
the date of conservatorship or receivership.
See "Certain Legal Aspects of the
Receivables--Certain Matters Relating to
Bankruptcy or 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 or other insolvency related
events 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 invested amount 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 bankruptcy court
may nonetheless have the power, regardless of
the terms of the pooling and servicing
agreement or the instructions of holders of
the securities, (a) to prevent or cause the
beginning of an early amortization period, (b)
to prevent or cause the early sale of the
receivables and termination of the Trust or
(c) to require or prohibit the transfer of new
principal receivables to the Trust.
S-15
<PAGE> 16
In addition, a court overseeing the servicer's
bankruptcy case may have the power to prevent
either the trustee or the securityholders from
appointing a new servicer. See "Certain Legal
Aspects of the Receivables--Certain Matters
Relating to Bankruptcy or Receivership" in the
attached prospectus.
NEGATIVE CARRY ON AMOUNTS ON
DEPOSIT IN TRUST ACCOUNTS MAY
REDUCE YIELD Any amounts deposited in the excess funding
account and the principal funding account may
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 and "Description of the Offered
Securities--Paired Series" in this supplement.
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.
RATING OF YOUR SECURITIES MAY
BE REDUCED Your securities will only be issued if they
are rated at least "AAA" in the case of the
Class A securities, or at least "A" in the
case of the Class B securities, or the
equivalent by at least one nationally
recognized rating agency. The ratings will be
based primarily on an assessment of the
receivables in the Trust, the amounts held in
any trust account for your benefit, and the
S-16
<PAGE> 17
subordination of subordinated interests for
the benefit of your securities.
CLASS B BEARS ADDITIONAL
CREDIT RISK If you purchase a Class B security, your right
to receive principal payments is subordinated
to the payment in full of the Class A
securities. No principal will be paid to you
until the full amount of principal has been
paid on the Class A securities.
In addition, if Class A's share of collections
of finance charge receivables and certain
other amounts allocated to Series 2000-2,
excess finance charges, transferor finance
charge collections and the excess collateral's
share of principal collections are not
sufficient to make all required payments for
the Class A securities, collections of
principal receivables allocated to Class B may
be diverted to Class A. If this occurs, the
Class B invested amount and future allocations
to Class B would be reduced.
Also, if Class A's share of losses on the
receivables exceeds the collections and the
credit enhancement available to cover those
losses, and the excess collateral amount is
reduced to zero, the Class B invested amount
will be reduced to avoid reducing the Class A
invested amount. If this occurs, the Class B
invested amount and future allocations to
Class B would be reduced.
As a result of the subordination, if you hold
Class B securities you may receive payments of
interest or principal later than you expect or
you may not receive the full amount of
expected principal and interest.
S-17
<PAGE> 18
TRUST 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 2000-2 SUPPLEMENT") (the term
"POOLING AND SERVICING AGREEMENT," unless the context requires otherwise, refers
to the Pooling and Servicing Agreement as supplemented by the Series 2000-2
Supplement) have been or will be generated from transactions made by holders of
certain designated 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
2000-2 (collectively, the "CLASS A SECURITIES"), each Class B Floating Rate
Asset Backed Security, Series 2000-2 (collectively, the "CLASS B SECURITIES"
and, together with the Class A Securities, the "OFFERED SECURITIES") and the
Excess Collateral, Series 2000-2 (the "EXCESS COLLATERAL" and, together with the
Offered Securities, the "SECURITIES" or the "SERIES 2000-2 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 and the term "EXCESS COLLATERAL HOLDER" refers to the holder of the
Excess Collateral. As of May 31, 2000, the Metris Master Trust had approximately
3.1 million credit card accounts and approximately $5.6 billion in Receivables;
Fingerhut Customers represented approximately 38% of the accounts and
approximately 42% of the Receivables.
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 were active
accounts. In June 1998, Direct Merchants Bank acquired a credit card portfolio
from Huntington BancShares which had approximately 42,000 accounts with balances
of approximately $100 million. 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
were active accounts. On December 9, 1998, Direct Merchants Bank acquired a
portion of the consumer credit card portfolio of PNC National Bank. The acquired
PNC National Bank credit card portfolio had approximately 400,000 accounts and
approximately $800 million in receivables as of December 9, 1998. In June 1999,
Metris acquired a portfolio of approximately 485,000 active accounts and
approximately $1.2 billion of credit card receivables from General Electric
Capital Corporation, a unit of the General Electric Company. While none of these
accounts has been designated as an Account, the Transferor may determine to add
such accounts as Accounts designated to have their Receivables transferred to
the Trust 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,
S-18
<PAGE> 19
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 or from other acquisitions of accounts, if any,
will be of the same credit quality as previously designated Accounts.
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 for 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 any amount
past due, plus any amount over the cardholder's credit line. The Bank assesses
an annual fee on some credit card accounts. The Bank may waive the annual
membership fees, or a portion of those fees, 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 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. 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 due 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 under
that account is not received by the Bank on or before the due date.
Efforts to collect delinquent credit card receivables are primarily made
internally through the collection facilities of the Bank. For a description of
the Bank's collection practices and policies, see "Direct Merchants Credit Card
Bank, N.A. Activities--Delinquency, Collections and Charge-Offs" 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.
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<PAGE> 20
The following tables set forth the delinquency and loss experience as of
the dates and for each of the periods shown for the Trust 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. In particular, reported loss and
delinquency percentages for the portfolio may be reduced as a result of the
addition of receivables in newly originated accounts. 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 Trust, is the denominator used to calculate the percentages set
forth below. Newly originated or acquired accounts currently do not
automatically become part of the Trust Portfolio but may be added from time to
time at the option of Metris Receivables, Inc. See "Description of the
Securities--Addition of Trust Assets" in the attached prospectus.
DELINQUENCY EXPERIENCE FOR THE TRUST PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MAY 31, ---------------------------------------------------------------------------------
2000 1999 1998 1997
------------------------- ------------------------- ------------------------- -------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL OF TOTAL OF TOTAL
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1)..... $5,640,279 100.00% $5,477,524 100.00% $4,125,979 100.00% $2,854,929 100.00%
Receivables
Delinquent:
30-59 Days......... $ 131,748 2.33% $ 128,542 2.35% $ 99,840 2.42% $ 64,504 2.26%
60-89 Days......... 92,346 1.64 92,035 1.68 67,959 1.65 44,078 1.54
90 or More Days.... 205,234 3.64 202,212 3.69 149,361 3.62 89,504 3.14
---------- ------ ---------- ------ ---------- ------ ---------- ------
Total.......... $ 429,328 7.61% $ 422,789 7.72% $ 317,160 7.69% $ 198,086 6.94%
========== ====== ========== ====== ========== ====== ========== ======
</TABLE>
------------
(1) Receivables Outstanding consist of all amounts due from cardholders as
posted to the Trust Accounts as of the date shown.
LOSS EXPERIENCE FOR THE TRUST PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
FIVE MONTHS ENDED --------------------------------------
MAY 31, 2000 1999 1998 1997
----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(2)....... $5,547,017 $4,552,813 $3,231,883 $2,067,424
Total Net Charge-Offs(3)................. $ 224,173 $ 453,199 $ 355,279 $ 182,984
Total Net Charge-Offs as a Percentage of
Average Receivables Outstanding........ 4.04% 9.95% 10.99% 8.85%
(Annualized)............................. 9.73% 9.95% 10.99% 8.85%
</TABLE>
------------
(1) The Trust reports charge-offs on a gross basis, not net of recoveries.
Recoveries are treated as Finance Charge Collections and included in the
calculation of Portfolio Yield.
(2) Average Receivables Outstanding is calculated by determining the daily
average of outstanding balances for Trust Accounts 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 Net Charge-Offs are total charge-offs of Principal Receivables less
Recoveries and do not include the amount of any reductions in total
Principal Receivables outstanding due to fraud, returned goods, customer
disputes or other miscellaneous credit adjustments.
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<PAGE> 21
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 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 Finance Charge Collections. See "--Delinquency and
Loss Experience" above and "Direct Merchants Credit Card Bank, N.A.
Activities--Delinquency, Collections and Charge-Offs" 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 "INITIAL CLOSING DATE") and, with respect to Supplemental
Accounts, as of the related dates of their designations. 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 in that
agreement, 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
after giving effect to such addition 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" set forth in the attached prospectus.
"MINIMUM TRANSFEROR INTEREST" for any period means the product of (a) the sum of
(1) the aggregate Principal Receivables and (2) the amounts on
S-21
<PAGE> 22
deposit in the Excess Funding Account and (b) the highest Minimum Transferor
Percentage for any Series. "MINIMUM TRANSFEROR PERCENTAGE" means, for Series
2000-2 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
Principal Collections 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 end of the day on May 31,
2000, included approximately $5,354,957,667 of Principal Receivables and
approximately $285,320,856 of Finance Charge Receivables. The Accounts had an
average Principal Receivable balance of $1,744 and an average credit limit of
$4,377. The percentage of the aggregate total Receivable balance to the
aggregate total credit limit was approximately 42%. The average age of the
Accounts was approximately 40 months. As of the end of the day on May 31, 2000,
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 May 31, 2000. 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 expects to 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,
including approximately $109,000,000 of Receivables in Supplemental Accounts
added to the Trust Portfolio on July 14, 2000.
S-22
<PAGE> 23
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
<TABLE>
<CAPTION>
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........................... 77,848 2.5% $ 23,251,521.72 0.4%
$500.01 -- $1,000.00....................... 117,998 3.8 72,531,283.83 1.3
$1,000.01 -- 1,500.00...................... 207,172 6.8 175,944,654.29 3.1
$1,500.01 -- $3,000.00..................... 621,141 20.2 807,591,693.66 14.3
$3,000.01 -- $5,000.00..................... 861,342 28.1 1,629,838,334.64 28.9
$5,000.01 -- $10,0000.00................... 1,126,463 36.7 2,814,944,318.54 49.9
$10,000.01 & Greater....................... 58,813 1.9 116,176,716.33 2.1
--------- ----- ----------------- -----
Total............................... 3,070,777 100.0% $5,640,278,523.01 100.0%
========= ===== ================= =====
</TABLE>
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
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............................. 35,245 1.1% $ (2,892,308.14) (0.1)%
No Balance................................. 963,915 31.4 0.00 0.0
$0.01 -- $500.00........................... 289,678 9.4 58,397,369.55 1.0
$500.01 -- $1,000.00....................... 196,198 6.4 148,098,749.32 2.6
$1,000.01 -- $1,500.00..................... 200,493 6.5 251,713,296.52 4.5
$1,500.01 -- $3,000.00..................... 560,884 18.3 1,244,135,186.92 22.1
$3,000.01 -- $5,000.00..................... 506,213 16.5 1,972,767,981.75 35.0
$5,000.01 & Greater........................ 318,151 10.4 1,968,058,247.09 34.9
--------- ----- ----------------- -----
Total............................... 3,070,777 100.0% $5,640,278,523.01 100.0%
========= ===== ================= =====
</TABLE>
S-23
<PAGE> 24
COMPOSITION BY GEOGRAPHIC DISTRIBUTION IN TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
LOCATION ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
-------- --------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Alabama.................................... 54,699 1.8% $ 100,445,161.77 1.8%
Alaska..................................... 5,280 0.2 10,382,386.33 0.2
Arizona.................................... 45,041 1.5 82,651,658.04 1.5
Arkansas................................... 30,191 1.0 56,697,780.93 1.0
California................................. 368,874 12.0 690,013,212.37 12.2
Colorado................................... 46,410 1.5 87,442,376.44 1.6
Connecticut................................ 34,671 1.1 64,491,123.21 1.1
Delaware................................... 7,404 0.2 14,593,988.24 0.3
District of Columbia....................... 7,369 0.2 14,140,642.18 0.3
Florida.................................... 229,710 7.5 433,906,468.56 7.7
Georgia.................................... 83,643 2.7 153,353,680.14 2.7
Hawaii..................................... 9,246 0.3 18,401,510.54 0.3
Idaho...................................... 11,981 0.4 21,279,463.93 0.4
Illinois................................... 112,636 3.7 208,750,806.69 3.7
Indiana.................................... 66,343 2.2 129,382,710.95 2.3
Iowa....................................... 28,506 0.9 48,570,960.94 0.9
Kansas..................................... 28,023 0.9 54,863,703.07 1.0
Kentucky................................... 44,900 1.5 82,900,287.07 1.5
Louisiana.................................. 46,074 1.5 82,096,252.28 1.5
Maine...................................... 13,280 0.4 24,354,805.92 0.4
Maryland................................... 61,075 2.0 112,439,569.32 2.0
Massachusetts.............................. 65,250 2.1 113,082,725.32 2.0
Michigan................................... 86,439 2.8 161,158,406.94 2.9
Minnesota.................................. 46,599 1.5 77,804,072.96 1.4
Mississippi................................ 78,684 2.6 98,529,807.37 1.7
Missouri................................... 61,271 2.0 115,733,823.35 2.1
Montana.................................... 9,362 0.3 16,972,283.57 0.3
Nebraska................................... 14,119 0.5 25,128,777.93 0.4
Nevada..................................... 32,065 1.0 69,117,620.11 1.2
New Hampshire.............................. 13,469 0.4 25,268,673.34 0.4
New Jersey................................. 87,645 2.9 153,586,781.97 2.7
New Mexico................................. 16,903 0.6 30,647,597.93 0.5
New York................................... 242,595 7.9 455,123,762.03 8.1
North Carolina............................. 81,684 2.7 144,867,669.45 2.6
North Dakota............................... 6,078 0.2 9,974,870.88 0.2
Ohio....................................... 124,273 4.0 238,434,517.73 4.2
Oklahoma................................... 41,162 1.3 82,080,225.21 1.4
Oregon..................................... 32,420 1.1 60,290,745.22 1.1
Pennsylvania............................... 115,044 3.8 207,757,096.92 3.7
Rhode Island............................... 12,626 0.4 22,904,733.24 0.4
South Carolina............................. 32,683 1.1 59,094,919.13 1.0
South Dakota............................... 6,326 0.2 11,174,149.42 0.2
Tennessee.................................. 68,886 2.2 120,343,048.17 2.1
Texas...................................... 215,106 7.0 411,554,059.61 7.3
Utah....................................... 12,940 0.4 22,290,283.96 0.4
Vermont.................................... 6,229 0.2 11,643,241.12 0.2
Virginia................................... 83,697 2.7 154,043,669.37 2.7
Washington................................. 54,417 1.8 102,471,582.29 1.8
West Virginia.............................. 22,049 0.7 39,926,744.74 0.7
Wisconsin.................................. 50,772 1.7 86,297,968.61 1.5
Wyoming.................................... 10,273 0.3 14,455,089.39 0.3
Other...................................... 4,355 0.1 7,361,026.81 0.1
--------- ----- ----------------- -----
Total................................. 3,070,777 100.0% $5,640,278,523.01 100.0%
========= ===== ================= =====
</TABLE>
S-24
<PAGE> 25
MATURITY CONSIDERATIONS
The Pooling and Servicing Agreement provides that Class A Securityholders
will not receive payments of principal until the July 2003 Distribution Date
(the "CLASS A 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 the Class B
Securityholders will not receive payments of principal until the August 2003
Distribution Date (the "CLASS B EXPECTED FINAL PAYMENT DATE"), or earlier in the
event of a Pay Out Event which results in the commencement of the Early
Amortization Period (in either case, only after the Class A Invested Amount has
been paid in full). The Pooling and Servicing Agreement also provides that the
Excess Collateral Holder will not receive payments of principal until the August
2003 Transfer Date (the "EXCESS COLLATERAL EXPECTED FINAL PAYMENT DATE"), or
earlier in the event of a Pay Out Event which results in the commencement of the
Early Amortization Period (in either case, only after the Class A Invested
Amount has been paid in full and if the Class B Invested Amount will be paid in
full on the related Distribution Date).
ACCUMULATION PERIOD
The accumulation period (the "ACCUMULATION PERIOD") with respect to the
Securities is scheduled to begin at the close of business on the last day of the
July 2002 Monthly Period. Subject to the conditions set forth in this supplement
under "Description of the Offered Securities--Postponement of Accumulation
Period," the day on which the Revolving Period ends and the Accumulation Period
begins may be delayed to no later than the close of business on the last day of
the June 2003 Monthly Period. 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 Series 2000-2 Termination Date.
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 2000-2 Principal Collections 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, Available
Series 2000-2 Principal Collections, to the extent required, will be distributed
to the Class B Securityholders on each Distribution Date until the earlier of
the date the Class B Invested Amount has been paid in full and the Series 2000-2
Termination Date. On the Transfer Date immediately preceding the Distribution
Date on which the Class B Invested Amount will be paid in full and on each
subsequent Transfer Date, Available Series 2000-2 Principal Collections, to the
extent required, will be distributed to the Excess Collateral Holder until the
earlier of the date the Excess Collateral Amount has been paid in full and the
Series 2000-2 Termination Date. Amounts in the Principal Funding Account are
expected to be available to pay the Class A Invested Amount in full on the Class
A Expected Final Payment Date. Also, after the payment of the Class A Invested
Amount in full, Available Series 2000-2 Principal Collections are expected to be
available to pay the Class B Invested Amount in full on the Class B Expected
Final Payment Date, and, after amounts have been applied to the payment of the
Class B Invested Amount in full. Available Series 2000-2 Principal Collections
are expected to be available to pay the Excess Collateral Amount in full on the
Excess Collateral Expected Final Payment Date. Although it is anticipated that
Available Series 2000-2 Principal Collections will be available during each
Monthly Period in the Accumulation Period to make a deposit to the Principal
Funding Account of the applicable Controlled Deposit Amount, that on the Class A
Expected Final Payment Date the Class A Invested Amount will be paid to the
Class A Securityholders, that on the Class B Expected Final Payment Date the
Class B Invested Amount will be paid to the Class B Securityholders and that on
the Excess Collateral Expected Final Payment Date the Excess Collateral Amount
will be paid to the Excess Collateral Holder, no assurance can be given in that
regard. If the amount required to pay the Class A Invested Amount, the
S-25
<PAGE> 26
Class B Invested Amount or the Excess Collateral Amount in full is not available
on the Class A Expected Final Payment Date, the Class B Expected Final Payment
Date or the Excess Collateral Expected Final Payment Date, as applicable, or if
a Pay Out Event occurs during the Accumulation Period, the Early Amortization
Period will commence and any amount on deposit in the Principal Funding Account
will be paid to the Class A Securityholders on the next Distribution Date and an
amount equal to the Available Series 2000-2 Principal Collections will be paid
to the Class A Securityholders on each succeeding Distribution Date until the
earlier of the Distribution Date on which the Class A Invested Amount has been
paid in full and the Series 2000-2 Termination Date. After the Class A Invested
Amount has been paid in full, Available Series 2000-2 Principal Collections will
be paid to the Class B Securityholders on each Distribution Date until the
earlier of the date on which the Class B Invested Amount has been paid in full
and the Series 2000-2 Termination Date. On and after the Transfer Date
immediately preceding the Distribution Date on which the Class B Invested Amount
has been paid in full, Available Series 2000-2 Principal Collections will be
paid to the Excess Collateral Holder on each Transfer Date until the earlier of
the date on which the Excess Collateral Amount has been paid in full and the
Series 2000-2 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 the Offered 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 in this
supplement. 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, then the Early Amortization Period will commence
and the 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 such 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 2000-2 Principal Collections on each Distribution Date with
respect to such Early Amortization Period until the earlier of the date on which
the Class A Invested Amount has been paid in full and the Series 2000-2
Termination Date. After the Class A Invested Amount has been paid in full and if
the Series 2000-2 Termination Date has not occurred, Available Series 2000-2
Principal Collections will be paid to the Class B Securityholders on each
Distribution Date until the earlier of the date on which the Class B Invested
Amount has been paid in full and the Series 2000-2 Termination Date. On and
after the Transfer Date immediately preceding the Distribution Date on which the
Class B Invested Amount will be paid in full and if the Series 2000-2
Termination Date has not occurred, Available Series 2000-2 Principal Collections
will be paid to the Excess Collateral Holder on each Transfer Date until the
earlier of the date on which the Excess Collateral Amount has been paid in full
and the Series 2000-2 Termination Date.
