<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1996
REGISTRATION NO. 333-10831
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
METRIS COMPANIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6141 41-1849591
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER IDENTIFICATION NO.)
</TABLE>
-------------------------
600 SOUTH HIGHWAY 169, SUITE 1800
ST. LOUIS PARK, MINNESOTA 55426
(612) 525-5020
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
RONALD N. ZEBECK
METRIS COMPANIES INC.
600 SOUTH HIGHWAY 169, SUITE 1800
ST. LOUIS PARK, MINNESOTA 55426
(612) 525-5020
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
MICHAEL P. SHERMAN, ESQ. GREGORY M. SHAW, ESQ. WILLIAM M. HARTNETT, ESQ.
FINGERHUT COMPANIES, INC. CRAVATH, SWAINE & MOORE CAHILL GORDON & REINDEL
4400 BAKER ROAD 825 EIGHTH AVENUE 80 PINE STREET
MINNETONKA, MINNESOTA 55343 NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10005
(612) 932-3100 (212) 474-1000 (212) 701-3000
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1996
PROSPECTUS
2,833,333 SHARES
[METRIS LOGO]
COMMON STOCK
------------------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Metris Companies Inc.
("Metris" or the "Company"), which is an indirect wholly owned subsidiary of
Fingerhut Companies, Inc. ("FCI").
Following the Offering, FCI will beneficially own indirectly approximately
84.9% (83.0% if the Underwriters exercise their over-allotment option in full)
of the outstanding shares of Common Stock. Accordingly, FCI will continue to
control the Company. See "Risk Factors -- Control by FCI and "-- Potential
Conflicts of Interest; Relationship with FCI".
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $14.00 and $16.00 per share. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price.
Application has been made to list the Common Stock on the Nasdaq National Market
under the symbol "MTRS".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Per Share.......................... $ $ $
- -----------------------------------------------------------------------------------------------------
Total(3)........................... $ $ $
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting expenses estimated to be $800,000, payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
425,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. See "Underwriting". If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $
and $ , respectively.
------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by them
and subject to certain conditions. It is expected that certificates for the
shares of Common Stock will be available for delivery on or about ,
1996, at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
SMITH BARNEY INC.
BEAR, STEARNS & CO. INC.
WILLIAM BLAIR & COMPANY
, 1996
<PAGE> 3
Metris -- inspired by the classical Latin word meaning "of or concerning
measurements", the name evokes the science and discipline of direct marketing.
Symbolizing a foundation in data and information management, Metris is intended
to denote precision in quantitative measurements resulting in a keen
understanding of consumer needs.
CONSUMER CREDIT
EXTENDED SERVICE PLANS
FEE-BASED
PRODUCTS & SERVICES
METRIS
COMPANIES
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933 (the "Securities Act") with respect
to the Common Stock offered pursuant to this Prospectus. This Prospectus does
not contain all of the information set forth in the Registration Statement or
the exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Such information may be
reviewed at, or obtained by mail at prescribed rates from, the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, such information may also be reviewed at the regional offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York
10048. Such information may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov). Statements made in
this Prospectus concerning the provisions of such documents are summaries of
such documents and each such statement is qualified in its entirety by reference
to the copy of the applicable document filed with the Commission.
Prior to this Offering, the Company has not been required to file reports
under the Securities Exchange Act of 1934 (the "Exchange Act"). However,
following the consummation of the Offering, the Company will be required to file
reports and other information with the Commission pursuant to the Exchange Act.
The Company intends to furnish its stockholders with annual reports containing
audited financial statements reported on by independent public accountants
following the end of each fiscal year. FCI is subject to the informational
requirements of the Exchange Act and in accordance therewith files reports and
other information with the Commission.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto (the
"Financial Statements"), appearing elsewhere in this Prospectus. Metris
Companies Inc., a recently formed indirect wholly owned subsidiary of Fingerhut
Companies, Inc. ("FCI"), operates certain businesses previously operated as a
division of FCI (collectively, the "Financial Services Business"). Except as
otherwise noted herein, the information in this Prospectus gives effect to the
contribution of such division to the Company, and, as used in this Prospectus,
unless the context otherwise requires, (i) "Metris" and "Company" refer, with
respect to any date prior to the effective date of such contribution, to the
Financial Services Business of FCI, and, with respect to any date on or
subsequent to the effective date of such contribution, to Metris Companies Inc.
and its subsidiaries and (ii) "FCI" refers to Fingerhut Companies, Inc., and its
subsidiaries other than the Company, including its principal operating
subsidiary, Fingerhut Corporation ("Fingerhut"). Unless the context otherwise
requires, all information contained in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised.
THE COMPANY
Metris Companies Inc. is an information-based direct marketer of consumer
credit products, extended service plans, and fee-based products and services to
moderate income consumers. Management believes the moderate income market (i.e.,
households with annual incomes of $15,000 to $35,000), which currently
represents 31% of all U.S. households, is underserved by the traditional
providers of many of the Company's products and services. The Company's strategy
is to first establish a profitable customer relationship through the issuance of
a general purpose credit card, and then to expand this customer relationship by
cross-selling additional fee-based products and services. The Company provides
credit to this market by utilizing a risk-based pricing strategy based on
proprietary databases and credit scoring systems. The Company's agreements with
FCI provide for the exclusive use of Fingerhut's proprietary database (the
"Fingerhut Database") to market the Company's products and services. The
Fingerhut Database contains demographic, behavioral and credit history
information on more than 30 million individuals, the majority of whom are
moderate income consumers. Fingerhut does not report its credit information to
the credit bureaus, which means this information is not publicly available. The
Company's management believes this access to the Fingerhut Database and the
ability to utilize Fingerhut's proprietary credit scoring models give it a
competitive advantage in targeting and lending to moderate income consumers.
The Company's consumer credit products currently are unsecured and secured
credit cards, including the Fingerhut co-branded MasterCard(R) and the Direct
Merchants Bank MasterCard. The Company's customers and prospects include both
Fingerhut's existing customers ("Fingerhut Customers") and individuals who are
not Fingerhut Customers but for whom credit bureau information is available
("External Prospects"). Once a prospective customer is targeted, the Company
utilizes its proprietary credit scoring models and a risk-based pricing strategy
to assign the annual percentage rate, annual fee and credit line based upon the
expected risk of the individual prospect. As a result of the risk profile that
is typical of the Company's customers, approximately 82% of the existing credit
card accounts carry an annual fee, annual percentage rates range from prime plus
6.45% to prime plus 14.20%, and the average initial credit line is approximately
$1,700. Management believes this average initial credit line is below the
industry average.
The Company also provides extended service plans on certain categories of
products sold by Fingerhut that extend service coverage beyond the
manufacturer's warranty. Although these plans historically have been available
only on consumer electronics, the Company has recently begun to offer these
plans for jewelry and furniture, and may offer plans on additional types of
products in the future. Through focused marketing, the Company increased the
percentage of Warrantable Products (as defined herein) sold that are covered by
its plans from 15% in 1994 to 24% in the first six months of 1996. Management
believes that opportunities for growth in extended service plans exist through
further increasing the percentage of Fingerhut Warrantable Products sold with an
extended service plan, identifying new Warrantable Product categories for
Fingerhut products, and marketing extended service plans in conjunction with
retailers other than Fingerhut.
3
<PAGE> 5
Metris markets its fee-based products and services, including third party
insurance, membership clubs, card registration and debt waiver programs, to its
credit card customers and to Fingerhut's customers. As a result of the Company's
direct marketing and cross-selling efforts, approximately 53% of the Company's
credit card customers have purchased one or more fee-based products. As an
additional service, the Company develops highly tailored marketing lists,
derived from its proprietary database, for third parties.
At year-end 1995, the Company was the 23rd largest MasterCard issuer based
on number of cards issued, with over 700,000 total credit card accounts and
$543.6 million total managed loans outstanding. As of June 30, 1996, the Company
had approximately 1.1 million total credit card accounts and $1.1 billion in
total managed loans outstanding. For the first six months of 1996, the Company
had total revenues of approximately $65.9 million and net income of
approximately $8.9 million.
HISTORY
Fingerhut, one of the largest catalog marketers in the United States, made
the strategic decision in 1993 to directly market general purpose credit cards
to its customers. The decision was based on Fingerhut's expertise in extending
closed end credit to its customers, the large amount of proprietary information
in the Fingerhut Database, and the high responsiveness of Fingerhut's customers
to direct marketing efforts. After successfully test marketing credit cards to
Fingerhut's customers, Fingerhut began to aggressively expand its credit card
business. As part of this strategy, Fingerhut hired a management team led by
Ronald Zebeck, whose more than 20 years of experience in the credit card
industry includes responsibility for the launch and management of the highly
successful GM MasterCard. This management team has since been implementing its
strategy to expand its credit card customer base of both Fingerhut Customers and
External Prospects and to grow its extended service plan and fee-based products
and services businesses.
Based upon a series of targeted credit card marketing campaigns launched
over the past 18 months, the Company's management believes that (i) the
Company's target market has been highly responsive to direct marketing, allowing
the Company to acquire new customers at lower costs than traditional credit card
issuers and to pursue marketing strategies that improve the penetration rates of
additional products and services, (ii) while the Company's target market
includes individuals with relatively high risk profiles, the Company has been
able to effectively target and evaluate the creditworthiness of moderate income
consumers using proprietary scoring models, traditional credit information and
Fingerhut Database information and (iii) the Company's risk-based pricing
strategy has allowed it to manage customer relationships based on individual
risk profiles. See "Risk Factors -- Risks Related to Target Market".
The significant growth to date of the Company's credit card accounts and
managed loan balances has been supported by funds from FCI and from the
Company's retained earnings. The Offering will provide Metris with additional
equity capital to continue to fund its growth.
BUSINESS STRATEGY
The Company's business strategy is to continue its growth by targeting new
customers through the issuance of credit cards and expanding its customer
relationships through the sale of additional products and services. The
principal components of the Company's strategy are the following:
- Increase the number of Fingerhut Customers utilizing the Company's
consumer credit products, extended service plans and fee-based products
and services.
- Identify and solicit additional External Prospects for credit cards using
the Company's proprietary risk, response and profitability models.
- Maximize the profitability of each customer relationship by cross-selling
multiple products and services and using individualized risk-based
pricing.
- Expand the range of products and services offered. Management believes
the Company will make an attractive marketing partner to providers of
other financial services such as home equity loans, auto loans, student
loans, and supplemental insurance.
4
<PAGE> 6
- Access additional customers for the Company's products and services by
establishing relationships with third parties whose customers fit the
Company's target market profile.
- Pursue acquisitions of credit card portfolios and/or other businesses
whose customers fit the Company's product and target market profile.
RELATIONSHIP WITH FCI
Metris Companies Inc. is currently an indirect wholly owned subsidiary of
FCI, the business of which historically has been operated as a division of FCI.
After completion of the Offering, FCI will beneficially own 84.9% of the
outstanding shares of Common Stock (83.0% if the Underwriters' over-allotment
option is exercised in full). Accordingly, FCI will have significant influence
over the policies and affairs of the Company and will be in a position to
determine the outcome of corporate actions requiring stockholder approval,
including the election of directors, the adoption of amendments to the Company's
Certificate of Incorporation and the approval of mergers and sales of the
Company's assets. See "Risk Factors -- Control by FCI" and "-- Potential
Conflicts of Interest; Relationship with FCI".
FCI is a direct-to-the-consumer marketing company that sells a broad range
of products and services via catalogs, telemarketing, television and other
media. FCI had revenues of $2.1 billion and $1.9 billion, and had net earnings
of $50.9 million and $45.9 million, in 1995 and 1994, respectively. FCI had
total assets of $1.3 billion and $1.1 billion at December 29, 1995, and December
30, 1994, respectively. Its principal subsidiaries are the Company, Fingerhut,
Figi's Inc. and Infochoice USA, Inc. Fingerhut has been in the direct mail
marketing business for over 45 years and sells general merchandise using
catalogs and other direct marketing solicitations. Fingerhut's merchandise
includes a broad mix of brand name and private label products.
Metris is significantly dependent on FCI and has entered into a number of
intercompany agreements with FCI, including the Co-brand Credit Card Agreement,
the Data Sharing Agreement, the Extended Service Plan Agreement, the Database
Access Agreement and the Administrative Services Agreement. In addition to
providing the Company exclusive use of the Fingerhut Database for the marketing
of financial service products, the agreements provide for continued access to
information about Fingerhut Customers, for marketing of extended service plans
and for a variety of administrative and other services during the term
(generally seven years) of these agreements. Additionally, FCI has guaranteed
the Company's revolving bank credit facility. See "Transactions Between FCI and
the Company".
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered(1)................... 2,833,333 Shares
Common Stock to be outstanding after the
Offering(1)(2).......................... 18,800,000 Shares
Use of Proceeds........................... The net proceeds of the Offering will be used to
repay short-term indebtedness of the Company,
and the remainder, if any, will be used for
general corporate purposes. See "Use of
Proceeds".
Proposed Nasdaq National Market Symbol.... "MTRS".
Risk Factors.............................. See "Risk Factors" for a discussion of certain
factors that should be considered in evaluating
an investment in the Common Stock.
</TABLE>
- -------------------------
(1) Assumes the Underwriters do not exercise their option to purchase up to an
additional 425,000 shares of Common Stock to cover over-allotments, if any.
(2) Excludes 1,356,572 shares of Common Stock issuable upon exercise of
outstanding stock options granted or expected to be granted by the Company.
The Company has reserved a total of 1,970,000 shares of Common Stock for
issuance in connection with options issuable under the Company's stock
option plans. See "Management -- Compensation Programs".
------------------------
Metris Companies Inc. is a Delaware corporation incorporated on August 20,
1996, and is a wholly owned subsidiary of FFS Holdings, Inc., which is itself an
indirect wholly owned subsidiary of FCI. The Company's subsidiaries are Direct
Merchants Credit Card Bank, National Association ("Direct Merchants Bank"),
Metris Receivables, Inc. ("MRI"), DMCCB, Inc., and Metris Direct, Inc. In
anticipation of the Offering, FCI contributed the assets, liabilities and equity
of the extended service plan business and all of the outstanding stock of these
subsidiaries to the Company (the "Contribution"). The Company's principal
executive offices are located at 600 South Highway 169, Suite 1800, St. Louis
Park, Minnesota 55426, and its telephone number is (612) 525-5020.
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act, and Section 21E of the Exchange Act, and is
subject to the safe-harbor created by such sections. The Company's actual
results may differ significantly from the results discussed in such forward-
looking statements, including, among others, those under "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Asset Quality". Certain factors that might cause such differences include, but
are not limited to, the "Risk Factors" described herein.
6
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
The following summary historical financial and operating data reflects the
assets, liabilities, equity, and revenues and expenses of FCI's businesses
engaged in offering certain consumer credit products, extended service plans,
and other fee-based products and services to moderate income consumers.
The Income Statement Data, Balance Sheet Data, Net Extended Service Plan
Revenues and Fee-Based Product Revenues presented below as of December 31, 1995
and 1994, and for each of the years in the three-year period ended December 31,
1995, have been derived from the audited financial statements and the notes
thereto appearing elsewhere in this Prospectus. All other summary financial and
operating data are unaudited, but reflect, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of such data. The results for the six months ended June 30, 1996,
are also not necessarily indicative of the results to be expected for the entire
year.
As discussed under "Risk Factors -- Lack of Prior Operating History as a
Stand-Alone Entity" and "-- Recently Commenced Credit Card Operations", the
historical financial information presented below may not be indicative of the
Company's future performance nor does it necessarily reflect what the financial
position and results of operations of the Company would have been had the
Company operated as a separate, stand-alone entity during the periods covered.
Additionally, the Company's consumer credit products business and a substantial
portion of its fee-based products and services business began operations in
February 1995 with the opening of Direct Merchants Bank. Therefore, the
financial statements and financial and operating data derived therefrom prior to
1995 are not comparable to the periods ending in 1995 and thereafter. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
the historical financial statements and notes thereto, included elsewhere in
this Prospectus.
In order to provide funds for operations and to improve liquidity, the
Company securitizes and sells substantially all of its credit card loans to
investors through a master trust. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity, Funding and Capital
Resources", and "Business -- Securitization". The effect of these transactions
is to remove credit card loans sold with limited recourse from the Company's
balance sheet and record a gain on sale for the difference between the carrying
value of the loans and the adjusted sales proceeds. The adjusted sales proceeds
are based on a present value estimate of future cash flows to be received over
the life of the loans, net of certain funding and servicing costs. The resulting
gain is further reduced for estimated loan losses over the life of the related
loans under the limited recourse provisions. Because these estimates are
influenced by factors outside of the Company's control, the uncertainty inherent
in these estimates makes it reasonably possible that these estimates could
change in the near term.
The securitization and sale of credit card loans changes the Company's
interest in such loans from that of a lender to that of a servicer. Accordingly
there is a change in how revenue is reported in the income statement. For
securitized and sold credit card loans, amounts that otherwise would have been
recorded as interest income, interest expense, fee income and provision for loan
losses are instead recorded as net securitization and credit card servicing
income, and the Company's allowance for loan losses also does not include
amounts for securitized loans. However, the information on the following table
under "Credit Card Data" includes both securitized loans and the Company's
on-balance sheet loans.
7
<PAGE> 9
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---------------------- ------------------------------
1996 1995 1995 1994 1993
---------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income................................... $ 12,619 $ 1,460 $ 7,616 $ 487 $ 279
Interest expense.................................. 1,858 280 1,217 -- --
---------- -------- -------- ------- -------
Net interest income............................... 10,761 1,180 6,399 487 279
Provision for loan losses......................... 5,173 534 4,393 -- --
Other operating income............................ 53,296 16,094 51,083 14,238 10,053
Other operating expense........................... 44,422 16,602 45,640 11,222 8,333
---------- -------- -------- ------- -------
Income before income taxes........................ $ 14,462 $ 138 $ 7,449 $ 3,503 $ 1,999
Income taxes...................................... 5,568 53 2,868 1,305 737
---------- -------- -------- ------- -------
Net income........................................ $ 8,894 $ 85 $ 4,581 $ 2,198 $ 1,262
========== ========= ========= ======== ========
ADJUSTED PRO-FORMA INCOME STATEMENT DATA:(1)
Adjusted pro-forma net income per share........... $ 0.51 $ 0.33
========== =========
BALANCE SHEET DATA:
Credit card/other loans(2)........................ $ 131,963 $ 44,514 $ 95,064 $ 9,375 $ 6,160
Allowance for loan losses......................... 5,303 534 3,679 -- --
Total assets...................................... 185,784 78,036 174,428 9,856 6,615
Short-term borrowings............................. 54,318 28,205 63,482 -- --
Division equity................................... 80,212 26,822 71,318 6,737 4,539
CREDIT CARD DATA:
Average managed loans............................. $ 741,177 $ 42,576 $183,274 $ -- $ --
Period-end managed loans.......................... 1,068,018 190,069 543,619 -- --
Period-end total accounts......................... 1,122,673 319,511 702,891 -- --
Managed net interest margin(3).................... 13.85% 13.35% 13.65% 7.36% 6.16%
Managed net charge-off ratio(4)................... 5.53% -- 2.19% -- --
Managed delinquency ratio(5)...................... 3.37% 0.17% 3.95% -- --
Period-end managed allowance for loan losses...... 4.15% 1.49% 4.09% -- --
EXTENDED SERVICE PLAN DATA:
Net extended service plan revenues................ $ 8,615 $ 6,687 $ 17,779 $12,244 $ 7,935
Warrantable product sales penetration rates(6).... 23.8% 21.0% 20.4% 15.3% 12.9%
FEE-BASED PRODUCTS AND SERVICES DATA:
Fee-based product revenues........................ $ 12,067 $ 1,549 $ 6,662 $ 1,994 $ 2,118
</TABLE>
- -------------------------
(1) Pro-forma per share information is based on 18,800,000 shares assumed to be
outstanding upon consummation of the Offering. Amounts also give effect to
the adjustment to net interest income from the application of the estimated
net proceeds from the Offering to repay a portion of outstanding short-term
borrowings from FCI as if the Offering had occurred at the beginning of the
respective periods shown.
(2) Credit card/other loans for the years ended December 31, 1994, and 1993
consist exclusively of loans made to FCI. For the year ended December 31,
1995, and thereafter, credit card/other loans are exclusively credit card
loans as the Company was in a net borrowing position with FCI.
(3) Includes the Company's actual cost of funds plus all costs associated with
asset securitizations, including the interest expense paid to the
certificateholders and amortization of the discount and fees.
(4) Net charge-offs reflect actual principal amounts charged-off, less
recoveries, as a percentage of average managed principal credit card loans
on an annualized basis.
(5) Delinquencies represent credit card loans that were at least 30 days past
due at period end.
(6) Warrantable Product sales penetration rates reflect the percentage of
extended service plans sold to total Warrantable Products sold. Percentages
for all periods presented reflect the inclusion of jewelry and furniture
products as Warrantable Products even though extended service plans for such
products were not introduced until the middle of 1995.
8
<PAGE> 10
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following risk factors
before purchasing shares of Common Stock offered hereby.
DEPENDENCE ON FINGERHUT
As of June 30, 1996, approximately 52% of the Company's credit card
customers were Fingerhut Customers, accounting for approximately 57% of the
Company's managed loans, and Fingerhut Customers are currently the Company's
only customers for extended service plans. Moreover, until the Company further
develops its own database of information based upon its experience as an
independent, stand-alone entity, its success in the credit card business will
remain largely dependent upon its exclusive rights to use information in the
Fingerhut Database, particularly with respect to Fingerhut's credit experience
with its customers. Similarly, until the Company develops extended service plan
marketing relationships with other companies, its success in the extended
service plan business will remain largely dependent upon its right to provide
extended service plans to Fingerhut Customers and the level of Fingerhut's sales
of Warrantable Products. Metris has entered into agreements with Fingerhut
relating to (i) credit cards issued to Fingerhut Customers, (ii) use of
information in the Fingerhut Database and (iii) marketing of extended service
plans to Fingerhut Customers. See "Transactions Between FCI and the Company".
The loss of the ability to use information from the Fingerhut Database or to
market to Fingerhut Customers would have a significant adverse economic impact
on the Company's results of operations and future prospects. Significant adverse
changes which materially affect Fingerhut's ability to maintain its database or
to continue its catalog sales business would also have an adverse impact on the
Company.
FCI is a guarantor of the Company's bank revolving credit facility.
Breaches of covenants contained in the guaranty, including various financial
covenants of FCI, would be events of default under the facility. Upon the
occurrence of any such event the facility would be terminable at the option of
the lenders. Such events could have a material adverse impact on the Company's
financial condition and results of operations. To the extent that the FCI
guarantee contains certain financial covenants and the cost of maintaining
availability and borrowing under the revolving credit facility is based on FCI's
credit rating, the Company is dependent on the financial strength and
performance of FCI. FCI has been impacted by the industry-wide increase in paper
and postage rates which began in early 1995 and continued into 1996. FCI is
currently rated BBB/Baa2 by Standard & Poor's and Moody's Investors Service,
respectively.
LACK OF PRIOR OPERATING HISTORY AS A STAND-ALONE ENTITY
FCI's Financial Services Business, including Direct Merchants Bank, has
been newly consolidated within Metris Companies Inc. and therefore has never
before operated as a separate operating group. In addition, the Company's
management team has not operated the Company as a stand-alone entity and the
Company will have one new member of the Board of Directors who will be appointed
at the time of or following the Offering. A number of significant changes will
occur in the funding and operations of the Company in connection with the
consummation of the Offering. These changes include the establishment of the
Company's bank revolving credit facility and its own incentive compensation and
stock option plans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity, Funding and Capital Resources"
and "Management -- Compensation Programs". These changes may have a substantial
impact on the financial position and future results of operations of the
Company. As a result, the historical financial information included in this
Prospectus does not necessarily reflect the financial position and results of
operations of the Company in the future or what the financial position and
results of operations of the Company would have been had it been operated as a
stand-alone entity during the periods presented. Because FCI has guaranteed the
Company's indebtedness, the Company's funding costs will not increase in the
short-term. FCI is contractually committed to guarantee the Company's revolving
credit facility for the term of that facility, but if FCI no longer guaranteed
the Company's indebtedness, the Company's funding costs would increase and the
Company's earnings on a stand-alone basis would be expected to be lower, all
other things being equal. See "Selected Historical Financial and Operating Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
9
<PAGE> 11
In connection with the Offering, Metris will enter into the Administrative
Services Agreement, under which subsidiaries of FCI will provide a variety of
administrative services to the Company on a transitional basis. See
"Transactions Between FCI and the Company -- Administrative Services Agreement".
Following the termination of the Administrative Services Agreement, the Company
will be required to provide or procure these services without the assistance
previously provided by FCI. The impact of these and other changes on the
Company's operations cannot be fully predicted.
RECENTLY COMMENCED CREDIT CARD OPERATIONS
The Company began originating and servicing credit card accounts in March
1995, and thus has limited underwriting and servicing experience, and very
limited delinquency, default and loss experience with respect to its credit card
accounts. Although the Company has experienced substantial growth in credit card
loans outstanding, revenues and net earnings, there can be no assurances that
these rates of growth will be sustainable or indicative of future results. In
addition, the Company's results of operations, financial condition and liquidity
depend, to a material extent, on its ability to manage its recently commenced
credit card business and on the performance of the credit card loans
outstanding.
LACK OF SEASONING OF CREDIT CARD PORTFOLIO
The average age of a credit card issuer's portfolio of accounts is an
indicator of the stability of delinquency and loss levels of that portfolio; a
portfolio of older accounts generally behaves more predictably than a newly
originated portfolio. Substantially all of the Company's credit card accounts
were originated within the last 18 months and over 50% were originated within
the last six months. As a result, there can be no assurance as to the levels of
delinquencies and losses, which may affect earnings through net charge-offs,
that can be expected over time with respect to the Company's portfolio. It is
likely that the levels of such delinquencies and losses will increase as the
average age of the Company's accounts increases, until the accounts become more
seasoned. Any material increases in delinquencies and losses above management's
expectations would have a material adverse impact on the Company's results of
operations and financial condition.
ABILITY TO SUSTAIN AND MANAGE GROWTH
In order to meet its strategic objectives the Company must continue to
achieve growth in its credit card loan portfolio. Continued growth in the
Company's credit card loan portfolio depends on (i) the Company's ability to
attract new cardholders, (ii) growth in both existing and new account balances,
(iii) the degree to which the Company loses accounts and account balances to
competing card issuers, (iv) levels of delinquencies and losses, (v) the
availability of funding, including securitizations, on favorable terms, and (vi)
general economic and other factors beyond the control of the Company. The
Company's growth is also dependent on the level of the Company's marketing
expenditures used to solicit new customers and the number of responses the
Company receives with respect to solicitations for its consumer credit,
fee-based and other financial service products. Any increases in postal rates
could have a negative impact on the level and cost of direct mail marketing
activities. No assurance can be given as to the future growth in the Company's
loan portfolio or its profitability.
Further growth of the Company will require employment and training of new
personnel, expansion of facilities, expansion of management systems, and access
to additional capital. If the Company is unable to manage its growth
effectively, the Company's profitability and its ability to achieve its
strategic objectives may be adversely affected.
RISKS RELATED TO TARGET MARKET
The Company is targeting its consumer credit products to moderate income
consumers. Lenders historically have not solicited this market to the same
extent as more affluent market segment consumers. As a result, in addition to
higher delinquency and loss rates, there is less historical experience with
respect to the credit risk and performance of moderate income consumers. There
can be no assurance that the Company can
10
<PAGE> 12
successfully target and evaluate the creditworthiness of moderate income
consumers so as to minimize the expected higher delinquencies and losses or that
the Company's risk-based pricing system can offset the negative impacts the
expected higher delinquency and loss experience for this market segment has on
overall profitability.
Primary risks associated with unsecured lending, especially to the
Company's target market, which focuses on moderate income consumers, are that
(i) delinquencies and credit losses will increase because of future economic
downturns, (ii) an increasing number of customers will default on the payment of
their outstanding balances or seek protection under bankruptcy laws, resulting
in accounts being charged off as uncollectible, (iii) fraud by cardholders and
third parties will increase, and (iv) unfavorable changes in consumers'
attitudes toward financing purchases with debt or in cardholder payment
behavior, such as increases in discretionary repayment of account balances, will
result in diminished interest income. Many lenders, including the Company,
recently have reported increased levels of account delinquencies and losses, and
this trend may continue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Asset Quality". Additionally, general
economic factors, such as the rate of inflation, unemployment levels and
interest rates may affect the Company's target market customers more severely
than other market segments.
INTEREST RATE RISK
The Company's credit card accounts generally have finance charges set at a
variable rate with a spread above a designated prime rate or other designated
index. Although the Company intends to manage its interest rate risk through
asset and liability management, as the interest rate environment fluctuates the
Company may be adversely affected by changes in its cost of funds as well as in
the relationship between the indices used in the Company's securitizations and
other funding and the indices used to determine the finance charges on account
balances.
FUNDING AND SECURITIZATION CONSIDERATIONS
The Company depends heavily upon the securitization of its credit card
loans to fund its operations and to date has been able to complete
securitization transactions on terms that it believes are favorable. There can
be no assurance, however, that the securitization market will continue to offer
attractive funding alternatives. In addition, the Company's ability to
securitize its assets depends on the continued availability of credit
enhancement on acceptable terms and the continued favorable legal, regulatory,
accounting and tax environment for securitization transactions. While the
Company does not at present foresee any significant problems in any of these
areas, any such adverse change could force the Company to rely on other
potentially more expensive funding sources.
Adverse changes in the performance of the Company's securitized assets,
including increased delinquencies and losses, could result in a downgrade or
withdrawal of the ratings on the outstanding certificates under the Company's
securitization transactions or cause early amortization of such certificates.
This could jeopardize the Company's ability to effect other securitization
transactions on acceptable terms, thereby decreasing the Company's liquidity and
forcing the Company to rely on other funding sources to the extent available.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity, Funding and Capital Resources" and "Business --
Securitization".
Metris is also dependent on its bank revolving credit facility, which is
guaranteed by FCI. In the event that FCI no longer owns 51% or more of the
Company or FCI breaches its covenants, including various financial covenants
contained in its guarantee, the facility may be terminated by the lenders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity, Funding and Capital Resources".
REGULATION
The activities of Metris are, and following the consummation of the
Offering will continue to be, subject to extensive regulation under both Federal
and state laws and regulations. Such laws and regulations
11
<PAGE> 13
significantly limit the activities in which the Company and Direct Merchants
Bank will be permitted to engage. Numerous legislative and regulatory proposals
are advanced each year which, if adopted, could adversely affect the Company's
profitability or limit the manner in which the Company conducts its activities.
Moreover, the Company's interactions with FCI pursuant to certain intercompany
agreements described herein under "Transactions Between FCI and the Company" are
constrained under those agreements by the requirements of the Fair Credit
Reporting Act ("FCRA"). Failure to comply with such requirements could result in
termination of such agreements and/or the Company and/or Fingerhut becoming a
consumer reporting agency under the FCRA. The FCRA imposes a number of complex
and burdensome regulatory requirements and restrictions on a consumer reporting
agency, including restrictions on the circumstances under which a consumer
reporting agency may furnish information to others. Accordingly, if Fingerhut
were to become a consumer reporting agency, the FCRA would restrict the
Company's access to the Fingerhut Database. Similarly, if the Company were to
become a consumer reporting agency its ability to furnish information to third
parties would be restricted by the FCRA. Such restrictions on the Company's
ability to access the Fingerhut Database and/or on the Company's ability to
furnish information to third parties could have a significant adverse economic
impact on the Company's results of operations and future prospects. See
"Dependence on Fingerhut" and "Business -- Regulation -- Fair Credit Reporting
Act".
Direct Merchants Bank is also subject to regulation by the Federal Reserve
Board, the Federal Deposit Insurance Corporation (the "FDIC") and the Office of
the Comptroller of the Currency (the "OCC"). Such regulations include
limitations on the nature of the businesses Direct Merchants Bank may conduct.
See "Business -- Regulation".
CONSUMER AND DEBTOR PROTECTION LAWS
Metris is subject to numerous Federal and state consumer protection laws
that impose requirements related to offering and extending credit. The United
States Congress and the states may enact laws and amendments to existing laws to
regulate further the credit card industry or to reduce finance charges or other
fees or charges applicable to credit card and other consumer revolving loan
accounts. Such laws, as well as any new laws or rulings which may be adopted,
may adversely affect the Company's ability to collect on account balances or
maintain previous levels of periodic rate finance charges and other fees and
charges with respect to the accounts. Any failure by the Company to comply with
such legal requirements also could adversely affect its ability to collect the
full amount of the account balances.
Changes in Federal and state bankruptcy and debtor relief laws could
adversely affect the Company if such changes result in, among other things,
additional administrative expenses and accounts being written off as
uncollectible.
COMPETITION
As a marketer of consumer credit products, Metris faces increasing
competition from numerous providers of financial services, many of which have
greater resources than the Company. In particular, the Company's credit card
business competes with national, regional and local bank card issuers as well as
other general purpose credit card issuers, such as American Express, Discover
Card and Diners Club. Over 6,000 issuers are affiliated with MasterCard alone.
The 20 largest issuers accounted for nearly 65% (based on receivables
outstanding) of the market for general purpose credit cards in June 1996; many
of these issuers are substantially larger and have more seasoned credit card
portfolios than the Company and often compete for customers by offering lower
interest rates and/or fee levels. In general, customers are attracted to credit
card issuers largely on the basis of price, credit limit and other product
features and customer loyalty is often limited.
As the Company attempts to expand its extended service plan business to the
customers of third-party retailers, it will compete with manufacturers,
financial institutions, insurance companies and a number of independent
administrators, many of which have greater operating experience and financial
resources than the Company.
12
<PAGE> 14
There are numerous competitors in the fee-based products market, including
insurance companies, financial service institutions and other membership-based
consumer services providers, many of which are larger, better capitalized and
more experienced than the Company. See "Business -- Competition".
CONTROL BY FCI
Metris Companies Inc. is currently an indirect wholly owned subsidiary of
FCI. After completion of the Offering, FCI will own approximately 84.9% (83.0%
if the Underwriters' over-allotment option is exercised in full) of the
outstanding shares of Common Stock. After the Offering, through its ability to
elect all the directors of the Company, FCI will control all matters affecting
the Company, including the adoption of amendments to the Company's Certificate
of Incorporation, any determination with respect to the acquisition or
disposition of Company assets, future issuances of Common Stock or other
securities of the Company, the Company's incurrence of debt, and any dividend
payable on the Common Stock.
Although FCI has advised the Company it has no immediate plans to dispose
of the Common Stock held by it after the Offering, FCI has not made any decision
regarding its future plans for its ownership interest in the Company. There can
be no assurance that FCI will maintain its ownership interest in the Company or
as to the manner or timing of any disposition of Common Stock by FCI. The
Company's bank revolving credit agreement requires that FCI hold at least 51% of
the common stock of the Company.
POTENTIAL CONFLICTS OF INTEREST; RELATIONSHIP WITH FCI
Corporate Opportunities
The relationship between the respective businesses of Metris and FCI may
give rise to certain conflicts of interest regarding corporate opportunities.
Because both the Company and FCI sell to the same client base, use direct mail
and provide credit, business opportunities may arise that either could pursue.
To address the potential for conflicts between the Company and FCI, the
Company's Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation" or "Certificate") contains detailed provisions concerning the
business activities in which the Company is permitted to engage for so long as
FCI continues to control the Company.
The relevant provisions are intended to permit Metris to continue all
activities in which it currently engages, and to expand into certain related
financial service products. The pertinent provisions of the Certificate of
Incorporation are set forth under "Description of Capital Stock -- Certain
Provisions of the Company's Certificate of Incorporation and By-laws" and "--
Limitations on the Company's Business Activities". These provisions generally
permit the Company to continue providing consumer credit products, extended
service plans, and fee-based products, and a variety of other financial service
products and services. The Company may engage in any other business with the
consent of FCI or authorized by a majority vote of the shareholders. Because
these limitations may restrict the Company's ability to offer new products or
services, they may limit the Company's ability to compete.
The Company's Certificate of Incorporation provides that no opportunity,
transaction, agreement or other arrangement to which FCI, or an entity in which
FCI has an interest, is a party, shall be a corporate opportunity of the Company
unless such opportunity, transaction, agreement or other arrangement shall have
been initially offered to the Company before it is offered to FCI or such other
entity, and either (i) the Company has an enforceable contractual interest in
such opportunity, transaction, agreement or other arrangement or (ii) the
subject matter of such opportunity, transaction, agreement or other arrangement
is a constituent element of an activity in which the Company is then actively
engaged. Even if the foregoing conditions were met, such fact alone would not
conclusively render such opportunity the property of the Company. The
intercompany agreements limit FCI's ability to engage in the Financial Services
Business during the terms of such agreements, except through its ownership of
Common Stock of the Company.
The foregoing provisions of the Certificate of Incorporation of the Company
were determined by FCI after consultation with management of the Company but
were not the result of arm's-length negotiations.
13
<PAGE> 15
Other Potential Conflicts of Interest
Conflicts of interest may arise in the future between Metris and FCI in a
number of areas relating to their past and ongoing relationships, including
potential acquisitions of businesses or properties, the election of new or
additional directors, dividends, incurrence of indebtedness, tax matters,
financial commitments, registration rights, administration of benefit plans,
service arrangements, issuances and sales of capital stock of the Company and
public policy matters. In addition, there are overlapping directors and
executive officers between the Company and FCI. The Company's Chairman of the
Board, Theodore Deikel, is also the Chairman of the Board, Chief Executive
Officer and President of FCI. Michael P. Sherman is a director of the Company
and is also Senior Vice President and General Counsel of FCI, and Dudley C.
Mecum is a director of the Company and is also a director of FCI. In addition,
Peter G. Michielutti is Senior Vice President of Business Development of the
Company and Senior Vice President and Chief Financial Officer of FCI, and Robert
W. Oberrender is Chief Financial Officer of the Company and Vice President and
Treasurer of FCI. See "Management -- Directors and Executive Officers". The
Company has not instituted any formal plan or arrangement to address potential
conflicts of interest that may arise between the Company and FCI. However, the
directors intend to exercise reasonable judgment and take such steps as they
deem necessary under all of the circumstances in resolving any specific conflict
of interest that may occur and will determine what, if any, specific measures
may be necessary or appropriate. There can be no assurance that any conflicts
will be resolved in favor of the Company.
Metris and Fingerhut have entered into a number of agreements for the
purpose of defining the ongoing relationship between them. Pursuant to these
arrangements, Fingerhut will provide benefits to the Company that it might not
provide to a third party, and there is no assurance that the terms and
conditions of any future arrangements between Fingerhut and the Company will be
as favorable to the Company as in effect now. In addition, notwithstanding the
Tax Sharing Agreement (defined herein), under ERISA and Federal income tax law
each member of a consolidated group (for Federal income tax and ERISA purposes)
is also jointly and severally liable for the Federal income tax liability,
funding and termination liabilities, certain benefit plan taxes and certain
other liabilities of each other member of the consolidated group. Similar rules
may apply under state income tax laws. See "Transactions Between FCI and the
Company" and "Principal Stockholder".
DEPENDENCE ON KEY PERSONNEL
The Company's management and operations are dependent upon the skills and
experience of a small number of senior management and operating personnel,
including Ron Zebeck, Chief Executive Officer; Peter Michielutti, Senior Vice
President, Business Development; Douglas McCoy, Vice President, Operations;
Robert Oberrender, Chief Financial Officer; Douglas Scaliti, Vice President,
Marketing; and David Reak, Vice President, Credit Risk. The Company does not
have employment agreements with its executive officers and does not maintain
key-man life insurance on any executive officer. The loss of the services of
members of senior management could have an adverse impact on the Company. See
"Management -- Directors and Executive Officers".
EXTENDED SERVICE PLAN UNDERWRITING
Historically, Metris has contracted with a third party to perform services
related to most of its extended service plans and to underwrite the risks
related to performance under those extended service plans for a fee. The Company
has terminated this agreement effective as of December 31, 1996, and intends to
administer the extended service plans internally after such date. The Company
will retain the risks associated with performance under the extended service
plans entered into after such date, but will not assume any risks already
transferred to the third party. There can be no assurance that the Company will
not experience higher than anticipated costs in connection with the internal
administration and underwriting of these plans.
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<PAGE> 16
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and By-laws contain restrictions
that may discourage other persons from attempting to acquire control of the
Company, including, without limitation, a Board of Directors that has staggered
terms for its members, certain notice and supermajority voting provisions, and
certain "fair price" provisions. These provisions do not become effective until
FCI and its affiliates collectively own outstanding Common Stock representing
less than 51% of all the outstanding Common Stock. The Board of Directors has
the authorization to issue preferred stock in one or more series without the
specific approval of the holders of the Common Stock. Also, only a majority of
the Board of Directors may call a special meeting of stockholders. If the
ownership of the Common Stock ceases to be concentrated in a single holder, in
certain circumstances, these devices may render more difficult or tend to
discourage a change of control of the Company or the removal of incumbent
management, which could reduce the market value of the Common Stock. For a
description of the provisions in the Company's Certificate of Incorporation and
By-laws, see "Description of Capital Stock".
LACK OF A PUBLIC MARKET FOR THE COMMON STOCK
There has been no public market for the Common Stock prior to the Offering
and there can be no assurance that a public market will develop or, if
developed, will be sustained following the Offering. Application has been made
to list the Common Stock on the Nasdaq National Market under the symbol "MTRS".
The price of the Common Stock offered hereby will be determined through
negotiation between the Company and the Underwriters and may not necessarily
reflect the market price of the Common Stock after the Offering or the book
value of the assets of the Company. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of shares of Common Stock for future
sale, will have on the market price for the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for shares of
the Common Stock. The shares of Common Stock beneficially owned by FCI will be
eligible for sale in the public market subject to (i) the timing, volume and
other limitations of Rule 144 promulgated under the Securities Act or
registration under the Securities Act in accordance with the Registration Rights
Agreement, (ii) covenants in FCI's and the Company's bank credit facilities that
will require FCI to maintain ownership of a majority of the Company's Common
Stock and (iii) a "lock-up" agreement between the Underwriters and FCI. Such
lock-up agreement provides that, without the prior written consent of Smith
Barney Inc., FCI will not sell, offer to sell, solicit an offer to buy, contract
to sell, grant an option to purchase or otherwise transfer or dispose of any
shares of Common Stock or any securities convertible into or exchangeable for
shares of Common Stock for a period of 180 days after the date of this
Prospectus. See "Shares Eligible for Future Sale." FCI also has certain
registration rights with respect to the shares of Common Stock owned by it which
would facilitate any future dispositions. See "Transactions Between FCI and the
Company".
DILUTION
Based upon an assumed initial public offering price of $15.00 per share
(and assuming that the Underwriters do not exercise their over-allotment
option), the Company's pro forma net tangible book value per share of Common
Stock as of June 30, 1996, after giving effect to the Offering would be $6.27.
Accordingly, purchasers of the Common Stock offered hereby would suffer
immediate dilution in net tangible book value per share of $8.73. See
"Dilution".
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<PAGE> 17
USE OF PROCEEDS
Assuming an initial public offering price of $15.00 per share, the net
proceeds to the Company from the Offering (after deducting underwriting
discounts and commissions and estimated expenses payable by the Company) are
estimated to be $38.7 million (approximately $44.7 million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use the net
proceeds to reduce short-term indebtedness of the Company incurred under its new
bank revolving credit facility. If the Underwriters' over-allotment option is
exercised in full, the Company may reduce its indebtedness further or retain all
or a substantial part of the net proceeds for general corporate purposes.
Following the Offering, the Company will have the capacity to reborrow under its
bank revolving credit facility for general corporate purposes, including to fund
the continued growth of its businesses. The indebtedness under the bank facility
being repaid with the proceeds of the Offering was incurred to refinance
indebtedness to FCI which was originally incurred for general corporate
purposes. The bank revolving credit facility bears interest at variable rates
and will terminate in August 2001. See Note 6 to the Company's financial
statements for a description of the applicable borrowing rates. The indebtedness
to FCI had a variable interest rate, which was 6.0% at June 30, 1996, and was
payable on demand.
DIVIDEND POLICY
After the Offering, Metris intends to pay regular quarterly cash dividends.
The amount of such dividends is expected to be relatively nominal and the
Company expects to retain substantially all of its net earnings to fund future
growth. The declaration and payment of dividends will be subject to the
discretion of the Board of Directors. The determination of the amount of future
cash dividends, if any, to be declared and paid by the Company will depend upon,
among other things, the Company's financial condition, funds from operations,
future business prospects, and other factors deemed relevant by the Board of
Directors. Accordingly, there can be no assurance that any dividends will be
paid. Furthermore, provisions that may be contained in the Company's borrowing
agreements and banking regulations applicable to Direct Merchants Bank may
restrict the ability of the Company's subsidiaries to pay dividends to the
Company or the ability of the Company to pay dividends to its stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity, Funding and Capital Resources" and "Description of
Capital Stock".
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<PAGE> 18
DILUTION
As of June 30, 1996, the Company's net tangible book value was $79.2
million. FCI will have 15,966,667 shares of Common Stock. Accordingly, after the
Contribution but prior to the Offering, net tangible book value per share would
be $4.96. After giving effect to the Offering, less underwriting discounts and
commissions and estimated expenses of $0.8 million payable by the Company in
connection with the Offering, the net tangible book value of the Company at June
30, 1996, would have been $117.9 million, or $6.27 per share of Common Stock.
This represents an immediate increase in net tangible book value of $1.31 per
share to existing stockholders. Assuming an initial public offering price of
$15.00 per share of Common Stock, there would be an immediate dilution of $8.73
per share to purchasers of the shares of Common Stock in the Offering ("New
Investors"). Dilution is determined by subtracting adjusted net tangible book
value per share after the Offering from the amount of cash paid by a New
Investor for one common share. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share...................................... $15.00
------
Net tangible book value per share before the Offering(1)..................... $4.96
-----
Increase in net tangible book value per share attributable to the Offering... 1.31
-----
Net tangible book value per share after the Offering......................... 6.27
------
Dilution per share to New Investors.......................................... $ 8.73
======
</TABLE>
- -------------------------
(1) Net tangible book value per share as of a specific date represents net
tangible assets (total tangible assets less total liabilities) divided by
the number of shares of Common Stock assumed to be then outstanding, without
giving effect to unexercised options.
The following table summarizes as of June 30, 1996, the differences between
the existing stockholders and the New Investors with respect to the number of
shares of Common Stock purchased, the total consideration paid and the average
price paid per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
---------- ------- ------------ ------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............. 15,966,667 84.9% $ 80,212,000 65.4% $ 5.02
New Investors........................ 2,833,333 15.1% 42,500,000 34.6% $15.00
---------- ----- ------------ -----
Total................................ 18,800,000 100.0% $122,712,000 100.0%
========== ===== ============ =====
</TABLE>
- -------------------------
(1) Excludes 1,356,572 shares of Common Stock issuable upon exercise of
outstanding stock options granted or expected to be granted by the Company.
The Company has reserved a total of 1,970,000 shares of Common Stock for
issuance in connection with options issuable under the Company's stock
option plans. See "Management -- Compensation Programs".
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the debt and capitalization of Metris as of
June 30, 1996, as adjusted to give effect to the borrowing in September 1996
under the Company's new bank revolving credit facility to repay borrowings from
FCI in full, and the Offering and the application of the net proceeds therefrom
(assuming an offering price of $15.00 per share and that the over-allotment
options are not exercised) to repay a portion of outstanding indebtedness under
the Company's bank revolving credit facility. The information set forth in the
table below should be read in conjunction with the financial statements
including the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt:
Short-term borrowings from FCI(1).................................... $ 54,318 $ --
Revolving credit facility(1)......................................... -- 15,618
Other................................................................ 1,000 1,000
-------- --------
Total debt........................................................... 55,318 16,618
Division equity:
Contributed capital.................................................. 60,028 --
Retained earnings.................................................... 20,184 --
-------- --------
Total division equity............................................. 80,212 --
Stockholders' equity:
Preferred stock, par value $.01 per share, 10,000,000 shares
authorized, no shares issued and outstanding...................... -- --
Common stock, par value $.01 per share, 100,000,000 shares
authorized, 18,800,000 shares issued and outstanding as
adjusted(2)....................................................... -- 188
Additional paid-in capital........................................... -- 98,540
Retained earnings.................................................... -- 20,184
-------- --------
Total stockholders' equity........................................... -- 118,912
-------- --------
Total capitalization................................................... $135,530 $ 135,530
======== ========
</TABLE>
- -------------------------
(1) As of September 27, 1996, the Company had repaid borrowings from FCI in full
from borrowings under its bank revolving credit facility.
(2) Excludes 1,356,572 shares of Common Stock issuable upon exercise of
outstanding stock options granted or expected to be granted by the Company.
The Company has reserved a total of 1,970,000 shares of Common Stock for
issuance in connection with options issuable under the Company's stock
option plans. See "Management -- Compensation Programs".
18
<PAGE> 20
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following selected historical financial and operating data reflects the
assets, liabilities, equity, and revenues and expenses of FCI's businesses
engaged in offering certain consumer credit products, extended service plans,
and other fee-based products and services to moderate income consumers.
The Income Statement Data, Balance Sheet Data, Net Extended Service Plan
Revenues and Fee-Based Product Revenues presented below as of December 31, 1995
and 1994 and for each of the years in the three-year period ended December 31,
1995, have been derived from the audited financial statements and the notes
thereto appearing elsewhere in this Prospectus. All other summary financial and
operating data are unaudited but reflect, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of such data. The results for the six months ended June 30, 1996,
are also not necessarily indicative of the results to be expected for the entire
year.
As discussed under "Risk Factors -- Lack of Prior Operating History as a
Stand-Alone Entity" and "-- Recently Commenced Credit Card Operations", the
historical financial information presented below may not be indicative of the
Company's future performance nor does it necessarily reflect what the financial
position and results of operations of the Company would have been had the
Company operated as a separate, stand-alone entity during the periods covered.
Additionally, the Company's consumer credit products business and a substantial
portion of its fee-based products and services business began operations in
February 1995 with the opening of Direct Merchants Bank. Therefore, the
financial statements and financial and operating data derived therefrom prior to
1995 are not comparable to the periods ending in 1995 and thereafter. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
the historical financial statements and notes thereto, included elsewhere in
this Prospectus.
In order to provide funds for operations and to improve liquidity, the
Company securitizes and sells substantially all of its credit card loans to
investors through a master trust. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity, Funding and Capital
Resources", and "Business -- Securitization". The effect of these transactions
is to remove credit card loans sold with limited recourse from the Company's
balance sheet and record a gain on sale for the difference between the carrying
value of the loans and the adjusted sales proceeds. The adjusted sales proceeds
are based on a present value estimate of future cash flows to be received over
the life of the loans, net of certain funding and servicing costs. The resulting
gain is further reduced for estimated loan losses over the life of the related
loans under the limited recourse provisions. Because these estimates are
influenced by factors outside of the Company's control, the uncertainty inherent
in these estimates makes it reasonably possible that these estimates could
change in the near term.
The securitization and sale of credit card loans changes the Company's
interest in such loans from that of a lender to that of a servicer. Accordingly,
there is a change in how revenue is reported in the income statement. For
securitized and sold credit card loans, amounts that otherwise would have been
recorded as interest income, interest expense, fee income and provision for loan
losses are instead recorded as net securitization and credit card servicing
income, and the Company's allowance for loan losses also does not include
amounts for securitized loans. However, the information on the following table
under "Credit Card Data" includes both securitized loans and the Company's
on-balance sheet loans.
19
<PAGE> 21
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- -------- -------- ------- ------- ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.................. $ 12,619 $ 1,460 $ 7,616 $ 487 $ 279 $ 149 $ 71
Interest expense................. 1,858 280 1,217 -- -- -- --
---------- -------- -------- ------- ------- ------ ------
Net interest income.............. 10,761 1,180 6,399 487 279 149 71
Provision for loan losses........ 5,173 534 4,393 -- -- -- --
Other operating income........... 53,296 16,094 51,083 14,238 10,053 7,630 5,737
Other operating expense.......... 44,422 16,602 45,640 11,222 8,333 4,658 3,844
---------- -------- -------- ------- ------- ------ ------
Income before income taxes....... 14,462 138 7,449 3,503 1,999 3,121 1,964
Income taxes..................... 5,568 53 2,868 1,305 737 1,126 710
---------- -------- -------- ------- ------- ------ ------
Net income....................... $ 8,894 $ 85 $ 4,581 $ 2,198 $ 1,262 $1,995 $1,254
========== ======== ======== ======= ======= ====== ======
ADJUSTED PRO-FORMA INCOME STATEMENT
DATA:(1)
Adjusted pro-forma net income per
share.......................... $ 0.51 $ 0.33
========== ========
BALANCE SHEET DATA:
Credit card/other loans(2)....... $ 131,963 $ 44,514 $ 95,064 $ 9,375 $ 6,160 $4,804 $1,601
Allowance for loan losses........ 5,303 534 3,679 -- -- -- --
Total assets..................... 185,784 78,036 174,428 9,856 6,615 5,061 1,636
Short-term borrowings............ 54,318 28,205 63,482 -- -- -- --
Division equity.................. 80,212 26,822 71,318 6,737 4,539 3,277 1,282
CREDIT CARD DATA:
Average managed loans............ $ 741,177 $ 42,576 $183,274 $ -- $ -- $ -- $ --
Period-end managed loans......... 1,068,018 190,069 543,619 -- -- -- --
Period-end total accounts........ 1,122,673 319,511 702,891 -- -- -- --
Managed net interest margin(3)... 13.85% 13.35% 13.65% 7.36% 6.16% 5.97% 7.07%
Managed net charge-off
ratio(4)....................... 5.53% -- 2.19% -- -- -- --
Managed delinquency ratio(5)..... 3.37% 0.17% 3.95% -- -- -- --
Period-end managed allowance for
loan losses.................... 4.15% 1.49% 4.09% -- -- -- --
EXTENDED SERVICE PLAN DATA:
Net extended service plan
revenues....................... $ 8,615 $ 6,687 $ 17,779 $12,244 $ 7,935 $5,906 $3,864
Warrantable product sales
penetration rate(6)............ 23.8% 21.0% 20.4% 15.3% 12.9% 13.3% N/A
FEE-BASED PRODUCTS AND SERVICES
DATA:
Fee-based product revenues....... $ 12,067 $ 1,549 $ 6,662 $ 1,994 $ 2,118 $1,726 $1,873
</TABLE>
- -------------------------
(1) Pro-Forma per share information is based on 18,800,000 shares assumed to be
outstanding upon consummation of the Offering. Amounts also give effect to
the adjustment to net interest income from the application of the estimated
net proceeds from the Offering to repay a portion of short-term borrowings
from FCI as if the Offering had occurred at the beginning of the respective
periods shown.
(2) Credit card/other loans for the year ended December 31, 1994, and for each
of the years presented prior thereto consist exclusively of loans made to
FCI. For the year ended December 31, 1995, and thereafter, credit card/other
loans are exclusively credit card loans as the Company was in a net
borrowing position with FCI.
(3) Includes the Company's actual cost of funds plus all costs associated with
asset securitizations, including the interest expense paid to the
certificateholders and amortization of the discount and fees.
(4) Net charge-offs reflect actual principal amounts charged-off, less
recoveries, as a percentage of average managed principal credit card loans
on an annualized basis.
(5) Delinquencies represent credit card loans that were at least 30 days past
due at period end.
(6) Warrantable Product sales penetration rates reflect the percentage of
extended service plans sold to total Warrantable Products sold. Percentages
for all periods presented reflect the inclusion of jewelry and furniture
products as Warrantable Products even though extended service plans for such
products were not introduced until the middle of 1995. 1991 information was
not available and therefore is labeled as N/A.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that management
believes to be relevant to understanding the financial condition and results of
operations of Metris Companies Inc. This discussion should be read in
conjunction with the financial statements and the related notes thereto included
elsewhere in this Prospectus. See Note 1 to the financial statements for further
discussion of the Company and the basis of presentation of the Company's assets,
liabilities and equity and revenues and expenses in the financial statements.