"EARLY AMORTIZATION PERIOD" means the period beginning on the earliest of
(a) the date on which a Pay Out Event occurs or is deemed to have occurred with
respect to the Series 2000-2 Securities, (b) the Class A Expected Final Payment
Date if the Class A Invested Amount has not been paid in full on such date, (c)
the Class B Expected Final Payment Date if the Class B Invested Amount has not
been paid in full on such date and (d) the Excess Collateral Expected Final
Payment Date if the Excess Collateral Amount has not been paid in full on such
date, and ending on the earlier of (i) the date on which the
S-26
<PAGE> 27
Class A Invested Amount, the Class B Invested Amount and the Excess Collateral
Amount have been paid in full and (ii) the Series 2000-2 Termination Date.
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) the Series 2000-2
Percentage of the sum of the total amount of Principal Receivables plus amounts
on deposit in the Excess Funding Account being less than the sum of the
aggregate outstanding principal amounts of the Class A Securities, the Class B
Securities and the Excess Collateral, (y) the total amount of Principal
Receivables and the amounts on deposit in the Excess Funding Account, the
Principal Account and the Principal Funding Account being less than the Minimum
Aggregate Principal Receivables, or (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, (g) a reduction in the average of the Portfolio
Yields for any three consecutive Monthly Periods to a rate which is less than
the average of the Base Rates for such three consecutive Monthly Periods or (h)
failure of any Interest Rate Cap Provider to make any payment under any Interest
Rate Cap within 30 days of the date such payment was due. See "Description of
the Offered Securities--Pay Out Events" in this supplement and "Description of
the Securities--Pay Out Events" 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, the sum of (i)
the weighted average of the Class A Interest Rate, the Class B Interest Rate and
the Excess Collateral Minimum Rate as of the last day of such Monthly Period
(weighted based on the Class A Invested Amount, the Class B Invested Amount and
the Excess Collateral Amount, respectively, as of the last day of such Monthly
Period) plus (ii) the product of 2 percent per annum and the percentage
equivalent of a fraction the numerator of which is the Adjusted Invested Amount
and the denominator of which is the Invested Amount, each as of the last day of
such Monthly Period.
The term "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 2000-2 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 (i) the aggregate amount of Available Series 2000-2 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, (ii) the Principal Funding Investment Proceeds plus,
(iii) amounts withdrawn from the Accumulation Period Reserve Account with
respect to such Monthly Period, such sum calculated on a cash basis after
subtracting the Series Default Amount and the Series 2000-2 Percentage of any
Adjustment Payments which the Transferor is required but fails to make pursuant
to the Pooling and Servicing Agreement for such Monthly Period, and the
denominator of which is the average daily Invested Amount 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.
S-27
<PAGE> 28
PAYMENT RATES
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Trust 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.
CARDHOLDER MONTHLY PAYMENT RATES FOR THE TRUST PORTFOLIO(1)
<TABLE>
<CAPTION>
YEAR ENDED
FIVE MONTHS DECEMBER 31,
ENDED --------------------
MAY 31, 2000 1999 1998 1997
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Highest Month............................................... 7.8% 8.0% 7.4% 7.6%
Lowest Month................................................ 6.7% 6.7% 6.1% 5.3%
Monthly Average(2).......................................... 7.2% 7.2% 6.6% 6.5%
</TABLE>
------------
(1) The monthly 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
at the end of the previous month.
(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 various
factors, including 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 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 Class A Expected Final
Payment Date and the Class B Expected Final Payment Date, respectively, will
equal the expected number of months. As described under "Description of the
Offered Securities--Postponement of Accumulation Period" in this supplement, 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 on the Class A Expected Final Payment Date or to collect
all amounts necessary to pay the Class B Invested Amount on the Class B Expected
Final Payment Date, especially if a pay out event were to occur with respect to
one or more other Series thereby limiting the amount of Shared Principal
Collections allocable to the Offered Securities. See "Risk Factors" in this
supplement and "Maturity Considerations" in the attached prospectus.
S-28
<PAGE> 29
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts in the
Trust Portfolio for each of the three calendar years contained in the period
ended December 31, 1999 and for the five-month period ended May 31, 2000, are
set forth in the following table. The historical yield figures in the following
table 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 Trust 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" above. Revenues vary for each
account based on the type and volume of activity for each account. Interchange
fees are not included in the Trust assets and are not included in the yield
numbers for the Trust Portfolio in the following table.
REVENUE YIELD EXPERIENCE FOR THE TRUST PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------------
MAY 31, 2000 1999 1998 1997
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding............... $5,568,069 $4,632,272 $3,611,436 $2,204,287
Total Finance Charges and Fees Billed(2)...... $ 563,162 $1,144,510 $ 858,196 $ 533,005
Average Revenue Yield (Annualized)............ 24.35% 24.71% 23.76% 24.18%
</TABLE>
------------
(1) The amounts presented in the above table include a small amount of
receivables and fees billed in accounts that were newly originated and had
not yet been included in the Trust for the periods shown. Those receivable
balances were generally added to the Trust in subsequent periods in account
additions approved by the Rating Agencies.
(2) 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. 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
Offered Securities, which is expected to be approximately $514,164,336, to pay
the purchase price of Receivables.
DESCRIPTION OF THE OFFERED SECURITIES
The Offered Securities will be issued pursuant to the Pooling and Servicing
Agreement. 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
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provisions of the Pooling and Servicing Agreement. 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 the right to cash flow from certain
assets of the Trust, including the right to the applicable allocation percentage
of all obligor payments on the Receivables in the Trust. Each Offered Security
represents the right to receive payments of interest at the Class A Interest
Rate or the Class B Interest Rate, as applicable, funded from Available Series
2000-2 Finance Charge Collections and certain other sources designated herein
and the right to receive payments of principal on the Class A Expected Final
Payment Date or the Class B Expected Final Payment Date, as applicable, or, to
the extent of the Class A Invested Amount or the Class B Invested Amount, as
applicable, on each Distribution Date during the Early Amortization Period,
funded from Principal Collections allocated to Series 2000-2.
The Transferor will own the Exchangeable Transferor Security. 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 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 Collections are
deposited into the Principal Account or the Principal Funding Account for
distribution to the Securityholders. During the Early Amortization Period, the
Invested Amount will decline as Principal Collections 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 Offered Security also
represents the right to receive payments from 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).
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 business
day preceding such Distribution Date, or with respect to any Definitive
Securities, the fifth day of the Monthly Period during which such Distribution
Date occurs (each, a "RECORD DATE"). Series 2000-2 will also be allocated a
portion of the amount of Defaulted Receivables each month.
Beneficial interests in each Class of the Offered Securities will be
offered for purchase in minimum denominations of $1,000 and integral multiples
thereof.
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<PAGE> 31
Application will be made to list the Offered Securities on the Luxembourg
Stock Exchange. There can be no assurance that the Offered Securities will be
listed on the Luxembourg Stock Exchange or any other stock exchange or, if so
listed, when such listing would occur. Applications to have certain of the
Trust's previously issued securities listed on the Luxembourg Stock Exchange are
still pending at this time. Purchasers of the Offered Securities should not rely
upon the Offered Securities being listed on the Luxembourg Stock Exchange or any
other stock exchange. The Trustee will maintain a paying agent in Luxembourg for
so long as the Offered Securities are outstanding and listed on the Luxembourg
Stock Exchange. The name and address of the paying agent in Luxembourg are set
forth at the end this prospectus supplement.
Each Class of 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 Securityholders of any Class of Offered
Securities shall refer to actions taken by DTC upon instructions from DTC
Participants and all references herein to distributions, notices, reports and
statements to Securityholders of any Class of Offered Securities shall refer to
distributions, notices, reports and statements to DTC or Cede & Co., as the
registered holder of the Offered Securities of such Class, for distribution to
Security Owners of such Class in accordance with DTC procedures. With respect to
each Class of Offered Securities, Securityholders may hold their Securities
through DTC in the United States or Clearstream Banking, societe anonyme
("CLEARSTREAM") 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 certificates. Clearstream and Euroclear will hold omnibus positions on
behalf of the Clearstream Customers and the Euroclear Participants,
respectively, through customers' securities accounts in Clearstream'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 2000-2 will rank pari passu with all other
outstanding Series.
PREVIOUSLY ISSUED SERIES
The Trust has previously issued nine other Series that will remain
outstanding on the date of issuance of the Securities. The other Series bear the
various rates of interest and have the outstanding principal amounts and other
characteristics set forth in "Annex I: Previously Issued Series" in this
supplement.
INTEREST PAYMENTS
The Class A Securities will accrue interest at a rate equal to 0.21% per
annum above LIBOR, determined as set forth below, for the period from July 27,
2000 (the "CLOSING DATE") through August 19, 2000, from August 20, 2000 through
September 19, 2000 and with respect to each Interest Accrual Period thereafter
(the "CLASS A INTEREST RATE"). The Class B Securities will accrue interest at a
rate equal to 0.60% per annum above LIBOR, determined as set forth below, for
the period from the Closing Date through August 19, 2000, from August 20, 2000
through September 19, 2000 and with respect to each Interest Accrual Period
thereafter (the "CLASS B INTEREST RATE").
The Trustee will determine LIBOR on July 25, 2000 for the period from the
Closing Date through August 19, 2000, on August 17, 2000 for the period from
August 20, 2000 through September 19, 2000 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.
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<PAGE> 32
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 that the initial Interest Accrual
Period will be the period from and including the Closing Date through September
19, 2000.
"LIBOR" means, as of any LIBOR Determination Date, the offered 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
Bridge Telerate Market Report (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.
Interest on the Offered Securities will be calculated on the basis of the
actual number of days in the related Interest Accrual Period and a 360-day year.
Interest will be distributed on September 20, 2000 and on the 20th day of
each following month (or, if such 20th day is not a business day, the next
succeeding business day) (each, a "DISTRIBUTION DATE").
Interest payments on the Class A Securities and the Class B Securities on
any Distribution Date will be calculated on the outstanding principal balance
for the related Interest Accrual Period of the Class A Securities or Class B
Securities, as applicable, at the close of business on the first day of the
related Interest Accrual Period.
Interest payments on the Offered Securities on any Distribution Date will
be funded from Available Series 2000-2 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 Offered Securities and
deposited on each business day during such Monthly Period in the Interest
Funding Account.
"AVAILABLE SERIES 2000-2 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 made by the Transferor 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 made by the Transferor, (b) investment earnings on amounts on deposit
in the Payment Reserve Account, the Principal Funding Account and the
Accumulation Period Reserve Account, (c) amounts on deposit in the Cap Proceeds
Account, if any, and (d) amounts on deposit in the Payment Reserve Account, if
any, if and to the extent the Transferor
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<PAGE> 33
designates that such amounts are to be so applied. Net investment earnings on
amounts in the Excess Funding Account are treated as Finance Charge Collections.
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 will be included in a statement to the Class A and the
Class B Securityholders of record prepared by the Servicer. In addition, in the
event that the Offered Securities are listed on the Luxembourg Stock Exchange,
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. 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"), Principal
Collections allocable to the Invested Amount, subject to certain limitations,
including the allocation of any Redirected Principal Collections with respect to
the related Monthly Period to pay the Class A Required Amount and the Class B
Required Amount, will be treated as Shared Principal Collections.
On each Distribution Date during the Accumulation Period prior to the
payment in full of the Class A Invested Amount, the Trustee will deposit in the
Principal Funding Account an amount equal to the least of (a) Available Series
2000-2 Principal Collections with respect to such Monthly Period, (b) the
applicable Controlled Deposit Amount and (c) the Class A Adjusted Invested
Amount prior to any such deposit. Amounts in the Principal Funding Account will
be paid to the Class A Securityholders on the Class A Expected Final Payment
Date. After the Class A Invested Amount has been paid in full, an amount equal
to, for each Monthly Period, the lesser of (a) the Available Series 2000-2
Principal Collections for such Monthly Period and (b) the Class B Invested
Amount will be distributed to the Class B Securityholders until the Class B
Invested Amount has been paid in full. Such amounts will be paid to the Class B
Securityholders on the Class B Expected Final Payment Date. On the Transfer Date
immediately preceding the Distribution Date on which the Class B Invested Amount
will be paid in full and on each subsequent Transfer Date, an amount equal to,
for each Monthly Period, the lesser of (a) the Available Series 2000-2 Principal
Collections for such Monthly Period and (b) the Excess Collateral Amount will be
distributed to the Excess Collateral Holder until the Excess Collateral Amount
has been paid in full. Such amounts will be paid to the Excess Collateral Holder
on the Excess Collateral Expected Final Payment Date. During the Accumulation
Period, the portion of Available Series 2000-2 Principal Collections not
required to be deposited in the Principal Funding Account or distributed to the
Securityholders or the Excess Collateral Holder will generally be treated as
Shared Principal Collections.
"AVAILABLE SERIES 2000-2 PRINCIPAL COLLECTIONS" means, with respect to any
Monthly Period, or portion thereof, commencing on or after 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 Securities with
respect to such Monthly Period, (iii) the aggregate Series Default Amount and
the Series 2000-2 Percentage of overdue Adjustment Payments paid from Available
Series 2000-2 Finance Charge Collections, Transferor Finance Charge Collections,
Excess Finance Charge Collections and Redirected Principal Collections with
respect to such Monthly Period and any reimbursements from Available Series
2000-2 Finance Charge Collections, Transferor Finance Charge Collections, Excess
Finance Charge Collections or Redirected Principal Collections of unreimbursed
Class A Charge-Offs, Class B Charge-Offs and Excess Collateral Charge-Offs, (iv)
Shared Principal Collections allocated to the Securities and (v) the proceeds of
the sale of all or a portion of an Interest Rate Cap with respect to such
Monthly Period.
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<PAGE> 34
On each Distribution Date during the Early Amortization Period, the Class A
Securityholders will be entitled to receive Available Series 2000-2 Principal
Collections for the preceding Monthly Period in an amount up to the Class A
Invested Amount until the earlier of the date the Class A Invested Amount is
paid in full and the Series 2000-2 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 Class A Securityholders 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 2000-2 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 Series 2000-2 Termination Date. On each
Transfer Date during the Early Amortization Period (other than the Transfer Date
immediately prior to the Series 2000-2 Termination Date), beginning with the
Transfer Date immediately preceding the Distribution Date on which the Class B
Invested Amount will be paid in full, the Excess Collateral Holder will be
entitled to receive Available Series 2000-2 Principal Collections until the
earlier of the date the Excess Collateral Amount is paid in full and the Series
2000-2 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 distributions of
principal will be made to the Securityholders upon surrender of their
Securities. See "--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. 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 Securities and
then to pay amounts due with respect to the Excess Collateral as described in
this supplement.
POSTPONEMENT OF ACCUMULATION PERIOD
The Accumulation Period is scheduled to begin at the close of business on
the last day of the July 2002 Monthly 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 beginning in May 2002 and ending
when 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 to an amount equal to the
Class A Invested Amount no later than the Class A Expected Final Payment Date,
based on (a) the monthly Principal Collections 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 all 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 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
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<PAGE> 35
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
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. In addition, the Excess Collateral will
be subordinated to the extent necessary to fund certain payments with respect to
the Class A Securities and Class B Securities. To the extent the Excess
Collateral Amount is reduced, the percentage of Finance Charge Collections
allocated to the Excess Collateral Holder in subsequent Monthly Periods will be
reduced. Moreover, to the extent the amount of such reduction in the Excess
Collateral Amount is not reimbursed, the amount of principal distributable to
the Excess Collateral Holder will be reduced. In general, principal will not be
paid to the Excess Collateral Holder until the Transfer Date immediately
preceding the Distribution Date on which the Class B Invested Amount will be
paid in full. In addition to being subject to reduction as described in
"Description of the Offered Securities--Subordination" and "--Redirected
Principal Collections" in this supplement, if certain conditions are satisfied,
the Excess Collateral Amount may be reduced to a minimum level with the consent
of the Rating Agencies.
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 2000-2
Finance Charge Collections applied to the payment thereof as described below in
clauses (v) and (vi) of "--Application of Collections--Payment of Fees, Interest
and Other Items," (b) the amount of Transferor Finance Charge Collections and
Excess Finance Charge Collections allocated thereto as described 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 Excess Collateral Amount (following the reduction
thereof in an amount equal to the amount of any Redirected Principal Collections
to be applied on the related Distribution Date) will be reduced by the amount by
which the sum of the aggregate Series Default Amount and the unpaid Adjustment
Payments exceeds the amount applied with respect thereto during the preceding
Monthly Period. Such reductions of the Excess Collateral Amount will thereafter
be reimbursed and the Excess Collateral Amount increased on each business day by
the amount, if any, of Available Series 2000-2 Finance Charge Collections,
Excess Finance Charge Collections and Transferor Finance Charge Collections for
such business day allocated and available for that purpose.
In the event that any such reduction of the Excess Collateral Amount would
cause the Excess Collateral Amount to be a negative number, the Excess
Collateral Amount will be reduced to zero and the Class B Invested Amount will
be reduced by the amount by which the Excess Collateral Amount would have been
reduced below zero, but not more than the sum of the remaining 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 2000-2 Finance Charge Collections, Excess Finance
Charge Collections and Transferor Finance Charge Collections for such business
day allocated and available for that purpose.
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 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 2000-2 Finance Charge Collections, Excess Finance Charge
Collections and Transferor Finance Charge Collections for such business day
allocated and available for that purpose.