The Contribution will be completed prior to the Offering. Prior to such
time, the operations of the Company have been conducted by FCI. Accordingly, FCI
and its subsidiaries have provided significant financial and operational support
to the businesses of the Company. This support has been reflected in the
financial statements based on direct and indirect allocations of expenses, which
in the opinion of management are reasonable. Additionally, the Company's
financial statements reflect the retroactive effects of intercompany agreements
between the Company and FCI. Therefore, the historical financial statements of
the Company may not be indicative of the Company's future performance nor do
they necessarily reflect what the financial position and results of operations
of the Company would have been had the Company operated as a separate,
stand-alone entity during the periods covered.
GENERAL
Metris is an information-based direct marketer and provider of consumer
credit products, extended service plans (warranties) and other fee-based
products and services to moderate income consumers.
Consumer Credit Products
The Company's consumer credit products currently are unsecured and secured
credit cards, including the Fingerhut co-branded MasterCard and the Direct
Merchants Bank MasterCard. The primary factors affecting the profitability of
consumer credit products are credit card account and loan growth, interest
spreads on loans, credit card usage, credit quality (delinquencies and
charge-offs), the level of solicitation and marketing expenses, fraud losses,
servicing and other administrative costs. The Company generates interest and
other income through finance charges assessed on outstanding credit card loans,
credit card fees (including annual membership, cash advance, over limit,
past-due, and other credit card fee income) and interchange income. The
Company's primary related expenses are the costs of funding its loans,
provisions for loan losses, and operating expenses (including employee
compensation, account solicitation and marketing expenses), and data processing
and servicing expenses.
The Company reviews and analyzes its financial performance on a "managed
loan" portfolio basis as if the loans sold and securitized were still on the
Company's balance sheet. The following table illustrates the changes in the
Company's managed loan portfolio, changes in the number of credit card accounts
and the percentages of credit card loans to Fingerhut Customers and External
Prospects.
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION FOR THE QUARTERS ENDED
-----------------------------------------------------------
JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30,
1996 1996 1995 1995 1995
---------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total managed loans...................... $1,068,018 $676,974 $543,619 $ 298,920 $190,069
Total accounts........................... 1,122,673 768,938 702,891 344,414 319,511
As a percent of total managed loans:
Loans to Fingerhut Customers........... 56.8% 65.9% 66.5% 63.0% 66.2%
Loans to External Prospects............ 43.2% 34.1% 33.5% 37.0% 33.8%
</TABLE>
Significant marketing and credit card account acquisition expenses (e.g.,
printing, credit bureau and list processing costs, and postage) have been and
will continue to be incurred as the Company implements its strategies for
growth. See "-- Other Operating Expense". These marketing and other account
acquisition
21
<PAGE> 23
costs are expensed within the twelve-month period following the origination of a
credit card account, with the majority expensed during the solicitation period,
while the resulting revenues and net profits from these accounts are recognized
over the life of the acquired accounts. However, as the average age of the
accounts increases (generally referred to as "seasoning"), it is likely the
level of net charge-offs will increase. Account profitability is directly tied
to the response rates to the solicitations, net charge-off or loss rates, card
usage, attrition rates, credit quality, product pricing, effectiveness of
account management programs, and operating costs.
Extended Service Plans
The Company also provides extended service plans that extend warranty
service coverage beyond the manufacturer's warranty on selected products sold by
Fingerhut. Extended service plan profitability is directly impacted by the
response rates to product solicitation efforts, returns or cancel rates for the
underlying product, the retail sales price of the product on which an extended
service plan is sold, the cost of underwriting and claims servicing, and other
operating costs.
Fee-Based Products and Services
The Company markets its fee-based products and services, including third
party insurance, membership clubs, card registration and debt waiver programs,
to its credit card customers and to Fingerhut Customers. Profitability for
fee-based products and services is affected by the response rates to product
solicitation efforts, the targeted solicitation plans and the commission rates
received from the Company's product partners, claims rates and claims servicing
costs for certain programs, and other operating expenses.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net income for the six months ended June 30, 1996, was $8.9 million, an
increase of $8.8 million over the net income of $0.1 million for the same period
in 1995. The increase in net income is largely attributable to the growth in
average managed loans from $42.6 million to $741.2 million.
Other factors affecting net income were an increase in the average
annualized yield on interest earning assets during the past six months from
11.8% for the six months ended June 30, 1995, to 17.6% for the six months ended
June 30, 1996, due to a growing percentage of credit card accounts that carried
a balance from month-to-month and as a result were assessed a finance charge
("revolved"), an increase in the provision for loan losses of $4.6 million, as
on-balance sheet credit card loans increased by $87.4 million, and an increase
in net charge-offs as the average age of the accounts increased. The Company
expects the provision for loan losses to continue to increase as more accounts
are added and the portfolio continues to season.
Other operating income increased $37.2 million to $53.3 million, primarily
due to the increase in average managed loans and a $1.9 million, or 28.8%,
increase in net extended service plan revenues. Operating expenses increased by
$27.8 million to $44.4 million, primarily reflecting the increase in marketing
costs in maintaining existing and establishing new customer relationships for
the Company's products and services, and the increase in the cost of operations
associated with the growth in the Company's businesses.
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net income for the year ended December 31, 1995, was $4.6 million, an
increase of $2.4 million over net income of $2.2 million for the year ended
December 31, 1994. The improvement in net income was largely attributable to the
increase in net extended service plan revenues of $5.5 million, or 45.2%, over
1994. This increase was largely driven by an increase in sales of extended
service plans covering consumer electronic products and the introduction of two
new extended service plan products, "Quality Jewelry Care" and "Quality
Furniture Care", in 1995. In addition, net extended service plan revenues
increased as the Company increased its sales of extended service plans on higher
priced items.
22
<PAGE> 24
The launch of the Company's credit card operations in 1995, including the
account solicitation costs and the costs of developing the fixed infrastructure
to manage these operations, did not cause a material reduction in net income
during 1995. This was primarily a result of the high response rates achieved by
the Company's credit card marketing campaigns, followed by the high rates of
activation on credit card accounts booked. Total credit card accounts (defined
as open credit card accounts, and closed accounts with balances) reached 702,891
at December 31, 1995, while total managed loans stood at $543.6 million.
YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net income for the year ended December 31, 1994, was $2.2 million, an
increase of $0.9 million over net income of $1.3 million for the year ended
December 31, 1993. The increase in net income was largely attributable to the
cancellation in early 1994 of an unsuccessful discount medical and dental
program that had been offered to Fingerhut Customers. This program had an
operating loss of over $1.4 million in 1993, largely because the Company did not
have an effective method for monthly billing. While acceptance rates for this
product were high, cancellation rates were significant and fees billed and
collected were not large enough to absorb the solicitation costs incurred.
Another factor affecting the growth in net income over 1993 was the growth
in net extended service plan revenues of $4.3 million, or 54.3%, which was
attributable to the addition of a new sales telemarketing effort introduced in
the middle of 1994. Additionally, revenues grew as product sales penetration
increased in the higher priced product categories, including consumer
electronics. These efforts resulted in increased Warrantable Product sales
penetration to 15.3% for the year ended December 31, 1994, from 12.9% for the
same period in 1993. Other operating expenses were positively impacted due to
the renegotiation and extension of the contract with the extended service plan
underwriter and claims servicer in early 1994 that resulted in a reduction in
comparable contract costs of $0.7 million over what would have been incurred
under the old contract. Finally, net income was negatively impacted as the
Company began to invest in the fixed infrastructure necessary to launch its
credit card business in early 1995.
MANAGED LOAN PORTFOLIO AND THE IMPACT OF CREDIT CARD SECURITIZATIONS
Securitization
Securitizations of credit card loans have been and are expected to be a
major source of liquidity for the Company. The effect on the Company's financial
statements from securitization is to remove credit card loans sold with limited
recourse from the balance sheet and record a gain on sale for the difference
between the carrying value of the loans and the adjusted sales proceeds. The
adjusted sales proceeds are based on a present value estimate of future cash
flows to be received over the life of the loans, net of certain funding and
servicing costs. The resulting gain is further reduced for estimated loan losses
over the life of the related loans under the limited recourse provisions.
Because these estimates are influenced by factors outside of the Company's
control, the uncertainty inherent in these estimates makes it reasonably
possible that these estimates could change in the near term. Any material
changes in these estimates could have a material impact on the Company's
financial condition and results of operations.
The securitization and sale of credit card loans changes the Company's
interest in such loans from that of a lender to that of a servicer. Accordingly,
there is a change in how revenue is reported in the income statement. For
securitized and sold credit card loans, amounts that otherwise would have been
recorded as interest income, interest expense, fee income and provision for loan
losses are instead reported in other operating income as net securitization and
credit card servicing income. To date, the Company has completed two credit card
securitization transactions. See "Business -- Securitization".
Managed Loan Portfolio
The Company analyzes its financial performance on a managed loan portfolio
basis. In order to do so, the income statement and balance sheet are adjusted to
reverse the effect of securitized loans. The Company's discussion of revenues,
where applicable, and provision for loan losses includes comparisons to amounts
23
<PAGE> 25
reported in the Company's statements of income ("owned basis" or "on-balance
sheet") as well as on a managed basis.
The Company's managed loan portfolio is comprised of credit card loans held
for securitization, retained interests in loans securitized and the investors'
share of securitized credit card loans. The investors' share of securitized
credit card loans are not assets of the Company, and, therefore, are not shown
on the Company's balance sheets. The following table summarizes the Company's
managed loan portfolio.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---------------------- --------------------------------
1996 1995 1995 1994 1993
---------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PERIOD-END BALANCES:
Credit card loans:
Loans held for securitization.......... $ 19,714 $ 19,725 $ 15,337 $ -- $ --
Retained interests in loans
securitized......................... 112,249 24,789 79,727 -- --
Investors' interests in securitized
loans............................... 936,055 145,555 448,555 -- --
---------- -------- -------- ---- ----
Total period-end managed loan
portfolio.............................. $1,068,018 $190,069 $543,619 $ -- $ --
========== ======== ======== ==== ====
AVERAGE BALANCES:
Credit card loans:
Loans held for securitization.......... $ 33,457 $ 4,965 $ 7,741 $ -- $ --
Retained interests in loans
securitized......................... 91,721 16,920 32,091 -- --
Investors' interests in securitized
loans............................... 615,999 20,691 143,442 -- --
---------- -------- -------- ---- ----
Total average managed loan portfolio..... $ 741,177 $ 42,576 $183,274 $ -- $ --
========== ======== ======== ==== ====
</TABLE>
24
<PAGE> 26
Impact of Credit Card Securitizations. The following table provides
selected financial information on a managed loan portfolio basis, as well as a
summary of the effects of credit card securitizations on selected line items of
the Company's income statements for each of the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
-------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME (OWNED BASIS):
Net interest income................... $ 10,761 $ 1,180 $ 6,399 $ 487 $ 279
Provision for loan losses............. 5,173 534 4,393 -- --
Other operating income................ 53,296 16,094 51,083 14,238 10,053
Other operating expense............... 44,422 16,602 45,640 11,222 8,333
-------- ------- -------- ------- -------
Income before income taxes............ $ 14,462 $ 138 $ 7,449 $ 3,503 $ 1,999
======== ======= ======== ======= =======
ADJUSTMENTS FOR SECURITIZATIONS:
Net interest income................... $ 41,590 $ 1,841 $ 19,955 $ -- $ --
Provision for loan losses............. 37,301 2,297 21,841 -- --
Other operating income................ (4,289) 456 1,886 -- --
Other operating expense............... -- -- -- -- --
-------- ------- -------- ------- -------
Income before income taxes............ $ -- $ -- $ -- $ -- $ --
======== ======= ======== ======= =======
MANAGED STATEMENTS OF INCOME:
Net interest income................... $ 52,351 $ 3,021 $ 26,354 $ 487 $ 279
Provision for loan losses............. 42,474 2,831 26,234 -- --
Other operating income................ 49,007 16,550 52,969 14,238 10,053
Other operating expense............... 44,422 16,602 45,640 11,222 8,333
-------- ------- -------- ------- -------
Income before income taxes............ $ 14,462 $ 138 $ 7,449 $ 3,503 $ 1,999
======== ======= ======== ======= =======
OTHER DATA (OWNED BASIS):
Average interest earning assets....... $144,109 $24,957 $ 49,644 $ 6,615 $ 4,531
Return on average assets.............. 9.61% 0.51% 6.46% 31.06% 24.31%
Return on average division equity..... 23.77% 1.30% 15.23% 40.96% 32.32%
Net interest margin(1)................ 15.02% 9.54% 12.89% 7.36% 6.16%
MANAGED BASIS:
Average managed interest earning
assets............................. $760,108 $45,648 $193,086 $ 6,615 $ 4,531
Return on average managed assets...... 2.23% 0.32% 2.14% 31.06% 24.31%
Net interest margin(1)................ 13.85% 13.35% 13.65% 7.36% 6.16%
</TABLE>
- -------------------------
(1) Net interest margin is equal to annualized net interest income divided by
average interest-earning assets. The amounts shown for 1993 and 1994
represent loans from the Company to FCI.
Net Interest Income
Net interest income is interest earned on the Company's loans less interest
expense on borrowings to fund the loans. Managed net interest income for the six
months ended June 30, 1996, was $52.4 million compared to $3.0 million for the
same period in 1995, an increase of $49.4 million. Managed net interest income
for the six months ended June 30, 1996, increased primarily due to a $699
million increase in average managed loans over the comparable period in 1995.
The average annualized yield on managed interest earning assets increased from
17.8% for the six months ended June 30, 1995, to 18.8% for the year ended
December 31, 1995, and to 19.1% for the six months ended June 30, 1996, as a
larger percentage of credit card accounts revolved. The Company has utilized
variable rate funding in its credit card securitization transactions and in its
short-term borrowings from FCI, or has swapped fixed rates on such transactions
to variable rates. Consequently, the managed net interest margin percentage did
not vary materially between the first six months of 1996, and the first six
months of 1995, even though interest rates declined during the first few
25
<PAGE> 27
months of 1996. See "-- Interest Rate Sensitivity" for further discussion of the
Company's interest rate risk management strategy.
Managed net interest income for the year ended December 31, 1995, was $26.4
million compared to $0.5 million in the prior year. The large increase was
predominately the result of the launch of the Company's credit card business in
early 1995, with managed loans growing to over $543.6 million at December 31,
1995.
The following table provides an analysis of interest income and expense,
net interest spread, net interest margin and average balance sheet data on an
owned basis for the six months ended June 30, 1996, and 1995, and the years
ended December 31, 1995, and 1994:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------- ---------------------------
1996 1995 1995
---------------------------- --------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ ------- -------- ------ ------- -------- ------
(DOLLARS IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:(1)
Federal funds sold.................... $ 16,410 $ 436 5.3% $ 1,462 $ 43 5.9% $ 8,501 $ 487 5.7%
Short-term investments................ 2,521 64 5.1% 1,610 46 5.8% 1,311 75 5.7%
Credit card loans..................... 125,178 12,119 19.5% 21,885 1,371 12.6% 39,832 7,054 17.7%
Loans to FCI.......................... -- -- -- -- -- -- -- -- --
-------- -------- ------ -------- ------ ------ ------ ------ -------
Total interest-earning assets..... $144,109 $ 12,619 17.6% $24,957 $1,460 11.8% $49,644 $7,616 15.3%
-------- -------- ------ -------- ------ ------ ------ ------ -------
Cash and due from banks............... 3,197 509 1,572
Accrued interest and fees............. 2,475 1,848 1,497
Other amounts due from
securitizations..................... 16,490 3,033 12,235
Other assets.......................... 25,011 3,079 7,122
Allowance for loan losses............. (5,078) (233) (1,149)
-------- -------- ------
Total assets...................... $186,204 $33,193 $70,921
======== ======== ======
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
Interest-bearing
deposit............................. $ 1,000 $ 24 4.8% $ 394 $ 11 5.5% $ 700 $ 36 5.2%
Due to FCI............................ 63,351 1,834 5.8% 9,588 269 5.6% 20,822 1,181 5.7%
-------- -------- ------ -------- ------ ------ ------ ------ -------
Total............................. 64,351 $ 1,858 5.8% 9,982 $ 280 5.7% 21,522 $1,217 5.7%
Other liabilities..................... 46,598 10,109 19,316
-------- -------- ------
Total liabilities................. 110,949 20,091 40,838
Division equity....................... 75,255 13,102 30,083
-------- -------- ------
Total liabilities and equity...... $186,204 $33,193 $70,921
======== ======== ======
Net interest income and interest
margin(2)........................... $ 10,761 15.0% $1,180 9.5% $6,399 12.9%
Net interest rate spread(3)........... 11.8% 6.1% 9.6%
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994
---------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------- -------- ------
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:(1)
Federal funds sold.................... $ -- $ -- --
Short-term investments................ -- -- --
Credit card loans..................... -- -- --
Loans to FCI.......................... 6,615 487 7.4%
------ ---- -----
Total interest-earning assets..... $6,615 $487 7.4%
------ ---- -----
Cash and due from banks............... 33
Accrued interest and fees............. --
Other amounts due from
securitizations..................... --
Other assets.......................... 428
Allowance for loan losses............. --
------
Total assets...................... $7,076
======
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
Interest-bearing
deposit............................. $ -- $ -- --
Due to FCI............................ -- -- --
------ ---- -----
Total............................. --
Other liabilities..................... 1,711
------
Total liabilities................. 1,711
Division equity....................... 5,365
------
Total liabilities and equity...... $7,076
======
Net interest income and interest
margin(2)........................... $487 7.4%
Net interest rate spread(3)........... 7.4%
</TABLE>
- -------------------------
(1) There were no taxable equivalent adjustments necessary for the periods
presented.
(2) Net interest margin is computed by dividing annualized net interest income
by average total interest-earning assets.
(3) The interest rate spread is the annualized yield on average interest-earning
assets minus the funding rate on average interest-bearing liabilities.
26
<PAGE> 28
Interest Variance Analysis
Net interest income is affected by changes in the average interest rate
earned on interest-earning assets and the interest rate paid on interest-bearing
liabilities, in addition to changes in the volume of interest-earning assets and
interest-bearing liabilities. The following table presents the effects of
changes in average volume and interest rates on individual financial statement
line items on an owned basis:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
1996 VS. 1995 1995 VS. 1994
----------------------------- ---------------------------
CHANGE DUE TO* CHANGE DUE TO*
----------------- ---------------
INCREASE VOLUME RATE INCREASE VOLUME RATE
-------- ------- ------ -------- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Federal funds sold....................... $ 393 $ 397 $ (4) $ 487 $ 487 $ --
Short-term investments................... 18 23 (5) 75 75 --
Credit card loans........................ 10,748 9,642 1,106 7,054 7,054 --
Loans to FCI............................. -- -- -- (487) (244) (243)
------- ------- ------ ------ ------ -----
Total interest income.................... 11,159 10,114 1,045 7,129 6,638 491
INTEREST EXPENSE:
Interest-bearing deposit................. 13 14 (1) 36 36 --
Short-term borrowings from FCI........... 1,565 1,556 9 1,181 1,181 --
------- ------- ------ ------ ------ -----
Total interest expense................... 1,578 1,570 8 1,217 1,217 --
------- ------- ------ ------ ------ -----
Net interest income*.................. $ 9,581 $ 8,544 $1,037 $5,912 $5,421 $ 491
======= ======= ====== ====== ====== =====
</TABLE>
- -------------------------
* The change in interest due to both volume and rates has been allocated in
proportion to the relationship of the absolute dollar amounts of the change in
each. The changes in income and expense are calculated independently for each
caption in the analysis. The totals for the volume and rate columns are not
the sum of the individual lines.
OTHER OPERATING INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER OPERATING INCOME:
Net extended warranty revenues................. $ 8,615 $ 6,687 $17,779 $12,244 $ 7,935
Net securitization and credit card servicing
income....................................... 20,536 3,154 16,003 -- --
Credit card fees, interchange and other credit
card income.................................. 12,078 4,704 10,639 -- --
Fee-based product revenues..................... 12,067 1,549 6,662 1,994 2,118
------- ------- ------- ------- -------
Total..................................... $53,296 $16,094 $51,083 $14,238 $10,053
======= ======= ======= ======= =======
</TABLE>
The following definitions may be helpful when reading the discussion of the
changes in other operating income found below for the periods presented:
Net extended warranty revenues -- Net extended warranty revenues include
revenues received from sales of extended service plans, net of a provision for
service plan returns.
Net securitization and credit card servicing income -- Due to the
securitization of credit card loans, activity from securitized account balances
normally reported as net interest income and provision for loan losses is
reported in net securitization and credit card servicing income. Net
securitization income is the excess of interest and fee income earned over the
related securitization trust expenses, including interest payments to
certificateholders in the trusts, charge-offs, servicing costs and transaction
expenses related to securitized
27
<PAGE> 29
loans. Credit card servicing income is also included in this amount and
represents fees paid to the Company from the trust for servicing the securitized
loans. Such fees generally approximate 2% of average securitized loans on an
annualized basis.
Credit card fees, interchange and other credit card income -- Credit card
fees include annual membership, cash advance, overlimit, past-due, and other
credit card fee income derived from on-balance sheet loans. Also included in
this amount is interchange income which represents fees that are payable by
merchants to the credit card issuer for sales transactions. This amount
presently represents about 1.4% of all net credit card purchases.
Fee-based product revenues -- Fee-based product revenues presently include
revenues from sales of third party insurance, programs such as card
registration, shopping and dining clubs, debt waiver protection for
unemployment, disability, and death, and revenues from targeted list programs.
SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Other operating income increased $37.2 million for the six months ended
June 30, 1996, over the comparable period in 1995, primarily due to income
generated from the growth in average securitized credit card loans. Other
factors contributing to the increase in other operating income were net extended
service plan revenues, which increased by $1.9 million, or 28.8%, over the
comparable period in 1995. The increase in net extended service plan revenues is
primarily the result of increased extended service plan sales and the
introduction of the two new warranty products in 1995. Net securitization and
credit card servicing income increased by $17.4 million over the comparable
period in 1995, primarily due to the increase in average securitized loans and,
to a lesser extent, an increase in the managed net interest margin. Credit card
fees, interchange and other credit card income, increased by $7.4 million
primarily due to a $5.2 million increase in interchange income and an increase
in the number of credit card accounts outstanding over the comparable period in
1995. Fee-based product revenues also increased by $10.5 million as the
Company's marketing efforts to cross-sell other products and services to its and
Fingerhut's customer base were successful.
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Other operating income increased by $36.8 million over the prior year,
largely due to the Company's launch of its credit card business in early 1995
and the corresponding generation of new accounts and loans during 1995. Net
extended service plan revenues grew by $5.5 million, attributable primarily to
new marketing methods developed during mid-1994, and fully implemented during
1995, designed to optimize extended service plan sales penetration. In addition,
extended service plan revenues increased due to increased sales of extended
service plans on higher priced items.
YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1993
Other operating income increased by $4.2 million over the prior year due to
the growth in net extended service plan revenues resulting from the addition of
a new sales telemarketing effort introduced in mid-1994, partially offset by a
decline in fee-based product revenues as a result of the cancellation in early
1994 of an unsuccessful discount medical and dental program.
28
<PAGE> 30
OTHER OPERATING EXPENSE
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER OPERATING EXPENSE:
Credit card account and other product
solicitation and marketing expenses........... $16,461 $ 9,338 $23,089 $ 3,739 $4,092
Employee compensation........................... 7,723 764 2,466 442 300
Data processing services and communications..... 5,196 880 3,090 109 11
Third party servicing expenses.................. 4,613 1,178 5,300 473 356
Warranty and debt waiver underwriting and claims
servicing expenses............................ 4,061 2,423 6,552 4,109 3,033
Credit card fraud losses........................ 1,066 281 775 -- --
Other........................................... 5,302 1,738 4,368 2,350 541
------- ------- ------- ------- ------
Total...................................... $44,422 $16,602 $45,640 $11,222 $8,333
======= ======= ======= ======= ======
</TABLE>
Other operating expenses include direct and allocated expenses from FCI for
administrative services provided to the Company under the Administrative
Services Agreement (as defined herein). Additionally, other operating expenses
reflect the retroactive effects of additional intercompany agreements and
contracts between FCI and its subsidiaries. See Notes 2 and 10 to the Company's
financial statements and "Transactions Between FCI and the Company", shown
elsewhere in this Prospectus.
SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Other operating expenses increased $27.8 million over the comparable period
in 1995, primarily due to costs incurred in the Company's business development
activities. Credit card account and other product solicitation and marketing
expenses rose by $7.1 million over the same period in the prior year. New credit
card account solicitation programs were implemented in the first six months of
1996, increasing the number of credit card accounts and loans outstanding.
Additionally, increased solicitation costs were incurred in efforts to increase
the penetration of extended service plan sales on Warrantable Products sold by
Fingerhut and fee-based products sold to the Company's customers. The Company
expects that its product solicitation costs will continue to increase during the
remainder of 1996 and into 1997 as the Company continues its efforts to expand
its customer base and product penetration rates. These opportunities, however,
are subject to a variety of external and internal factors such as competition,
market interest rates and consumer credit quality, which may affect ultimate
product solicitation costs incurred, and the realization of corresponding
revenue opportunities.
Additionally, other operating expenses increased due to increases in data
processing services and communications and third party servicing expenses of
$4.3 million and $3.4 million, respectively, over those incurred for the six
months ended June 30, 1995. These cost increases were largely due to the
increased number of credit card accounts, transaction volumes and loan balances.
Employee compensation also increased $7.0 million to $7.7 million for the six
months ended June 30, 1996, due to increased staffing needs to support the
increase in credit card accounts and the internalization of credit card
collections and other functions, and increased management incentive plan
expenses. The Company expects that it will need to continue to expand its fixed
infrastructure during the remainder of 1996 and into 1997 as it continues to
expand and diversify its financial service product offerings. Warranty and debt
waiver underwriting and claims servicing expenses increased $1.6 million,
primarily due to an increase in debt waiver products sold over the same period
in the prior year and, to a lesser extent, the increase in net extended service
plans sold. Credit card fraud losses and other operating expenses increased $0.8
million and $3.6 million, respectively, largely due to the overall increase in
credit card and other transaction volumes over the comparable period in 1995.
29
<PAGE> 31
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Other operating expenses increased by $34.4 million, largely due to the
Company's launch of its credit card business in early 1995 and the corresponding
generation of new accounts and transaction and loan volumes during 1995.
Additionally, product solicitation and marketing expenses also increased over
the prior year in efforts to increase sales of extended service plans. Employee
compensation and other expenses also increased during the year as the Company
incurred costs related to the launch of its credit card business in early 1995
and the establishment of the infrastructure to support this business. Warranty
and debt waiver underwriting and claims servicing expenses increased $2.4
million primarily due to the introduction of the debt waiver product in early
1995 and, to a lesser extent, the increase in net extended service plans sold
for the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1993
Other operating expenses increased by $2.9 million primarily due to
increases in warranty underwriting and claims servicing expenses and allocated
administrative expenses from FCI. The Company's account and other product
solicitation and marketing expenses decreased by $0.4 million, largely due to
$1.8 million in product solicitation costs incurred in 1993 for an unsuccessful
discount medical and dental program that was discontinued in 1993, partially
offset by a new extended service plan telemarketing effort introduced in the
middle of 1994. Finally, employee compensation and other operating expenses also
increased over 1993, as the Company began to expand its fixed infrastructure to
launch its credit card business.
INCOME TAXES
The Company's provision for income taxes includes both federal and state
income taxes. Applicable income tax expense was $5.6 million and $0.1 million,
respectively, for the six months ended June 30, 1996 and 1995 and was $2.9
million, $1.3 million, and $0.7 million, respectively, for the years ended
December 31, 1995, 1994 and 1993. This tax expense represents an effective tax
rate of 38.5% and 38.5% for the six months ended June 30, 1996 and 1995,
respectively, and 38.5%, 37.26%, and 36.88%, for the years ended December 31,
1995, 1994, and 1993, respectively. The increases in the effective tax rate for
1995 over 1994 and 1994 over 1993 are principally due to increases in state
income taxes caused by the launch of the credit card operations, and the
Company's expansion of its facilities and operations into other states which
caused the Company to incur additional state income taxes. See Note 9 to the
financial statements for a reconciliation of reported income taxes to the amount
computed by applying the federal statutory rate to income before income taxes.
ASSET QUALITY
The Company's delinquency and net loan charge-off rates at any point in
time reflect, among other factors, the credit risk of loans, the average age of
the Company's various credit card account portfolios, the success of the
Company's collection and recovery efforts, and general economic conditions. The
average age of the Company's credit card portfolio affects the stability of
delinquency and loss rates of the portfolio. The Company believes that, based on
the industry experience of its management and its analysis of the behavior of
its newly originated accounts versus the behavior of older accounts in its
portfolio, and absent unexpected adverse changes in the economy, the delinquency
and loss rates of groups of new accounts are generally predictable. The Company
believes that typical new credit card accounts generally experience rising
levels of delinquency and loss rates which tend to peak 18-36 months from the
origination date. The Company believes the peaks of the delinquency and loss
rates for its accounts may occur earlier than those of typical new credit card
accounts. However, the absolute levels at which delinquencies and loss rates may
peak and then stabilize are not specifically known. At June 30, 1996, 76.6% of
managed accounts and 62.9% of managed loans were less than 12 months old.
Accordingly, the Company believes that its managed loan portfolio will
experience increased levels of delinquency and loan losses as the average age of
the Company's accounts increases.
30
<PAGE> 32
This trend is reflected in the increase in the Company's ratio of net
charge-offs to average managed loans over the past six months. For the quarter
ended June 30, 1996, this ratio stood at an annualized rate of 5.36% down from
5.78% for the quarter ended March 31, 1996, but up from the annualized rate of
3.14% for the quarter ended December 31, 1995. The Company believes, consistent
with its statistical models and other credit analyses, that this rate will
continue to fluctuate but generally rise over the next twelve to eighteen
months.
The Company's strategy for managing loan losses to maximize profitability
consists of credit line management and risk-based pricing so that an acceptable
profit margin is maintained based on the perceived risk of each credit card
account. Under this strategy, interest margins are established for each credit
card account based on its perceived risk profile. Loan losses are further
managed through the offering of credit lines which are generally lower than is
currently standard in the industry. Individual accounts and their related credit
lines are also continually managed using various marketing, credit and other
management processes in order to continue to maximize the profitability of each
account.
Delinquencies
Delinquencies not only have the potential to impact earnings in the form of
net loan losses, but are also costly in terms of the personnel and resources
dedicated to resolving them. Delinquency levels are monitored on a managed
basis, since delinquency on either an owned or managed basis subjects the
Company to credit loss exposure. A credit card account is contractually
delinquent if the minimum payment is not received by the specified date on the
cardholder's statement. It is the Company's policy to continue to accrue
interest and fee income on all credit card accounts, except in limited
circumstances, until the account and all related loans, interest and other fees
are charged-off. The following table presents the delinquency trends of the
Company's credit card loan portfolio on a managed portfolio basis over the
previous six quarters:
MANAGED LOAN DELINQUENCY
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
--------------------------------------------------------------------------------------------------------
JUNE 30, % OF MAR. 31, % OF DEC. 31, % OF SEPT. 30, % OF JUNE 30, % OF
1996 TOTAL 1996 TOTAL 1995 TOTAL 1995 TOTAL 1995 TOTAL
---------- ----- -------- ----- -------- ----- --------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Managed loan
portfolio........... $1,068,018 100% $676,974 100% $543,619 100% $298,920 100% $190,069 100%
Loans delinquent:
30 to 59 days....... 14,882 1.39% 9,677 1.43% 7,546 1.39% 5,142 1.72% 320 0.17%
60 to 89 days....... 7,332 0.69% 5,879 0.87% 4,952 0.91% 3,039 1.02% 1 0.00%
90 or more.......... 13,750 1.29% 10,046 1.48% 8,996 1.65% 2,288 0.76% -- 0.00%
---------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total............. $ 35,964 3.37% $ 25,602 3.78% $ 21,494 3.95% $ 10,469 3.50% $ 321 0.17%
========== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
The above numbers reflect the lack of seasoning of the Company's managed
loan portfolio as the large growth in loans has primarily come from the newer
accounts with lower delinquency rates. As the portfolio seasons and industry
loss and delinquency rates continue to experience negative trends, the Company
expects general delinquency levels to increase from the levels at June 30, 1996.
The Company intends to continue to focus its resources on its collection efforts
to minimize the negative impact to net loan losses that result from increased
delinquency levels.
Net charge-offs
Net charge-offs include the principal amount of losses from cardholders
unwilling or unable to pay their loan balance, as well as bankrupt and deceased
cardholders, less current period recoveries. Net charge-offs exclude accrued
finance charges and fees which are charged against the related income at the
time of charge-off. Losses from those accounts that are identified as fraudulent
are also excluded from net charge-offs and are included separately in other
operating expenses. Loans are generally charged-off at the end of the month
during which the loan becomes contractually 180 days past due, with the
exception of bankrupt accounts, which are charged-off immediately upon formal
notification of bankruptcy, and deceased cardholders (without a surviving,
contractually liable individual or an estate large enough to pay the debt in
full) which are also
31
<PAGE> 33
charged-off immediately upon notification. The managed net charge-off rate stood
at an annualized rate of 5.36% for the quarter ended June 30, 1996, down from
5.78% for the quarter ended March 31, 1996, and up from the annualized rate of
3.14% for the quarter ended December 31, 1995. The Company believes this rate
will continue to fluctuate but generally rise over the next twelve to eighteen
months. Additionally, consistent with the credit card industry, the Company has
recently experienced a rise in bankruptcy filings. This industry trend, if it
continues at its present pace into the second half of 1996, could also lengthen
the peak loss period before net charge-offs tend to stabilize with the overall
maturation of the portfolio. The Company plans to continue to focus its
resources on refining its credit underwriting standards for new accounts in the
second half of 1996, and to increase its focus on collection and post charge-off
recovery efforts to minimize increased losses from these negative industry
trends. The following table presents the Company's net charge-offs for the
periods indicated as reported in the financial statements and on a managed
portfolio basis:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1996 1996 1995 1995 1995 1995
-------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ON-BALANCE SHEET PORTFOLIO:
Average loans outstanding....... $137,900 $ 112,456 $ 69,840 $ 45,151 $ 43,529 $ --
Net charge-offs................. 1,925 1,624 556 158 -- --
Net charge-offs as a percentage
of average loans
outstanding(1)............... 5.61% 5.81% 3.16% 1.39% -- --
======== ======== ======== ======== ======= ===
MANAGED LOAN PORTFOLIO:
Average loans outstanding....... $872,594 $ 609,759 $394,764 $ 248,608 $ 84,685 $ --
Net charge-offs................. 11,627 8,761 3,125 890 -- --
Net charge-offs as a percentage
of average loans
outstanding(1)............... 5.36% 5.78% 3.14% 1.42% -- --
======== ======== ======== ======== ======= ===
</TABLE>
- -------------------------
(1) Annualized
Provision and allowance for loan losses
The allowance for loan losses is maintained for on-balance sheet loans. For
securitized loans, anticipated losses and related recourse reserves are
reflected in the calculations of net securitization and credit card servicing
income. Provisions for loan losses are made in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 5 which requires provisions in
amounts necessary to maintain the allowance at a level estimated to be
sufficient to absorb probable future losses of principal and earned interest,
net of recoveries (including recovery of collateral, if applicable), inherent in
the existing on-balance sheet loan portfolio. In evaluating the adequacy of the
allowance for loan losses, the Company takes into consideration several factors,
including (i) historical charge-off and recovery activity by loan portfolio,
(ii) recent and expected delinquency and collection trends by loan portfolio,
(iii) current economic conditions and recent trends in such conditions and the
impact such conditions might have on borrowers' ability to repay, (iv) the risk
characteristics of the portfolios, and (v) other factors. The Company segments
its loan portfolio into several individual pools with similar credit risk and
time since solicitation and estimates the amounts of loans in each thirty-day
delinquency bucket that will not be collected and therefore "roll" into the next
thirty day bucket and ultimately to charge-off. These homogenous risk pools are
continually evaluated using a statistical model which utilizes historical
delinquency levels, loan seasoning and other measures of asset quality to
estimate charge-offs. However, as the Company has limited operating history,
historical loss information from third parties has been used to refine estimated
delinquency patterns by credit risk pool. This external data consists of the
results from a test conducted with a third party which targeted a customer base
very similar to the Company's target market and additional credit risk data
obtained from two other external portfolios.
Additionally, in evaluating the adequacy of the allowance for loan losses,
the Company also takes into consideration several subjective factors in
determining the ultimate loan loss reserve necessary at every reporting period,
including (i) national and economic trends and business conditions, including
the condition of various market segments, (ii) changes in lending policies and
procedures, including those for underwriting,
32
<PAGE> 34
collection, charge-off and recovery, and in the experience, ability, and depth
of lending management and staff, (iii) trends in volume and the product pricing
of accounts, including any concentrations of credit, and (iv) the effect of
external factors such as competition and legal and regulatory requirements on
the level of estimated credit losses in the current portfolio. These judgmental
factors are used to supplement the amount deemed necessary to cover probable
loan losses based on the statistical models to ensure that the allowance is
adequate in accordance with SFAS No. 5 at each reporting period.
The provision for loan losses on an owned basis for the six months ended
June 30, 1996 and 1995, and for the year ended December 31, 1995, totaled $5.2
million and $0.5 million, and $4.4 million, respectively. The amount and level
of the provision for loan losses on an owned basis may vary from period to
period, depending on the amount of credit card loans sold and securitized in a
particular period. However, the increase from June 30, 1995, to June 30, 1996,
is primarily reflective of the large increase in on-balance sheet loans
outstanding and the overall maturation of the portfolio during the six month
period ended June 30, 1996, versus the comparable period in 1995. The provision
for loan losses on a managed portfolio basis totaled $42.5 million for the six
months ended June 30, 1996, up from $2.8 million for the six months ended June
30, 1995.
At June 30, 1996, the Company's allowance for loan losses as a percentage
of loans on an owned basis stood at 4.02%, compared to 3.87% and 1.20% at
December 31, 1995, and June 30, 1995, respectively. The total managed credit
card loan loss allowance at June 30, 1996, which includes an allowance for
recourse obligations for loans sold, stood at 4.15% of total managed credit card
loans or $44.3 million, up from 4.09% of managed loans or $22.2 million at
December 31, 1995. The allowance for loan losses on a managed basis at June 30,
1996, as a percentage of total managed loans 30 days or more delinquent stood at
123.2%, up from 103.4% at December 31, 1995. The following table presents the
change in the Company's allowance for loan losses and other ratios on both an
owned and a managed portfolio basis for the periods presented:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1996 1996 1995 1995 1995 1995
-------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OWNED BASIS:
Balance at beginning of period........ $ 6,745 $ 3,679 $ 1,486 $ 534 $ -- $ --
Provision for loan losses............. 483 4,690 2,749 1,110 534 --
------- ------- ------- ------- ------ ---
Loans charged-off..................... 1,969 1,660 562 158 -- --
Recoveries............................ 44 36 6 -- -- --
------- ------- ------- ------- ------ ---
Net loan charge-offs.................. 1,925 1,624 556 158 -- --
------- ------- ------- ------- ------ ---
Balance at end of period.............. $ 5,303 $ 6,745 $ 3,679 $ 1,486 $ 534 $ --
======= ======= ======= ======= ====== ===
Ending allowance as a percent of loans
on an owned basis................... 4.02% 4.10% 3.87% 3.07% 1.20% --
======= ======= ======= ======= ====== ===
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1996 1996 1995 1995 1995 1995
-------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MANAGED BASIS:
Balance at beginning of period........ $ 28,426 $22,219 $ 10,149 $ 2,831 $ -- $ --
Provision for loan losses............. 27,506 14,968 15,195 8,208 2,831 --
------- ------- ------- ------- ------ ---
Loans charged-off..................... 11,870 8,944 3,157 890 -- --
Recoveries............................ 243 183 32 -- -- --
------- ------- ------- ------- ------ ---
Net loan charge-offs.................. 11,627 8,761 3,125 890 -- --
------- ------- ------- ------- ------ ---
Balance at end of period.............. $ 44,305 $28,426 $ 22,219 $ 10,149 $2,831 $ --
======= ======= ======= ======= ====== ===
Ending managed allowance as a percent
of managed loans.................... 4.15% 4.20% 4.09% 3.40% 1.49% --
======= ======= ======= ======= ====== ===
</TABLE>
33
<PAGE> 35
Management believes that the allowance for loan losses on both an owned and
a managed basis is adequate to cover anticipated losses in the loan portfolio
under current conditions and expected trends. However, there can be no assurance
as to the future credit losses that may be incurred in connection with the
Company's loan portfolio, nor can there be any assurance that the loan loss
allowance that has been established by the Company will be sufficient to absorb
such future loan losses. Management will continue to monitor the allowance for
loan losses and make additional provisions to the allowance as it deems
appropriate and necessary given the circumstances.
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the volatility in income resulting from
fluctuations in interest rates, variability in spread relationships between
asset and liability indices (basis risk) and the mismatch of repricing intervals
between assets and liabilities (gap risk).
The Company attempts to minimize the impact of market interest rate
fluctuations on net interest income and net income by regularly evaluating the
risk inherent in its asset and liability structure, including its off-balance
sheet assets and liabilities such as securitized loans and derivative financial
instruments. This risk arises from continuous changes in the Company's asset and
liability mix, changes in market interest rates, including changes affected by
fluctuations in the yield curve, payment trends on the Company's interest-
bearing assets and payment requirements on the Company's interest-bearing
liabilities, and the general timing of all other cash flows.
In managing its interest rate sensitivity position, the Company has the
flexibility to respond to current market conditions by lengthening or shortening
its period of perceived interest rate sensitivity. This is accomplished through
adjusting the pricing of its current loans or its future loan offerings,
changing its positions in its other interest-bearing assets, changing its
funding mix for such interest bearing assets, or using derivative financial
instruments, although there can be no assurance that the Company will be able to
effectively manage its interest rate sensitivity position in all future
circumstances. Derivative financial instruments are only used for the express
purpose of managing exposures to changes in interest rates. Derivative financial
instruments, by policy, are not used for any speculative purposes (see further
discussion under "Derivatives Activities").
The Company has utilized variable rates in pricing its securitization
transactions or has used interest rate swaps to synthetically alter fixed rate
securitization transactions to variable rates in an attempt to match the
variable rate pricing of the underlying loans sold to the trust. In addition,
the Company follows an asset/liability management policy of match-funding its
variable rate assets with variable rate liabilities. At June 30, 1996, all $1.1
billion of the Company's credit card loans and other interest-bearing assets had
variable rate pricing, with loans carrying annual percentage rates at a spread
over the prime rate, subject to certain interest rate floors. These interest
rate floors have the impact of converting credit card loans to fixed rate loans
in a low interest rate environment, however, at June 30, 1996, none of the
currently outstanding loans on a managed basis were at their interest rate
floors. At June 30, 1996, the Company had $991 million in variable rate,
interest-bearing liabilities, both on-balance sheet and through securitizations.
Since both managed interest-bearing assets and liabilities reprice every 30
days, the Company believes that the impact of a change in interest rates on the
gap risk of the Company would not be material to the financial performance of
the Company.
The Company incurs basis risk when it funds managed assets at a spread over
LIBOR and the rates on the underlying assets are indexed to the prime rate. This
basis risk results from the potential variability in the spread between the
prime rate and LIBOR over time. The Company has not currently hedged or altered
this basis risk due to the cost of hedging such risk versus the benefits from
elimination of this risk.
DERIVATIVES ACTIVITIES
The Company utilizes derivative financial instruments for the purpose of
managing its exposure to interest rate risks. The Company has a number of
mechanisms in place to monitor and control both market and credit risk from
these derivatives activities. All derivatives strategies and transactions are
managed under a
34
<PAGE> 36
hedging policy approved by the Board of Directors of FCI that details the use of
such derivatives and the individuals authorized to execute such transactions. In
addition, all derivatives strategies must currently be approved by FCI's senior
management.
Under these policies, the Company has entered into interest rate cap and
swap agreements to hedge its economic exposure to fluctuating interest rates
associated with the floating and fixed rate certificates issued by the Master
Trust. In connection with the issuance of the $512.6 million Master Trust Series
1995-1 variable rate certificates in May 1995, the Company entered into an
eight-year agreement capping the certificates' interest rate at 11.2%.
Additionally, the Company entered into two interest rate swap agreements in
April 1996 to synthetically alter the fixed rate of the Master Trust Series
1996-1 certificates to a floating rate. Total notional amounts of these swap
transactions amounted to $605.5 million. The obligations of the Company and the
counterparties under these swap agreements are settled on a monthly basis.
LIQUIDITY, FUNDING AND CAPITAL RESOURCES
The Company's goal is to maintain an adequate level of liquidity, both
short-term and long-term, through active management of assets and liabilities.
Because the characteristics of the Company's assets and liabilities change,
liquidity management is a dynamic process affected by the pricing and maturity
of the Company's assets and liabilities. This process is also affected by
changes in the relationship between short-term and long-term interest rates.
Therefore, to facilitate liquidity management, the Company utilizes a variety of
funding sources to establish a maturity pattern that provides a mix of
short-term and long-term funds. These funding sources are available, or are
committed to the Company through programs established either by FCI or by the
Company.
A significant source of liquidity for the Company has been the
securitization of credit card loans. During the year ended December 31, 1995,
and for the first six months of 1996, the Company received net proceeds of over
$900 million from sales of credit card loans. Cash generated from these
transactions was used to reduce short-term borrowings and to fund further credit
card loan growth.
The maturity terms of these securitizations vary, with the earliest
amortization (repayment) period beginning in August of 1998. Once these
repayment terms begin, payments from customers on credit card loans are
accumulated for the trust certificate holders and are no longer reinvested in
new loans. At that time, the Company's funding requirements for such new loans
will increase accordingly. The occurrence of certain events, including a decline
in the securitized loan portfolio's annual yield (the sum of interest, annual
membership and other credit card fees, less net credit losses) below a base rate
(generally equal to the sum of the weighted average certificate and credit
enhancement rates and loan servicing fees), may also cause the securitization
transactions to amortize earlier than scheduled. These events would accelerate
the need to utilize alternative funding sources. The Company believes that
securitization will continue to be a reliable source of funding, however no
assurance can be given to that effect. See the statements of cash flows for more
information regarding liquidity, funding and capital resources.
The Company operated as a division of FCI for the periods presented and
therefore, with the exception of the asset securitization transactions, has had
no direct funding from outside sources to date. Instead, the Company has either
directly loaned money to or borrowed money from FCI in an effort to effectively
manage such liquidity position. Since 1995, the Company has regularly borrowed
funds from FCI to fund on-balance sheet loan growth, to purchase premises and
equipment, and for other general business purposes. Such borrowings have been
made from FCI's cash balances and borrowings under FCI's revolving credit
facility. At June 30, 1996, and at December 31, 1995, the Company had borrowed
$54.3 million and $63.5 million, respectively, from FCI. In September 1996, the
Company repaid its short-term borrowings from FCI with borrowings under its new
bank revolving credit facility.
The interest rate on borrowings from FCI is based on FCI's borrowing rate,
which may be at prime or at a spread over LIBOR depending on the timing and
maturity of the funds borrowed. At June 30, 1996, and December 31, 1995, the
interest rate on the Company's borrowings was 6.0% and 7.1%, respectively.
35
<PAGE> 37
The Company's liquidity needs and funding sources may change over time. On
September 16, 1996, Metris executed agreements for the following credit
facilities: (i) a $300 million, five year revolving credit facility for the
Company (the "Revolving Credit Facility") guaranteed by FCI; (ii) a $400 million
increase of the current $800 million commercial paper liquidity facility which
matures in May 1999 and supports the Fingerhut Owner Trust Commercial Paper
program in which the Company participates and (iii) approximately $112 million
of additional asset-backed certificates to support the aforementioned increase
in the Fingerhut Owner Trust asset-backed commercial paper program.
The Revolving Credit Facility is guaranteed by FCI and is further supported
by the pledge of the stock of certain subsidiaries of the Company and certain
accounts receivable and interests held therein by the Company. The Revolving
Credit Facility also has Alternate Base Rate ("ABR") and LIBOR borrowing
options. The interest rates paid on the Company's borrowings under this facility
in the future may differ from the comparable interest rates paid on the
historical borrowings from FCI. The Revolving Credit Facility also contains
certain financial covenants standard for revolving credit facilities of this
type including minimum net worth, minimum equity to managed assets ratio,
maximum leverage and a limitation on indebtedness. In addition, the FCI
guarantee includes certain covenants including interest coverage, leverage and
minimum net worth for FCI.
The Federal Reserve Act imposes various legal limitations on the extent to
which banks that are members of the Federal Reserve System can finance or
otherwise supply funds to certain of their affiliates. In particular, Direct
Merchants Bank is subject to certain restrictions on any extensions of credit to
the Company or its subsidiaries. Additionally, Direct Merchants Bank is limited
in its ability to declare dividends to the Company. Therefore, Direct Merchants
Bank's investments in federal funds sold are generally not available for the
general liquidity needs of the Company and its other subsidiaries. Such
restrictions were not material to the operations of the Company at June 30,
1996, and December 31, 1995.
As managed loans amortize or are otherwise paid, the Company's funding
needs will increase accordingly. The Company believes that its asset
securitization transactions, together with the Revolving Credit Facility, will
provide adequate liquidity to the Company for meeting its on-going cash needs,
although no assurance can be given to that effect.
Capital Expenditures
The Company has invested $1.2 million in capital expenditures for each of
the six months ended June 30, 1996, and the year ended December 31, 1995,
primarily for furniture and fixtures, office and voice communication equipment,
and computer hardware at the Company's new operations facility in Tulsa,
Oklahoma, and for the Company's corporate headquarters in St. Louis Park,
Minnesota. In addition, for the six months ended June 30, 1996, and the year
ended December 31, 1995, the Company has invested $0.5 million and $0.1 million,
respectively, in software development costs for the Company's extended service
plans business. Capital expenditures for the year ended December 31, 1994, were
$0.3 million and were primarily for furniture and fixtures and computer hardware
and software.
For the remainder of 1996, the Company anticipates capital expenditures to
equal or exceed those expended in the first half of 1996, as the Company
continues to expand its facilities and operations.
Capital Adequacy
The Company has increased its capital position through retained earnings
and $60.0 million in capital contributions from FCI in 1995.
Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the OCC and the Federal Reserve Board, and monitored by the FDIC and
the OCC. At June 30, 1996, and December 31, 1995, Direct Merchants Bank exceeded
the minimum required capital levels and was considered a "well-capitalized"
depository institution under regulations of the OCC.
36
<PAGE> 38
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 123,
"Accounting for Stock-Based Compensation". This statement is effective for
fiscal years beginning after December 15, 1995, and requires that an employer's
financial statements include certain disclosures about stock-based employee
compensation arrangements. SFAS No. 123 also provides for an optional method for
calculating stock-based employee compensation cost based on the fair market
value of the stock award at the date of grant. The Company currently follows the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", in accounting for stock-based employee compensation
arrangements. Under the guidelines of Opinion 25, compensation cost for
stock-based employee compensation plans is recognized based on the difference,
if any, between the quoted market price of the stock on the date of grant and
the amount an employee must pay to acquire the stock. The Company currently
plans to implement the disclosure requirements of SFAS No. 123 in 1996, when
applicable, and retain its current accounting method for stock-based employee
compensation.
In June 1996, the FASB also issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities". This
statement is effective for all such transactions occurring after December 31,
1996, and supersedes and amends several FASB Statements, including SFAS No. 77,
"Reporting by Transferors for Transfers of Receivables with Recourse". The
statement provides consistent standards for distinguishing transfers of
financial assets that are sales (such as financial assets sold through a
securitization ) from transfers that are secured borrowings with a pledge of
collateral. The statement also provides accounting and reporting standards for
these types of transactions based on a consistent application of a
financial-components approach that focuses on control. Under the financial
components approach, upon transfer of financial assets that are to be recorded
as a sale, an entity must recognize all financial and servicing assets that it
still controls and liabilities that it has incurred, and derecognize financial
assets (or a portion thereof) it no longer controls, and liabilities that have
been extinguished. Additionally, the statement requires that the previous
carrying amount of financial assets transferred (sold) be allocated between
retained and derecognized (sold) assets based on their relative fair values at
the date of transfer, and a gain or loss be recognized for the difference
between the proceeds of the sale (defined as the fair value of all assets
obtained and liabilities incurred in consideration for the sale), and the
allocated cost of the assets sold. Subsequent to the sale, the carrying value of
retained assets subject to a risk that could prevent recovery of substantially
all of the recorded amount is to be adjusted to fair value in a manner
consistent with the classification of investments in debt securities under SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
The Company has reviewed this statement and believes that it will affect
the classification and valuation of certain financial assets and liabilities on
its balance sheets relating to its current credit card securitization program,
including excess servicing assets, retained interests in loans securitized,
derivative financial instruments related to such financial assets and
liabilities, and other receivables due from credit card securitizations, net.
However, the Company has not completed all of the complex analyses and reviews
necessary to determine the definitive impact to its current accounting methods
for transfers and servicing of financial assets and extinguishments of
liabilities. The Company intends to adopt this statement prospectively when
required as no early or retroactive application is permitted.
37
<PAGE> 39
BUSINESS
Metris Companies Inc. is an information-based direct marketer of consumer
credit products, extended service plans, and fee-based products and services to
moderate income consumers. Management believes the moderate income market (i.e.,
households with annual incomes of $15,000 to $35,000), which currently
represents 31% of all U.S. households, is underserved by the traditional
providers of many of the Company's products and services. The Company's strategy
is to first establish a profitable customer relationship through the issuance of
a general purpose credit card, and then to expand this customer relationship by
cross-selling additional fee-based products and services. The Company provides
credit to this market by utilizing a risk-based pricing strategy based on
proprietary databases and credit scoring systems. The Company's agreements with
FCI provide for the exclusive use of the Fingerhut Database to market the
Company's products and services. The Fingerhut Database contains demographic,
behavioral and credit history information on more than 30 million individuals,
the majority of whom are moderate income consumers. To date, the Company has
solicited approximately 4 million individuals out of the more than 30 million
total individuals in the Fingerhut Database, including approximately 3.5 million
individuals who have purchased products from Fingerhut in the past 24 months,
with the remaining 0.5 million having purchased products from Fingerhut as long
ago as 60 months. These 4 million individuals were selected based on expected
responsiveness and perceived credit quality. Fingerhut does not report its
credit information to the credit bureaus, which means this information is not
publicly available. The Company's management believes this access to the
Fingerhut Database and the ability to utilize Fingerhut's proprietary credit
scoring models give it a competitive advantage in targeting and lending to
moderate income consumers.
The Company's consumer credit products currently are unsecured and secured
credit cards, including the Fingerhut co-branded MasterCard and the Direct
Merchants Bank MasterCard. The Company's customers and prospects include both
Fingerhut Customers and External Prospects for whom credit bureau information is
available. Once a prospective customer is targeted, the Company utilizes its
proprietary credit scoring models and a risk-based pricing strategy to assign
the annual percentage rate, annual fee and credit line based upon the expected
risk of the individual prospect. As a result of the risk profile that is typical
of the Company's customers, approximately 82% of the existing credit card
accounts carry an annual fee, annual percentage rates range from prime plus
6.45% to prime plus 14.20%, and the average initial credit line is approximately
$1,700. Management believes this average initial credit line is below the
industry average.
The Company also provides extended service plans on certain categories of
products sold by Fingerhut that extend service coverage beyond the
manufacturer's warranty. Although these plans historically have been available
only on consumer electronics, the Company has recently begun to offer these
plans for jewelry and furniture, and may offer plans on additional types of
products in the future. Through focused marketing, the Company increased the
percentage of Warrantable Products sold that are covered by its plans from 15%
in 1994 to 24% in the first six months of 1996. Management believes that
opportunities for growth in extended service plans exist through further
increasing the percentage of Fingerhut warrantable products sold with an
extended service plan, identifying new warrantable product categories for
Fingerhut products, and marketing extended service plans in conjunction with
retailers other than Fingerhut.
Metris markets its fee-based products and services, including third party
insurance, membership clubs, card registration and debt waiver programs, to its
credit card customers and to Fingerhut's customers. As a result of the Company's
direct marketing and cross-selling efforts, approximately 53% of the Company's
credit card customers have purchased one or more fee-based products. As an
additional service, the Company develops highly tailored marketing lists,
derived from its proprietary database, for third parties.