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<PAGE> 36
THE INTEREST RATE CAPS
The Transferor will obtain and at all times prior to the Series 2000-2
Termination Date maintain one or more interest rate caps ("INTEREST RATE CAPS")
whose notional amounts singly or taken as a group equal or exceed the sum of (i)
the outstanding principal balance of the Class A Securities and the Class B
Securities, and (ii) an amount equal to (a) the product of (1) the Excess
Collateral Initial Amount less the aggregate amount of principal payments made
to the Excess Collateral Holder and (2) the Excess Collateral Notional
Percentage, minus (b) the aggregate principal payments made with respect to the
Excess Collateral. The Transferor will pledge to the Trustee for the benefit of
the Securityholders all of the Transferor's right, title and interest in and to
the interest rate cap agreements and the Interest Rate Caps arising thereunder,
together with the Cap Proceeds Account and all other proceeds thereof, as
collateral security for the benefit of the Securityholders. Pursuant to the
Interest Rate Caps, on each Transfer Date on which LIBOR for the related
Interest Accrual Period exceeds 8.50%, the provider of the Interest Rate Caps
will make a payment to the Trustee, on behalf of the Trust, in an amount equal
to the product of (i) such excess, (ii) the notional amount as of such Transfer
Date and (iii) the actual number of days in the related Monthly Period divided
by 360.
The Interest Rate Caps will terminate on the Series 2000-2 Termination
Date; provided, however, that the Interest Rate Caps may be terminated at an
earlier date if the Trustee has obtained a substitute interest rate cap or
entered into an alternative arrangement satisfactory to the Rating Agencies,
which in each case will not result in the reduction or withdrawal of the rating
of the Offered Securities or the securities secured by the Excess Collateral
(such substitute interest rate cap, a "REPLACEMENT INTEREST RATE CAP"; such
alternative arrangement, a "QUALIFIED SUBSTITUTE ARRANGEMENT").
In the event that the rating of the Interest Rate Cap Provider is reduced
or withdrawn, as specified in the Interest Rate Caps, the Servicer will use its
best efforts either to obtain for each such Interest Rate Cap a Replacement
Interest Rate Cap, at the expense of the Interest Rate Cap Provider, or to enter
into a Qualified Substitute Arrangement.
The Trustee, on behalf of the Trust, may sell all or a portion of an
Interest Rate Cap in an amount equal to the excess on such date of the notional
amount over the sum of (i) the outstanding principal balance of the Class A
Securities and the Class B Securities, and (ii) an amount not less than zero
equal to (a) the product of (1) the Excess Collateral Initial Amount less the
aggregate amount of principal payments made to the Excess Collateral Holder
times (2) the Excess Collateral Notional Percentage, minus (b) the aggregate
principal payments made with respect to the Excess Collateral subject to (among
other things) Rating Agency confirmation of the rating of the Offered Securities
and the securities secured by the Excess Collateral. Funds from any such sale
will be applied as Principal Collections allocable in accordance with the
allocations described below in "--Application of Collections--Payment of
Principal." Each Interest Rate Cap will provide for payments to the Trustee and
the Trust's interest in respect of such payments will be deposited into the Cap
Proceeds Account.
The Trustee will establish and maintain with a Qualified Institution in the
name of the Trust, for the benefit of the Securityholders, a segregated trust
account into which all amounts paid pursuant to the Interest Rate Caps or any
Qualified Substitute Arrangement are deposited (the "CAP PROCEEDS ACCOUNT," and
collectively with the Interest Funding Account, the Principal Account and the
Excess Funding Account, the "TRUST ACCOUNTS"), which shall be considered a Trust
Account for all purposes under this supplement and the attached prospectus.
"EXCESS COLLATERAL NOTIONAL PERCENTAGE" means 57.3%.
INTEREST RATE CAP PROVIDERS
Each "INTEREST RATE CAP PROVIDER" will be a third party cap provider having
a short-term rating acceptable to the Rating Agencies. The initial Interest Rate
Cap Providers are Bank of America, N.A., Barclays Bank PLC, or any Branch or
Agency thereof, and The Chase Manhattan Bank. Following is a description of each
of Bank of America, N.A., Barclays Bank PLC and The Chase Manhattan Bank, which
has been provided, in each case, by the respective Interest Rate Cap Provider.
Neither the Transferor nor the Servicer makes any representation as to the
accuracy or completeness of such information.
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Bank of America, N.A.
Bank of America, N.A. ("BANK OF AMERICA") is a national banking association
organized under the laws of the United States, and its principal executive
offices are located in Charlotte, North Carolina. Bank of America is a
wholly-owned indirect subsidiary of Bank of America Corporation and is engaged
in a general commercial banking and trust business, offering a wide range of
commercial, corporate, international, financial market, retail and fiduciary
banking services. As of March 31, 2000, Bank of America had consolidated assets
of $585 billion, consolidated deposits of $369 billion and shareholder equity of
$48 billion based on regulatory accounting principles.
Bank of America Corporation is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended, with its principal executive
offices located in Charlotte, North Carolina. Additional information regarding
Bank of America Corporation is set forth in its Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, together with any subsequent documents
it filed with the SEC pursuant to the Exchange Act.
Bank of America is the surviving entity in the July 23, 1999 merger of the
two principal bank subsidiaries of Bank of America Corporation, pursuant to
which NationsBank, N.A. was merged with and into Bank of America National Trust
& Savings Association, which at the effective time of the merger changed its
name to "Bank of America, N.A."
Moody's rates Bank of America's long-term and short-term certificates of
deposit. Moody's currently rates Bank of America's long-term certificates of
deposit as "Aal" and short-term certificates of deposit as "P-1." Standard &
Poor's rates Bank of America's long-term certificates of deposit as "AA-" and
its short-term certificates of deposit as "A-1+." Further information with
respect to such ratings may be obtained from Moody's and Standard & Poor's,
respectively. No assurances can be given that the current ratings of Bank of
America's instruments will be maintained.
Bank of America will provide copies of the most recent Annual Report on
Form 10-K of Bank of America Corporation and the publicly available portion of
the most recent quarterly Call Report of Bank of America delivered to the
Comptroller of the Currency, without charge, to each person to whom this
document is delivered, on the written request of such person. Written requests
should be directed to:
Bank of America Corporate Communications
Bank of America Corporate Center, 18th Floor
Charlotte, North Carolina 28255
Attention: Corporate Communications
The information contained in this subsection entitled "--Bank of America,
N.A." relates to and has been obtained from Bank of America. The information
concerning Bank of America Corporation and Bank of America contained herein is
furnished solely to provide limited introductory information regarding Bank of
America Corporation and Bank of America and does not purport to be
comprehensive. Such information is qualified in its entirety by the detailed
information appearing in the documents and financial statements referenced
above.
The delivery hereof shall not create any implication that there has been no
change in the affairs of Bank of America Corporation or Bank of America since
the date hereof, or that the information contained or referred to in this
section is correct as of any time subsequent to its date.
Barclays Bank PLC
Barclays Bank PLC ("BARCLAYS BANK") and its subsidiary undertakings taken
together ("BARCLAYS GROUP"), are a United Kingdom based financial services group
engaged primarily in the banking and investment banking businesses. In terms of
assets employed, Barclays Group is one of the largest financial services groups
in the United Kingdom. Barclays Group also operates in the financial markets of
many other countries around the world. In addition to servicing domestic
markets, Barclays Group is a principal provider of coordinated global services
to multinational corporations and financial institutions in the world's
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main financial centers. Principal activities include retail and corporate
banking, investment and insurance. As of December 31, 1999, the total
consolidated assets of Barclays Group were L254.793 million, based on the
audited balance sheet at that date.
Moody's currently rates Barclays Bank's long-term obligations "Aa2" and
short-term obligations as "P-1." Standard & Poor's currently rates Barclays
Bank's long-term obligations "AA" and its short-term obligations as "A-1+."
Fitch, Inc. currently rates Barclays Bank's long-term obligations "AA+" and its
short-term obligations "F1+." Further information with respect to such ratings
may be obtained from Moody's, Standard & Poor's and Fitch, Inc., respectively.
No assurances can be given that the current ratings of Barclays Bank's
instruments will be maintained.
Barclays Bank has supplied the information relating to it in this
subsection entitled "--Barclays Bank PLC." The information concerning Barclays
Bank contained herein is furnished solely to provide limited introductory
information regarding Barclays Bank and does not purport to be comprehensive.
Such information is qualified in its entirety by the detailed information
appearing in the documents and financial statements referenced above. The
delivery of this information shall not create any implication that there has
been no change in the affairs of Barclays Bank since the date hereof or that the
information contained or referred to herein is correct as of any time subsequent
to its date.
The Chase Manhattan Bank
The Chase Manhattan Bank is a banking corporation organized under the laws
of the State of New York, with headquarters in New York, New York. As of March
31, 2000, The Chase Manhattan Bank had total assets of approximately $391.0
billion, total loans of approximately $177.0 billion, total deposits of
approximately $172.0 billion and total stockholder's equity of approximately
$234 billion.
The Chase Manhattan Bank, Chase Bank of Texas, National Association and
Chase Manhattan Bank USA, National Association are the principal bank
subsidiaries of The Chase Manhattan Corporation.
The most recent Annual Report on Form 10-K for the year ended December 31,
1999, the 1999 Annual Report of The Chase Manhattan Corporation and additional
annual quarterly and current reports filed with the SEC by The Chase Manhattan
Corporation, as they become available, may be obtained without charge by each
person to whom this document is delivered upon the written request of any such
person to the Office of the Secretary, The Chase Manhattan Corporation, 270 Park
Avenue, New York, New York 10017.
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 Excess Collateral Holder's Interest, 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 Excess Collateral Holder's
Interest, based on the percentage equivalent of a fraction the numerator of
which is the Class A Adjusted Invested Amount, the Class B Invested Amount or
the Excess Collateral 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 "EXCESS COLLATERAL 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
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Principal Collections and Shared Principal Collections for the benefit of 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 Excess Collateral 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 for all classes of all Series to calculate the applicable
allocation percentages with respect to Principal Collections for all Series (the
"CLASS A FIXED/FLOATING PERCENTAGE," the "CLASS B FIXED/FLOATING PERCENTAGE" and
the "EXCESS COLLATERAL 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;
provided, however, that the numerator used in calculating the Fixed/Floating
Percentage will be the Adjusted Invested Amount as of the end of the day
preceding the date on which a Pay Out Event is deemed to occur. 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" below.
Finance Charge Collections, Principal Collections and the amount of all
Defaulted Receivables will be allocated to the Transferor based on the
Transferor Percentage. The term "TRANSFEROR PERCENTAGE" means (a) when used with
respect to (i) Principal Collections during the Revolving Period, (ii) Finance
Charge Collections prior to the date on which a Pay Out Event occurs and (iii)
the amount of Defaulted Receivables at all times, 100 percent minus the sum of
the Floating Percentage and the applicable Investor Percentages used for all
other Series and (b) when used with respect to (i) Principal Collections during
an Amortization Period and (ii) Finance Charge Collections on and after the date
on which a Pay Out Event occurs, 100 percent minus the sum of the applicable
Fixed/Floating Percentage and the Investor Percentages used with respect to
Principal Collections or Finance Charge Collections, as applicable, for all
other Series.
As used in this supplement, the term "AMORTIZATION PERIOD COMMENCEMENT
DATE" means the earlier of (a) the first day of the Accumulation Period and (b)
the date on which a Pay Out Event occurs or is deemed to have occurred.
As used in this supplement, the term "CLASS A INVESTED AMOUNT" for any date
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, 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," plus (d) the aggregate amount of Available
Series 2000-2 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 in this supplement, 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 in this supplement, the term "CLASS A INITIAL INVESTED AMOUNT"
means $447,514,000.
As used in this supplement, 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
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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 Excess Collateral Amount has not been
reduced for all prior Distribution Dates, plus (e) the aggregate amount of
Available Series 2000-2 Finance Charge Collections, Transferor Finance Charge
Collections, Excess Finance Charge Collections, Redirected Excess Collateral
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 in this supplement, the term "CLASS B INITIAL INVESTED AMOUNT"
means $67,956,000.
As used in this supplement, the term "EXCESS COLLATERAL AMOUNT" for any
date means an amount equal to (a) the Excess Collateral Initial Amount, minus
(b) the aggregate amount of principal payments made to the Excess Collateral
Holder through and including such date, minus (c) the aggregate amount of Excess
Collateral Charge-Offs for all prior Distribution Dates, equal to the amount by
which the Excess Collateral 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 Excess Collateral Principal Collections for all prior Distribution
Dates, plus (e) the aggregate amount of Available Series 2000-2 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 Excess Collateral Amount may
not be reduced below zero.
As used in this supplement, the term "EXCESS COLLATERAL INITIAL AMOUNT"
means $147,513,425.
As used in this supplement, the term "INVESTED AMOUNT" means the sum of the
Class A Invested Amount, the Class B Invested Amount and the Excess Collateral
Amount.
As used in this supplement, the term "INITIAL INVESTED AMOUNT" means the
sum of the Class A Initial Invested Amount, the Class B Initial Invested Amount
and the Excess Collateral Initial Amount.
As used in this supplement, the term "CLASS A SECURITYHOLDERS' INTEREST"
means the interest in the assets of the Trust allocated to the Class A
Securityholders.
As used in this supplement, the term "CLASS B SECURITYHOLDERS' INTEREST"
means the interest in the assets of the Trust allocated to the Class B
Securityholders.
As used in this supplement, the term "EXCESS COLLATERAL HOLDER'S INTEREST"
means the interest in the assets of the Trust allocated to the Excess Collateral
Holder.
As a result of the Floating Percentage, Finance Charge Collections (prior
to the commencement of the Early Amortization Period) and the portion of
Defaulted Receivables allocated to the Class A Securityholders, the Class B
Securityholders and the Excess Collateral Holder will change each business day
based on the relationship of the Class A Adjusted Invested Amount, the Class B
Invested Amount and the Excess Collateral 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
Principal Collections allocable to the Class A Securityholders, the Class B
Securityholders and the Excess Collateral Holder, however, will remain fixed
during an Amortization Period. Principal Collections allocable to the Class B
Securities are subject to possible redirection for the benefit of the Class A
Securityholders and principal collections allocable to the Excess Collateral 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
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(x) the product of (a) the Base Rate, (b) the amount 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. The Servicer will apply an amount equal to the lesser of (i) the
Series 2000-2 Percentage of Finance Charge Collections allocable to the
Exchangeable Transferor Security ("TRANSFEROR FINANCE CHARGE COLLECTIONS") on
such business day and (ii) the Negative Carry Amount for such business day in
the manner specified for application of Available Series 2000-2 Finance Charge
Collections.
As used in this supplement, "SERIES 2000-2 PERCENTAGE" means the percentage
equivalent of a fraction the numerator of which is the Invested Amount and the
denominator of which is the sum of the Invested Amounts of all Series then
outstanding.
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) through (x) in "--Application of Collections--Payment of Fees,
Interest and Other Items" below exceeds the portion of Available Series 2000-2
Finance Charge Collections and Transferor Finance Charge Collections, if any,
applied to the payment of the amounts described in such clauses. 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 2000-2 Securities in an amount equal to the remaining
Required Amount. Excess Finance Charge Collections from other Series allocable
to the Series 2000-2 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
second 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 Charge
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 Excess Collateral Amount, equal to the product of
(a)(i) during the Revolving Period, the Excess Collateral Floating Percentage or
(ii) during an Amortization Period, the Excess Collateral 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
EXCESS COLLATERAL 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 2000-2 Finance Charge Collections, as described in
"--Application of Collections--Payment of Fees, Interest and Other Items"
below; and
(b) during the Revolving Period, any such collections not applied in
the foregoing manner (and therefore not constituting Redirected Excess
Collateral Principal Collections) will be applied as Shared Principal
Collections and during an Amortization Period such collections will be
included in Available Series 2000-2 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
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CLASS B PRINCIPAL COLLECTIONS" and the sum of Redirected Excess Collateral
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 applied in
the foregoing manner (and therefore not constituting Redirected Class B
Principal Collections) will be applied as Shared Principal Collections and
during an Amortization Period such collections will be included in
Available Series 2000-2 Principal Collections.
On each Distribution Date, the Excess Collateral Amount will be reduced by
the amount of unreimbursed Redirected Principal Collections for the related
Monthly Period. In the event such reduction would case the Excess Collateral
Amount to be a negative number, the Excess Collateral Amount will be reduced to
zero and the Class B Invested Amount will be reduced by the amount by which the
Excess Collateral Amount would have been reduced below zero. In the event that
the reallocation of Principal Collections would cause the Class B Invested
Amount to be a negative number on any Distribution Date, the amount of
Redirected Class B Principal Collections on such Distribution Date will be an
amount not to exceed the amount which would cause the Class B Invested Amount to
be reduced to zero.
"CLASS A REQUIRED AMOUNT" means for any business day during a Monthly
Period the amount, if any, by which (a) 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 amount of Principal Receivables in Defaulted Accounts for such Monthly
Period (to date), (iii) the Class A Percentage of the Monthly Servicing Fee for
the related Monthly Period and (iv) the Class A Floating Percentage of the
Series 2000-2 Percentage of the Adjustment Payment required to be made by the
Transferor but not made on such business day and on each previous business day
during such Monthly Period exceeds (b) the Available Series 2000-2 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. The "CLASS A PERCENTAGE" means for any business day during a
Monthly Period a fraction the numerator of which is the Class A Initial Invested
Amount and the denominator of which is the Initial Invested Amount.
"CLASS B REQUIRED AMOUNT" means for any business day during a Monthly
Period the amount, if any, by which (a) 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 amount of Principal Receivables in Defaulted Accounts for such Monthly
Period (to date), (iii) the Class B Percentage of the Monthly Servicing Fee for
the related Monthly Period, (iv) the Class B Floating Percentage of the Series
2000-2 Percentage of the Adjustment Payment required to be made by the
Transferor but not made on such business day and on each previous business day
during such Monthly Period 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 exceeds (b) the
Available Series 2000-2 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. The "CLASS B
PERCENTAGE" means for any business day during a Monthly Period a fraction the
numerator of which is the Class B Initial Invested Amount and the denominator of
which is the Initial Invested Amount.
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
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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 cash collections held by the Servicer may be
commingled and used for the benefit of the Servicer prior to each Transfer Date
and, in the event of the insolvency or bankruptcy of the Servicer or, in certain
circumstances, the lapse of certain time periods, the Trust may not have a
first-priority perfected security interest in such collections. In such an
event, the amount payable to you could be lower than the outstanding principal
amount and accrued interest on the Securities, thus resulting in losses to you.
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;
(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 Series 2000-2, 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 2000-2
Securities, any amounts to be paid in respect of the Series Default Amount,
unpaid Adjustment Payments, Class A Charge-Offs, Class B Charge-Offs,
Excess Collateral Charge-Offs and any amount of Shared Principal
Collections allocated to the Class A Securities, the Class B Securities and
the Excess Collateral 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
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(vii) Excess Finance Charge Collections will be allocated as set forth
below in "--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 Payment Reserve Account be (a) retained therein, (b)
applied as Available Series 2000-2 Finance Charge Collections or (c) paid to the
Excess Collateral Holder.
Payment of Fees, Interest and Other Items. On each business day during a
Monthly Period, the Servicer will determine the amount of Available Series
2000-2 Finance Charge Collections and will apply such amount in the following
priority:
(i) an amount equal to the lesser of (A) the Available Series 2000-2
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 2000-2
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
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, which 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 2000-2
Finance Charge Collections remaining and (B) the excess of (a) the sum of
(1) the Excess Collateral Minimum Monthly Interest and (2) the amount of
any Excess Collateral Minimum Monthly Interest previously due but not
distributed to the Excess Collateral Holder in prior Monthly Periods over
(b) the amount which has already been distributed to the Excess Collateral
Holder with respect thereto in the current Monthly Period, will be
distributed to the Excess Collateral Holder on such business day;
(iv) an amount equal to the lesser of (A) any Available Series 2000-2
Finance Charge Collections remaining and (B) the portion of the Monthly
Servicing Fee for the current month that has not been previously paid to
the Servicer plus any prior Monthly Servicing Fee that was due but not
previously paid to the Servicer will be distributed to the Servicer;
(v) an amount equal to the lesser of (A) the sum of any Available
Series 2000-2 Finance Charge Collections remaining and, if such day is a
Default Recognition Date, an amount equal to the aggregate amount paid to
the Transferor pursuant to the Transfer and Administration Agreement on
each business day other than a Default Recognition Date to be treated as
"TRANSFEROR RETAINED
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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 (x)
during the Revolving Period, treated as Shared Principal Collections and
(y) during an Amortization Period, treated as Available Series 2000-2
Principal Collections for the benefit of the Securities;
(vi) an amount equal to the lesser of (A) the sum of any Available
Series 2000-2 Finance Charge Collections remaining and (B) the Series
2000-2 Percentage of any Adjustment Payment which the Transferor is
required but fails to make pursuant to the Pooling and Servicing Agreement
will be (a) during the Revolving Period, treated as Shared Principal
Collections and (b) during an Amortization Period, treated as Available
Series 2000-2 Principal Collections for the benefit of the Securities;
(vii) an amount equal to the lesser of (A) any Available Series 2000-2
Finance Charge Collections remaining and (B) unreimbursed Class A
Charge-Offs, if any, will be applied to reimburse Class A Charge-Offs and
(x) during the Revolving Period, be treated as Shared Principal Collections
and (y) during an Amortization Period, be treated as Available Series
2000-2 Principal Collections for the benefit of the Securities;
(viii) an amount equal to the lesser of (A) any Available Series
2000-2 Finance Charge Collections remaining and (B) the unreimbursed amount
by which the Class B Invested Amount has been reduced pursuant to clauses
(c) and (d) of the definition thereof on prior business days, if any, will
be applied to reimburse such reduced amount and (x) during the Revolving
Period, be treated as Shared Principal Collections and (y) during an
Amortization Period, be treated as Available Series 2000-2 Principal
Collections for the benefit of the Securities;
(ix) an amount equal to the lesser of (A) any Available Series 2000-2
Finance Charge Collections remaining and (B) the unreimbursed amount by
which the Excess Collateral Amount has been reduced pursuant to clauses (c)
and (d) of the definition thereof on prior business days, if any, will be
applied to reimburse such reduced amount and (x) during the Revolving
Period, be treated as Shared Principal Collections and (y) during an
Amortization Period, be treated as Available Series 2000-2 Principal
Collections for the benefit of the Securities;
(x) 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 (A) any Available Series 2000-2 Finance Charge
Collections remaining and (B) 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; and
(xi) any Available Series 2000-2 Finance Charge Collections remaining
will be distributed to the Excess Collateral Holder.
On each business day during a Monthly Period, any amount distributed to the
Trustee pursuant to the Transfer and Administration Agreement to be deposited in
the Payment Reserve Account shall be deposited in the Payment Reserve Account.
The "PAYMENT RESERVE ACCOUNT" means an account established with a Qualified
Institution for the benefit of Securityholders into which the Transferor may, at
its option, retain amounts referred to in the preceding sentence on any business
day for application, at its option, as Available Series 2000-2 Finance Charge
Collections on any subsequent business day.
On each business day during a Monthly Period, any amount distributed to the
Trustee pursuant to the Transfer and Administration Agreement (i) to cover
shortfalls, if any, in amounts payable from Finance Charge Collections to
securityholders of other Series shall be applied as Excess Finance Charge
Collections and (ii) to pay the reasonable costs and expenses of a successor
Servicer shall be paid to such Servicer.
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Notwithstanding the foregoing, if on any Default Recognition Date the sum
of the amount of Available Series 2000-2 Finance Charge Collections (including
all amounts on deposit in the Payment Reserve Account) and Transferor Retained
Finance Charge Collections is less than the amount of the aggregate Series
Default Amount for such business day, the Servicer will apply (i) amounts
deposited in the Accumulation Period Reserve Account during the then current
Monthly Period and (ii) any amount distributed to the Trustee pursuant to the
Transfer and Administration Agreement for application in accordance with the
instructions of the Servicer in respect of such shortfall, in accordance with
clause (v) above to the extent of such shortfall.
On each Transfer Date, all investment income (net of investment losses and
expenses) on funds on deposit in the Principal Funding Account, the Principal
Account and the Accumulation Period Reserve Account will be applied as if such
amounts were Available Series 2000-2 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 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.
"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 outstanding principal amount 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.
"EXCESS COLLATERAL MINIMUM MONTHLY INTEREST" with respect to any Transfer
Date will equal the product of (i) the Excess Collateral Minimum Rate for the
related Interest Accrual Period, (ii) the Excess Collateral Initial Amount less
the aggregate amount distributed to the Excess Collateral Holder in respect of
Excess Collateral Monthly Principal for all prior Transfer Dates 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.
"EXCESS COLLATERAL MINIMUM RATE" means a rate per annum specified in the
agreement between the Transferor and the Excess Collateral Holder relating to
the transfer of the Excess Collateral to the Excess Collateral Holder (the
"TRANSFER AND ADMINISTRATION AGREEMENT") not to exceed the product of the Excess
Collateral Notional Percentage times LIBOR plus 1.50%.
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 above in clause (iv) of "--Allocations" as Shared Principal
Collections which will be applied as described above 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 Class A 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) for each Transfer Date after the Class A Invested Amount has been
paid in full (after taking into account payments to be made on the related
Distribution Date with respect to the Early Amortization Period), an amount
equal to Class B Principal will be distributed to the Class B
Securityholders on each Distribution Date until the Class B Invested Amount
is paid in full;
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(iii) for each Transfer Date after the Class B Invested Amount has
been paid in full (after taking into account payments to be made on the
related Distribution Date), an amount equal to Excess Collateral Monthly
Principal will be distributed to the Excess Collateral Holder on each
Transfer Date until the Excess Collateral Amount is paid in full; and
(iv) on each Transfer Date with respect to the Accumulation Period,
the balance of Available Series 2000-2 Principal Collections not applied
pursuant to (i) through (iii) above, if any, 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 above
in clause (vi) of "--Allocations."
In addition to being subject to reduction as described in "Description of
the Offered Securities--Subordination" and "--Redirected Principal Collections"
in this supplement, if certain conditions are satisfied the Excess Collateral
Amount may be reduced to a minimum level with the consent of the Rating
Agencies.
"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 2000-2 Principal Collections on deposit in the Principal Account with
respect to the related 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 Class A Expected Final Payment Date, the
applicable Controlled Deposit Amount for such Distribution 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 beginning with the Transfer Date following the Monthly
Period in which the Class A Invested Amount has been paid in full, or with
respect to each Transfer Date relating to the Early Amortization Period
beginning with the Transfer Date immediately preceding the Distribution Date on
which the Class A Securities have been paid in full (after taking into account
payments to be made on the related Distribution Date), prior to the payment in
full of the Class B Invested Amount, will equal the lesser of (i) the Available
Series 2000-2 Principal Collections remaining on deposit in the Principal
Account with respect to such Transfer Date after application thereof to Class A
Principal, if any, and (ii) the Class B Invested Amount on such Transfer Date.
"EXCESS COLLATERAL MONTHLY PRINCIPAL" with respect to each Transfer Date
relating to the Accumulation Period or the Early Amortization Period beginning
with the Transfer Date immediately preceding the Distribution Date on which the
Class B Securities have been paid in full (after taking into account payments to
be made on the related Distribution Date), prior to the payment in full of the
Excess Collateral Amount, will equal the least of (i) the Available Series
2000-2 Principal Collections remaining on deposit in the Principal Account with
respect to such Transfer Date after application thereof to Class A Principal and
Class B Principal, if any, and (ii) the Excess Collateral Amount on such
Transfer Date.
"CONTROLLED ACCUMULATION AMOUNT" means (a) for any Transfer Date with
respect to the Accumulation Period, prior to the payment in full of the Class A
Invested Amount, $37,292,834; 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,
and (b) for any Transfer Date with respect to the Accumulation Period after the
payment in full of the Class A Invested Amount, an amount equal to the sum of
the Class B Invested Amount and the Excess Collateral Amount on such Transfer
Date.
"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
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previous Monthly Period over the amount deposited into the Principal Funding
Account for the previous Monthly Period.
COVERAGE OF INTEREST SHORTFALLS
To the extent of any shortfall in the amount of Available Series 2000-2
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 the 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 arising from Available
Series 2000-2 Finance Charge Collections and 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 Excess Collateral Holder.
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 "--Application of Collections"
above and "Description of the 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 Credit Card Bank, N.A.
Activities--Delinquency, Collections and Charge-Offs" in the attached prospectus
and "Trust Credit Card Portfolio--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
2000-2 Finance Charge Collections, Transferor Finance Charge Collections, Excess
Finance Charge Collections or Redirected Principal Collections designated for
such purpose. To the extent that such
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amounts are not sufficient to cover the portion of the unpaid Adjustment
Payments allocated to Series 2000-2, there will be an Investor Charge-Off as
described below.
INVESTOR CHARGE-OFFS
If on the second business day preceding each Distribution Date (the
"DETERMINATION DATE"), the aggregate Series Default Amount and the Series 2000-2
Percentage of unpaid Adjustment Payments, if any, for all business days in the
preceding Monthly Period exceeds the aggregate amount of Available Series 2000-2
Finance Charge Collections, Transferor Finance Charge Collections, Excess
Finance Charge Collections, Redirected Principal Collections, Principal Funding
Investment Proceeds and any amounts withdrawn from the Accumulation Period
Reserve Account, and applied with respect to the Series Default Amount and the
Series 2000-2 Percentage of unpaid Adjustment Payments with respect to such
Monthly Period, then the Excess Collateral Amount will be reduced by the
aggregate amount of such excess, but not by more than the sum of the remaining
aggregate Series Default Amount and the remaining Series 2000-2 Percentage of
unpaid Adjustment Payments for such Monthly Period (an "EXCESS COLLATERAL
CHARGE-OFF"). The Excess Collateral Amount thereafter will be increased (but not
in excess of the unpaid principal balance of the Excess Collateral) on any
business day by the amounts allocated and available for that purpose as
described above under clause (ix) of "--Application of Collections--Payment of
Fees, Interest and Other Items."
In the event that any such reduction of the Excess Collateral Amount would
cause the Excess Collateral Amount to be a negative number, the Excess
Collateral Amount will be reduced to zero, and the Class B Invested Amount will
be reduced by the aggregate of such excess, but not by more than the sum of the
remaining aggregate Series Default Amount and the remaining Series 2000-2
Percentage of unpaid Adjustment Payments with respect to 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
thereafter will 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 above under clause (viii) 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 aggregate of such excess, but not by more than the sum of the remaining
aggregate Series Default Amount and the remaining Series 2000-2 Percentage of
unpaid Adjustment Payments with respect to 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 above under clause (vii) of
"--Application of Collections--Payment of Fees, Interest and Other Items."
PRINCIPAL FUNDING ACCOUNT
Pursuant to the Series 2000-2 Supplement, the Servicer will establish and
maintain with a Qualified Institution a principal funding account as a
segregated trust account held for the benefit of the Securityholders (the
"PRINCIPAL FUNDING ACCOUNT"). During the Accumulation Period, the Trustee at the
direction of the Servicer will transfer from the Principal Account to the
Principal Funding Account Collections in respect of Principal Receivables (other
than Redirected Principal Collections) and Shared Principal Collections from
other Series, if any, allocated to the Securities as described 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
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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 2000-2 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 2000-2 Finance Charge Collections on the last business day
of the preceding Monthly Period.
ACCUMULATION PERIOD RESERVE ACCOUNT
Pursuant to the Series 2000-2 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 Securities 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 2000-2
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 in accordance with the Pooling and
Servicing Agreement. The "REQUIRED RESERVE ACCOUNT AMOUNT" for any date on or
after the Reserve Account Funding Date will be equal to (a) 0.75 percent of the
Class A 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 2000-2.
"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 2000-2 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 2000-2 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 Class A Interest Rate as 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
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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 Class A 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 Class A 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 2000-2 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" in the attached prospectus. 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 Principal Collections and Finance Charge Collections
allocated to Series 2000-2 if such event required reliance by Series 2000-2 on
clause (b) of the denominator of the applicable Fixed/Floating Percentages and,
in the case of Principal Collections, allowed payment of principal at such time
to the Paired Series. See "--Allocation Percentages" 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 balance of the Class A
Securities, which amount shall be invested in Cash Equivalents, (y) in the
Principal Account an amount equal to the sum of the outstanding principal
balances of the Class B Securities and the Excess Collateral and (z) 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
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of the deposit to the Principal Funding Account through the Class A 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 amounts of Defaulted
Receivables will be reduced to zero.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Class A Securities, the Class B Securities and the Excess Collateral
will be subject to optional repurchase by the Transferor on any Distribution
Date if on such Distribution Date the sum of the Class A Invested Amount, Class
B Invested Amount and Excess Collateral Amount would be reduced to an amount
less than or equal to 10 percent of the Initial Invested Amount, if certain
conditions set forth in the Pooling and Servicing Agreement are satisfied. The
repurchase price will be equal to the unpaid Invested Amount plus accrued and
unpaid interest on the Securities, 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 Securities will be made on the January 2007 Distribution Date
(the "SERIES 2000-2 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 Series 2000-2 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 then
to the Excess Collateral 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 2000-2 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 Series 2000-2
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 Series 2000-2
Termination Date first to the 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 Excess Collateral Holder until
the Excess Collateral 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 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
S-52
<PAGE> 53
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 or the Purchase Agreement,
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 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) the Series 2000-2 Percentage of the sum of the
total amount of Principal Receivables plus amounts on deposit in the Excess
Funding Account shall be less than the sum of the aggregate outstanding
principal amounts of the Class A Securities, the Class B Securities and the
Excess Collateral, (c) the total amount of Principal Receivables and the
amounts on deposit in the Excess Funding Account, the Principal 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;
(vii) any Servicer Default shall occur which would have a material
adverse effect on the Securityholders; or
(viii) failure of any Interest Rate Cap Provider to make any payment
under an Interest Rate Cap within 30 days of the date such payment was due.
S-53
<PAGE> 54
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 Trustee, the Transferor, and Interest Rate Cap Providers
pursuant to the Series 2000-2 Supplement 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), (vi) or (viii) 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
S-54
<PAGE> 55
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 2000-2 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, (b) the Transferor Interest, if any, for such Transfer Date and (c) the
aggregate Interest Rate Caps notional amount and the amount deposited in the Cap
Proceeds Account during the related Monthly Period. 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 will be made to list the Offered Securities on the Luxembourg
Stock Exchange. There can be no assurance that the Offered Securities will be
listed on the Luxembourg Stock Exchange or any other stock exchange.
Applications to have certain of the Trust's previously issued securities listed
on the Luxembourg Stock Exchange are still pending at this time. Purchasers of
the Offered Securities should not rely upon the Offered Securities being listed
on the Luxembourg Stock Exchange or any other stock exchange. You should consult
with Banque Generale du Luxembourg, S.A., the Luxembourg listing agent for the
Offered Securities, 50 Avenue J.F. Kennedy, L-2951 Luxembourg, phone number
(352) 42421, to determine whether or not the Offered Securities are listed 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 Offered Securities will be deposited
prior to listing with the Chief Registrar of the District Court of Luxembourg,
where copies thereof may be obtained upon request. Once the Offered Securities
have been so listed, trading of the Offered Securities may be effected on the
Luxembourg Stock Exchange. The Class A Securities and the Class B Securities
have been accepted for clearance through the facilities of DTC, Clearstream and
Euroclear. The International Securities Identification Number (ISIN) for the
Class A Securities is US59159UAS78, the Common Code for the Class A Securities
is 011492851 and the CUSIP number for the Class A Securities is 59159U AS 7. The
ISIN for the Class B Securities is US59159UAT51, the Common Code for the Class B
Securities is 011492860 and the CUSIP number for the Class B Securities is
59159U AT 5.
The transactions contemplated in this prospectus supplement were authorized
by resolutions adopted by Metris Receivables, Inc.'s Board of Directors on March
19, 1999.
If the Offered Securities are listed on the Luxembourg Stock Exchange,
copies of the Pooling and Servicing Agreement, the Series 2000-2 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 the 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, 1999,
S-55
<PAGE> 56
also available at the office of the Listing Agent in Luxembourg. For so long as
the Offered Securities are outstanding and are listed on the Luxembourg Stock
Exchange, 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 May 31, 2000, the date of the information
with respect to the Trust set forth in this supplement under "The Receivables."
In the event that the Offered Securities are listed on the Luxembourg Stock
Exchange and 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 Pooling and Servicing Agreement provides that the Trustee shall pay to
the Transferor upon request any monies held by the Trustee for the payment of
principal and interest which remains unclaimed for two years. After payment to
the Transferor, Securityholders entitled to the money must look to the
Transferor for payment as general creditors unless an abandoned property law
designates otherwise.
The Securities, the Pooling and Servicing Agreement and the Series 2000-2
Supplement are governed by the laws of the State of Delaware.
ERISA CONSIDERATIONS
Section 406 of the U.S. Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the U.S. Internal Revenue Code of 1986,
as amended (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 Series 2000-2 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 Series 2000-2 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, and underwriters
of Series 2000-2 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 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
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<PAGE> 57
for treatment as "public-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 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 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 Underwriters do not expect that the Class B Securities will be held by
at least 100 investors who are independent of the issuer and of one another and,
therefore, do not expect that such Class B Securities will qualify as
"publicly-offered securities." See "ERISA Considerations" in the attached
prospectus. 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 Plan Asset 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 Class A Securities on behalf or with "plan assets" of any Plan
should consult their own counsel regarding whether the Trust assets represented
by the Class A 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.