Management believes there is a distinct market that is underserved by the
general purpose credit card industry and by other providers of financial service
products. Traditional credit card solicitations, which rely on risk evaluation
scoring techniques utilizing publicly available data, focus on higher scoring
consumers. A significant portion of the households in the U.S. are typically
solicited on a less frequent basis for general purpose credit cards, most likely
because traditional scoring methods assign lower scores to individuals who have
less credit history. This has resulted in an underserved market of over 30
million households with annual incomes of $15,000 to $35,000, who are solicited
by traditional credit card issuers or other providers of
38
<PAGE> 40
financial service products on a significantly less frequent basis than more
affluent households. Therefore, moderate income consumers are often highly
responsive to credit card solicitations.
CREDIT CARD INDUSTRY OVERVIEW
Types of Credit Cards
Unsecured Credit Cards. Unsecured credit cards can be broadly divided into
two categories: private label credit cards and general purpose credit cards.
Private label cards are issued by or on behalf of, and are typically accepted
by, a particular merchant, such as gasoline or department store credit cards.
General purpose cards are accepted by a wide variety of merchants. Cardholders
may use their cards to make purchases at participating merchants or to obtain
cash advances at participating financial institutions and automated teller
machines. Most credit cards are revolving credit cards (for example, MasterCard,
Visa, Discover, and Optima), where the cardholder has the option to pay less
than the full balance due, in which case the cardholder borrows the unpaid
balance from the card issuer who then charges interest on the loan.
Secured Credit Cards. A rapidly emerging type of credit card is the
"secured card", which requires the customer to deposit funds into an
interest-bearing account as collateral for all or part of the line of credit.
Secured cards are primarily targeted to U.S. households with limited or damaged
credit histories. MasterCard sources estimate that the potential secured card
market includes approximately 17 million U.S. consumers and that the number of
secured card accounts has grown from approximately 0.7 million in 1992 to
between 2.5 million and 3.5 million in 1995.
Industry Growth
In recent years, a growing proportion of consumer expenditures have been
made through credit cards, a trend which is projected by the Nilson Report, an
industry periodical, to continue over the next decade. This increase is due to a
rising number of consumers who use credit cards, an upsurge in the number and
types of merchants who accept credit cards, and a basic shift in consumer
behavior favoring the use of credit cards for convenience. Additionally, because
the industry as a whole has introduced a large number of credit cards that
encourage the cardholder to earn points, rewards, or discounts by using a
particular card for purchases, many consumers have begun to substitute the use
of credit cards for cash and checks. Of the various payment mechanisms in the
U.S., including cash, checks, credit cards and electronic payments, credit cards
have grown the fastest since 1990, at a rate three times as fast as cash and
checks.
Credit Scoring
The credit card industry has developed sophisticated techniques for
"prescreening" potential applicants for creditworthiness, then soliciting via
direct mail or outbound telemarketing only those individuals whose profiles meet
certain criteria. The primary sources of the information used in the
prescreening process are the three major credit bureau companies. A credit
bureau maintains information on an individual's credit history, with up to 400
potential data elements for each individual, including number of reported open
accounts, number of bank cards, number of credit inquiries received by the
credit bureau, historical delinquency, events of bankruptcy, credit scores, and
limited demographic data. Many, but not all, credit grantors regularly report
information about their customers to the credit bureau companies, and as result
a credit bureau report does not necessarily include an individual's complete
borrowing history.
Credit card issuers use the information contained in the credit bureaus, in
combination with proprietary information, in a variety of modeling and scoring
techniques which allow them to score and then rank the names in their mailing
lists based upon the individuals' expected creditworthiness, responsiveness, and
profitability. Many issuers purchase "scorecards" from third parties who
specialize in predicting consumer risk. The predominant third party provider of
risk scorecards is Fair Isaac & Company, which uses information contained within
the major credit bureaus to assign scores to consumers, commonly referred to as
"FICO scores". Although Fair Isaac & Company does not disclose the variables it
uses to determine FICO scores, the Company believes that FICO scores are based
on a number of factors including, but not limited to, the individual's current
level of debt, number of credit experiences, delinquency experience, level of
utilization of
39
<PAGE> 41
available credit and the frequency of the individual's credit requests. Higher
FICO scores are intended to indicate greater creditworthiness, and most credit
card issuers concentrate their marketing efforts on the households which have
higher FICO scores.
Solicitation
Although solicitations of moderate income consumers have been increasing
recently, in general higher income consumers receive more credit card
solicitations than do moderate income consumers. A survey by Payment Systems
Inc. ("PSI"), an independent research firm, indicates that 34-41% of moderate
income consumers received zero to three solicitations for bankcards in a given
six-month period.
MASTERCARD/VISA MAIL SOLICITATIONS RECEIVED BY HOUSEHOLD INCOME(1)
<TABLE>
<CAPTION>
ANNUAL HOUSEHOLD INCOME
------------------------------------------------------------------
$0- $15,000- $25,000- $35,000- $50,000-
14,000 24,000 34,000 49,000 74,000 $75,000+ TOTAL
------ -------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
0-3 Solicitations.................... 63% 41% 34% 26% 18% 15% 31%
4-6 Solicitations.................... 20% 28% 26% 25% 32% 26% 27%
7 or more Solicitations.............. 17% 30% 41% 48% 51% 59% 42%
</TABLE>
- -------------------------
(1) MasterCard and Visa solicitations received during the six-month period prior
to survey.
Source:PSI's 1995 Card Services & Strategies Research Program. Survey of 2,692
consumers conducted July-August 1995. Column percentages do not add up to
100% due to rounding. Excludes consumers who did not respond to question.
Few credit card issuers target moderate income consumer segments due to the
lack of credit history and/or lower FICO scores associated with this segment.
The credit card lenders that target such segments tend to be retailers that
offer their own private label credit cards or finance companies that offer
check-accessed revolving lines of credit. The following table shows that the
households less likely to be solicited also are likely to own fewer general
purpose credit cards:
CREDIT CARD PENETRATION BY INCOME SEGMENT
<TABLE>
<CAPTION>
ANNUAL HOUSEHOLD INCOME
-------------------------------------------------------------------
$0- $15,000- $25,000- $35,000- $50,000-
14,000 24,000 34,000 49,000 99,000 $100,000+ TOTAL
------ -------- -------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of Households (000s)...... 23,901 16,488 14,846 16,539 21,832 4,782 98,388
Percent of Total Households...... 24.3% 16.8% 15.1% 16.8% 22.2% 4.9% 100.0%
Percent of Households with at
least one Credit Card*......... 35.6% 55.9% 67.5% 77.2% 85.1% 86.4% 64.3%
Estimated Number of Credit Cards
Per Household*................. 1.25 2.50 3.41 4.12 5.46 6.81 3.72
</TABLE>
- -------------------------
* Includes MasterCard, Visa, Diners Club, American Express, and Discover cards.
Source: 1996 Survey of the American Household, Simmons Market Research Bureau,
Inc.
40
<PAGE> 42
Because moderate income consumers are less likely to be solicited for
general purpose credit cards, their response rates to such offers tend to be
greater than those of higher income consumers. As a result, the response rates
of moderate income consumers to general purpose credit card solicitations is
approximately double that of consumers with higher household incomes.
INDUSTRY-WIDE RESPONSE RATES BY HOUSEHOLD INCOME
<TABLE>
<CAPTION>
Household Income Response Rate (%)
<S> <C>
Under $20,000 2%
$20,000-34,999 1.9%
$35,000-49,999 1.4%
$50,000-74,999 1.1%
$75,000+ 1%
</TABLE>
- ---------------
Source: Mail Monitor, Behavioral Analysis, Inc., 12 Months Ending First Quarter
1996. Includes MasterCard, Visa, Discover and American Express.
HISTORY OF THE COMPANY
Fingerhut Corporation
Metris is an indirect wholly owned subsidiary of FCI, a
direct-to-the-consumer marketing company that sells a broad range of products
and services via catalogs, telemarketing, television and other media. Fingerhut,
having been in the direct marketing business for over 45 years, is one of the
largest catalog marketers in the United States and sells a broad range of
general merchandise products and services to moderate income consumers, using
catalogs and other direct marketing solicitations.
Fingerhut makes substantially all of its sales using its own closed-end
credit, offering extended payment terms on all purchases under fixed-term, fixed
payment installment contracts. As customers make payments and order new
products, Fingerhut enters a variety of payment, behavioral and other data into
its database. Fingerhut uses this database, along with sophisticated and highly
automated proprietary modeling techniques, to evaluate each customer's
creditworthiness. Fingerhut then tailors marketing campaigns and merchandising
strategies to customers based on such evaluation.
The Fingerhut Database
Fingerhut is a leader in the development and use of information-based
marketing concepts in the direct mail industry, using computer technology,
proprietary software and the Fingerhut Database. The Fingerhut Database contains
information on more than 30 million individuals, including approximately 10
million customers who have made a purchase from Fingerhut within the past 24
months. This database contains up to 1,400 potential data items in a customer
record, including names, addresses, behavioral characteristics, payment
histories, general demographic information and other information provided by the
customer. Fingerhut uses information in the Fingerhut Database, along with
sophisticated proprietary credit scoring models, to produce its proprietary
credit scores (the "Fingerhut Scores") for each Fingerhut customer. The
Fingerhut Database and Fingerhut's use of computer-based credit screening
techniques have been continually refined and updated over the
41
<PAGE> 43
past 20 years. Additionally, the Fingerhut Database includes Fingerhut's
"suppress" file (the "Suppress File"), which contains information on 8 million
individuals about whom it has information relating to fraud, bad debt and other
indicators of unacceptably high risk. Fingerhut does not report its credit
information to the credit bureaus, which means this information is not publicly
available. The Company has an exclusive seven year license with Fingerhut to use
the information in the Fingerhut Database for marketing financial service
products. The Company's management believes that this access to the Fingerhut
Database and the ability to utilize the Fingerhut Scores give it a competitive
advantage in lending to moderate income consumers.
Financial Services Business
FCI's management believed that Fingerhut's expertise in granting credit to
the moderate income market had application and value beyond extending credit for
Fingerhut merchandise purchases. Moreover, FCI believed that its customers
wanted additional sources of credit and that issuing general purpose credit
cards to its customers would be a natural extension of Fingerhut's business. As
a result, in 1993, through a joint venture with a third party, Fingerhut began
testing a co-branded MasterCard issued by an affiliate of the third party. A
random selection of Fingerhut Customers was solicited and the results were
evaluated using Fingerhut's risk scoring models and behavioral data. The
profitability performances of the resulting accounts were correlated to
Fingerhut's risk scoring models and behavioral data. FCI's management believed
the test results showed that during the period of the test Fingerhut had more
accurately evaluated relative levels of credit risk of a given pool of Fingerhut
Customers than the scoring models widely used in the credit card industry.
After the success of its initial test, Fingerhut began to aggressively
expand its Financial Services Business. As part of this strategy, Fingerhut
hired a management team, led by Ronald Zebeck, whose more than 20 years of
experience in the credit card industry includes responsibility for the launch
and management of the highly successful GM MasterCard. This management team,
which assumed management in 1994 of the new credit card business and of the
previously existing extended service plan and fee based product businesses, has
since been implementing its strategy to expand its credit card customer base to
both Fingerhut Customers and External Prospects and to grow its extended service
plan and fee-based products and services businesses.
In early 1995, FCI formed Direct Merchants Bank, a special purpose credit
card bank. In March 1995, after evaluating the results of the co-branding test,
the Company began to directly solicit Fingerhut Customers and External Prospects
for MasterCards. These campaigns originated 335,000 new accounts and introduced
the Company's risk-based pricing strategy under which individual prospects are
matched with specific pricing based upon their risk profiles as determined by
the Company's credit models. In the Fall 1995 campaign, the Company used
predictive response models that incorporated the response data from the Spring
1995 campaign. In September 1995, the Company also purchased the test credit
card portfolio from the third party issuer. In January 1996 and March 1996, the
Company launched additional solicitations from which it generated approximately
92,000 and 430,000 accounts, respectively, as of June 30, 1996. At December 31,
1995, the Company had over 700,000 accounts with $543.6 million in managed loans
and was the 23rd largest MasterCard issuer based on the number of cards issued,
according to the Nilson Report. As of June 30, 1996, the Company had 1.1 million
credit card accounts and $1.1 billion in managed loans; Fingerhut Customers
represented 52% of the accounts and 57% of the managed loans.
The Company's new management has also focused on marketing extended service
plans and fee-based products and cross selling these to its customer base and
Fingerhut Customers, which has led to an increase in the number of plans and
products sold and the penetration rates of such products.
STRATEGY
The Company is targeting moderate income consumers whom the Company
believes are underserved by traditional providers of many of the Company's
products and services. "Moderate income" refers to those households in the
United States that have annual incomes of between $15,000 and $35,000
(approximately 31 million households according to a 1994 U.S. Census Bureau
report). The Company intends to serve this target market using its proprietary
scoring techniques together with information from credit bureaus and the
Fingerhut Database to determine a potential customer's creditworthiness. The
Company uses sophisticated modeling techniques to evaluate the expected risk,
responsiveness, and profitability of each prospective customer and to offer and
price the products and services it believes to be appropriate for each customer.
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<PAGE> 44
The Company's strategy is to continue its growth by targeting new customers
through the issuance of credit cards and expanding its customer relationships
through the sale of additional products and services. The Company believes it
has the following competitive advantages in serving this segment: (i) its
exclusive access to the Fingerhut Database, (ii) its unique, proprietary scoring
models that utilize both external information sources and data contained within
the Fingerhut Database for marketing the Company's products and services, and
(iii) Fingerhut's extensive experience in extending credit to moderate income
consumers. The Company intends to build upon these competitive advantages to
maximize its penetration into the moderate income segment and to maximize the
profitability of each of its customer relationships.
The principal components of the Company's strategy are the following:
Increase the number of Fingerhut Customers utilizing the Company's products
and services. The Company's strategy is to continue to use its unique predictive
risk, response, and profitability models to solicit Fingerhut Customers for
credit cards, and to focus its cross-selling activities in order to increase the
volume of fee-based services and extended service plans purchased by these
customers. The Fingerhut Database contains information about an individual's
propensity to pay, purchasing behavior, and other data elements that management
believes enables the Company to better evaluate each Fingerhut Customer's credit
profile. The Company believes that many Fingerhut Customers have minimal
external credit experiences and, consequently, minimal available credit bureau
information. Therefore, they are often undersolicited for credit, especially
credit cards, by other financial institutions.
Identify and solicit additional External Prospects for credit cards. The
Company intends to continue adding moderate income consumers who are currently
not Fingerhut Customers through the use of its own internally developed risk
models. The Company, through a joint endeavor with Equifax, Inc. ("Equifax"),
has developed its own proprietary credit risk modeling system (the "Proprietary
Modeling System") which management believes is more effective in segmenting and
evaluating the credit risk of External Prospects than the use of FICO scores
alone. By incorporating individual credit information from the major credit
bureaus into this Proprietary Modeling System and eliminating those individuals
who are contained in the Suppress File, the Company believes that it will
continue to generate a significant number of customer relationships from
External Prospects.
Cross-sell multiple products and services to each customer. The Company
intends to maximize the profitability of each customer relationship by
cross-selling additional products, thereby leveraging its account acquisition
costs and infrastructure. In addition to direct marketing solicitations, the
Company uses monthly statements and its customer service voice-response unit to
cross-sell additional products to its customers. Currently the Company focuses
its cross-selling efforts on selling fee-based products to its credit card
customers, and as of June 30, 1996, approximately 53% of the Company's credit
card customers had at least one other relationship with the Company. Management
also believes that opportunities for growth in extended service plans exist
through increases in the percentage of Warrantable Products covered by these
plans, identification of new Warrantable Product categories, and through
marketing extended service plans in partnership with other third party
retailers.
Utilize risk-based pricing. The specific pricing for each individual's
credit card offer is determined by the prospective customer's risk profile and
expected responsiveness prior to solicitation, a practice known as "risk-based
pricing". Management believes that the use of risk-based pricing allows it to
maximize the profitability of each customer relationship. Over time, as
customers demonstrate their creditworthiness, their annual fees and interest
rates may be lowered or their credit lines may be increased on an individual
basis. The Company currently offers 39 different pricing structures on its
credit card products, with annual fees ranging from $0 to $48 ($60 for some
secured cards) and annual percentage rates ranging from prime plus 6.45% to
prime plus 14.20%.
Expand the range of products and services offered. The Company's expertise
in evaluating the responsiveness and creditworthiness of moderate income
consumers potentially makes it an attractive marketing partner to providers of
other financial services such as home equity loans, auto loans, student loans,
and supplemental insurance. After viable products and services are identified
and tested through marketing partners, the Company may invest in such
opportunities directly.
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<PAGE> 45
Access additional customers for the Company's products and services by
establishing relationships with third parties. The Company intends to access new
customers by forming relationships with third parties to market its products and
services (i.e., co-branded credit cards, extended service plans and fee-based
products). The Company believes that it will be an attractive partner to those
companies whose customers fit the Company's target market profile (for example,
retailers whose customers are primarily moderate income consumers).
Pursue portfolio acquisitions. The Company intends to opportunistically
acquire additional customer relationships and supplement its growth in the
financial services business by making selective acquisitions of credit card
portfolios and/or other businesses whose customers fit its target market
profile.
BUSINESSES
The Company currently operates three businesses: (i) consumer credit
products, (ii) extended service plans, and (iii) fee-based products and
services.
Consumer Credit Products
Products. Consumer credit products currently are unsecured and secured
credit cards, including the Fingerhut cobranded MasterCard and the Direct
Merchants Bank MasterCard. The Company began testing credit cards secured by
deposit accounts in April 1996. Management believes that secured credit cards
are a natural product extension for the Company, given the Company's focus on
the moderate income consumer market and the Company's co-branding opportunities
outside of Fingerhut. Existing secured card customers can qualify for an
unsecured credit card after they have demonstrated their creditworthiness for a
reasonable period of time. In the future the Company may offer other co-branded
credit cards, and may also offer other consumer credit products either directly
or through alliances with other companies. Such consumer credit products could
include home equity loans, auto loans, student loans, and other credit products
that can be marketed directly to moderate income consumers.
Credit Scoring. For over 25 years, Fingerhut has used credit risk models to
evaluate the likelihood that its catalog customers will repay their fixed term,
fixed payment installment contracts. For each customer in the Fingerhut
Database, a Fingerhut Score has been developed utilizing sophisticated
statistical modeling techniques. For those Fingerhut Customers who have FICO
scores, the Company uses the Fingerhut Score to further segment Fingerhut
Customers into narrower ranges within each FICO score subsegment, allowing the
Company to better evaluate individual credit risk and to tailor its risk-based
pricing accordingly. Additionally, the Fingerhut Score is used to target
individuals who have no credit bureau information and consequently no FICO
scores, allowing the Company to target Fingerhut Customers who would not
typically be solicited by other credit card issuers. The Company believes that
its ability to use a combination of Fingerhut Scores and FICO scores allows it
to more effectively evaluate credit risk than it could using either score alone,
providing a competitive advantage in lending to Fingerhut Customers.
In 1995, the Company and Equifax applied the credit risk evaluation
techniques and knowledge developed in creating the Fingerhut Score models to
publicly available credit bureau information in order to develop the Proprietary
Modeling System for External Prospects. The Proprietary Modeling System, which
is owned and available for use exclusively by the Company, consists of
sophisticated models which produce a credit risk score (a "Proprietary Score")
for each prospect. This Proprietary Score allows the Company to select those
External Prospects the Company believes are likely to be most profitable. The
Proprietary Score, like the Fingerhut Score, segments External Prospects into
narrower ranges within each FICO score subsegment, allowing the Company to
better evaluate individual credit risk and to tailor its risk-based pricing
accordingly. The Company also uses this segmentation to exclude certain
individuals from its marketing solicitations. The Proprietary Modeling System
has enabled the Company to be more selective in screening and targeting its
External Prospects than would be possible if only FICO scores were used.
The Company generates External Prospects from lists directly obtained from
the major credit bureaus based on criteria established by the Company. The
Company establishes the range of FICO scores that it plans to target for a
specific campaign, and receives files from the credit bureaus which contain
individual credit records of the External Prospects who fall within this range.
The files are incorporated into the Proprietary Modeling System, which further
segments External Prospects based upon their Proprietary
44
<PAGE> 46
Scores. The mailing lists that are generated from the Proprietary Modeling
System are then checked against the Suppress File and any matching names are
excluded. The Company currently does not solicit External Prospects who do not
have FICO scores.
Credit Scoring Evaluation -- Fingerhut Customers. In the Company's test
results to date, the Fingerhut Score has been effective in evaluating the
likelihood of delinquency of Fingerhut Customers who have responded to the
Company's MasterCard solicitations. The following chart illustrates an analysis
performed in June 1996 by the Company on Fingerhut Customers who responded to
the Company's Spring 1995 MasterCard solicitations. The chart shows the
comparative delinquencies of one 20-point FICO subsegment of Fingerhut
Customers. Each Fingerhut Customer in the campaign was assigned a Fingerhut
Score, and the Company tracked each customer's delinquency over time. For
purposes of the evaluation, "delinquency" was defined as credit card customers
who ever attained a status of 90 days past due on their account. The average
delinquency of the 20-point FICO subsegment shown was assigned an index of 100;
then the average delinquency of each group of Fingerhut Scores was compared, on
a percentage basis, to such average delinquencies for the entire 20-point FICO
subsegment. In the example shown, those customers who had Fingerhut Scores of
between 1 and 10 achieved an average delinquency rate that was only 46% of the
average for the whole 20-point FICO subsegment.
Credit Scoring Evaluation Chart - Fingerhut
Similar analyses were performed on Fingerhut Customers across all of the
FICO subsegments solicited by the Company, and the results consistently showed
that the Fingerhut Score was effective in further segmenting and evaluating
relative risk of delinquency for the customers tested within the testing period.
While the Company believes that the Fingerhut Score is a valuable tool in
analyzing relative risks, it is not possible to accurately predict which
consumers will default or the overall level of defaults, and there can be no
assurances as to the levels of actual delinquencies or losses or as to the
effectiveness of the Fingerhut Scores in evaluating this likelihood of
delinquency for different periods or under different conditions. The results of
these analyses have been utilized by the Company to determine its risk-based
pricing strategies and to exclude certain combinations of Fingerhut Scores and
FICO scores from subsequent direct marketing efforts.
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<PAGE> 47
Credit Scoring Evaluation -- External Prospects. The following chart
illustrates a similar analysis performed by the Company on External Prospects
who responded to the Company's MasterCard offers in the Spring of 1995. Like the
previous chart, this chart shows the comparative delinquencies, of one 20-point
FICO subsegment of External Prospects. The Company assigned a Proprietary Score
to all External Prospects and tracked their delinquency over time. In the
example shown those External Prospects who were assigned the lowest Proprietary
Score achieved a delinquency rate that was only 45% of the average of the
20-point FICO subsegment.
Credit Scoring Evaluation Chart - External
Similar analyses were performed on External Prospects across all of the
FICO subsegments solicited by the Company, and the results consistently showed
that the Proprietary Score was effective in further segmenting and evaluating
risk within all ranges of FICO scores for the customers tested within the
testing period. The results of these analyses have been utilized by the Company
to determine the pricing for various segments and to exclude certain segments
from subsequent direct marketing efforts. While the Company believes that the
Proprietary Score, like the Fingerhut Score, is a valuable tool in analyzing
relative risks, it is not possible to accurately predict which consumers will
default or the overall level of defaults, and there can be no assurances as to
the levels of actual delinquencies or losses or as to the effectiveness of the
Proprietary Scores in evaluating the likelihood of delinquency for different
periods or under different conditions.
The Company believes that both the Fingerhut Score and its Proprietary
Modeling System, in conjunction with the Suppress File, give it a competitive
advantage in evaluating the credit risk of moderate income consumers. Management
believes that due to the amount and type of credit information available in the
Fingerhut Database, the Fingerhut Score is currently more effective than the
Proprietary Modeling System in allowing the Company to evaluate the credit risk
of prospects having lower FICO scores. Therefore, the Company has been willing
to solicit consumers who have lower levels of FICO scores if they also have an
appropriate Fingerhut Score. As a result, the Company's Fingerhut-sourced credit
card customers generally have lower FICO scores than do External Prospects.
After every marketing campaign, the Company monitors the performance of the
Proprietary Modeling System and continually re-evaluates the effectiveness of
the Proprietary Score in segmenting credit risk, resulting in further
refinements to its selection criteria for External
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<PAGE> 48
Prospects. Over time the Company believes that it will capture additional credit
information on the behavioral characteristics of External Prospects which will
allow it to further increase the effectiveness of the Proprietary Modeling
System and solicit External Prospects with lower FICO scores than it currently
solicits.
Solicitation. Prospects for solicitation include both Fingerhut Customers
and External Prospects and are contacted on a nationwide basis through
pre-screened direct mail and telephone solicitations. The Company receives
responses to its prescreened solicitations, performs fraud screening, verifies
name and address changes, and obtains any information which may be missing from
the application. Applications are then sent to third party data entry providers,
which key the application information and process the applications based on the
criteria provided by the Company. Applications are approved, denied or referred
to the Company for exception processing. The Company processes exceptions for,
among other things, derogatory credit bureau information and fraud warnings.
Exception applications are processed manually by a credit analyst based on
policies approved by the Company's credit committee.
Pricing. The Company's strategy to maximize customer profitability relies
on its risk-based pricing. The specific pricing for each credit card offer is
determined primarily based on the prospect's risk profile prior to solicitation.
Each prospect is evaluated to determine credit needs, credit risk, and existing
credit availability. A customized offer is developed that includes the most
appropriate product, brand, pricing, and credit line. Terms of the credit card
offers range from no annual fee and an annual percentage of prime plus 6.45% to
a $48 annual fee and an annual percentage rate of prime plus 14.20%. Once the
account is opened, the customer's internal and external credit performance are
actively monitored and their behavior and risk scores are periodically
recalculated. As the customer evolves through the credit lifecycle and is
regularly rescored, the lending relationship can evolve to include more
competitive (or more restrictive) pricing and product configurations.
Age of Portfolio. The following table sets forth, as of June 30, 1996, the
number of total accounts and amount of outstanding loans based upon the age of
the managed accounts.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER PERCENTAGE LOANS LOANS
AGE SINCE ORIGINATION OF ACCOUNTS OF ACCOUNTS OUTSTANDING OUTSTANDING
- ----------------------------------------------- ----------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
0-6 Months..................................... 563,173 50.2% $ 370,945 34.7%
7-12 Months.................................... 296,545 26.4% 301,093 28.2%
13-18 Months................................... 251,399 22.4% 380,319 35.6%
19-24 Months................................... 107 0.0% 134 0.0%
25-36 Months................................... 11,449 1.0% 15,527 1.5%
--------- ------ ---------- ------
Total..................................... 1,122,673 100.0% $ 1,068,018 100.0%
========= ====== ========== ======
</TABLE>
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<PAGE> 49
Geographic Distribution. The Company solicits credit card customers on a
national basis and, therefore, maintains a geographically diversified portfolio.
The following table shows the distribution of total accounts and amount of
outstanding loans by state as of June 30, 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER PERCENTAGE LOANS LOANS
STATE OF ACCOUNTS OF ACCOUNTS OUTSTANDING OUTSTANDING
- ----------------------------------------------- ----------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
California..................................... 133,897 11.9% $ 129,923 12.2%
New York....................................... 88,716 7.9% 84,320 7.9%
Texas.......................................... 83,774 7.5% 80,758 7.6%
Florida........................................ 82,949 7.4% 78,428 7.3%
Ohio........................................... 50,437 4.5% 47,217 4.4%
Pennsylvania................................... 48,304 4.3% 45,176 4.2%
Illinois....................................... 45,043 4.0% 42,231 4.0%
Michigan....................................... 36,809 3.3% 35,440 3.3%
Indiana........................................ 30,518 2.7% 28,939 2.7%
North Carolina................................. 31,428 2.8% 27,661 2.6%
All Others(1).................................. 490,798 43.7% 467,925 43.8%
--------- ------ ---------- ------
Total..................................... 1,122,673 100.0% $ 1,068,018 100.0%
========= ====== ========== ======
</TABLE>
- -------------------------
(1) No other state accounts for more than 2.5% of loans outstanding.
The Adaptive Control System. The Company utilizes First Data Resources
Inc.'s ("FDR") adaptive control system (the "Adaptive Control System") which
uses statistical models and basic account financial information to automatically
and regularly assign appropriate credit line increases and decreases to
individual customers, as well as to determine the systematic collection steps to
be taken at the various stages of delinquency. The Adaptive Control System
manages the authorization of each transaction; in addition, it determines the
collections strategies to be used for non-delinquent accounts that have balances
above their assigned credit line (referred to as "overlimit" accounts). The
Adaptive Control System uses a number of data elements in determining credit
lines, authorizations, and collections strategies, including the customer's FICO
score, Fingerhut Score and other proprietary data elements, each of which is
periodically updated based on the individual's performance.
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 with average
credit lines that are below the industry average due to the higher average risk
elements inherent in the Company's target market. The Company may elect, at any
time and without prior notice to the cardholder, to preclude or restrict further
credit card use by the cardholder, usually as a result of poor payment
performance or the Company's concern over the creditworthiness of the
cardholder. Credit lines are managed based on the results of the behavioral
scoring analysis in accordance with criteria established by the Company. The
analysis, which is updated regularly and implemented by the Adaptive Control
System, identifies individuals whose credit and payment behavior suggest that
they have either too much credit exposure or additional credit capacity, and
their lines are decreased or increased accordingly. Credit lines may also be
adjusted at the request of the cardholder, subject to the Company's evaluation
of the cardholder's payment and usage history.
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<PAGE> 50
The following table sets forth information with respect to account balance
and credit limit ranges of the Company's managed portfolio as of June 30, 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER PERCENTAGE LOANS LOANS
ACCOUNT BALANCE RANGE OF ACCOUNTS OF ACCOUNTS OUTSTANDING OUTSTANDING
- ----------------------------------------------- ----------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS, EXCEPT FOR ACCOUNT BALANCE RANGE)
<S> <C> <C> <C> <C>
Credit Balance................................. 8,484 0.8% $ (377) --
No Balance..................................... 173,625 15.5% 0 --
Less than or equal to $1,000................... 506,872 45.1% 225,124 21.1%
$1,001-$2,000.................................. 276,667 24.6% 406,708 38.1%
$2,001-$3,500.................................. 134,625 12.0% 344,160 32.2%
Over $3,500.................................... 22,400 2.0% 92,403 8.6%
--------- ------ ---------- ------
Total..................................... 1,122,673 100.0% $ 1,068,018 100.0%
========= ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER PERCENTAGE LOANS LOANS
CREDIT LIMIT RANGE OF ACCOUNTS OF ACCOUNTS OUTSTANDING OUTSTANDING
- ----------------------------------------------- ----------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS, EXCEPT FOR CREDIT LIMIT RANGE)
<S> <C> <C> <C> <C>
Less than or equal to $1,000................... 320,287 28.5% $ 139,950 13.1%
$1,001-$2,000.................................. 414,859 37.0% 394,168 36.9%
$2,001-$3,500.................................. 283,641 25.2% 371,693 34.8%
$3,501-$5,000.................................. 100,554 9.0% 154,598 14.5%
Over $5,000.................................... 3,332 0.3% 7,609 0.7%
--------- ------ ---------- ------
Total..................................... 1,122,673 100.0% $ 1,068,018 100.0%
========= ====== ========== ======
</TABLE>
Delinquency, Collections and Charge-offs. The Company considers an account
delinquent if a payment due thereunder is not received by the Company within 25
days from the closing date of the statements. Collection procedures are
determined by the Adaptive Control System, which continually monitors all
delinquent accounts. The collections function has been handled internally since
January 1996. The Company made the strategic decision to internalize its
collections function due to the critical impact that this function can
potentially have on the Company's profitability. The Company's collections
department generates letters through a proprietary letter system when
appropriate. Delinquent customers receive automatic collection letters at
various stages in their delinquency, from 5-90 days past due. The Company's
collections personnel attempt a minimum of two contacts each 30-day delinquency
cycle, unless special arrangements have been made with the customer. Accounts
that become 90 days delinquent are closed but not necessarily charged off.
Accounts can be closed prior to being 90 days delinquent after a manual review
and determination that the cardholder is not able to remedy a delinquent or
overlimit status. Accounts are charged off and taken as a loss either after
formal notification of bankruptcy or at the end of the month during which they
become contractually 180 days past due. Accounts identified as fraud losses are
reserved for immediately and charged off no later than 90 days after the last
activity. Accounts identified as deceased without a surviving, contractually
liable individual or an estate large enough to pay the debt in full are charged
off immediately upon notification. Charged-off accounts are referred to the
Company's recovery unit in Salt Lake City, Utah, for coordination of collection
efforts to recover the amounts owed. When appropriate, accounts are placed with
external collection agencies or attorneys.
The Company uses FDR's fraud protection system to improve the rate of early
detection of fraudulent activity on a cardholder account. The system also
provides work flow management that is used to investigate potentially fraudulent
transactions and to take prompt immediate action to reduce further losses. A
fraud score is established based on the details of the authorization request and
the previous behavior pattern of the cardholder. This score is used in the
determination of actions to be taken for potentially fraudulent transactions.
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<PAGE> 51
The Company reserves the right to cancel charge privileges at any time,
usually as a result of violating the contractual terms (delinquency, overlimit,
etc.) of the credit account. Activity on lost, stolen, or fraudulent accounts is
blocked immediately upon notification by the cardholder or upon determination by
FDR that a card is lost or stolen or being used fraudulently.
Servicing, Billing and Payment. The Company has established a long-term
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 these services for
approximately 1,400 card issuers, and is the largest commercial credit card
processor in the world.
FDR provides data processing, credit card reissuance, statementing, inbound
customer service telephone calls and interbank settlement for the Company.
Applications processing has been handled internally by the Company since
September 1995. Back office support for mail inquiries and fraud management were
internalized in April 1996. The Company believes that its relationship with FDR
allows it to achieve operational efficiencies while remaining flexible enough to
handle additional growth. Furthermore, the Company's agreement with FDR allows
the Company to internalize specific operational functions if the Company
desires.
The Company generally assesses periodic finance charges on an account if
the cardholder has not paid the balance in full from the previous billing cycle.
These finance charges are based upon the average daily balance outstanding on
the account during the monthly billing cycle. Payments by cardholders to the
Company 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 the Company. If a payment in full is not
received prior to 25 days after the statement cycle date (the "Payment Date"),
finance charges are imposed on all purchases from the date of the transaction to
the statement cycle date. Finance charges are also imposed on each cash advance
from the day such advance is made until the advance is paid in full. The finance
charge is applied to the average daily balance. The average daily balance is the
sum of the daily unpaid balances of purchases and cash advances on each day of
the monthly billing cycle divided by the number of days in such monthly billing
cycle. Such unpaid balances are determined by deducting payments and credits,
adding any unpaid finance charges and late charges and adding new purchases,
cash advances and other charges, in each case as of the date of the transaction.
Many cardholders are given a grace period. For most cardholders, if the entire
balance on the account is paid during the grace period, a finance charge is not
imposed. Certain cardholders are not given a grace period, depending on the
credit card terms offered, which are determined by the prospect's risk profile
prior to solicitation.
The Company generally assesses an annual fee of $30; however, annual fees
may range from zero to $48, depending on the specific offer received by the
cardholder ($60 for some secured cards). For most accounts, the annual fee is
billed 90 days after the account is opened and annually on each anniversary
thereafter. The Company may waive the annual membership fees, or a portion
thereof, in connection with the solicitation of new accounts depending on the
credit terms offered, which are determined by the prospect's risk profile prior
to solicitation or when the Company determines a waiver to be necessary in order
to be competitive. In addition to the annual fee, the Company may charge
accounts certain other fees including: (i) a late fee with respect to any unpaid
monthly payment if the Company does not receive the required minimum monthly
payment by the Payment Date, (ii) a cash advance fee for each cash advance,
(iii) a fee with respect to each check submitted by a cardholder in payment of
an account which is not honored by the cardholder's bank, and (iv) an overlimit
charge if, at any time during the billing cycle, the total amount owed exceeds
the cardholder's credit line by at least $30 due to transaction activity.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such agreements, the Company 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.
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<PAGE> 52
Monthly billing statements are sent to cardholders by FDR on behalf of the
Company. When an account is established, it is assigned a billing cycle.
Currently, there are 21 billing cycles and each such cycle has a separate
monthly billing date based on the respective business day the cycle represents
in each calendar month. On a set billing date each month, a statement is sent to
all accounts with an outstanding balance greater than $1.00. Cardholders must
make a minimum monthly payment of the greater of $10.00 or 2.0% of the
outstanding balance, or the balance of the account if the balance is less than
$10. Payment is due upon receipt of the statement. If the minimum payment is not
collected within 25 days after the statement cycle date, the account is
considered delinquent.
Most merchant transactions by cardholders are authorized online. The
remaining transactions generally are low dollar amounts, typically below $50.00.
Transactions are automatically rejected if delinquency exceeds 10 days on
unsecured accounts. Transactions are allowed up to 10 days of delinquency
depending on the length of time that the account has been open and the behavior
score of the account. All authorizations are handled through the Adaptive
Control System.
Extended Service Plans
Fingerhut has offered extended service plans that provide warranty service
coverage beyond the manufacturer's warranty to its catalog merchandise customers
since 1990. These plans were historically marketed to customers who purchase
consumer electronics from Fingerhut, but the Company has recently begun to offer
these plans for jewelry and furniture. In general, the Company's extended
service plans provide customers with the ability to have their purchases
repaired, cleaned or replaced within certain parameters determined by the
Company.
Types of Plans. Within the warranty industry, extended service plans are
available for a wide variety of products, including consumer electronics,
furniture, jewelry, automotive products, and household mechanical systems such
as heating, plumbing and electrical systems. Currently the Company is focusing
on consumer electronics, furniture, and jewelry ("Warrantable Products")
purchased through Fingerhut's catalogs.
For consumer electronics (e.g., video and VCR equipment, home and car
stereos, televisions, computers, and vacuum cleaners) Fingerhut Customers may
purchase extended service plans that give them the ability to have their
purchases repaired or replaced in the case of electrical or mechanical failure
or defects in materials and workmanship. Currently the Company has contracted
with a third party to provide customer service and claims fulfillment. Customers
who need to obtain repair service for their purchase first must call the third
party's customer service center to arrange for such service. The third party
locates the authorized repair center closest to the customer, contacts the
repair center to give them an authorization number, and directly reimburses the
repair center for the customer's claim. For most consumer electronics, the
customer must deliver the merchandise to the repair center and pick up the
merchandise after the repair is complete, but certain purchases may be repaired
in the customer's home.
Quality Jewelry Care(TM), the Company's extended service plan for jewelry,
was launched in July 1995. The services provided to Quality Jewelry Care
customers include repair, soldering, ring sizing, and cleaning, for which the
Company contracts with Fingerhut. To submit a claim, the customer must mail the
item to the Company, which returns the item to the customer after it has been
repaired or cleaned, typically within 4 to 6 weeks.
The Company's extended service plan program for furniture is called Quality
Furniture Care(R) and was launched in November 1995. The services provided to
Quality Furniture Care customers include stain cleaning, structural defect or
damage repair, or replacement if the merchandise cannot be fixed. Customers who
need to have their furniture purchase repaired or cleaned first go to any repair
or service provider and receive an estimated cost for the service. If the
estimated cost does not exceed $100, the customer pays for the service and
submits the bill to the Company for reimbursement. If the estimated cost exceeds
$100, the customer must call the Company's customer service representatives and
receive authorization to have the service performed. Once authorization is
received, the customer pays for the service and submits the bill to the Company
for reimbursement.
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Sales and Marketing. When Fingerhut Customers purchase Warrantable
Products, they have the option to buy an extended service plan. For consumer
electronics, approximately 30% of the Company's extended service plans are
originated through the on-page print advertisement located within Fingerhut's
catalogs and other direct marketing materials; the remainder are originated
through telemarketing. Substantially all of the Quality Furniture Care and
Quality Jewelry Care plans are originated through telemarketing and other direct
marketing programs. In order to maximize the efficiency of its marketing
programs, the Company has developed proprietary targeting models which enable it
to predict which customers will be most responsive to its extended service plan
direct marketing efforts. The Company was able to increase its penetration rates
in the extended service plan business during 1994 and 1995 by implementing a
program of both inbound and outbound telemarketing to buyers of Fingerhut
merchandise. The Company further increased penetration rates during the latter
part of 1995 and the first half of 1996 by introducing two new extended service
plan products covering furniture and jewelry purchases. These efforts have
enabled the Company to increase the number of extended service plans sold by
Fingerhut and provided by the Company from approximately 359,000 plans in 1994
(15% of Warrantable Products) to approximately 322,000 plans for the first six
months of 1996 (24% of Warrantable Products). See "Transactions Between FCI and
the Company -- Extended Service Plan Agreement" and Note 6 of "Selected
Historical Financial and Operating Data".
Most of the Company's extended service plans begin at the point in time
when the manufacturer's warranty ends and continue for two years from the date
of the product purchase (three to five years in limited cases). The customer
pays Fingerhut a one-time fee for this coverage based on the price of the
product and the expected claims. The Company also offers customers the
opportunity to renew their coverage in one-year extensions upon payment of an
additional fee for each renewal.
For Fingerhut's consumer electronics products, the cost of the initial
purchase of a two-year extended service plan ranges from $19.99 to $139.99 and
the cost to renew the extended service plan after the first two years ranges
from $29.99 to $199.99 per year. Customers may purchase a two-year service plan
for a fee which ranges from $29.99 to $69.99 for Quality Furniture Care, or from
$14.99 to $49.99 for Quality Jewelry Care. The Company charges Fingerhut a fee
for each extended service plan sold by Fingerhut based on the retail price and
the method of sale.
Operations. Currently claims risk and claims processing for electronics
items are the responsibility of a third party, but the Company is responsible
for claims risk and claims processing for furniture and jewelry. In 1997, the
Company will internalize all operations related to extended service plans for
consumer electronics, and will incur the resulting claims risk. Initially a
third party was responsible for the customer service, claims liability, and
claims fulfillment of Quality Furniture Care; however, in February of 1996, the
Company assumed responsibility for all customer service, claims liability, and
claims fulfillment related to this program. The Company has been responsible for
customer service, claims liability, and claims risk for Quality Jewelry Care
since its inception.
Strategic Opportunities. Management believes that extended service plans
present a strategic opportunity beyond the Fingerhut customer base. Many
extended service plans are sold by retailers at the point of sale, but few
retailers follow up their point of sale efforts with direct marketing programs
aimed at increasing their penetration rates. The Company intends to seek
relationships with third-party retailers that would allow the Company to market
extended service plans to the retailers' customers. The Company believes that it
is well positioned to integrate its systems capabilities, customer service and
operations infrastructure, and direct marketing expertise in order to augment
the sale of extended service plans to customers of third-party retailers.
Fee-based Products
Metris currently sells a variety of fee-based products and services both to
its credit card customers and to Fingerhut Customers, including (i) third-party
insurance, (ii) programs such as card registration, shopping and dining clubs,
and (iii) debt waiver protection for unemployment, disability, and death. In
addition, the Company develops customized targeted mailing lists, utilizing both
the Company's and Fingerhut's databases, for external companies to use in their
own financial service product solicitation efforts that do not directly
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compete with those of the Company. The Company has achieved a penetration rate
of approximately 53% for fee-based products.
The Company currently markets the following programs:
Account Protection Plus. The Company has developed a proprietary debt
waiver program that protects customers from interest charges on the Company's
credit cards in the event that they become disabled, unemployed, or deceased. In
the event of unemployment or disability, the customer's account is "frozen" for
six months, with no payments due or interest accruing during this time. In the
event of death, the amount due is waived and the account is closed. Because this
is an internally administered program, the Company is responsible for all of the
program's associated costs. Account Protection Plus currently contributes a
material portion of the Company's net income.
Account Benefit Plan. This debt waiver program, an alternative to Account
Protection Plus, forgives the customer's balance due in the event of death but
does not provide benefits in the event of unemployment or disability.
Card Registration. The Company has an agreement with a third-party vendor
to offer a card registration service to the Company's credit card customers. In
addition to keeping track of all of the customer's credit card accounts and
reporting lost or stolen cards as the need arises, the service also provides
safekeeping of important documents. Under the current agreement, the Company and
the third party vendor share billed revenues for this program; however, the
Company intends to internalize this program and will then be responsible for all
of its associated costs and revenues.
Membership Clubs. The Company has a cooperative marketing arrangement with
a third party to market the third party's memberships in discount clubs, which
are automobile purchase, shopping and dining clubs, in conjunction with its new
credit card account acquisitions. The Company's arrangement with this third
party enables the Company to acquire new credit card customers at a
substantially reduced cost.
Accidental Death Insurance. The Company earns a commission from a
third-party insurance administrator for the marketing of an accidental death
insurance program. The Company markets the insurance program to its credit card
customers. Although the Company markets the program, the third-party
administrator fulfills and underwrites the policies.
Tailored List Development. The Company currently works with several
companies to develop targeted mailing lists and earns revenue for each name that
is solicited by the companies from these mailing lists. The Company also earns
revenue from the sale of advertising space included in its monthly billing
statements.
SECURITIZATION
The Company finances the growth in its credit card accounts receivable
through a commonly used form of asset backed securitization known as a master
trust. A securitization involves the transfer by the Company of loans generated
by a pool of credit card accounts to the master trust. Direct Merchants Bank
sells its loans to the Company, which then sells them to a bankruptcy-remote
special purpose subsidiary (the "Transferor"), which in turn transfers the loans
to the master trust. The trust is authorized to sell multiple series and classes
of certificates of beneficial ownership interests in the loans and other assets
that are part of the trust. Both the loans and the certificates held by third
parties are removed from the Company's balance sheet for financial and
regulatory accounting purposes. For tax purposes, the certificates are treated
as secured debt of the special purpose subsidiary.
The master trust was formed pursuant to a pooling and servicing agreement
between the Transferor, Direct Merchants Bank as servicer, and a bank trustee.
The master trust has two series of certificates outstanding: Series 1995-1
variable funding certificates with maximum proceeds of $1,025.2 million, and
Series 1996-1 with proceeds of $655.5 million.
Subject to limitations on the number of new accounts that may be added in
any year without rating agency approval, all loans in substantially all Direct
Merchants Bank credit card accounts are transferred to the master trust. The
loans transferred to the trust include those outstanding in the selected
accounts at the
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time certificates representing participation interests in the trust are sold,
and those arising under the accounts from time to time. The Company also
transfers to the trust for the benefit of the certificateholders the cash
collected in payment of the loans, interest and fees. The credit quality of the
loans is supported by a credit enhancement, generally in the form of a
subordinated interest in the trust or a cash collateral account. The Company may
be required to designate additional accounts to the extent they are available
and transfer present and future loans relating to such additional accounts to
the trust if the amount of the loans in the trust declines below a minimum
dollar amount. All additional accounts transferred to the trust must meet the
same eligibility standards imposed on the existing accounts. All proceeds of the
loans and the annual fees, cash advance fees, late fees and similar fees
received or to be received for each account are similarly transferred to the
trust. Interchange fees have not been transferred to the trust in the Company's
existing transactions.
Certificates representing beneficial ownership interests in the master
trust assets are sold to investors. The Transferor receives the proceeds of the
sale and uses the proceeds to purchase more loans from the Company. The amount
of loans transferred to the trust for the benefit of the certificateholders
always exceeds the initial principal amount of the certificates sold to
investors. Consequently, the Company retains an interest in the trust in an
amount equal to the amount of the retained subordinated certificates of each
series held by the Transferor plus the amount equal to the loans in excess of
the principal balance of the certificates. The Company's interest in the trust
varies as the credit card account holders make principal payments and incur new
charges on the designated accounts.
Direct Merchants Bank acts as servicer and receives servicing fees
generally equal to 2% per annum of the certificates sold to investors and
collateralized by the securitized loans. As servicer, Direct Merchants Bank
continues to provide customer service and all other services typically performed
for its customers. Accordingly, its relationship with its credit card customers
is not affected by the securitization.
During the revolving period relating to a series of certificates, the
certificateholders are entitled to receive periodic interest payments at a fixed
rate, a floating rate or a variable rate. The interest rate on the existing
fixed rate certificate is substantially below the yield on the pool of loans.
The existing floating rate certificates are based on a LIBOR calculation and the
existing variable rate certificates are based on a commercial paper cost of
funds rate. Certificates may contain built-in interest rate caps, although the
master trust has issued only uncapped certificates to date. The Company has
purchased interest rate caps for certain certificates. Since all of the
Company's credit card accounts currently have variable rates of interest, the
floating rate issuance also has a rate substantially below the yield on the pool
of loans. Cardholder payments in excess of the amount needed to pay the rate of
interest are used to pay the servicing fee, to absorb the investors' share of
credit losses and to pay other master trust expenses, and, finally, paid to the
Transferor.
After the revolving period relating to a series of certificates, the
amortization period for that series commences. Certificateholders are entitled
to receive principal payments either through monthly payments during an
amortization period or in one lump sum after an accumulation period.
Amortization may begin sooner in certain circumstances, including if the
annualized portfolio yield (consisting, generally, of interest, annual fees and
other credit card fees) net of credit losses for a three-month period drops
below the sum of the certificate rate payable to investors and loan servicing
fees during the period or if certain other events occur.
Prior to the commencement of the amortization period relating to a series
of certificates, all principal payments received on the trust receivables are
reinvested in new loans of the selected accounts for the benefit of the trust.
During an amortization period, the investors' share of principal payments are
paid to the certificateholders until they are paid in full. Acceleration of the
amortization period would accelerate the Company's funding requirement with
respect to the underlying loans. The trust will continue in existence until the
earliest of the date on which all certificateholders of all series are repaid
the principal amounts of their certificates, at which time all remaining loans
and funds held in the trust are reassigned to the Transferor, the occurrence of
an insolvency event (as defined therein), and May 26, 2095.
COMPETITION
As a marketer of consumer credit products, the Company faces increasing
competition from numerous providers of financial services, many of which have
greater resources than the Company. In particular, the
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Company competes with national, regional and local bank card issuers as well as
other general purpose credit card issuers, such as American Express, Discover
Card and Diners Club. Over 6,000 issuers are affiliated with MasterCard alone.
The 20 largest issuers accounted for nearly 65% (based on receivables
outstanding) of the market for general purpose credit cards in June 1996; many
of these issuers are substantially larger and have more seasoned credit card
portfolios than the Company and often compete for customers by offering lower
interest rates and/or fee levels. In general, customers are attracted to credit
card issuers largely on the basis of price, credit limit and other product
features and customer loyalty is often limited. However, the Company believes
that its strategy of focusing on an underserved market and its access to
information from the Fingerhut Database, not available to other credit card
issuers, will allow it to more effectively compete in the market for moderate
income cardholders. See "Business -- Strategy".
During the term of the Extended Service Plan Agreement, Fingerhut will only
offer its customers extended service plans provided by Metris. As the Company
attempts to expand its business to market extended service plans to the
customers of third-party retailers, it will compete with manufacturers,
financial institutions, insurance companies and a number of independent
administrators, many of which have greater operating experience and financial
resources than the Company.
There are numerous competitors in the fee-based products market, including
insurance companies, financial service institutions and other membership-based
consumer services providers, many of which are larger, better capitalized and
more experienced than the Company. During the term of the Database Access
Agreement, Metris has the exclusive right to use the Fingerhut Database to
market these products to Fingerhut Customers. The Company believes that its
relationship with its customers and its experience in direct marketing will
enable it to maintain and grow its fee-based products business.
REGULATION
The Company and Direct Merchants Bank
Direct Merchants Bank is a limited purpose credit card bank chartered as a
national banking association and a member of the Federal Reserve System, the
deposits of which are insured by the Bank Insurance Fund of the FDIC. Direct
Merchants Bank is subject to comprehensive regulation and periodic examination
by the OCC, Federal Reserve Board and the FDIC. Direct Merchants Bank is not a
"bank" as defined under the Bank Holding Company Act of 1956, as amended (the
"BHCA") because it (i) engages only in credit card operations, (ii) does not
accept demand deposits or deposits that the depositor may withdraw by check or
similar means for payment to third parties or others, (iii) does not accept any
savings or time deposit of less than $100,000, (iv) maintains only one office
that accepts deposits and (v) does not engage in the business of making
commercial loans. As a result, the Company is not a bank holding company under
the BHCA. If Direct Merchants Bank failed to meet the credit card bank criteria
described above, Direct Merchants Bank's status as an insured bank would make
the Company subject to the provisions of the BHCA. The Company believes that
becoming a bank holding company would adversely affect FCI's ability to engage
in its current activities and would limit the Company's ability to pursue future
opportunities.
Due to Direct Merchants Bank's status as a limited purpose credit card
bank, any non-credit card operations conducted by the Company in the future must
be conducted through other subsidiaries of the Company. The Company may in the
future establish additional non-bank subsidiaries that will enable it to
originate various non-credit card products. In addition, for purposes of the
BHCA, if Direct Merchants Bank failed to qualify as a credit card bank, any
entity that acquired direct or indirect control of the Company and also engaged
in activities not permitted for bank holding companies could be required either
to discontinue the impermissible activities or to divest itself of control of
the Company.
Exportation of Interest Rates and Fees
Under current judicial interpretations of Federal law, national banks such
as Direct Merchants Bank may charge interest at the rate allowed by the laws of
the state where the bank is located, and may "export" interest rates by charging
the interest rate allowed by the laws of the state where the bank is located on
loans to borrowers in other states, without regard to the laws of such other
states.
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The Supreme Court of the United States recently held that national banks
may also impose late-payment fees allowed by the laws of the state where the
national bank is located on borrowers in other states, without regard to the
laws of such other states. The Supreme Court based its opinion largely on its
deference to a regulation adopted by the Comptroller of the Currency that
includes certain fees, including late fees, overlimit fees, annual fees, cash
advance fees and membership fees, within the term "interest" under the provision
of the National Bank Act that has been interpreted to permit national banks to
export interest rates. As a result, national banks such as Direct Merchants Bank
may impose such fees.
Dividends and Transfers of Funds
There are various Federal limitations on the extent to which Direct
Merchants Bank can finance or otherwise supply funds to the Company and its
affiliates through dividends, loans or otherwise. These limitations include
minimum regulatory capital requirements and restrictions concerning the payment
of dividends out of net profits or surplus, Sections 23A and 23B of the Federal
Reserve Act governing transactions between a bank and its affiliates, and
general Federal regulatory oversight to prevent unsafe or unsound banking
practices. In general, Federal law prohibits a national bank such as Direct
Merchants Bank from making dividend distributions if such distributions are not
paid out of available earnings or would cause the bank to fail to meet
applicable capital adequacy standards. The right of the Company, its
shareholders and its creditors to participate in any distribution of the assets
or earnings of Direct Merchants Bank is further subject to the prior claims of
creditors of Direct Merchants Bank.
Comptroller of the Currency
Capital Adequacy. The Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), among other things, identifies five capital categories for
insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the Federal banking agencies to implement systems
for "prompt corrective action" for insured depository institutions that are not
at least adequately capitalized. FDICIA imposes progressively more restrictive
constraints on operations, management and capital distributions, depending upon
the category in which an institution is classified. Failure to meet the capital
guidelines could also subject a bank to capital raising requirements. In
addition, FDICIA requires the banking agencies to prescribe certain non-capital
standards for safety and soundness relating generally to operations and
management, asset quality and executive compensation. FDICIA also provides that
regulatory action may be taken against a bank that does not meet such standards.
The OCC, Direct Merchants Bank's primary Federal regulator, has adopted
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leveraged capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6 percent, a total capital ratio of at
least 10 percent and a leverage ratio of at least 5 percent and not be subject
to a capital directive order. An "adequately capitalized" institution must have
a Tier 1 capital ratio of at least 4 percent, a total capital ratio of at least
8 percent and a leverage ratio of at least 4 percent (3 percent in some cases).
Under these guidelines, Direct Merchants Bank is considered well capitalized.
The OCC has also adopted a final rule amending risk-based capital standards
to consider explicitly a bank's exposure to declines in the economic value of
its capital due to changes in interest rates when evaluating a bank's capital
adequacy. Interest rate risk is the exposure of a bank's current and future
earnings and equity capital arising from adverse movements in interest rates.
The evaluation will be made as a part of the institution's regular safety and
soundness examination. The banking agencies also have sought public comment on a
proposed interagency policy statement regarding the measurement and assessment
of interest rate risk. This proposal, while still under consideration, would
require banks with interest rate risk in excess of defined thresholds to
maintain additional capital beyond that generally required.