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<PAGE> 58
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
dated July 19, 2000 (the "UNDERWRITING AGREEMENT") among Metris Receivables,
Inc., Metris Companies Inc. and the Underwriters named below (the
"UNDERWRITERS"), Metris Receivables, Inc. has agreed to sell to the
Underwriters, and each of the Underwriters has severally agreed to purchase, the
principal amount of the Securities set forth opposite its name:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS A
CLASS A UNDERWRITERS SECURITIES
-------------------- ------------
<S> <C>
Deutsche Bank Securities Inc. .............................. $ 89,506,000
Banc of America Securities LLC.............................. 89,502,000
Barclays Capital Inc. ...................................... 89,502,000
Bear, Stearns & Co. Inc. ................................... 89,502,000
Chase Securities Inc. ...................................... 89,502,000
------------
Total................................................ $447,514,000
============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS B
CLASS B UNDERWRITERS SECURITIES
-------------------- -----------
<S> <C>
Deutsche Bank Securities Inc................................ $54,365,000
Bear, Stearns & Co. Inc..................................... 13,591,000
-----------
Total................................................ $67,956,000
===========
</TABLE>
In the Underwriting Agreement, the Underwriters of the Class A Securities
(the "CLASS A UNDERWRITERS") have agreed, subject to the terms and conditions
set forth therein, to purchase all of the Class A Securities offered hereby if
any of the Class A Securities are purchased. In the Class B Underwriting
Agreement, the Underwriters of the Class B Securities (the "CLASS B
UNDERWRITERS") have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Class B Securities offered hereby if any of the
Class B Securities are purchased.
The Class A Underwriters propose initially to offer the Class A Securities
to the public at 100.00% of their principal amount and to certain dealers at
such price less concessions not in excess of 0.150% of the principal amount of
the Class A Securities. The Class A Underwriters may allow, and such dealers may
reallow, concessions not in excess of 0.100% of the principal amount of the
Class A Securities to certain brokers and dealers. After the initial public
offering, the public offering price and other selling terms may be changed by
the Class A Underwriters.
The Class B Underwriters propose initially to offer the Class B Securities
to the public at 100.00% of their principal amount and to certain dealers at
such price less concessions not in excess of 0.165% of the principal amount of
the Class B Securities. The Class B Underwriters may allow, and such dealers may
reallow, concessions not in excess of 0.125% of the principal amount of the
Class B Securities to certain brokers and dealers. After the initial public
offering, the public offering price and other selling terms may be changed by
the Class B Underwriters.
Metris Receivables, Inc. will receive proceeds of approximately
$514,164,336 from the sale of Offered Securities (representing 99.750% of the
principal amount of each Class A Security and 99.725% of the principal amount of
each Class B Security) after paying the underwriting discount of $1,305,664
(representing 0.250% of the principal amount of each Class A Security and 0.275%
of the principal amount of each Class B Security). Additional offering expenses
are estimated to be approximately $865,000.
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<PAGE> 59
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 Offered Securities to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or who is a person to
whom the document may otherwise lawfully be issued or passed on, (b) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 of Great Britain with respect to anything done by it in
relation to the Offered Securities in, from or otherwise involving the United
Kingdom and (c) if the 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. and Metris Companies 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.
Any Underwriter will be permitted to engage in the following transactions,
to the extent permitted by Regulation M under the Securities Exchange Act of
1934:
- over-allotment transactions, which involve syndicate sales in excess of
the offering size creating a syndicate short position;
- stabilizing transactions, which permit bids to purchase the Offered
Securities so long as the stabilizing bids do not exceed a specified
maximum; and
- syndicate covering transactions, which involve purchases of the Offered
Securities in the open market after the distribution has been completed
in order to cover syndicate short positions.
Such over-allotment transactions, stabilizing transactions and syndicate
covering transactions may cause prices of the Offered Securities to be higher
than they would otherwise be in the absence of such transactions. Neither the
Trust nor 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 Companies Inc.
and its affiliates. Each of Bank of America, N.A., Barclays Bank PLC, or any
Branch or Agency thereof, and The Chase Manhattan Bank, the Interest Rate Cap
Providers, is an affiliate of, respectively, Banc of America Securities LLC,
Barclays Capital Inc. and Chase Securities Inc., each of which is a Class A
Underwriter.
S-59
<PAGE> 60
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
TERM PAGE
---- ----------
<S> <C>
Accounts........................ S-18
Accumulation Period............. S-25
Accumulation Period Length...... S-34
Accumulation Period Reserve
Account....................... S-50
Accumulation Shortfall.......... S-26, S-47
Adjusted Invested Amount........ S-27
Adjustment Payment.............. S-48
Agreement....................... S-18
Amortization Period Commencement
Date.......................... S-39
Available Reserve Account
Amount........................ S-51
Available Series 2000-2 Finance
Charge Collections............ S-32
Available Series 2000-2
Principal Collections......... S-33
Bank of America................. S-37
Barclays Bank................... S-37
Barclays Group.................. S-37
Base Rate....................... S-27
Cap Proceeds Account............ S-36
Class A Adjusted Invested
Amount........................ S-39
Class A Charge-Off.............. S-49
Class A Expected Final Payment
Date.......................... S-25
Class A Fixed/Floating
Percentage.................... S-39
Class A Floating Percentage..... S-38
Class A Initial Invested
Amount........................ S-39
Class A Interest Rate........... S-31
Class A Invested Amount......... S-39
Class A Monthly Interest........ S-46
Class A Percentage.............. S-42
Class A Principal............... S-47
Class A Required Amount......... S-42
Class A Securities.............. S-18
Class A Securityholders......... S-18
Class A Securityholders'
Interest...................... S-40
Class A Underwriters............ S-58
Class B Charge-Off.............. S-49
Class B Expected Final Payment
Date.......................... S-25
Class B Fixed/Floating
Percentage.................... S-39
Class B Floating Percentage..... S-38
Class B Initial Invested
Amount........................ S-40
Class B Interest Rate........... S-31
Class B Invested Amount......... S-39
Class B Monthly Interest........ S-46
Class B Percentage.............. S-42
Class B Principal............... S-47
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----------
<S> <C>
Class B Required Amount......... S-42
Class B Securities.............. S-18
Class B Securityholders......... S-18
Class B Securityholders'
Interest...................... S-40
Class B Underwriters............ S-58
Clearstream..................... S-31
Closing Date.................... S-31
Code............................ S-56
Controlled Accumulation
Amount........................ S-47
Controlled Deposit Amount....... S-25
Covered Amount.................. S-51
Defeasance...................... S-52
Determination Date.............. S-49
Dilution........................ S-48
Distribution Date............... S-32
DOL............................. S-56
DTC............................. S-31
Early Amortization Period....... S-26
ERISA........................... S-56
Euroclear....................... S-31
Excess Collateral............... S-18
Excess Collateral Amount........ S-40
Excess Collateral Charge-Off.... S-49
Excess Collateral Expected Final
Payment Date.................. S-25
Excess Collateral Fixed/Floating
Percentage.................... S-39
Excess Collateral Floating
Percentage.................... S-38
Excess Collateral Holder........ S-18
Excess Collateral Holder's
Interest...................... S-40
Excess Collateral Initial
Amount........................ S-40
Excess Collateral Minimum
Monthly Interest.............. S-46
Excess Collateral Minimum
Rate.......................... S-46
Excess Collateral Monthly
Principal..................... S-47
Excess Collateral Notional
Percentage.................... S-36
Excess Finance Charge
Collections................... S-41, S-48
FDIA............................ S-14
FDIC............................ S-14
Fixed/Floating Percentage....... S-39
Floating Percentage............. S-38
Initial Closing Date............ S-21
Initial Invested Amount......... S-40
Insolvency Event................ S-54
Interest Rate Cap Provider...... S-36
Interest Rate Caps.............. S-36
Invested Amount................. S-40
</TABLE>
S-60
<PAGE> 61
<TABLE>
<CAPTION>
TERM PAGE
---- ----------
<S> <C>
LIBOR........................... S-32
LIBOR Determination Date........ S-31
Listing Agent................... S-55
Minimum Aggregate Principal
Receivables................... S-22
Minimum Transferor Interest..... S-21
Minimum Transferor Percentage... S-22
Monthly Servicing Fee........... S-54
Negative Carry Amount........... S-40
Offered Securities.............. S-18
Paired Series................... S-51
Parties in Interest............. S-56
Pay Out Event................... S-53
Payment Reserve Account......... S-45
Plan Asset Regulation........... S-56
Plans........................... S-56
Pooling and Servicing
Agreement..................... S-18
Portfolio Yield................. S-27
Principal Funding Account....... S-49
Principal Funding Account
Balance....................... S-25
Principal Funding Investment
Proceeds...................... S-50
Qualified Substitute
Arrangement................... S-36
Rating Agency Condition......... S-50
Receivables..................... S-18
Record Date..................... S-30
Recoveries...................... S-21
Redirected Class B Principal
Collections................... S-41
Redirected Excess Collateral
Principal Collections......... S-41
Redirected Principal
Collections................... S-42
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----------
<S> <C>
Reference Banks................. S-32
Removed Accounts................ S-22
Replacement Interest Rate Cap... S-36
Required Amount................. S-41
Required Reserve Account
Amount........................ S-50
Reserve Account Funding Date.... S-50
Revolving Period................ S-33
Securities...................... S-18
Securityholders................. S-18
Series 2000-2 Percentage........ S-41
Series 2000-2 Securities........ S-18
Series 2000-2 Supplement........ S-18
Series 2000-2 Termination
Date.......................... S-52
Series Default Amount........... S-48
Servicing Fee Percentage........ S-55
Shared Principal Collections.... S-48
Telerate Page 3750.............. S-32
Transfer and Administration
Agreement..................... S-46
Transfer Date................... S-43
Transferor...................... S-18
Transferor Finance Charge
Collections................... S-41
Transferor Interest............. S-38
Transferor Percentage........... S-39
Transferor Retained Finance
Charge Collections............ S-44
Trigger Event................... S-54
Trust Accounts.................. S-36
Trustee......................... S-18
Underwriters.................... S-58
Underwriting Agreement.......... S-58
</TABLE>
S-61
<PAGE> 62
ANNEX I
PREVIOUSLY ISSUED SERIES
The Trust has previously issued nine other Series that the Transferor
anticipates will be outstanding on the Closing Date. The table below sets forth
the principal characteristics of such Series. 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 Offered Securities, a copy of the disclosure documents for any
previous publicly issued Series.
<TABLE>
<S> <C>
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.......... Same as above for Class A Certificates
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.......... Same as above for Class A Certificates
Annual Servicing Fee Percentage.............. Same as above for Class A Certificates
Enhancement.................................. Subordination of Class D Certificates and
Class C Reserve Account
Scheduled Series Termination Date............ Same as above for Class A Certificates
Class D Certificates
Invested Amount.............................. $55,250,000
Interest Rate................................ None
Annual Servicing Fee Percentage.............. Same as above for Class A Certificates
Scheduled Series Termination Date............ Same as above for Class A Certificates
SERIES 1997-2
Class A Certificates
Initial Invested Amount...................... $455,000,000
Interest Rate................................ LIBOR + 0.20%
Commencement of Accumulation Period.......... Last day of October 2001
Monthly Period or later date
as determined in the Agreement
Annual Servicing Fee Percentage.............. 2.00%
Enhancement.................................. Subordination of Class B Certificates, Class
C Certificates and Class D Certificates
Scheduled Series Termination Date............ May 2006 Distribution Date
Series Issuance Date......................... November 20, 1997
</TABLE>
A-I-1
<PAGE> 63
<TABLE>
<S> <C>
Class B Certificates
Initial Invested Amount...................... $101,500,000
Interest Rate................................ LIBOR + 0.43%
Commencement of Accumulation Period.......... Same as above for Class A Certificates
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.......... Same as above for Class A Certificates
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 July 19, 2000.......... $553,962,822
Expected Invested Amount as of Closing Date
(after application of proceeds)............
$0
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
</TABLE>
A-I-2
<PAGE> 64
<TABLE>
<S> <C>
Class D Securities
Invested Amount as of July 19, 2000.......... $49,153,000
Expected Invested Amount as of Closing Date
(after reduction of Class A Invested
Amount)...................................... $10,638,000
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.............. 2.00%
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.............. 2.00%
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 1999-1
Class A Securities
Initial Invested Amount...................... $500,000,000
Interest Rate................................ LIBOR + 0.35%
Commencement of Accumulation Period.......... Last day of May 2003 Monthly Period or later
date as determined in the Agreement
Annual Servicing Fee Percentage.............. 2.00%
Enhancement.................................. Subordination of Class B Securities and
Financial Guaranty Insurance Policy
Scheduled Series Termination Date............ October 2007
Series Issuance Date......................... July 7, 1999
</TABLE>
A-I-3
<PAGE> 65
<TABLE>
<S> <C>
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 1999-2
Class A Securities
Initial Invested Amount...................... $500,000,000
Interest Rate................................ LIBOR + 0.52%
Commencement of Accumulation Period.......... Last day of June 2005 Monthly Period or later
date as determined in the Agreement
Annual Servicing Fee Percentage.............. 2.00%
Enhancement.................................. Subordination of Class B Securities and
Financial Guaranty Insurance Policy
Scheduled Series Termination Date............ July 2006 (extendible)
Series Issuance Date......................... September 22, 1999
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 1999-3
Class A Securities
Initial Invested Amount...................... $300,000,000
Interest Rate................................ LIBOR + 0.42%
Commencement of Accumulation Period.......... Last day of October 2004 Monthly Period or
later as determined in the Agreement
Annual Servicing Fee Percentage.............. 2.00%
Enhancement.................................. Subordination of Class B Securities and
Financial Guaranty Insurance Policy
Scheduled Series Termination Date............ April 2009
Series Issuance Date......................... December 9, 1999
Class B Securities
Initial Invested Amount...................... $29,670,330
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>
A-I-4
<PAGE> 66
<TABLE>
<S> <C>
SERIES 2000-1
Class A Securities
Initial Invested Amount...................... $447,514,000
Interest Rate................................ LIBOR + 0.30%
Commencement of Accumulation Period.......... Last day of January 2004 Monthly Period or
later date as determined in the Agreement
Annual Servicing Fee Percentage.............. 2.00%
Enhancement.................................. Subordination of Class B Securities and
Excess Collateral
Scheduled Series Termination Date............ February 2005 Distribution Date
Series Issuance Date......................... March 20, 2000
Class B Securities
Initial Invested Amount...................... $67,956,000
Interest Rate................................ LIBOR + 0.68%
Commencement of Accumulation Period.......... N/A
Annual Servicing Fee Percentage.............. Same as above for Class A Securities
Enhancement.................................. Subordination of Excess Collateral
Scheduled Series Termination Date............ March 2005 Distribution Date
Excess Collateral
Excess Collateral Initial Amount............. $147,513,425
</TABLE>
A-I-5
<PAGE> 67
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 trust only and will 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 COMPANIES LOGO]
METRIS MASTER TRUST
ISSUER
METRIS RECEIVABLES, INC.
TRANSFEROR
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION
SERVICER
ASSET BACKED SECURITIES
<TABLE>
<S> <C>
THE TRUST--
- may periodically issue asset backed securities in one or
more series with one or more classes; and
- will own--
- receivables in a portfolio of consumer revolving credit
card accounts;
- payments due on those receivables; and
- other property described in this prospectus and in the
prospectus supplement.
THE SECURITIES--
- will represent interests in the trust and will be paid
only from the assets of the trust;
- offered by this prospectus will be rated in one of the
four highest rating categories by at least one nationally
recognized rating organization;
- may have one or more forms of enhancement; and
- will be issued as part of a designated series which may
include one or more classes of securities and enhancement.
THE SECURITYHOLDERS--
- will receive interest and principal payments from a
varying percentage of credit card collections.
</TABLE>
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 July 20, 2000
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OVERVIEW OF THE INFORMATION IN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT... 3
THE TRUST.................................... 4
DIRECT MERCHANTS CREDIT CARD BANK, N.A.
ACTIVITIES................................. 4
General.................................... 4
New Account Underwriting................... 5
Solicitation............................... 5
Pricing.................................... 5
Credit Lines............................... 6
Servicing, Billing and Payment............. 6
Delinquency, Collections and Charge-Offs... 7
Recoveries................................. 7
Acquisition of Credit Card Accounts........ 7
THE RECEIVABLES.............................. 8
MATURITY CONSIDERATIONS...................... 8
USE OF PROCEEDS.............................. 9
METRIS COMPANIES INC......................... 9
Certain Litigation......................... 10
THE TRANSFEROR............................... 10
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL
ASSOCIATION................................ 10
DESCRIPTION OF THE SECURITIES................ 10
General.................................... 11
Book-Entry Registration.................... 12
Definitive Securities...................... 15
Interest................................... 16
Principal.................................. 16
Revolving Period........................... 17
Controlled Amortization Period............. 17
Principal Amortization Period.............. 18
Accumulation Period........................ 18
Early Amortization Period.................. 18
Discount Option............................ 19
Transfer and Assignment of Receivables..... 20
Exchanges.................................. 20
Representations and Warranties............. 22
Certain Covenants.......................... 24
Eligible Accounts.......................... 24
Eligible Receivables....................... 25
Addition of Trust Assets................... 25
Collection and Other Servicing
Procedures............................... 28
Trust Accounts............................. 28
Deposits in Collection Account............. 30
Investor Percentage and Transferor
Percentage............................... 30
Application of Collections................. 31
Shared Principal Collections............... 31
Shared Excess Finance Charge Collections... 31
Excess Funding Account..................... 32
Paired Series.............................. 32
Funding Period............................. 33
Defaulted Receivables; Dilution............ 33
Investor Charge-Offs....................... 34
Defeasance................................. 34
Final Payment of Principal; Termination.... 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pay Out Events............................. 35
Servicing Compensation and Payment of
Expenses................................. 36
Certain Matters Regarding the Transferor
and the Servicer......................... 37
Servicer Default........................... 38
Reports to Securityholders................. 39
Evidence as to Compliance.................. 40
Amendments................................. 40
List of Securityholders.................... 41
The Trustee................................ 41
ENHANCEMENT.................................. 42
General.................................... 42
Subordination.............................. 43
Letter of Credit........................... 43
Cash Collateral Guaranty or Account........ 43
Collateral Interest........................ 43
Surety Bond or Insurance Policy............ 44
Spread Account............................. 44
Reserve Account............................ 44
DESCRIPTION OF THE PURCHASE AGREEMENTS....... 44
Purchases of Receivables................... 44
Representations and Warranties............. 45
Certain Covenants.......................... 46
Purchase Termination Date.................. 47
SECURITY RATINGS............................. 47
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES..... 48
Transfer of Receivables.................... 48
Certain Matters Relating to Bankruptcy or
Receivership............................. 49
Consumer Protection Laws................... 51
Industry Litigation........................ 52
Claims and Defenses of Obligors Against the
Trust.................................... 52
INCOME TAX MATTERS........................... 52
General.................................... 52
Treatment of the Securities as Debt........ 53
Treatment of the Trust..................... 53
Treatment of the Trust as a FASIT.......... 55
Taxation of Interest Income of U.S.