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FDICIA. FDICIA revised sections of the Federal Deposit Insurance Act
affecting bank regulation, deposit insurance and provisions for funding of the
Bank Insurance Fund administered by the FDIC. FDICIA (i) revised bank regulatory
schemes embodied in several other Federal banking statutes, (ii) linked
explicitly the bank regulators' authority to intervene to the deterioration of a
bank's capital level, (iii) required each company having control of a bank to
guarantee an undercapitalized bank's compliance with a capital restoration plan,
(iv) imposed new safety and soundness standards on management and operations of
a bank, (v) placed limits on real estate lending and (vi) tightened audit
requirements. FDICIA also requires the FDIC to implement a system of risk-based
premiums for deposit insurance pursuant to which the premiums paid by a
depository institution will be based on the probability that the FDIC will incur
a loss in respect of such institution. The FDIC has since adopted a system that
imposes insurance premiums based upon a matrix that takes into account a bank's
capital level and supervisory rating. Accordingly, given Direct Merchants Bank's
capital level and supervisory rating, Direct Merchants Bank pays the lowest rate
on deposit insurance premiums.
Direct Merchants Bank may accept brokered deposits as part of its funding.
Under FDICIA, only "well capitalized" and "adequately capitalized" banks may
accept brokered deposits. "Adequately capitalized" banks, however, must first
obtain a waiver from the FDIC before accepting brokered deposits and such
deposits may not pay rates that significantly exceed the rates paid on deposits
of similar maturity from the bank's normal market area or the national rate on
deposits of comparable maturity, as determined by the FDIC, for deposits from
outside the bank's normal market area. Direct Merchants Bank does not at present
rely on brokered deposits to fund its operations.
Changes in Directors and Senior Executive Officers. Direct Merchants Bank
is required to give written notice at least 30 days prior to the effective date
of any new director or senior executive officer (as well as the employment or
change in responsibilities of any individual to a position as a senior executive
officer) in the event the bank has undergone a change in control within two
years or in the event the bank is not in compliance with certain minimum capital
requirements or is otherwise in a troubled condition. A proposed director (or
senior executive officer) may begin service upon the expiration of the 30-day
period following acceptance of a completed notice, unless the OCC issues a
notice of disapproval before the end of the 30-day period.
Lending Activities
Direct Merchants Bank's activities as a credit card lender are also subject
to regulation under various Federal laws including the Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Community
Reinvestment Act (the "CRA") and the Soldiers' and Sailors' Civil Relief Act.
Regulators are authorized to impose penalties for violations of these statutes
and, in certain cases, to order Direct Merchants Bank to pay restitution to
injured cardmembers. Cardholders may also bring actions for certain alleged
violations of such regulations. Federal and state bankruptcy and debtor relief
laws also affect Direct Merchants Bank's ability to collect outstanding balances
owed by cardholders who seek relief under these statutes.
The OCC and other Federal banking agencies have recently revised their
regulations under the CRA that could affect the activities of Direct Merchants
Bank. These regulations subject limited purpose banks, including Direct
Merchants Bank, to a "community development" test for evaluating required CRA
performance. The community development performance of a limited purpose bank is
evaluated pursuant to various criteria involving community development lending,
qualified investments and community development services.
Legislation
From time to time legislation has been proposed in Congress to limit
interest rates that could be charged on credit card accounts; however, the
Company does not anticipate any serious effort by Congress to enact such a
limitation in the current session of Congress.
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Investment in the Company and Direct Merchants Bank
Certain acquisitions of capital stock may be subject to regulatory approval
or notice under Federal law. Investors are responsible for insuring that they do
not directly or indirectly acquire shares of capital stock of the Company in
excess of the amount which can be acquired without regulatory approval.
Although Direct Merchants Bank qualifies as a credit card bank under the
BHCA, it is an "insured depository institution" within the meaning of the Change
in Bank Control Act. Consequently, Federal law and regulations will prohibit any
person or persons acting in concert from acquiring control of the Company
without, in most cases, prior written approval of the OCC. Control is
conclusively presumed if, among other things, a person acquires more than 25% of
any class of voting stock of the Company. However, under certain circumstances,
a notice may be required if a person or persons acting in concert acquire or
control 10% of any class of voting stock.
Interstate Taxation
Several states have passed legislation which attempts to tax the income
from interstate financial activities, including credit cards, derived from
accounts held by local state residents. Based on current interpretations of the
enforceability of such legislation, coupled with the volume of its business in
these states, the Company believes that this will not materially affect Direct
Merchants Bank.
Fair Credit Reporting Act
The Fair Credit Reporting Act ("FCRA") regulates "consumer reporting
agencies". Under the FCRA, an entity risks becoming a consumer reporting agency
if it furnishes "consumer reports" to its affiliates or third parties. A
"consumer report" is a communication of information which bears on a consumer's
creditworthiness, credit capacity, credit standing or certain other
characteristics and which is collected or used or expected to be used to
determine the consumer's eligibility for credit, insurance, employment or
certain other purposes. The FCRA explicitly excludes from the definition of
"consumer report" a report containing information solely as to transactions or
experiences between the consumer and the entity making the report.
It is the objective of the Company and Fingerhut to conduct their
operations in a manner which would fall outside the definition of "consumer
reporting agency" under the FCRA. If the Company or Fingerhut were to become a
consumer reporting agency, however, it would be subject to a number of complex
and burdensome regulatory requirements and restrictions, including restrictions
limiting the Company from using information from the Fingerhut Database and
furnishing information to third parties. Such restrictions could have a
significant adverse economic impact on the Company's results of operations and
future prospects. See "Risk Factors -- Regulation" and "-- Dependence on
Fingerhut".
EMPLOYEES
As of July 31, 1996, the Company had approximately 350 employees located in
Minnesota, Utah and Oklahoma. None of the Company's employees are represented by
a collective bargaining agreement. The Company considers its relations with its
employees to be good.
PROPERTIES
The Company's principal executive offices are located in leased premises in
St. Louis Park, Minnesota. The Company also leases office space for Direct
Merchants Bank in Salt Lake City, Utah and for the Company's operations in
Tulsa, Oklahoma. The Company believes that its facilities are suitable to its
businesses and that it will be able to lease or purchase additional facilities
as its needs require.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceeding that management
believes may have a material adverse effect on the Company's financial position
or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who currently serve as directors or executive officers of the Company. Each
executive officer has been elected to the indicated office with the Company in
connection with its incorporation in 1996 and serves at the discretion of the
Board of Directors of the Company. Two of the Company's executive officers
currently are executive officers of FCI.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- ---- --------------------------------------------
<S> <C> <C>
Theodore Deikel............. 60 Chairman of the Board
Ronald N. Zebeck............ 41 President, Chief Executive Officer and
Director
Peter G. Michielutti........ 40 Senior Vice President, Business Development
Douglas B. McCoy............ 49 Vice President, Operations
Robert W. Oberrender........ 36 Vice President, Chief Financial Officer
Douglas L. Scaliti.......... 38 Vice President, Marketing
David R. Reak............... 37 Vice President, Credit Risk
Dudley C. Mecum............. 61 Director
Michael P. Sherman.......... 44 Director
Frank D. Trestman........... 61 Director
</TABLE>
Theodore Deikel is the non-executive Chairman of the Board of Directors of
the Company. He has been Chairman of the Board, Chief Executive Officer and
President of FCI since 1989. Prior to that he was Executive Vice President of a
predecessor of The Travelers Inc. and Chairman of its specialty retailing
division (which included FCI) and was Chief Executive Officer of Fingerhut from
1975 to 1983. Mr. Deikel also serves as a director of FCI.
Ronald N. Zebeck is President and Chief Executive Officer and a director of
the Company. He has been President of a subsidiary of the Company since March
1994 and has served as Chief Executive Officer of Direct Merchants Bank since
July 1995. Mr. Zebeck was Managing Director, GM Card Operations of General
Motors Corporation from 1991 to 1993, Vice President, Marketing and Strategic
Planning of Advanta Corporation (Colonial National Bank USA) from 1987 to 1991,
Director of Strategic Planning of TSO Financial (later Advanta Corporation) from
1986 to 1987 and held various credit card and credit-related positions at
Citibank affiliates from 1976 to 1986. He is also a director of MasterCard
International, Inc.
Peter G. Michielutti is Senior Vice President, Business Development. He is
also Senior Vice President, Chief Financial Officer of FCI, a position he has
held since July 1995. For 16 years prior to joining FCI, he held various
positions with divisions/subsidiaries of Household International Inc. (consumer
finance services): Executive Director and Chief Financial Officer of Household
Credit Services from May 1992 to July 1995, Vice President -- Financial
Administration -- Canada of Household Financial Corporation Limited from March
1991 to May 1992, Vice President -- Financial Administration of Household Bank
FSB from August 1990 to March 1991, and various controller and finance positions
from 1979 to 1991.
Douglas B. McCoy is Vice President, Operations and has held that position
with a subsidiary of the Company since January 1995. In addition, he has been
President of Direct Merchants Bank since July, 1995. Prior to joining the
Company, he was Vice President, Credit Administration of USAA Federal Savings
Bank from September 1994 to January 1995, Assistant Vice President, Credit
Administration, of Bank of Oklahoma from July 1984 to September 1994, Assistant
Vice President, Operations of First National Bank of Tulsa from May 1982 to July
1984 and Assistant Vice President, Credit Card Marketing, of The Bank of New
Orleans from April 1978 to April 1982.
Robert W. Oberrender is Vice President, Chief Financial Officer of the
Company. He is also Vice President, Treasurer of FCI, a position he has held
since July 1994, and was Assistant Treasurer of FCI from February 1993 until
1994. Mr. Oberrender was Vice President, Corporate Finance & Banking Group of
Chemical Bank (now The Chase Manhattan Bank) for more than five years before
joining FCI.
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<PAGE> 61
Douglas L. Scaliti is Vice President, Marketing and has held that position
with a subsidiary of the Company since September 1994. For the 12 years prior to
joining the Company, he held several positions at Advanta Corporation (Colonial
National Bank USA): Senior Marketing Manager, Credit Cards from 1987 to 1994,
Operations Consultant, Profit Improvement from 1985 to 1987 and Credit
Operations Manager from 1982 to 1985. Prior to that he was Assistant Branch
Manager of Avco Financial Services from 1980 to 1982. Mr. Scaliti also serves on
the First Data Resources Advisory Group.
David L. Reak is Vice President, Credit Risk and has held that position
with a subsidiary of the Company since December 1995. For 12 years prior to
joining the Company, he had several positions at American Express, Travel
Related Services Company, including: Senior Manager, Credit Risk Management
European and Middle East from 1994 to December 1995, Senior Manager, Credit Risk
Management U.S. Consulting Group from 1992 to 1994, Project Manager, Credit
Research and Analysis from 1990 to 1992.
Dudley C. Mecum is a director of the Company. He has been a partner in the
firm of G.L. Ohrstrom & Co., a merchant banking firm, since 1989 and was
Chairman of Mecum Associates, Inc., a management consulting company, from 1987
to 1989. Mr. Mecum is also a director of FCI, The Travelers Inc., Lyondell
Petrochemical Corporation, Vicorp Restaurants, Inc., DynCorp, Roper Industries,
Inc. and Harrow Industries, Inc.
Michael P. Sherman is a director and is also Secretary of the Company. He
has been Senior Vice President, Business Development, General Counsel and
Secretary of FCI since May 1996. Prior to joining FCI, he was Executive Vice
President, Corporate Affairs, General Counsel and Secretary of Hanover Direct,
Inc., a catalog retailer, for more than the previous five years.
Frank D. Trestman is a director of the Company and is President of Trestman
Enterprises, an investment and business development firm. He has been a
consultant to McKesson Corporation and is the former Chairman of the Board and
Chief Executive Officer of Mass Merchandisers, Inc., a distributor of non-food
products to grocery retailers and now a subsidiary of McKesson Corporation. Mr.
Trestman is also a director of Insignia Systems, Inc. and Best Buy, Inc.
Officers of the Company are elected by, and hold office at the will of, the
Board of Directors and do not serve a "term of office" as such.
BOARD OF DIRECTORS
The Board of Directors of the Company currently consists of the individuals
listed above as directors, three of whom are currently directors and/or officers
of FCI. Each of these individuals was appointed a director in connection with
the Company's incorporation in 1996. At or following the Offering, the Company
will appoint one additional director not affiliated with the Company or FCI.
The new director to be appointed to the Board at the time of or following
the Offering will be appointed by a majority vote of the directors then in
office as specified in the Company's Certificate of Incorporation. It is
contemplated that the size of the Board of Directors will be increased from its
current size to such number as the Board of Directors may determine to be
appropriate in connection with the Offering.
In accordance with the terms of the Certificate of Incorporation, so long
as FCI beneficially owns at least 51% of the voting power of the then
outstanding stock of the Company, directors will hold office for one year terms
and be elected at each annual meeting of the shareholders of the Company. At the
time that FCI no longer beneficially owns 51% or more of the voting power of the
then outstanding stock of the Company entitled to vote generally in the election
of directors (the "Voting Stock"), the Board of Directors will be divided into
three classes, designated as Class I, Class II and Class III, respectively, with
staggered three-year terms of office. At each annual meeting thereafter,
directors who are elected to succeed the class of directors whose terms expire
at that meeting will be elected for three-year terms.
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<PAGE> 62
COMMITTEES OF THE BOARD OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors may establish
committees which may exercise the powers delegated to such committees by the
Board of Directors. After the consummation of the Offering, the newly
constituted Board of Directors is expected to consider the establishment of
certain committees, including an Audit Committee and a Compensation Committee.
The Audit Committee will be composed entirely of outside directors who are
independent of the management of the Company and are free from any relationship
that in the opinion of the Board of Directors would interfere with their
exercise of independent judgment. The Audit Committee will supervise and review
the Company's accounting and financial services, make recommendations to the
Board of Directors as to nomination of independent auditors, confer with the
independent auditors and internal auditors regarding the scope of their proposed
audits and their audit findings, reports and recommendations, review the
Company's financial controls, procedures and practices, approve all nonaudit
services by the independent auditors and review transactions between the Company
and its affiliates.
The Compensation Committee will set the compensation of all the Company's
executive officers, approve, adopt and administer compensation plans, administer
and grant stock options under the Company's stock option plans, review
administration of the Company's benefit plans and the Company's employee benefit
policies and also review and make recommendations to the Board of Directors on
matters relating to compensation of all officers.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not employees of the Company or
FCI will receive an annual retainer of $15,000 for membership on the Board of
Directors, including service on committees of the Board, and an attendance fee
of $1,000 for each regular or special meeting attended of the Board of Directors
or any committee thereof. The directors designated and serving as the
chairpersons of the Audit Committee and of the Compensation Committee also will
receive annual retainers of $2,000 each for service as chairpersons of such
committees. Non-employee directors will receive an initial grant of 5,000 stock
options with an exercise price per share equal to the price to the public in
connection with the Offering and will receive annual grants of 1,000 stock
options with exercise prices equal to the fair market value of the Common Stock
on the respective grant date for each subsequent year they serve as directors of
the Company. Directors employed by the Company or FCI will receive no directors'
fees or directors' stock options. In addition, the Company will reimburse
reasonable travel, lodging and other incidental expenses incurred by directors
in attending meetings of the Board of Directors and committees. The Chairman of
the Board will be granted options to purchase 275,000 shares of Common Stock at
the public offering price.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth cash and noncash compensation paid for each
of the last three fiscal years to the Chief Executive Officer and each of the
four other most highly compensated executive officers who were serving as
executive officers at December 31, 1995. Prior to the Offering, executive
compensation was established by the FCI Compensation Committee. It is
anticipated that, following the Offering, the Compensation Committee of the
Board of Directors of the Company will review the compensation established
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<PAGE> 63
for the executive officers and may revise such compensation based upon such
standards and peer company comparisons as the Committee deems appropriate at
such time.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION(1) YEAR SALARY($) BONUS($) ($)(2) (#)(3) ($)(4)
- ------------------------------ ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald N. Zebeck.............. 1995 $ 358,481 $496,272 $ 55,008 105,000 $ 16,500
Chief Executive Officer 1994 $ 275,962 $211,735 $ 53,060 75,000 $790,000
1993 -- -- -- -- --
Peter G. Michielutti.......... 1995 $ 108,173 $143,000 $ 44,188 30,000 $ 35,453
Sr. Vice President, Business 1994 -- -- -- -- --
Development 1993 -- -- -- -- --
Douglas B. McCoy.............. 1995 $ 134,616 $175,000 $ 10,279 13,500 $ 8,607
Vice President, Operations 1994 -- -- -- -- --
1993 -- -- -- -- --
Robert W. Oberrender.......... 1995 $ 122,512 $109,452 $ 21,473 20,000 $ 16,500
Vice President, Chief 1994 $ 111,731 $ 65,766 $ 10,651 8,500 $ 10,620
Financial Officer 1993 $ 88,077 $ 40,797 $ 20,178 19,000 $ 34,365
Douglas L. Scaliti............ 1995 $ 108,654 $105,635 $ 250 3,500 $ 5,038
Vice President, Marketing 1994 $ 33,462 $ 15,000 $ 22,508 2,500 $ 7,257
1993 -- -- -- -- --
</TABLE>
- -------------------------
(1) Mr. Zebeck commenced employment with the Company in March 1994; Mr.
Michielutti commenced employment with Fingerhut and became an officer of the
Company in July 1995; Mr. McCoy commenced employment with the Company in
January 1995; and Mr. Scaliti commenced employment with the Company in
September 1994. Mr. Oberrender is employed by Fingerhut. The amounts shown
for Mr. Michielutti and Mr. Oberrender were paid to them as Fingerhut
employees. The allocations paid by the Company to FCI under the
Administrative Services Agreement for treasury and finance services reflect
services provided by Mr. Michielutti and Mr. Oberrender to the Company.
(2) Amounts reported under "Other Annual Compensation" represent perquisites or
other personal benefits, cash payments designated as an auto allowance and
tax reimbursement payments. In accordance with rules of the Securities and
Exchange Commission, certain perquisites and other personal benefits
totaling less than $50,000 or 10% of a named executive officer's salary and
bonus have been omitted.
(3) All amounts represent option grants under option plans of FCI. These options
will terminate if the Company ceases to be a subsidiary of FCI.
(4) Amounts disclosed in this column represent the following amounts contributed
under the Fingerhut Corporation Profit Sharing Plan: $16,500 for Mr. Zebeck
and $4,379 for Mr. Scaliti for 1995, and $10,620 and $16,500 for Mr.
Oberrender for 1994 and 1995, respectively. Mr. Michielutti and Mr. McCoy
were not eligible to participate in that plan in 1995 as they had not
completed one year of employment. The 1994 amount for Mr. Zebeck consisted
of the amount paid to him as a signing payment and to cover expenses
incurred in connection with his relocation to Minnesota. The 1995 amounts
paid to Messrs. Michielutti and McCoy, the 1994 amount and $659 of the 1995
amount paid to Mr. Scaliti, and the 1993 amount paid to Mr. Oberrender
represent reimbursement of relocation expenses.
Severance Arrangements. In the event Mr. Zebeck voluntarily resigns his
employment prior to March 21, 1997, he is obligated to repay the Company
$490,500 (adjusted for taxes) reduced by an amount equal to 1/36 of the adjusted
$490,500 for each completed month of employment with the Company.
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<PAGE> 64
Three other executive officers, including Messrs. McCoy and Scaliti, have
severance provisions in their offer letters providing that if their employment
is involuntarily terminated for other than cause within two years of their dates
of hire, they will receive one or more severance payments equal to one year of
base salary.
COMPENSATION UNDER RETIREMENT PLANS
Profit Sharing Plan. Fingerhut maintains a defined contribution profit
sharing plan (the "Profit Sharing Plan") for certain nonunion employees of
Fingerhut and other subsidiaries of FCI who have been employed by the
participating employer for at least one year. Prior to the Offering, all of the
Company's executive officers were eligible to participate in the Profit Sharing
Plan, subject to completing one year of service. It is contemplated that the
Company will become a participating employer, and make contributions to, the
Profit Sharing Plan for at least the 1996 fiscal year.
Pension Plan. Fingerhut maintains a noncontributory defined benefit plan
(the "Pension Plan") for substantially all of its nonunion employees (and the
nonunion employees of certain of FCI's other subsidiaries) who have completed at
least one year of service. Under the Pension Plan, the current service pension
credit of each participant for each year is equal to the sum of (i) .82% of his
or her certified earnings not in excess of Social Security covered compensation
for that plan year and (ii) 1.40% of the balance of his or her certified
earnings for that year. Retirement benefits under the Pension Plan are the sum
of the pension credits for each year of service. Participants are 100% vested
after completion of at least five years of service. All of the Company's
executive officers are participants in the Pension Plan. It is contemplated that
the Company will become a participating employer and make contributions to the
Pension Plan for at least the 1996 fiscal year. The estimated combined annual
benefit payable at age 65 for the named executives under the Pension Plan is:
Mr. Zebeck, $43,702; Mr. Michielutti, $43,063; Mr. McCoy, $28,641; Mr.
Oberrender, $53,195; and Mr. Scaliti, $41,325.
COMPENSATION PROGRAMS
The Company's executive officers are eligible for 1996 bonuses under a
bonus plan applicable to subsidiaries of FCI. The Company expects to implement a
similar plan for 1997 and succeeding years.
Bonus Plan. The Bonus Plan is intended to provide incentives to management
to achieve or exceed the Company's financial goals for that year. All the
Company's executive officers other than the Chief Executive Officer, as well as
other management level employees, are eligible to participate in the 1996 Bonus
Plan. The 1996 Bonus Plan has five components: paid base salary, targeted bonus
percentage (based on job level), FCI performance factor, Company performance
factor and individual performance objectives. The targeted bonus is based 15% on
individual performance, 10% on FCI's 1996 earnings per share and 75% on the
Company's contribution to FCI's 1996 earnings per share. The 1996 Bonus Plan
established target and maximum bonuses of 75% and 97.5%, respectively, of paid
base salaries for vice presidents, 110% and 143%, respectively, of paid base
salary for senior executives other than the Chief Executive Officer, and 125%
and 162.5%, respectively, of paid base salaries for the Chief Executive Officer.
The Company performance factor is based on one of more of the following factors,
depending on the individual's area of responsibility: FCI 1996 earnings per
share or Company 1996 pre-tax earnings. In addition, the Bonus Plan provides for
special President's Awards for extraordinary service.
Stock Option Plan. In connection with the Offering, the Company will adopt
the Metris Companies Inc. Long-Term Incentive and Stock Option Plan (the "Stock
Option Plan"), which will permit a variety of stock-based grants and awards and
give the Company flexibility in tailoring its long-term compensation programs.
It will provide that up to 1,880,000 shares of Common Stock, subject to
adjustment in certain circumstances, are available for awards of stock options
or other stock-based awards. The Company anticipates granting options to
purchase an aggregate of approximately 625,000 shares of Common Stock to
officers and employees of the Company and the Chairman of the Board in addition
to the options granted to the Chief Executive Officer under the Tandem Plan (as
defined hereafter).
The Stock Option Plan will be administered by the Compensation Committee of
the Board of Directors, the composition of which will satisfy the requirements
of Section 162(m) of the Internal Revenue Code of
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<PAGE> 65
1986, as amended (the "Code"). The Compensation Committee has the authority,
subject to the terms of the plan, to determine the employees to whom awards are
granted, the type of option or award, the number of shares of Common Stock with
respect to such options or awards and the terms of such options or awards,
including the purchase or exercise price, vesting periods (and the authority to
accelerate vesting) and expiration dates. The Stock Option Plan will permit the
Compensation Committee to grant options that are either nonqualified stock
options or incentive stock options ("ISOs") that qualify under Section 422A of
the Code, as well as stock appreciation rights, restricted stock or performance
awards.
The Compensation Committee has the authority to determine the exercise
prices, vesting dates or conditions, expiration dates and other material
conditions upon which options or awards may be exercised, except that the option
price for ISOs may not be less than 100% of the fair market value of the Common
Stock on the date of grant (and not less than 110% of the fair market value in
the case of an ISO granted to any employee owning more than 10% of the Common
Stock) and the terms of nonqualified stock options may not exceed 15 years from
the date of grant (not more than 10 years for ISOs and five years for ISOs
granted to any employee owning more than 10% of the Common Stock). Full or
part-time employees, consultants or independent contractors to the Company or
one of its subsidiaries are eligible to receive nonqualified options and awards
(only full or part-time employees in the case of ISOs).
The exercise price of shares being acquired under an option or award must
be paid in full in cash at the time of exercise unless the Compensation
Committee in its sole discretion permits payment by tendering to the Company
shares of Common Stock already owned by the optionee having a fair market value
equal to the exercise price of the shares being acquired or by delivering the
optionee's promissory note in such amount, which note shall provide for interest
at a rate not less than the minimum rate required to avoid the imputation of
income, original issue discount or a below-market rate loan pursuant to Sections
483, 1274 or 7872 of the Code or any successor provisions thereto. At the time
of exercise, the optionee must pay, or have withheld, the amount requested by
the Company for the purpose of satisfying any liability to withhold federal or
state income or other taxes. The Compensation Committee may permit a participant
holding a nonqualified stock option or award to satisfy the tax obligation by
withholding a portion of the shares otherwise to be delivered upon exercise with
a fair market value equal to such taxes or by delivering to the Company shares
of Common Stock already owned by the optionee with such value. In the case of an
ISO, the right to make payment by tender or currently owned shares of Common
Stock must be authorized at the time of the grant.
The Stock Option Plan authorizes the Compensation Committee, at its
discretion, to grant a replacement (or reload) option to an optionee who tenders
previously owned shares to pay all or a portion of the exercise price of stock
options under the Stock Option Plan. Such replacement or reload option would
have as its exercise price the market price of the Common Stock on the date of
exercise of the original options and cover the same number of shares as tendered
by the participant in payment of the exercise price and, if applicable, the
withholding taxes.
The number or kind of shares issuable under the Stock Option Plan, or the
number or kind of shares subject to, or in the exercise price per share under,
outstanding options may be adjusted in the event of certain corporate events
affecting the Company's capital structure.
The Stock Option Plan may be amended by the Board of Directors, but no
amendment may increase the maximum number of shares of Common Stock issuable
under the Stock Option Plan, decrease the minimum exercise price, extend the
maximum option term or modify the eligibility requirement for participation in
the Stock Option Plan, unless it is approved by the Company's shareholders.
The Stock Option Plan will terminate in 2006. No termination of the Stock
Option Plan will alter or impair any of the rights or obligations of any person,
without his or her consent, under any previously granted option or award.
Tandem Plan. Effective as of March 21, 1994, FCI granted the Chief
Executive Officer a tandem option (as amended through the date hereof, the
"Tandem Plan") exercisable for either (i) 55,000 shares of FCI common stock at
an exercise price of $15.00 per share or (ii) an interest in the Company.
Exercise of either option terminates the other. Prior to the Offering, the
interest in the Company is for the value of 3.3% of the
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<PAGE> 66
Company in excess of two times the estimated fair value of the Company in March
1994 plus an adjustment for capital contributions, to be settled in cash upon
termination of employment or termination of the Tandem Plan. Concurrently with
the Offering, the interest in the Company will be converted to options to
purchase 641,572 shares (656,075 if the Underwriters' over-allotment option is
exercised) of Common Stock with an exercise price of $2.76 per share.
Approximately one-half of the options granted pursuant to the Tandem Plan are
fully vested, with the remainder to vest by March 31, 1999.
The following table shows information concerning options to purchase FCI
common stock granted to the named executives under FCI's stock option plans
during the fiscal year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTS 1995(1) ($/SH.) DATE 5% 10%
- ------------------------------ ---------- ------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald N. Zebeck.............. 50,000(3) 3.4% $15.00 6/16/05 $471,500 $1,195,500
55,000(3) 3.7% $15.00 3/21/01 $518,650 $1,315,050
Peter G. Michielutti.......... 30,000(3) 2.0% $15.00 6/16/05 $282,900 $ 717,300
Douglas B. McCoy.............. 10,000(4) (5) $19.03 1/31/02 $ 91,200 $ 231,100
3,500(3) (5) $15.00 6/16/05 $ 33,005 $ 83,685
Robert W. Oberrender.......... 20,000(3) 1.4% $15.00 6/16/05 $188,600 $ 478,200
Douglas L. Scaliti............ 3,500(3) (5) $15.00 6/16/05 $ 33,005 $ 83,685
</TABLE>
- -------------------------
(1) The percentages reflect the percent of total options granted under FCI
option plans in 1995.