Security Owners.......................... 55
Sale or Exchange of Securities............. 56
Foreign Security Owners.................... 56
Backup Withholding and Information
Reporting................................ 57
State And Local Taxation................... 57
ERISA CONSIDERATIONS......................... 58
PLAN OF DISTRIBUTION......................... 60
LEGAL MATTERS................................ 60
REPORTS TO SECURITYHOLDERS................... 61
OTHER INFORMATION............................ 61
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS................................. 61
WHERE YOU CAN FIND MORE INFORMATION.......... 61
INDEX OF TERMS FOR PROSPECTUS................ 63
ANNEX I...................................... A-I-1
</TABLE>
2
<PAGE> 69
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:
- the timing and amount of interest and principal payments;
- information about the receivables;
- information about credit enhancement for each offered class;
- credit ratings; and
- 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 Prospectus" beginning on page 63 in this
prospectus.
3
<PAGE> 70
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.
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 Offered 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") currently consists of 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 by holders of these
accounts through purchases of merchandise or services, or through cash advances
via checks, automated teller machines or from banks. Subject to certain
conditions, receivables may also be generated from transactions made by holders
of other general purpose credit card accounts originated or acquired by Direct
Merchants Bank. Metris Direct, Inc., a subsidiary of Metris Companies Inc. and
an affiliate of the Bank, services these accounts at its facilities in Tulsa,
Oklahoma, Baltimore, Maryland, Scottsdale, Arizona and Jacksonville, Florida
under an agency contract with the Bank. Certain data processing,
------------
* MasterCard(R) and VISA(R) are federally registered servicemarks of MasterCard
International Inc. and VISA USA Incorporated, respectively.
4
<PAGE> 71
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 "--Servicing, Billing and Payment."
NEW ACCOUNT UNDERWRITING
Direct Merchants Bank targets moderate-income consumers whom it believes
are underserved by other providers of bankcard credit. The Bank's primary
sources of prospects to solicit for credit card offers are obtained from credit
bureau queries and third party customer lists and databases. Currently, the
Bank's most significant source is credit bureau inquiries.
The Bank's most significant third party customer source is a database
maintained by the Fingerhut Corporation ("FINGERHUT"), a wholly owned subsidiary
of Federated Department Stores, Inc. Fingerhut is a database marketing firm that
sells a broad range of products and services via catalogs, telemarketing, the
internet, and other media. Substantially all of Fingerhut's sales are made using
closed-end and revolving credit card loans. As customers make payments and order
new products, Fingerhut enters a variety of payment, behavioral and other data
into its database (the "FINGERHUT DATABASE"). Fingerhut uses information in the
Fingerhut Database, along with sophisticated proprietary credit scoring models,
to produce its proprietary credit scores for Fingerhut customers. The Fingerhut
Database also includes Fingerhut's 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.
The Bank uses internally and externally developed proprietary models to
enhance the evaluation of prospects. These models help segment these prospects
into narrower ranges within each standard risk score provided by Fair, Isaac and
Co., allowing the Bank to better evaluate individual credit risk. The Bank uses
these models, along with the Fingerhut Suppress File, to exclude certain
individuals from the Bank's marketing solicitations. After every marketing
campaign, the Bank monitors the performance of the proprietary models and
continually re-evaluates the effectiveness of these models in segmenting credit
risk, resulting in further refinements to the Bank's selection criteria for
prospects. Over time, the Bank believes that it will capture additional credit
information on the behavioral characteristics of prospects, which will allow the
Bank to further increase the effectiveness of the proprietary models. While the
Bank believes that the proprietary models and additional analysis are valuable
tools in analyzing relative risks, it is not possible to accurately predict
which consumers will default or the overall levels of defaults.
SOLICITATION
Prospects for solicitation include both External Prospects and customers of
third parties. Prospects are contacted on a nationwide basis primarily through
pre-screened direct mail and telephone solicitations. The Bank receives
responses to its solicitations, performs fraud screening, verifies name and
address changes, and obtains any information which may be missing from the
application. Applications are sent to third party data entry providers which key
the application information and process the applications based on the criteria
provided by the Bank. The Bank then makes the credit decisions and approves,
denies or begins exception processing. The Bank processes exceptions for--among
other things--derogatory credit bureau information and fraud warnings. Exception
applications are processed manually by credit analysts based on policies
approved by the Bank's Credit Committee.
PRICING
Through risk-based pricing, the Bank periodically prices credit card offers
based upon a prospect's risk profile prior to solicitation and upon receipt of
an application, the Bank evaluates a prospect to determine credit needs, credit
risk, and existing credit availability and then develops a customized offer that
includes the most appropriate product, brand, pricing and credit line. The Bank
currently offers over 100 different pricing structures on its credit card
products, with annual fees ranging from $0 to $75 and annual interest
5
<PAGE> 72
rates up to 28.99%. After credit accounts are opened, the Bank periodically
monitors customers' internal and external credit performance and recalculates
delinquency, profitability, attrition and bankruptcy predictors. As customers
evolve through the credit life cycle and are regularly re-scored, the lending
relationship may evolve to include more or less restrictive pricing and product
configurations.
CREDIT LINES
Once an account is approved, an initial credit line is established based on
the individual's risk profile using automated screening and credit scoring
techniques. This process results in a portfolio (excluding portfolio
acquisitions) with average credit lines that are below the industry average due
to the Bank's risk assessment methods and higher average risk inherent in its
target market. The Bank may elect, at any time and without prior notice to a
cardholder, to prevent or restrict further credit card use by the cardholders,
usually as a result of poor payment performance or the Bank's concern over the
creditworthiness of the cardholders. Credit lines are managed based on the
results of the behavioral scoring analysis in accordance with criteria
established by the Bank. These analysis models 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 models also manage the authorization of each cardholder
transaction, as well as the collections strategies used for non-delinquent
accounts with balances above their assigned credit line.
SERVICING, BILLING AND PAYMENT
The Bank has established a relationship with FDR for cardholder processing
services. FDR is a subsidiary of First Data Corporation, a provider of
information processing and related services including cardholder processing
(services for financial institutions which issue credit cards to cardholders),
and merchant processing (services for financial institutions which make
arrangements with merchants for the acceptance of credit cards as methods of
payment). FDR provides data processing, credit card reissuance, monthly
statements and interbank settlement for the Bank. The Bank's processing services
agreement with FDR expires in 2006. Applications processing and back office
support for mail inquiries and fraud management are handled internally by the
Bank. In addition the Bank handles all in-bound customer service telephone calls
for its customer base through Metris Direct.
The Bank generally assesses periodic finance charges ("PERIODIC FINANCE
CHARGES") on an account if the cardholder has not paid the balance in full from
the previous billing cycle. These finance charges are based upon the average
daily balance outstanding on the account during the monthly billing cycle.
Payments by cardholders to the Bank on the accounts are processed by a third
party servicer 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 the Bank. If a payment in full is not received prior to 25
days after the statement cycle date (the "PAY BY DATE"), finance charges are
imposed on all purchases from the date of the transaction to the statement cycle
date. Finance charges are also imposed on each cash advance from the day such
advance is made until the advance is paid in full. The finance charge is applied
to the average daily balance. For most cardholders, if the entire balance on the
account is paid by the due date a finance charge on purchases is not imposed.
The Bank assesses 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, 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 Pay by Date, (ii) a
cash advance fee for each cash advance, (iii) a fee with respect to each check
submitted by a cardholder in payment of an account which is not honored by the
cardholder's bank, and (iv) an overlimit charge if, at any time during the
billing cycle, the total amount owed exceeds the cardholder's credit line by at
least $30.
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Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such agreements, the Bank reserves the
right to change or terminate certain terms, conditions, services and features of
the account (including Periodic Finance Charges, late fees, returned check
charges and any other charges or the minimum payment), subject to the conditions
set forth in the account agreement.
Monthly billing statements are sent to cardholders by FDR on behalf of the
Bank. When an account is established, it is assigned a billing cycle. Currently,
there are 20 billing cycles and each such cycle has a separate monthly billing
date based on the respective business day the cycle represents in each calendar
month. Each month, a statement is sent to all accounts with an outstanding
balance greater than $1. All cardholders with open accounts must make a minimum
monthly payment generally of the greater of $15, 2.5% of the outstanding
balance, the finance charge or the balance of the account if the balance is less
than $15. If the minimum payment is not collected by the Pay by Date, the
account is considered delinquent.
Most merchant transactions by cardholders are authorized online. The
remaining transactions generally are low dollar amounts, typically below $50.
All authorizations are handled through the adaptive control system.
DELINQUENCY, COLLECTIONS AND CHARGE-OFFS
The Bank considers an account delinquent if a payment due is not received
by the Bank within 25 days from the closing date of the statement. Collection
activities are determined by the adaptive control system, which continually
monitors all delinquent accounts. The collections function is handled
internally. Accounts that become 60 days contractually delinquent are closed,
but not necessarily charged off. Accounts are charged off and taken as a loss
either within 60 days 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. Charged-off accounts are referred to the
Bank's recovery unit for coordination of collection efforts to recover the
amounts owed. When appropriate, accounts are placed with external collection
agencies or attorneys.
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 Finance Charge Collections.
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."
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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 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 Offered 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
or the method for determining the date on which the Controlled Amortization
Period, the Principal Amortization Period or a controlled 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 controlled 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, a
rapid Accumulation Period.
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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 Controlled Amortization Period, the Principal Amortization Period,
the Early Amortization Period, or other amortization or accumulation period, in
each case as defined with respect to such Series in the related Supplement.
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 and secured
credit cards issued by its indirect subsidiary, Direct Merchants Credit Card
Bank, National Association. Metris' customers and prospects include individuals
for whom credit bureau information is available and other third party sources
including customer lists and databases. Metris markets its fee-based services,
including debt waiver programs, membership clubs, extended service plans 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. Metris' principal subsidiaries are Direct Merchants Bank and
Metris Direct, Inc. ("METRIS DIRECT"). During the third quarter of 1998,
Fingerhut Companies, Inc ("FCI"), which held approximately 85% of Metris' common
stock, received written approval from the Internal Revenue Service to distribute
its interest in Metris to FCI's shareholders in a tax free spin-off.
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
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that the Lee Company investment would convert into 0.8 million shares of Series
C Perpetual Convertible Preferred Stock 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.
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.
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 indirect 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.
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
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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 "SECURITYHOLDERS' 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 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, 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.
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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 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 Clearstream 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.
Clearstream and Euroclear will hold omnibus positions on behalf of the
Clearstream Customers and the Euroclear Participants, respectively, through
customers' securities accounts in Clearstream'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, and may
include the underwriters of any Series of Securities. 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").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Clearstream 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 Clearstream Customers or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant
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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.
Clearstream Customers and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time-zone differences, credits of securities received in
Clearstream 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 Clearstream Customer or Euroclear Participant on such business
day. Cash received in Clearstream or Euroclear as a result of sales of
securities by or through a Clearstream Customer 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 Clearstream 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 purchases, 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
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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.
Clearstream Banking, societe anonyme ("CLEARSTREAM") is incorporated under
the laws of Luxembourg. Clearstream holds securities for its customers
("CLEARSTREAM CUSTOMERS") and facilitates the clearance and settlement of
securities transactions between Clearstream Customers through electronic
book-entry changes in accounts of Clearstream Customers, thereby eliminating the
need for physical movement of certificates. Transactions may be settled in
Clearstream in any of 36 currencies, including United States dollars.
Clearstream provides to its Clearstream Customers, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Clearstream also deals
with domestic securities markets in over 30 countries through established
depository and custodial relationships. Clearstream is registered as a bank in
Luxembourg, and as such is subject to regulation by the Commission de
Surveillance du Secteur Financier, which supervises Luxembourg banks.
Clearstream's Customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks trust companies, clearing
corporations and certain other organizations and may include the underwriters of
any Series of Securities. Clearstream's U.S. Customers are limited to securities
brokers and dealers and banks. Currently, Clearstream has approximately 2,000
customers located in over 80 countries, including all major European countries,
Canada and the United States. Indirect access to Clearstream is also available
to other institutions that clear through or maintain a custodial relationship
with an account holder of Clearstream. Clearstream has established an electronic
bridge with Morgan Guaranty Trust Company of New York as the operator of the
Euroclear System in Brussels to facilitate settlement of trades between
Clearstream and Euroclear.
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
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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 Clearstream or
Euroclear will be credited to the cash accounts of Clearstream 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. Clearstream 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 Clearstream 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, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among participants of
DTC and Euroclear and customers of Clearstream, 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.
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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.
If any Securities are listed on the Luxembourg Stock Exchange, upon
surrender by the Depository of the definitive certificates representing the
Securities and instructions for registration, the Trustee will also issue and
make available the Securities as Definitive Securities to all holders thereof
through the office of the listing agent in Luxembourg and the Trustee will
recognize such holders of Definitive Securities as Securityholders pursuant to
the Pooling and Servicing Agreement. The final payment of any Security may also
be made upon presentation and surrender of such Security at the office of the
listing agent in Luxembourg as specified in the notice of final distribution to
Securityholders. A notice of such final distribution will be published in a
daily newspaper in Luxembourg, which is expected to be the Luxemburger Wort, not
later than the fifth day of the month of such final distribution. Definitive
Securities will also be transferable and exchangeable at the offices of the
listing agent in Luxembourg. With respect to any transfer of Definitive
Securities in part, the new Definitive Securities registered in the names
specified by the transferee and the original transferor will be available at the
offices of the listing agent in Luxembourg.
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,
semiannual 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 controlled 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
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Supplement, following a rapid 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 "Description of the Offered
Securities--Pay Out Events" in 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
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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 Expected Final
Payment Date. If the Prospectus Supplement relating to a Series so specifies,
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 the
Accumulation Period is a controlled Accumulation Period and if so specified in
the related Prospectus Supplement, the commencement of a rapid 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 agreement 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
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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 "Description of the Offered Securities--Pay
out Events" in 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 to a rate below the average base rate
for such period while increasing the likelihood that the Transferor will be
required to add Principal Receivables to the Trust and, because of the reduction
in the aggregate amount of Principal Receivables which, if additional Principal
Receivables were not available at such time, could cause the occurrence of a Pay
Out Event.
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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 ("TRUST
PORTFOLIO"). 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 amended from time to time in accordance with its
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 provide 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
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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
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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. "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 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 is 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 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
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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. The "INTEREST ACCRUAL PERIOD," with
respect to any Distribution Date, will be the period from and including the
previous Distribution Date (or, in the case of the initial Distribution Date for
a Series of Securities, from and including an initial date set forth in the
related Prospectus Supplement) through the day preceding such Distribution Date.
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
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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 respects 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
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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.
"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
Receivable 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
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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.
An "APPROVED ACCOUNT" means (i) each 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. "RATINGS EVENT" means, 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.
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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
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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 Credit
Card Bank, N.A. Activities--Delinquency, Collections and Charge-Offs."
Managerial functions to be performed by the Servicer on behalf of the Trust
include maintaining books and records with respect to the foregoing and other
matters pertinent to the Receivables, assisting the Trustee with any inspections
of such books and records by the Trustee pursuant to the Pooling and Servicing
Agreement, preparing and delivering the monthly and annual statements described
in "--Reports to Securityholders," and causing a firm of independent 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 Ratings Services, 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
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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 from Moody's of P-1; (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 (the
"BANKRUPTCY CODE"), provided, however, that (A) the term of the repurchase
agreement is consistent with the requirements with regard to the maturity of
Cash Equivalents specified herein or in the applicable Supplement for the
applicable account or is due on demand, (B) the Trustee or a third party acting
solely as agent for the Trustee has possession of the collateral, (C) the
Trustee on behalf of the Trust has a perfected first priority security interest
in the collateral, (D) the market value of the collateral is maintained at the
requisite collateral percentage of the obligation in accordance with the
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, certificates 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
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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 below in
"--Application of Collections" and in "Description of the Offered
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 and any
Amortization Period. 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.
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"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 provided 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 other
Trust 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 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
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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.
In addition, if so specified in the related Prospectus Supplement, Finance
Charge Collections otherwise payable to the Transferor may be designated to be
paid to the Securityholders of the applicable 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 or a portion of that
Series (in each 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 prefunded
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 prefunded Paired Series, an equal amount of funds on deposit in
any pre-funding account for such prefunded 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
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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 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
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 Credit Card
Bank, N.A. Activities--Delinquency, Collections and Charge-Offs" in this
Prospectus and "Trust Credit Card Portfolio--Delinquency and Loss Experience" in
the related Prospectus Supplement. 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
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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. 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" will
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 will be deemed to apply to the related Monthly Period. "DEFAULT RECOGNITION
PERCENTAGE" means, with respect to each Default Recognition Date, the percentage
equivalent of a fraction, the numerator of which is the weighted average
Invested Amount for the related Monthly Period and the denominator of which is
the weighted average Principal Receivables in the Trust for the related Monthly
Period.
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 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 Finance Charge Collections and other amounts 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 an opinion of counsel to the effect that following such deposit,
none of the Trust, the Accumulation Period Reserve
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Account or the Principal Funding Account will be deemed to be an association (or
publicly traded partnership) taxable as a corporation 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 (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
including that all amounts owing to any Enhancement provider, 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
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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 or Metris voluntarily enters
liquidation or a trustee-in-bankruptcy is appointed for the Transferor (an
"INSOLVENCY EVENT"), the Transferor or Metris 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 Finance
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Charge Collections allocated to the Securityholders 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 Securityholders 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.
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
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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;
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(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 the 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.
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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 2001, 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
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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
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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
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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 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
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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
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
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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
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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
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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
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:
- its view on the likelihood that Securityholders will receive required
interest and principal payments; and
- its evaluation of the Receivables and the availability of any Enhancement
for the Securities.
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Among the things a rating will not indicate are:
- the likelihood that principal payments will be paid on a scheduled date;
- the likelihood that a Pay Out Event will occur;
- the likelihood that a United States withholding tax will be imposed on
non-U.S. Securityholders;
- the marketability of the Securities;
- the market price of the Securities; or
- 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 (the "UCC") as in effect in the
Relevant UCC State, 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 Permitted Liens. 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, however, the UCC is not
applicable and no further action under the UCC is required to protect the
Trust's interest from third parties. Nevertheless, some other action under
applicable state law may be required in order to perfect such a sale against the
interests of third parties.
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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, other than Permitted
Liens. 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 and certain other Permitted Liens. 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. There is a significant possibility
that the Trust may not have a perfected security interest in any of the
Receivables created after the filing of a petition for relief by or against
Metris or the Transferor under the Bankruptcy Code or after the appointment of a
receiver or conservator with respect to Direct Merchants Bank. Nevertheless, it
is anticipated that the Trust will either own or have a perfected security
interest in Receivables existing on the date of filing a petition by or against
Metris or the Transferor under the Bankruptcy Code or after the date of
appointment of a receiver or conservator with respect to Direct Merchants Bank
and will be able to make payments in respect of principal and interest on the
Securities, although there can be no assurance that any of such payments would
be timely. Because the Trust's interest in the Receivables is dependent upon the
Transferor's interest in the Receivables, which is dependent upon Metris' or
Direct Merchants Bank's interest in the Receivables, any adverse change in the
priority or perfection of the Transferor's or Metris' security interest would
correspondingly affect the Trust's interest in the affected Receivables. In
addition, if a receiver or conservator were appointed for Direct Merchants Bank,
certain administrative expenses of the receiver or conservator also may have
priority over the interest of the Trust in such Receivables. While Direct
Merchants Bank is the Servicer, certain cash collections on the Receivables may
be held by Direct Merchants Bank and commingled with its funds for brief
periods, and if an Insolvency Event occurs, the Trust may not have a perfected
interest in such commingled collections.
CERTAIN MATTERS RELATING TO BANKRUPTCY OR RECEIVERSHIP
The Transferor has been structured such that (i) the filing of a voluntary
or involuntary petition for relief by or against the Transferor under the
Bankruptcy Code or similar laws or (ii) the substantive consolidation of the
assets and liabilities of the Transferor with those of Metris is unlikely. The
Transferor is a separate, limited purpose corporation, and its certificate of
incorporation contains limitations on the nature of its business and
restrictions on its ability to commence a voluntary case or proceeding under the
Bankruptcy Code or similar laws without the prior unanimous consent of all of
its directors. Nevertheless, if a bankruptcy trustee for Metris, Metris as
debtor-in-possession, or a creditor of Metris were to take the view that Metris
and the Transferor should be substantively consolidated or that the transfer of
the Receivables from Metris to the Transferor should be recharacterized as a
pledge of such Receivables, then delays in payments on the Securities or (should
the bankruptcy court rule in favor of any such trustee, debtor-in-possession or
creditor) reductions in such payments on such Securities could result. In
addition, if the Transferor otherwise were to become a debtor in a bankruptcy
case, and if a bankruptcy trustee for the Transferor or a creditor of the
Transferor or the Transferor itself were to take the position that the transfer
of Receivables from the Transferor to the Trust should be recharacterized as a
pledge of such Receivables, then delays in payments on the Securities or (should
the bankruptcy court rule in favor of any such trustee, creditor or
debtor-in-possession) reductions in such payments on such Securities could
result.
Direct Merchants Bank is chartered as a national banking association and is
subject to regulation and supervision by the Comptroller. If Direct Merchants
Bank becomes insolvent or is in an unsound condition or if certain other
circumstances occur, the Comptroller is authorized to appoint the FDIC as
conservator or receiver.
To the extent that (i) Direct Merchant Bank's grant of a security interest
in the receivables and the transaction documents related to this transfer comply
with the regulatory requirements of the FDIA, (ii) the security interest was
perfected before the FDIC is appointed as conservator or receiver for Direct
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Merchants Bank, and (iii) the security interest was not taken in contemplation
of Direct Merchant Bank's insolvency or with the intent to hinder, delay or
defraud Direct Merchant Bank or its creditors, the FDIA provides that the
security interest should be respected. In addition, opinions and policy
statements issued by the FDIC suggest that, because of the manner in which these
transactions are structured, the FDIC would respect the security interest
granted by Direct Merchants Bank in the receivables. Nevertheless, if the FDIC
were to assert a contrary position, or were to require the Trustee to go through
the administrative claims procedure established by the FDIC in order to obtain
payments on the Securities, or were to request a stay of any actions by the
Trustee to enforce the security interest, the transaction documents or the
Securities against Direct Merchants Bank, delays in payments on the Securities
and possible reductions in the amount of those payments could occur.
In addition, the FDIC as conservator or receiver for Direct Merchants Bank
could repudiate the transaction documents related to its transfer of the
receivables. The FDIA would limit the damages for any such repudiation to the
Trust's "actual direct compensatory damages" determined as of the date that the
FDIC were appointed as conservator or receiver for Direct Merchants Bank. The
FDIC, moreover, could delay its decision whether to repudiate the transaction
documents to which Direct Merchants Bank is a party for a reasonable period
following its appointment as conservator or receiver. If the FDIC were to take
any of these actions, the amount payable on the Securities could be lower than
the outstanding principal and accrued interest on the Securities.
The Pooling and Servicing Agreement provides that, upon the bankruptcy or
appointment of a conservator or receiver for the Transferor, Direct Merchants
Bank or Metris, the Transferor will promptly give notice thereof to the Trustee,
and a Pay Out Event with respect to all Series will occur, and under the Pooling
and Servicing Agreement, no new Principal Receivables will be transferred to the
Trust. 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 bankruptcy, 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). 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. Nevertheless, if a
conservator or receiver were appointed for Direct Merchants Bank, or if Metris
or the Transferor were to become a debtor in a case under the Bankruptcy Code or
similar laws, the conservator or receiver or the bankruptcy court may have the
power to prevent or cause the beginning of an Early Amortization Period, to
prevent or cause the early sale of the receivables and termination of the Trust,
or to require or prohibit the transfer of new principal receivables to the
Trust. In addition, 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 Direct
Merchants Bank and Metris have 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 from Collections on Receivables to the Transferor (and therefore to the
Trust and to Securityholders) could occur and (should the court rule in
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favor of any such trustee, debtor-in-possession or creditor) reductions in the
amount of such payments could result.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
cert. denied, 114 S. Ct. 554 (1993), the United States Court of Appeals for the
10th Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitute a "true sale," the accounts would nevertheless constitute
property of the seller's bankruptcy estate in a bankruptcy of the seller. If
Metris or the Transferor were to become subject to a bankruptcy proceeding or if
Direct Merchants Bank were to become subject to a conservatorship or
receivership and a court were to follow the 10th Circuit's reasoning,
Securityholders might experience delays in payment or possibly losses in their
investment in the Securities.
The occurrence of certain events of insolvency, conservatorship or
receivership with respect to the Servicer will result in a Servicer Default,
which Servicer Default, in turn, could result in a Pay Out Event. If no other
Servicer Default other than the commencement of an insolvency related event
exists, a conservator or receiver of the Servicer may have the power to prevent
the Trustee and the Securityholders from appointing a successor Servicer.
CONSUMER PROTECTION LAWS
The Accounts and Receivables are subject to numerous federal and state
consumer protection laws that impose requirements related to offering and
extending credit. Any failure by a Credit Card Originator or the Servicer to
comply with such legal requirements also could adversely affect the Servicer's
ability to collect the full amount of the Receivables. The United States
Congress and the states may enact laws and amendments to existing laws to
further regulate consumer credit or to reduce finance charges or other fees or
charges applicable to credit card and other consumer revolving loan accounts.
Such laws, as well as any new laws or rulings which may be adopted, may
adversely affect the Servicer's ability to collect on the Receivables or
maintain previous levels of collections.
The relationship of the 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. The potential effect of any legislation
which limits the amount of finance charges and fees that may be charged on
credit cards
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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."
INDUSTRY LITIGATION
The United States Department of Justice (the "DOJ") is currently litigating
an antitrust lawsuit in Federal court in Manhattan against VISA USA,
Incorporated, Visa International Inc. (together, "VISA") and MasterCard
International Inc. ("MASTERCARD INTERNATIONAL") alleging that the two credit
card associations restrain competition and limit consumer choice. The DOJ in
such lawsuit challenges, among other things, the control of both VISA and
MasterCard International by the same set of banks, as well as the rules adopted
by the two associations prohibiting members from offering credit cards of
competitors. Both VISA and MasterCard International are contesting the DOJ's
allegations. The Bank is unable to predict what the effect of such lawsuit may
ultimately be on the Bank's credit card business. A final adverse decision
against VISA and MasterCard International, or a similar settlement with the DOJ
by the two associations, could result in changes in the current associations and
may result in adverse consequences for members of the two associations, such as
the Bank.
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
The following is a discussion of material federal income tax consequences
relating to the investment in a Security offered hereunder. Additional federal
income tax considerations relevant to a particular series may be set forth in
the related prospectus supplement. This discussion is based on current law,
which is subject to changes that could prospectively or retroactively modify or
adversely affect the tax consequences summarized below. The discussion does not
address all of the tax consequences relevant to a particular Security Owner in
light of that Security Owner's circumstances, and some Security Owners may be
subject to special tax rules and limitations not discussed below. Each
prospective Security Owner is urged to consult its own tax adviser in
determining the federal, state, local and foreign income and any other tax
consequences of the purchase, ownership and disposition of a Security.
For purposes of this discussion, "U.S. person" means a citizen or resident
of the United States, a corporation or partnership organized in or under the
laws of the United States, any state thereof, or any political subdivision of
either (including the District of Columbia), or an estate or trust the income of
which is includible in gross income for U.S. federal income tax purposes
regardless of its source. The term
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"U.S. Security Owner" means any U.S. person and any other person to the extent
that the income attributable to its interest in a Security is effectively
connected with that person's conduct of a U.S. trade or business.
TREATMENT OF THE SECURITIES AS DEBT
Except as provided in the related Supplement, the Transferor expresses in
the Pooling and Servicing Agreement the intent that for federal, state and local
income and franchise tax purposes, the Securities will be debt secured by the
Receivables. Except as provided in the related Supplement, the Transferor, by
entering into the Pooling and Servicing Agreement, and each investor, by the
acceptance of a beneficial interest in a Security, will agree to treat the
Securities as debt for federal, state and local income and franchise tax
purposes. However, because different criteria are used in determining the
non-tax accounting treatment of the transaction, except as provided in the
related Supplement, the Transferor will treat the Pooling and Servicing
Agreement and related Supplement, for financial accounting purposes and certain
other non-tax purposes, as causing a transfer of an ownership interest in the
Receivables and not as creating a debt obligation.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines its tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its economic
substance. In appropriate circumstances, the courts have allowed taxpayers as
well as the Internal Revenue Service to treat a transaction in accordance with
its economic substance, as determined under federal income tax law, even though
the participants in the transaction have characterized it differently for
non-tax purposes.
The determination of whether the economic substance of a transfer of an
interest in property is a sale or is instead a loan secured by the transferred
property has been made by the Internal Revenue Service and the courts on the
basis of numerous factors designed to determine whether the transferor has
relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among those factors, the primary ones examined are
whether the purchaser has the opportunity to gain if the property increases in
value, and has the risk of loss if the property decreases in value. Except to
the extent otherwise specified in the related Prospectus Supplement, Orrick,
Herrington & Sutcliffe LLP, special federal income tax counsel to the
Transferor, is of the opinion that, under current law as in effect on the Series
closing date, although no transaction closely comparable to that contemplated
herein has been the subject of any Treasury regulation, revenue ruling or
judicial decision, for federal income tax purposes the Securities offered
hereunder will not constitute an ownership interest in the Receivables but will
properly be characterized as debt. Except where indicated to the contrary, the
following discussion assumes that the Securities offered hereunder are debt for
federal income tax purposes.
TREATMENT OF THE TRUST
General. The Pooling and Servicing Agreement permits the issuance of
Securities and certain other interests (including certain Collateral Interests)
in the Trust, each of which may be treated for federal income tax purposes
either as debt or as equity interests in the Trust. If all of the Securities and
other interests in the Trust (other than the Exchangeable Transferor Security)
were characterized as debt, the Trust might be characterized as a security
arrangement for debt collateralized by the Receivables and issued directly by
the Transferor (or other holder of the Exchangeable Transferor Security). Under
such a view, the Trust would be disregarded for federal income tax purposes.
Alternatively, if some of the Securities and other interests in the Trust were
characterized as equity, the Trust might be characterized as a separate entity
owning the Receivables, issuing its own debt, and jointly owned by the
Transferor or other holders of the Exchangeable Transferor Security and any
other holders of equity interests in the Trust. However, special federal income
tax counsel is of the opinion that, under the current law as in effect on the
date of issuance of a Series of Securities, any entity constituted by the Trust
will not be an association or publicly traded partnership taxable as a
corporation.
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Possible Treatment of the Trust as a Partnership or a Publicly Traded
Partnership. Although, as described above, special federal income tax counsel
is of the opinion that the Securities will properly be treated as debt for
federal income tax purposes and that the Trust will not be treated as an
association or publicly traded partnership taxable as a corporation, such
opinion does not bind the Internal Revenue Service and thus no assurance can be
given that such treatment will prevail. Further, such opinion is made with
respect to current law, which is subject to change. If the Internal Revenue
Service were to contend successfully that some or all of the Exchangeable
Transferor Security, the Securities or any other interests in the Trust were
equity in the Trust for federal income tax purposes, all or a portion of the
Trust could be classified as a partnership or as a publicly traded partnership
taxable as a corporation for such purposes. Because special federal income tax
counsel is of the opinion that the Securities will be characterized as debt for
federal income tax purposes and because any holder of any other interest in the
Trust (other than the Exchangeable Transferor Security) generally will agree to
treat that interest as debt for such purposes, no attempt will be made to comply
with any tax reporting requirements that would apply as a result of such
alternative characterizations.
If the Trust were treated in whole or in part as a partnership in which
some or all holders of interests in the publicly offered Securities were
partners, that partnership could be classified as a publicly traded partnership,
and so could be taxable as a corporation. Further, applicable Treasury
regulations (the "publicly traded partnership regulations") could cause the
Trust to constitute a publicly traded partnership even if all holders of
interests in publicly offered Securities are treated as holding debt. The
publicly traded partnership regulations generally apply to taxable years
beginning after December 31, 1995, and thus could affect the classification of
then-existing entities and the ongoing tax treatment of already completed
transactions. Although the publicly traded partnership regulations provide for a
10-year grandfather period for a partnership actively engaged in an activity
before December 4, 1995, it is unclear whether the Trust would qualify for this
grandfather provision. If the Trust were classified as a publicly traded
partnership, whether by reason of the treatment of publicly offered Securities
as equity or by reason of the publicly traded partnership regulations, it would
avoid taxation as a corporation if its income was not derived in the conduct of
a "financial business;" however, whether the income of the Trust would be so
classified is unclear.
Under the Internal Revenue Code of 1986, as amended (the "CODE") and the
publicly traded partnership regulations, a partnership will be classified as a
publicly traded partnership if equity interests therein are traded on an
"established securities market," or are "readily tradable" on a "secondary
market" or its "substantial equivalent." The Transferor intends to take measures
designed to reduce the risk that the Trust could be classified as a publicly
traded partnership by reason of interests in the Trust other than the publicly
traded Securities. Although the Transferor expects such measures will ultimately
be successful, certain of the actions that may be necessary for avoiding the
treatment of such interests as "readily tradable" on a "secondary market" or its
"substantial equivalent" are not fully within the control of the Transferor. As
a result, there can be no assurance that the measures the Transferor intends to
take will in all circumstances be sufficient to prevent the Trust from being
classified as a publicly traded partnership under the publicly traded
partnership regulations.
If the Trust were treated as a partnership other than a publicly traded
partnership taxable as a corporation, that partnership would not be subject to
federal income tax. Rather, each item of income, gain, loss and deduction of the
partnership generated through the ownership of the related Receivables would be
taken into account directly in computing taxable income of the Transferor (or
the holder of the Exchangeable Transferor Security) and any Security Owners
treated as partners in accordance with their respective partnership interests
therein. The amounts and timing of income reportable by any Security Owners
treated as partners would likely differ from that reportable by such Security
Owners had they been treated as owning debt. In addition, if the Trust were
treated in whole or in part as a partnership other than a publicly traded
partnership, income derived from the partnership by any Security Owner that is a
pension fund or other tax-exempt entity may be treated as unrelated business
taxable income. Partnership characterization also may have adverse state and
local income or franchise tax consequences for a Security Owner. If the Trust
were treated in whole or in part as a partnership and the number of holders of
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interests in the publicly offered securities and other interests in the Trust
treated as partners equaled or exceeded 100, the Transferor may cause the Trust
to elect to be an "electing large partnership." The consequence of such election
to investors could include the determination of certain tax items at the
partnership level and the disallowance of otherwise allowable deductions. No
representation is made as to whether such election will be made.
If the arrangement created by the Pooling and Servicing Agreement were
treated in whole or in part as a publicly traded partnership taxable as a
corporation, that entity would be subject to federal income tax at corporate tax
rates on its taxable income generated by ownership of the Receivables. That tax
could result in reduced distributions to Security Owners. No distributions from
the Trust would be deductible in computing the taxable income of the
corporation, except to the extent that any Securities were treated as debt of
the corporation and distributions to the related Security Owners were treated as
payments of interest thereon. In addition, distributions to Security Owners not
treated as holding debt would be dividend income to the extent of the current
and accumulated earnings and profits of the corporation (and security owners may
not be entitled to any dividends received deduction in respect of such income).
TREATMENT OF THE TRUST AS A FASIT
The Code generally provides that certain arrangements similar to the Trust
may elect to be treated as a new type of entity for federal income tax purposes
called a "financial asset securitization investment Trust" or "FASIT." Under the
FASIT provisions of the Code, a FASIT will generally avoid federal income
taxation and could issue securities substantially similar to the Securities, and
those securities would be treated as debt for federal income tax purposes. Upon
satisfying certain conditions, the Transferor will be permitted to amend the
Pooling and Servicing Agreement and any Supplement in order to enable all or a
portion of the Trust to qualify as a FASIT and to permit a FASIT election to be
made with respect thereto, and to make such modifications to the Pooling and
Servicing Agreement and any Supplement as may be permitted by reason of the
making of such election. See "Description of the Securities--Amendments" in this
prospectus. However, there can be no assurance that the Transferor will or will
not cause any permissible FASIT election to be made with respect to the Trust or
amend the Pooling and Servicing Agreement or any Supplement in connection with
any election. Further, although the Transferor is required to deliver a Tax
Opinion with respect to any such election, such election and any related
amendments to the Pooling and Servicing Agreement and any Supplement may have
tax and non-tax consequences to Security Owners. Accordingly, prospective
Security Owners should consult their tax advisors with regard to the effects of
any such election and permitted related amendments on them in their particular
circumstances.
TAXATION OF INTEREST INCOME OF U.S. SECURITY OWNERS
General. Stated interest on a beneficial interest in a Security will be
includible in gross income in accordance with a U.S. Security Owner's method of
accounting.
Original Issue Discount. If the Securities are issued with original issue
discount, the provisions of sections 1271 through 1273 and 1275 of the Code will
apply to the Securities. Under those provisions, a U.S. Security Owner
(including a cash basis holder) generally would be required to accrue the
original issue discount on its interest in a Security in income for federal
income tax purposes on a constant yield basis, resulting in the inclusion of
original issue discount in income in advance of the receipt of cash attributable
to that income. In general, a security will be treated as having original issue
discount to the extent that its "stated redemption price" exceeds its "issue
price," if such excess equals or exceeds 0.25 percent multiplied by the weighted
average life of the security (determined by taking into account only the number
of complete years following issuance until payment is made for any partial
principal payments). Under section 1272(a)(6) of the Code, special provisions
apply to debt instruments on which payments may be accelerated due to
prepayments of other obligations securing those debt instruments. However, no
regulations have been issued interpreting those provisions, and the manner in
which those provisions would apply to the Securities is unclear. Additionally,
the Internal Revenue Service could take the position based on Treasury
regulations that none of the interest payable on a security is
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"unconditionally payable" and hence that all of such interest should be included
in the security's stated redemption price at maturity. If sustained, such
treatment should not significantly affect the tax liability of most Security
Owners, but prospective U.S. Security Owners should consult their own tax
advisers concerning the impact to them in their particular circumstances. Except
where indicated to the contrary, this discussion assumes that interest payable
on a Security is unconditionally payable.
Market Discount. A U.S. Security Owner who purchases an interest in a
Security at a discount that exceeds any unamortized original issue discount may
be subject to the "market discount" rules of sections 1276 through 1278 of the
Code. These rules provide, in part, that gain on the sale or other disposition
of a security and partial principal payments on a security are treated as
ordinary income to the extent of accrued market discount. The market discount
rules also provide for deferral of interest deductions with respect to debt
incurred to purchase or carry a security that has market discount.
Market Premium. A U.S. Security Owner who purchases an interest in a
Security at a premium may elect to offset the premium against interest income
over the remaining term of the Security in accordance with the provisions of
section 171 of the Code.
SALE OR EXCHANGE OF SECURITIES
Upon a disposition of an interest in a Security, a U.S. Security Owner
generally will recognize gain or loss equal to the difference between the amount
realized on the disposition and the U.S. Security Owner's adjusted basis in its
interest in the Security. A taxable exchange of a Security could also occur as a
result of the Transferor's substitution of money or investments for Receivables.
See "Description of the Securities--Defeasance" in this prospectus. The adjusted
basis in the interest in the Security will equal its cost, increased by any OID
or market discount includible in income with respect to the interest in the
Security prior to its sale and reduced by any principal payments previously
received with respect to the interest in the Security and any amortized premium.
Subject to the market discount rules, gain or loss will be capital gain or loss
if the interest in the Security was held as a capital asset. Capital losses
generally may be used only to offset capital gains.
FOREIGN SECURITY OWNERS
In general, a non-U.S. Security Owner who, for United States federal income
tax purposes, is a non resident alien individual or a foreign corporation (a
"FOREIGN PERSON"), generally will not be subject to U.S. federal income tax on
interest (including original issue discount) on a beneficial interest in a
Security unless (i) the Foreign Person actually or constructively owns 10
percent or more of the total combined voting power of all classes of stock of
the Transferor (or of a profits or capital interest in the Trust if
characterized as a partnership), (ii) the Foreign Person is a controlled foreign
corporation that is related to the Transferor (or the Trust if treated as a
partnership) through stock ownership, (iii) the Foreign Person is a bank
receiving interest described in Code section 881(c)(3)(A), (iv) such interest is
contingent interest described in Code section 871(h)(4), or (v) the Foreign
Person bears certain relationships to any holder of either the Exchangeable
Transferor Security other than the Transferor or any other interest in the Trust
not properly characterized as debt. To qualify for the exemption from taxation,
the last U.S. person in the chain of payment prior to payment to a Foreign
Person (the "WITHHOLDING AGENT") must have received (in the year in which a
payment of interest or principal occurs or in either of the two preceding years)
a statement that (i) is signed by the Foreign Person under penalties of perjury,
(ii) certifies that the Foreign Person is not a U.S. person and (iii) provides
the name, address of, and certain additional information concerning the Foreign
Person. The statement may generally be made on an Internal Revenue Service form
W-8BEN or substantially similar substitute form, and the Foreign Person must
inform the Withholding Agent of any change in the information on the statement
within 30 days of the change. If a security is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent. However,
in that case, the signed statement generally must be accompanied by a form
W-8BEN or substitute form provided by the Foreign Person to the organization or
institution holding the Security on behalf of the Foreign Person. The U.S.
Treasury Department recently issued final Treasury regulations
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which will revise some of the foregoing procedures whereby a non-U.S. Security
Owner may establish an exemption from withholding generally beginning January 1,
2001; non-U.S. Security Owners should consult their tax advisors concerning the
impact to them, if any, of such revised procedures.
Generally, any gain or income realized by a Foreign Person upon retirement
or disposition of an interest in a Security will not be subject to U.S. federal
income tax, provided that (i) in the case of a Security Owner that is an
individual, such Security Owner is not present in the United States for 183 days
or more during the taxable year in which such retirement or disposition occurs
and (ii) in the case of gain representing accrued interest, the conditions
described in the preceding paragraph for exemption from withholding are
satisfied. Certain exceptions may be applicable, and an individual Foreign
Person should consult a tax adviser.
If the Securities were treated as an interest in a partnership, the
recharacterization could cause a non-U.S. Security Owner to be treated as
engaged in a trade or business in the United States. In that event, the non-U.S.
Security Owner would be required to file a federal income tax return and, in
general, would be subject to U.S. federal income tax (including the branch
profits tax) on its net income from the partnership. Further, certain
withholding obligations apply with respect to income allocable or distributions
made to a foreign partner. That withholding may be at a rate as high as 39.6
percent. If some or all of the Securities were treated as stock in a
corporation, any related dividend distributions to a non-U.S. Security Owner
generally would be subject to withholding of tax at the rate of 30 percent,
unless that rate were reduced by an applicable tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of principal and interest, as well as payments of proceeds from
the sale, retirement or other disposition of a Security, may be subject to
"backup withholding" tax under the Code at a rate of 31% if a recipient of such
payments fails to furnish to the payor certain identifying information. Any
amounts deducted and withheld would be allowed as a credit against such
recipient's United States federal income tax, provided appropriate proof is
provided under rules established by the IRS. Furthermore, certain penalties may
be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner. Backup withholding
will not apply with respect to payments made to certain exempt recipients, such
as corporations and financial institutions. Information may also be required to
be provided to the IRS concerning payments, unless an exemption applies.
Security Owners should consult their tax advisors regarding their qualification
for exemption from backup withholding and information reporting and the
procedure for obtaining such an exemption.
STATE AND LOCAL TAXATION
General. Except as is set forth below, the discussion herein does not
address the taxation of the Trust or the tax consequences of the purchase,
ownership or disposition of an interest in the Securities under any state or
local tax law. Each investor should consult its own tax adviser regarding state
and local tax consequences.
Florida. A rule under the Florida Income Tax Code (the "LOAN RULE")
provides that a "financial organization" earning or receiving interest from
loans secured by tangible property located in Florida will be deemed to be
conducting business or earning or receiving income in Florida, and will be
subject to Florida corporate income tax regardless of where the interest was
received. A financial organization is defined to include any bank, trust
company, savings bank, industrial bank, land bank, safe deposit company, private
banker, savings and loan association, credit union, cooperative bank, small loan
company, sales finance company or investment company. The Loan Rule is not
exclusive. For example, the Florida Income Tax Code may also subject financial
organizations to corporate income tax if they earn or receive interest from
loans secured by intangible property located in Florida. If the Loan Rule were
to apply to the Securities, then a financial organization investing in the
Securities would be subject to Florida corporate income tax on a portion of its
income at a maximum rate of 5.5%, and would be required to file an income tax
return in Florida, even if it has no other Florida contacts. There are federal
constitutional issues that
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may undermine the State of Florida's ability to enforce this tax rule in cases
where the lender does not have any ties to Florida other than ownership of the
Securities; however, this position has not been judicially tested. We urge you
to consult your own tax advisor as to the applicability of the Loan Rule to an
investment in the Securities.
ERISA 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 ("PARTIES IN
INTEREST")). 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 Section 4975 of the Code.
For example, regardless of whether the Trust assets are deemed to be "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 any
underwriters, or any of their affiliates, is a Party in Interest could result in
a prohibited transaction under ERISA or Section 4975 of the Code unless an
exemption is applicable. Accordingly, fiduciaries of a Plan with respect to
which the Transferor, the Trustee or any underwriter, or any of their
affiliates, is a Party in Interest 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 result in prohibited transactions under ERISA and Section 4975 of the
Code, if any Trust assets were deemed to be assets of an investing Plan. The
U.S. Department of Labor (the "DOL") has issued a regulation (the "PLAN ASSET
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 the Trust assets are deemed to be "plan assets" of an
investing Plan, any person who is a "fiduciary" 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
Section 4975 of the Code. If Plans invest in the Trust, the Trust could be
deemed to hold "plan assets" unless one of the exceptions contained in the Plan
Asset Regulation applies to the Trust.
The Plan Asset 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 who are
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.
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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 benefit plans (as defined in Section 3(3) of ERISA), whether or
not subject to ERISA, plans described in Section 4975 of the Code, and any
entity whose underlying assets include plan assets by reason of any such 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 any
underwriter, 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 and investment by benefit plan investors becomes
significant and the Trust's assets are deemed to include "plan assets" of Plans
that are Securityholders, transactions involving the Trust and Parties in
Interest with respect to such plans might be prohibited under Section 406 of
ERISA and Section 4975 of the Code. In addition, the Transferor, the Trustee or
any underwriter of such Series may be considered to be a Party in Interest or a
fiduciary with respect to an investing Plan. Accordingly, a Plan's investment in
Securities may result in a prohibited transaction under ERISA and Section 4975
of the Code. Thus, for example, if a Plan participant 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
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, Plan fiduciaries considering the purchase of
interests in securities of any series with "plan assets" of any Plan should
consult their own counsel as to whether the assets of the Trust would be
considered "plan assets," and whether, under ERISA's general fiduciary standards
of investment prudence and diversification, an investment in Securities of any
Series is appropriate for the Plan taking into account the overall investment
policy of the Plan and the composition of the Plan's investment portfolio. In
addition, Plan 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, 510
U.S. 86 (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 January 5,
2000, the DOL published final 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
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<PAGE> 126
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. The General
Account Regulations do not apply to any general account policies issued after
December 31, 1998. Accordingly, insurance company general account 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 issuance of the Securities will be
passed upon for Metris, the Transferor and Direct Merchants Bank by Orrick,
Herrington & Sutcliffe LLP, Washington, D.C. Certain legal matters relating to
the issuance of the Securities under the laws of the State of Delaware will be
passed upon for Metris, the Transferor and Direct Merchants Bank by Richards,
Layton & Finger, P.A., Wilmington, Delaware. Certain legal matters relating to
the issuance of the Securities will be passed upon for the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Skadden,
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<PAGE> 127
Arps, Slate, Meager & Flom LLP from time to time performs legal services for
Metris Companies Inc. and its affiliates.
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 Credit Card Bank, N.A. 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 YOU CAN 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.
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<PAGE> 128
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.
62
<PAGE> 129
INDEX OF TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
Accounts............................ 4
Accumulation Period................. 18
Addition Date....................... 27
Additional Accounts................. 26
Adjustment Payment.................. 34
Amendment Closing Date.............. 26
Amortization Period................. 9
Approved Account.................... 26
Assignment.......................... 27
Automatic Additional Accounts....... 25
Bank................................ 4
Bank Purchase Agreement............. 8
Bankruptcy Code..................... 29
Cash Collateral Account............. 43
Cash Collateral Guaranty............ 43
Cash Equivalents.................... 30
Change of Control................... 10
Class............................... 11
Clearstream......................... 14
Clearstream Customers............... 14
Code................................ 54
Collateral Interest................. 43
Collateralized Trust Obligations.... 43
Collection Account.................. 28
Collections......................... 8
Contract............................ 25
Controlled Accumulation Amount...... 18
Controlled Amortization Amount...... 17
Controlled Amortization Period...... 17
Controlled Deposit Amount........... 18
Controlled Distribution Amount...... 17
Cooperative......................... 14
Credit and Collection Policy........ 28
Credit Card Originator.............. 25
Default Recognition Date............ 34
Default Recognition Percentage...... 34
Defaulted Account................... 33
Defaulted Receivable................ 33
Defeased Series..................... 34
Definitive Securities............... 15
Depositaries........................ 12
Depository.......................... 12
Determination Date.................. 22
Dilution............................ 34
Direct Merchants Bank............... 4
Direct Merchants Bank Portfolio..... 4
Discount Option Receivables......... 19
Discount Percentage................. 19
Distribution Account................ 28
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
Distribution Date................... 16
DOJ................................. 52
DOL................................. 58
DTC................................. A-I-1
DTC Participants.................... 12
Early Amortization Period........... 19
Eligible Account.................... 25
Eligible Receivable................. 25
Enhancement......................... 42
Enhancement Invested Amount......... 43
Enhancement Percentage.............. 30
ERISA............................... 58
Euroclear........................... 14
Euroclear Operator.................. 14
Euroclear Participants.............. 14
Euroclear System.................... 14
Excess Finance Charge Collections... 32
Excess Funding Account.............. 28,32
Exchange............................ 20
Exchange Act........................ 12
Exchangeable Transferor Security.... 4
Excluded Accounts................... 26
Expected Final Payment Date......... 8
FCI................................. 9
FDIC................................ 28
FDR................................. 5
Finance Charge Collections.......... 4
Finance Charge Receivables.......... 8
Fingerhut........................... 5
Fingerhut Database.................. 5
Foreign Person...................... 56
Full Invested Amount................ 33
Funding Period...................... 33
General Account Regulations......... 59
Global Securities................... A-I-1
Indirect Participants............... 12
Initial Closing Date................ 20
Insolvency Event.................... 36
Interest Accrual Period............. 23
Interest Funding Account............ 16,28
Invested Amount..................... 11
Investment Company Act.............. 24
Investor Charge-Off................. 34
Investor Percentage................. 31
Investor Securities................. 20
John Hancock........................ 59
Lee Company......................... 9
Loan Rule........................... 57
MasterCard International............ 52
</TABLE>
63
<PAGE> 130
<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
Metris.............................. 9
Metris Direct....................... 9
Minimum Aggregate Principal
Receivables....................... 26
Minimum Transferor Interest......... 26
Minimum Transferor Percentage....... 26
Monthly Period...................... 16
Monthly Servicing Fee............... 36
Moody's............................. 28
Notice Date......................... 27
Obligors............................ 8
Paired Series....................... 32
Participants........................ 12
Parties in Interest................. 58
Pay by Date......................... 6
Pay Out Event....................... 36
Paying Agent........................ 30
Periodic Finance Charges............ 6
Permitted Lien...................... 22
Plan Asset Regulation............... 58
Plans............................... 58
Pooling and Servicing Agreement..... 4
Pre-Funding Account................. 33
Pre-Funding Amount.................. 33
Principal Account................... 28
Principal Amortization Period....... 18
Principal Collections............... 4
Principal Funding Account........... 17
Principal Receivables............... 8
Principal Shortfall................. 31
Principal Terms..................... 21
Prospectus Supplement............... 4
Purchase Agreement.................. 20
Purchase Agreements................. 8,20
Purchase Termination Date........... 47
Qualified Institution............... 28
Rating Agency....................... 48
Ratings Event....................... 26
Receivables......................... 4
Record Date......................... 11
Recoveries.......................... 7
Related Person...................... 42
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- -----
<S> <C>
Relevant UCC State.................. 25
Reserve Account..................... 44
Restart Date........................ 26
Retained Interest................... 22
Retained Percentage................. 36
Revolving Period.................... 17
SEC................................. 12
Securities.......................... 4
Securities Act...................... 21
Security Owner...................... 12
Security Rate....................... 16
Securityholders..................... 15
Securityholders' Interest........... 11
Series.............................. 4
Series Default Amount............... 33
Service Transfer.................... 38
Servicer............................ 4
Servicer Default.................... 38
Shared Principal Collections........ 17
SIPC................................ 29
Standard & Poor's................... 28
Supplement.......................... 10
Supplemental Accounts............... 26
Tax Opinion......................... 22
Termination Date.................... 35
Terms and Conditions................ 15
Transfer Agent and Registrar........ 16
Transfer Date....................... 18,30
Transferor.......................... 4
Transferor Amount................... 11
Transferor Interest................. 11
Trigger Event....................... 36
Trust............................... 4
Trust Accounts...................... 28
Trust Portfolio..................... 20
Trustee............................. 4
UCC................................. 48
Utah Bank........................... 10
Variable Funding Securities......... 11
VISA................................ 52
Waiver Agreement.................... 10
Withholding Agent................... 56
</TABLE>
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<PAGE> 131
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"), Clearstream 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 Clearstream 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 Clearstream or Euroclear and DTC
Participants holding Securities will be effected on a delivery-against-payment
basis through the respective Depositaries of Clearstream 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, Clearstream 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 Clearstream 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 Clearstream Customers and/or Euroclear
Participants. Secondary market trading between Clearstream Customers or
Euroclear Participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC seller and Clearstream Customer or Euroclear
Participant. When Global Securities are to be transferred from the account of a
DTC Participant to the accounts of a Clearstream Customer or a Euroclear
Participant, the purchaser will send instructions to Clearstream or Euroclear
through a Clearstream Customer or Euroclear Participant at least one business
day prior to settlement.
A-I-1
<PAGE> 132
Clearstream 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 Clearstream 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 Clearstream or
Euroclear cash debit will be valued instead as of the actual settlement date.
Clearstream 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 Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream 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, Clearstream 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 Clearstream 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 Clearstream Customers or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream Customers 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 Clearstream or Euroclear through a Clearstream Customer or
Euroclear Participant at least one business day prior to settlement. In these
cases, Clearstream 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 Clearstream Customer or Euroclear Participant
the following day, and receipt of the cash proceeds in the Clearstream
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 Clearstream 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 Clearstream Customer's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
A-I-2
<PAGE> 133
Finally, day traders that use Clearstream or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Clearstream 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 Clearstream or Euroclear for one day (until the
purchase side of the day trade is reflected in their Clearstream 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 Clearstream 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 Clearstream
Customer or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding Securities through
Clearstream 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
appropriate steps to obtain an exemption or reduced tax rate. See "Income Tax
Matters" in the prospectus for additional information.
A-I-3
<PAGE> 134
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
Orrick, Herrington & Sutcliffe LLP
3050 K Street, N.W.
Suite 200
Washington, D.C. 20007
LEGAL ADVISOR TO THE UNDERWRITERS
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
INDEPENDENT ACCOUNTANTS TO THE TRANSFEROR
KPMG LLP
4200 Norwest Center
90 South 7th Street
Minneapolis, Minnesota 55402-3900
<PAGE> 135
Prospectus Supplement
Metris Companies Logo
METRIS MASTER TRUST
Issuer
SERIES 2000-2
$447,514,000
CLASS A FLOATING RATE
ASSET BACKED SECURITIES
$67,956,000
CLASS B FLOATING RATE
ASSET BACKED SECURITIES
METRIS RECEIVABLES, INC.
Transferor
DIRECT MERCHANTS
CREDIT CARD BANK, NATIONAL ASSOCIATION
Servicer
UNDERWRITERS OF THE CLASS A SECURITIES
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
BARCLAYS CAPITAL
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
UNDERWRITERS OF THE CLASS B SECURITIES
DEUTSCHE BANC ALEX. BROWN
BEAR, STEARNS & CO. INC.
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the prospectus. We have not authorized anyone
to provide you with different information.
We are not offering these securities in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this prospectus supplement
and the prospectus as of any date other than the dates stated on their
respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of these securities and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling these securities will deliver a
prospectus supplement and prospectus until October 18, 2000.