(2) These dollar amounts are the result of calculations at the 5% and 10% rates
required by the Securities and Exchange Commission from the market price on
the date of grant and are not intended to forecast possible future
appreciation of the FCI common stock price. The actual gains, if any, on
stock option exercises will depend on the future performance of FCI's common
stock.
(3) All of the options listed are options to purchase FCI common stock granted
under the Fingerhut Companies, Inc. 1995 Long-Term Incentive and Stock
Option Plan. They vest 33 1/3% on the anniversary of the grant date and
33 1/3% annually thereafter. These options will expire on the earlier of the
date that the Company is no longer a subsidiary of FCI or ten years from the
grant date. The shares listed for Mr. Zebeck include 55,000 shares granted
in tandem with his Company stock options. These options vest 25% per year
commencing March 21, 1994 and expire on the earlier of (i) exercise of any
of his Company stock options granted under the Tandem Plan or (ii) March 21,
2001. In addition, exercise of any of these 55,000 options terminates his
Company stock options under the Tandem Plan.
(4) All of the options listed are options to purchase FCI common stock granted
under the Fingerhut Companies, Inc. Performance Enhancement Investment Plan.
They vest 25% on the anniversary of the grant date and 25% annually
thereafter. These options will expire seven years after the grant date or,
to the extent not vested, the date on which the Company is no longer a
subsidiary of FCI, if earlier.
(5) Less than 1%.
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<PAGE> 67
FISCAL YEAR-END OPTION VALUES
The following table shows information concerning options to purchase FCI
common stock granted to the named executives under FCI's stock option plans as
of December 31, 1995. None of the named executives exercised any options during
the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald N. Zebeck............................... 13,750 91,250 $ -- $ --
Peter G. Michielutti........................... -- 30,000 $ -- $ --
Douglas B. McCoy............................... -- 13,500 $ -- $ --
Robert W. Oberrender........................... 2,900 28,600 $ -- $ --
Douglas L. Scaliti............................. 500 5,500 $ -- $ --
</TABLE>
- -------------------------
(1) All of the listed options are FCI options. The value of unexercised
in-the-money options represents the aggregate difference between the market
value on December 31, 1995, based on the closing price of FCI common stock
as reported on the New York Stock Exchange, and the applicable exercise or
in-the-money prices. All of the listed options were out-of-the-money on such
date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates the numbers of shares of Common Stock that
will be owned beneficially upon consummation of the Offering by all persons
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, each director, prospective director and executive
officer of the Company. Prior to the Offering, no director, prospective director
or executive officer will beneficially own any Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK FCI COMMON STOCK
-------------------------------------- --------------------------------------
NUMBER OF SHARES NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENT OF CLASS BENEFICIALLY OWNED PERCENT OF CLASS
- --------------------------------- ------------------ ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Fingerhut Companies, Inc.(1)..... 15,966,667 84.9%
Theodore Deikel.................. --(2) -- 5,669,651(3) 11.2%
Ronald N. Zebeck................. 320,786(4) 1.7% 39,763(5) *
Dudley C. Mecum.................. -- -- 6,000(6) *
Michael P. Sherman............... -- -- -- --
Frank D. Trestman................ -- -- -- --
Peter G. Michielutti............. --(2) -- 25,091(6) *
Douglas B. McCoy................. --(2) -- 5,385(6) *
Robert W. Oberrender............. --(2) -- 11,364(6) *
Douglas L. Scaliti............... --(2) -- 5,848(6) *
All directors and executive
officers as a group (10
persons)....................... 320,786(2)(8) 1.7% 5,763,102(7) 11.4%
</TABLE>
- -------------------------
* Less than 1%.
(1) FCI owns 100% of the outstanding common stock of Fingerhut, whose wholly
owned subsidiary is the holder of record of the shares.
(2) Excludes shares of Common Stock issuable upon exercise of stock options
expected to be granted to certain officers and the Chairman of the Board in
connection with the Offering. See "Management -- Compensation Programs."
(3) Includes 4,227,535 shares of FCI common stock that Mr. Deikel has the right
to acquire within 60 days of October 7, 1996 through the exercise of stock
options. Share ownership does not include shares held by Mr. Deikel's son,
as to which he disclaims beneficial ownership.
(4) Includes 320,786 shares (328,037 if the Underwriters' over-allotment option
is exercised) of Common Stock that Mr. Zebeck has the right to acquire
within 60 days of October 7, 1996 through the exercise of stock options.
Does not include 320,786 (328,038 if the Underwriters' over-allotment option
is exercised) shares of Common Stock related to unvested stock options to be
granted to Mr. Zebeck under the Tandem Plan.
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<PAGE> 68
(5) Includes 16,666 shares of FCI common stock that Mr. Zebeck has the right to
acquire within 60 days of October 7, 1996 through the exercise of stock
options but does not include those stock options related to the Tandem Plan,
the exercise of which would cancel Mr. Zebeck's options to purchase Company
Common Stock.
(6) The numbers of shares of FCI common stock beneficially owned by each of
Messrs. Mecum, Michielutti, McCoy, Oberrender and Scaliti include 5,000,
10,000, 3,166, 5,866 and 1,666 shares, respectively, that such individuals
have the rights to acquire within 60 days of October 7, 1996 through the
exercise of stock options.
(7) Includes 4,269,899 shares of FCI common stock that the directors and
executive officers have the right to acquire within 60 days of October 7,
1996 through the exercise of stock options.
(8) Includes 320,786 shares of Company Common Stock that the officers and
directors have the right to acquire within 60 days of October 7, 1996
through the exercise of stock options.
TRANSACTIONS BETWEEN FCI AND THE COMPANY
Prior to the Offering, the Company has been wholly owned by FCI.
Historically, the Company and FCI have maintained a number of financial and
administrative arrangements and regularly engaged in transactions with each
other and their affiliates. In anticipation of the Offering, the Company and FCI
have entered into a number of intercompany agreements for the purpose of
defining the ongoing relationship between them. As a result of FCI's ownership
interest in the Company, the terms of such agreements were not, and the terms of
any future amendments to those agreements may not be, the result of arm's-length
negotiation.
The following is a summary of certain agreements between the Company and
FCI, each of which is qualified in its entirety by reference to the forms of
such agreements filed as exhibits to the Registration Statement of which this
Prospectus is a part. See "Available Information."
TRANSFER AGREEMENT
Transfer of Assets and Assumption of Liabilities
Prior to the Offering, the Company and FCI will enter into a Transfer
Agreement. Under the Agreement, FCI will transfer to the Company all of the
stock of Metris Direct, Inc.; Metris Receivables, Inc.; Direct Merchants Credit
Card Bank, National Association; and DMCCB, Inc. FCI will also transfer other
specified assets related to the Financial Services Business. The Company has
agreed that the Uniform Commercial Code will not apply to the transfer, and to
accept each asset "as is."
The Company will assume certain balance sheet liabilities, and all
liabilities to which transferred assets are subject that have been booked for
financial accounting purposes on or before the date of transfer. The Transfer
Agreement allocates contingent liabilities based on the nature of the claim.
Contingent liabilities arising out of the Offering are generally allocated to
the Company. Employment related claims are allocated to the party that employed
the employee at the time of the events giving rise to the claim. The allocation
of contingent liabilities arising out of the acts or omissions of employees
depends on which party employed the employee and which party, if any, benefitted
from such acts or omissions. In certain circumstances, the contingent liability
is allocated to the party named as a defendant in the claim. The agreement
provides that these allocation rules only apply to the extent that claims exceed
insurance coverage. The Company and FCI release each other from any claims
arising from events on or before the transfer not provided for in the Transfer
Agreement or the other intercompany agreements.
Employee Benefits, Expenses and Liabilities
The Transfer Agreement also provides for employee benefits, expenses, and
liabilities. The agreement provides that Company employees who currently are
Fingerhut employees will become Company employees in 1997. The Company will pay
Fingerhut salaries, expenses, and other liabilities accrued with respect to
these employees until they are transferred to the Company. Company employees
will continue to participate in
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certain of Fingerhut's employee benefit plans at least through 1996. The Company
will be responsible for the associated costs. The Transfer Agreement will
provide that FCI and the Company will work to determine the appropriate actions
to be taken with respect to employee benefit plans for 1997 and beyond.
Insurance and Other Provisions
The Company will continue to be covered by FCI's insurance policies for the
foreseeable future. The Company will be subject to the coverage limits and terms
and conditions of such policies and will pay an allocated portion of the related
premiums.
The Company and FCI have each agreed to indemnify the other against any
losses arising out of its breach or alleged breach of the Transfer Agreement.
FCI has represented and warranted that it knows of no pending legal action
relating to the transferred subsidiaries which is reasonably likely to be
adversely determined and would have a material adverse effect on their business.
CO-BRAND CREDIT CARD AGREEMENT
Fingerhut and the Company will enter into a Co-Brand Credit Card Agreement
prior to the Offering. Under the agreement, the Company will have the right to
issue general purpose credit cards with the Fingerhut name and logo ("Fingerhut
Cards"). Fingerhut and the Company will jointly develop lists of prospects from
Fingerhut Customers and Fingerhut will provide the Company with the Fingerhut
Score and other information about each individual. The Company will be
responsible for screening, solicitation, account origination, administration,
and compliance. All solicitation, advertising, and marketing materials for the
Fingerhut Card will be subject to review by both the Company and Fingerhut.
Fingerhut will have the right, without cost, to use certain space on the
Company's billing statements and inserts.
Fingerhut will covenant not to issue, directly or through a third party, a
competing general purpose credit card, but may issue a private label open or
closed end credit card. The Company will covenant not to offer a general purpose
credit card to direct competitors of Fingerhut.
The Company will develop, itself or through third parties, fee-based
products to offer to Fingerhut Card cardholders, the revenues from which will
belong solely to the Company, but will not offer fee-based products of a direct
competitor of Fingerhut or enter into contracts with affinity participants who
are direct competitors of Fingerhut.
The Company will pay Fingerhut a fee for each Fingerhut Card account booked
plus a non-cumulative fee based on a percentage of card usage. The initial term
of the agreement is seven years, and it will automatically renew for an
additional three years unless either party gives at least one year notice of its
intent not to renew. In the event that a third party acquires control of the
Company, Fingerhut will have the option to terminate the agreement.
Upon termination, the Company will own and have all rights to the
cardholder list and will have the right to reissue the Fingerhut Card under any
other name or logo it may choose. At the end of the initial term, and at the end
of the renewal term, Fingerhut will have the right to purchase the Fingerhut
Card accounts and the Fingerhut Card cardholder list for a purchase price equal
to the sum of (i) the book value excluding loan loss reserves, (ii) any earned
or unbilled interest or fees, (iii) the preceding three year amortized cost to
acquire the accounts, and (iv) a premium based on an independent third party
evaluation. If Fingerhut does purchase the accounts, the Company will have the
right to sell certain fee-based products to the cardholders for three years.
Subject to certain rights of a defaulting party to cure, a non-defaulting
party may terminate the agreement upon the occurrence of an event of default
including the loss by the Company of its MasterCard, Visa or other material
membership or either party causing significant harm to the goodwill of the
other, by giving 120 days prior written notice to the other party.
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The Company and Fingerhut have each agreed to indemnify the other against
certain claims by third parties arising out of its breach or alleged breach of
the agreement by the Company, and, in the case of the Company, any claim of a
cardholder or affinity participant based on an act or omission by the Company
with respect to the Fingerhut Card.
DATA SHARING AGREEMENT
Fingerhut and the Company will enter into a Data Sharing Agreement prior to
the Offering. Under the agreement, Fingerhut will work with the Company to
market Direct Merchants Bank credit cards and related fee-based products to
Fingerhut Customers and will provide Fingerhut Scores and other information from
the Fingerhut Database for the Company to use in soliciting and offering credit
cards to External Prospects, including prospects from other co-branding
partners. In addition, Fingerhut will periodically provide the Company with
updated information on Fingerhut Customers who are the Company's cardholders.
The Company will provide to Fingerhut the Company's own transaction and
experience data on its consumer credit customers including behavior models for
Fingerhut to use in soliciting those cardholders for merchandise and other
non-financial service products.
The Company will pay Fingerhut a fee for each account booked (other than an
account under the Co-Brand Credit Card Agreement) plus a non-cumulative fee
based on a percentage of card usage. The agreement is effective January 1, 1995
and the initial term will end on August 23, 2003. The Company will provide its
cardholder information to Fingerhut and Fingerhut will update its information
provided to the Company, each at no charge. The agreement will automatically
renew for successive one year terms unless either party gives 90 days notice of
its intent not to renew. A party may terminate the agreement if there is a
material breach and the breaching party fails to cure the breach within 30 days
after receiving written notice of the breach from the non-breaching party. In
addition, in the event that a third party acquires control of the Company,
Fingerhut will have the option to terminate the agreement.
The Company and Fingerhut have each agreed to indemnify the other against
certain claims by third parties arising out of its breach or alleged breach of
the Data Sharing Agreement.
EXTENDED SERVICE PLAN AGREEMENT
Fingerhut and the Company will enter into an Extended Service Plan
Agreement prior to the Offering. Under the agreement, Fingerhut will agree not
to offer any extended service plans for products sold by Fingerhut other than
those provided by the Company. The Company will be responsible for developing
marketing plans, including direct mail solicitations and telemarketing, for the
extended service plans. Fingerhut's direct mail solicitation or telemarketing
media may be used only upon subsequent agreement of the Company and Fingerhut.
The Company will charge Fingerhut a fee for each extended service plan sold by
Fingerhut based on the retail price of the extended service plan and the
solicitation method used to sell the plan, with a decrease in the price after
achieving specified sales increases. The agreement provides for full or pro rata
credit to Fingerhut in the case of complete or partial cancellation of an
extended service plan. The Company will reimburse Fingerhut for its advertising
costs in offering extended service plans.
The initial term of the agreement is seven years, and it will automatically
renew for an additional three years unless either party gives at least one year
notice of its intent not to renew. Subject to certain rights of a defaulting
party to cure, a non-defaulting party may terminate the agreement upon the
occurrence of an event of default by giving written notice to the other party.
In addition, in the event that a third party acquires control of the Company,
Fingerhut will have the option to terminate the agreement.
The Company and Fingerhut have each agreed to indemnify the other against
certain claims by third parties arising out of its breach or alleged breach of
the Extended Service Plan Agreement.
DATABASE ACCESS AGREEMENT
Fingerhut and the Company will enter into a Database Access Agreement prior
to the Offering. Under the agreement, Fingerhut will grant to the Company an
exclusive license to use information in the Fingerhut
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Database, including Fingerhut's transaction and experience data, the Fingerhut
Score, the Suppress File, and other related information for the sole purpose of
marketing the Company's Financial Service Products (as defined in the
agreement), other than credit cards, and for use in developing marketing lists
for third parties offering such products. Fingerhut is not required to disclose
(i) confidential information that it is prohibited to disclose by written
agreement, or (ii) information Fingerhut reasonably believes it cannot disclose
under applicable laws, regulations or other requirements. Fingerhut also will
not give the Company any information that would cause it to become a consumer
reporting agency under the FCRA.
Although the Company's right to access the Fingerhut Database will not
survive the agreement's termination, the Company will own any behavioral or
credit scoring models developed by the Company, or developed by Fingerhut
expressly for the Company prior to termination. The Company will have the sole
right to use such models and will retain sole ownership upon termination.
Fingerhut will retain the right to use for itself, and to license to third
parties, the Fingerhut Database for merchandise and other products and services
that are not Financial Service Products. However, Fingerhut may not use or
license the Fingerhut Database to offer Financial Services Products (as defined
in the agreement) without the consent of the Company. If Fingerhut notifies the
Company that it intends to offer such a product, the Company must either agree
to provide the same service itself or provide its consent within ten days.
The Company will pay Fingerhut an annual license fee plus a fee for each
consumer name eliminated from a solicitation by the Suppress File and a fee for
each consumer solicited through use of the Fingerhut Database.
The initial term of the agreement is seven years, and it will automatically
renew for an additional three years unless either party gives at least one
year's notice of its intent to terminate. The agreement does not establish an
annual fee for the three year renewal term. Subject to certain rights of a
defaulting party to cure, non-defaulting party may terminate the agreement upon
the occurrence of an event of default by giving written notice to the other
party. In addition, in the event that a third party acquires control of the
Company, Fingerhut will have the option to terminate the agreement.
The Company and Fingerhut have each agreed to indemnify the other against
certain claims by third parties arising out of its breach or alleged breach of
the Database Access Agreement.
ADMINISTRATIVE SERVICES AGREEMENT
FCI and the Company will enter into an Administrative Services Agreement
prior to the Offering. Under the agreement, FCI will perform the following
services for the Company: (i) treasury, (ii) general accounting and
administration, (iii) human resources, (iv) legal, (v) auditing, (vi) marketing
analysis, and (vii) information systems. FCI will provide the Company with
certain space and fixed assets, including computer access and use. The agreement
also requires the Company to perform services for FCI related to credit
insurance management.
The Company has paid FCI $5.1 million, plus incremental third party
expenses and lease payments, for services rendered during the years 1991 through
1996. The Company will pay additional amounts, to be negotiated, for 1997. FCI
has paid the Company $3.0 million, plus incremental third party expenses, for
insurance and warranty services rendered during the years 1991 through 1996. The
lump sum payments between the Company and FCI for services rendered prior to the
Offering are reflected in the Financial Statements appearing elsewhere in this
Prospectus.
The initial term of the agreement is two years, and it will automatically
renew for an additional year, with the charges for services to be determined at
that time, unless either party gives notice at least six months before the end
of the initial term of its intent not to renew. Subject to certain rights of a
defaulting party to cure, a non-defaulting party may terminate the agreement
upon the occurrence of an event of default by giving 30 days written notice to
the other party. In addition, in the event that a third party acquires control
of the Company, FCI will have the option to terminate the agreement.
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The Company and FCI have each agreed to indemnify the other against certain
claims by third parties arising out of its breach or alleged breach of the
Administrative Services Agreement.
TAX SHARING AGREEMENT
The Company is, and after the Offering will continue to be, included in
FCI's Federal consolidated income tax group, and the Company's Federal income
tax liability will be included in the consolidated Federal income tax liability
of FCI and its subsidiaries. In certain circumstances, the Company or certain of
the Company's subsidiaries will also be included with FCI or certain FCI
subsidiaries in combined, consolidated or unitary income tax groups for state
and local tax purposes. The Company and FCI intend to enter into a tax
allocation agreement (the "Tax-Sharing Agreement"), effective as of December 31,
1993 pursuant to which the Company and FCI will make payments between them such
that, with respect to any period, the amount of taxes to be paid by the Company,
subject to certain adjustments, will be determined as though the Company were to
file its own Federal, state and local income tax returns as the common parent of
an affiliated group of corporations. In addition, with respect to certain tax
items, such as net operating losses, foreign tax credits and other credits and
deductions, the Company may also have a right to reimbursement determined based
on the usage of such items by the consolidated group, provided that FCI and its
other subsidiaries do not have similar tax items that can be so used.
In determining the amount of tax-sharing payments under the Tax-Sharing
Agreement, FCI will prepare pro forma returns with respect to Federal and
applicable state and local income taxes that reflect the same positions and
elections used by FCI in preparing the returns for FCI's consolidated group and
other applicable groups. FCI will continue to have all the rights of the common
parent of a consolidated group (and similar rights provided for by applicable
state and local law with respect to the common parent of a combined,
consolidated or unitary group), will be the sole and exclusive agent for the
Company in any and all matters relating to the income, franchise and similar
liabilities of the Company, will have sole and exclusive responsibility for the
preparation and filing of consolidated Federal and consolidated or combined
state and local income tax returns (or amended returns), and will have the
power, in its sole discretion, to contest or compromise any asserted tax
adjustment or deficiency and to file, litigate or compromise any claim for
refund on behalf of the Company. In addition, FCI has agreed to undertake to
provide the aforementioned services with respect to the Company's separate state
and local returns and the Company's foreign returns.
The Tax Sharing Agreement will expire upon the occurrence of any event that
makes the Company no longer includible in the FCI consolidated group. In
general, a subsidiary is includible in a parent's consolidated group for Federal
income tax purposes if the parent beneficially owns at least 80% of the total
voting power and value of the outstanding stock of the subsidiary. Each member
of a consolidated group is jointly and severally liable for the Federal income
tax liability of each other member of the consolidated group. Accordingly,
although the Tax-Sharing Agreement allocates tax liabilities between the Company
and FCI, during the period in which the Company is included in FCI's
consolidated group, the Company could be liable in the event that any Federal
tax liability is incurred, but not discharged, by any other member of FCI's
consolidated group.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a registration rights agreement between FCI and the Company
(the "Registration Agreement"), FCI has the right to require that the Company
register under the Securities Act or qualify for sale (in either case, a "demand
registration") any securities of the Company that FCI owns, including shares of
Common Stock, and the Company is required to use reasonable efforts to cause
such registration to occur, subject to certain limitations and conditions,
including that the Company shall not be obligated to register or qualify such
securities more than two times in any 18-month period and then only if the
request is to register at least 5% of the total number of shares of Common Stock
at the time issued and outstanding. In addition, if the Company proposes to
register shares of Common Stock under the Securities Act, FCI has the right to
request the inclusion of their securities in such registration statement,
subject to certain limitations and conditions, among them the right of the
underwriters of such registered offering to exclude or limit the number of their
shares included in such offering. The Company will bear the entire cost of the
first three demand registrations
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attributable to FCI, and FCI will bear one-half of the costs of any subsequent
demand registrations. These costs include legal fees and expenses of counsel for
the Company, registration fees, printing expenses and other related costs. FCI
will pay any underwriting discounts and commissions associated with the sale of
its securities and the fees and expenses of its counsel.
The Company has agreed that in the event of any registration of shares of
securities pursuant to the Registration Agreement, it will indemnify FCI against
certain liabilities incurred in connection with such registration, including
liabilities under the Securities Act. FCI will provide a similar indemnity for
liabilities incurred as a result of information jointly identified in writing by
the Company and FCI as concerning FCI and its security holdings in the Company
and as identified for use in such registration statement by FCI.
Subject to certain limitations and conditions, the registration rights held
by FCI may be transferred with its securities. The Registration Agreement also
contains various covenants imposing certain obligations upon the Company in
connection with its performance under such agreement including, among other
things, furnishing copies of any prospectus to FCI, entering into an
underwriting agreement, listing the securities as requested and taking such
other necessary actions.
PRINCIPAL STOCKHOLDER
The Company is currently wholly owned by FCI. After completion of the
Offering, FCI will own approximately 84.9% (83.0% if the Underwriters'
over-allotment option is exercised in full) of the outstanding shares of Common
Stock. After the Offering, through its ability to elect all the directors of the
Company, FCI will control all matters affecting the Company, including the
adoption of amendments to the Company's Certificate of Incorporation, any
determination with respect to the acquisition or disposition of Company assets,
future issuances of Common Stock or other securities of the Company, the
Company's incurrence of debt, and any dividend payable on the Common Stock.
Although FCI has advised the Company that it has no immediate plans to
dispose of the Common Stock held by it after the Offering, FCI has not made any
decision regarding its future plans for its ownership interest in the Company.
There can be no assurance that FCI will maintain its ownership interest in the
Company or as to the manner or timing of any disposition of Common Stock by FCI.
Any disposition of Common Stock by FCI that results in a change in control may
have significant consequences for the Company.
Conflicts of interest may arise in the future between the Company and FCI
in a number of areas relating to their past and ongoing relationships, including
potential acquisitions of businesses or properties, the election of new or
additional directors, dividends, incurrence of indebtedness, tax matters,
financial commitments, registration rights, administration of benefit plans,
service arrangements, issuances and sales of capital stock of the Company and
public policy matters. In addition, there are overlapping directors and
executive officers between the Company and FCI. The Company's Chairman of the
Board, Theodore Deikel, is also the Chairman of the Board, Chief Executive
Officer and President of FCI. Michael P. Sherman is a director of the Company
and is also Senior Vice President and General Counsel of FCI, and Dudley C.
Mecum is a director of the Company and is also a director of FCI. In addition,
Peter G. Michielutti is Senior Vice President of Business Development of the
Company and Senior Vice President and Chief Financial Officer of FCI, and Robert
W. Oberrender is Chief Financial Officer of the Company and Vice President and
Treasurer of FCI. See "Management -- Directors and Executive Officers". The
Company has not instituted any formal plan or arrangement to address potential
conflicts of interest that may arise between the Company and FCI. However, the
directors intend to exercise reasonable judgment and take such steps as they
deem necessary under all of the circumstances in resolving any specific conflict
of interest that may occur and will determine what, if any, specific measures
may be necessary or appropriate. There can be no assurance that any conflicts
will be resolved in favor of the Company.
Metris and Fingerhut have entered into a number of agreements for the
purpose of defining the ongoing relationship between them. Pursuant to these
arrangements, Fingerhut will provide benefits to the Company that it might not
provide to a third party and there is no assurance that the terms and conditions
of any future arrangements between Fingerhut and the Company, will be as
favorable to the Company as in effect now. In
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addition, notwithstanding the Tax Allocation Agreement, under ERISA and Federal
income tax law each member of a consolidated group (for Federal income tax and
ERISA purposes) is also jointly and severally liable for the Federal income tax
liability, funding and termination liabilities, certain benefit plan taxes and
certain other liabilities of each other member of the consolidated group.
Similar rules may apply under state income tax laws. See "Transactions Between
FCI and the Company".
Metris is dependent on its bank revolving credit facility, which is
guaranteed by FCI. Breaches of covenants contained in the guaranty, including
various financial covenants of FCI, would be events of default under the
facility. Upon the occurrence of any such event, the facility would be
terminable at the option of the lenders. In addition, the lenders would have the
right to terminate the facility if FCI no longer owns at least 51% of the
Company.
The principal executive offices of FCI are located at 4400 Baker Road,
Minnetonka, Minnesota 55343.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Under the Amended and Restated Certificate of Incorporation, adopted in
October 1996, the Company's authorized capital stock consists of 100,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
preferred stock (the "Preferred Stock"), par value $.01 per share. The following
description is a summary and is qualified in its entirety by the provisions of
the Company's Certificate and By-laws, which are included as exhibits to the
Company's Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share of Common
Stock held on each matter submitted to a vote of stockholders including the
election of directors, and have no preemptive rights to subscribe for additional
shares from the Company. Voting rights are not cumulative, with the result that
holders of more than 50% of the shares of Common Stock are able to elect all of
the Company's directors. Holders of Common Stock are entitled to receive
dividends out of funds legally available therefor when, as and if declared by
the Board of Directors and to receive pro rata the net assets of the Company
legally available for distribution upon liquidation or dissolution. See
"Dividend Policy".
PREFERRED STOCK
The Certificate authorizes the issuance of up to 10,000,000 shares of
Preferred Stock. The Company's Board of Directors is authorized to issue
Preferred Stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rights, repurchase rights, conversion rights, redemption
rights and terms and certain other rights and preferences of the Preferred
Stock. No shares of Preferred Stock are issued or outstanding. There is no
current intention to issue any shares of Preferred Stock; however, the Board of
Directors may issue any or all of such shares without approval of the holders of
the Common Stock.
The issuance in the future of shares of Preferred Stock with presently
unspecified voting and other rights, which may be established by the Company's
Board of Directors in its discretion, could be used by the Company to create
voting impediments or to frustrate persons seeking to gain control of the
Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is
[ ].
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
The following description is a summary and is qualified in its entirety by
the provisions of the Company's Certificate and By-laws, which are included as
exhibits to the Company's Registration Statement of which this Prospectus is a
part.
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DIRECTORS' LIABILITY
The Certificate provides that, to the fullest extent permitted by the
Delaware General Corporation Law, a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
any breach of the director's fiduciary duty as a director to the corporation or
its stockholders. In addition, the By-laws include certain provisions whereby
directors and officers of the Company generally shall be indemnified against
certain liabilities to the fullest extent permitted or required by the Delaware
General Corporation Law. Insofar as these provisions permit indemnification for
liabilities arising under the Securities Act of 1933, the Company has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
As a result of these provisions, the Company and its stockholders may be
unable to obtain monetary damages from a director for breach of duty of care.
Although stockholders may continue to seek injunctive or other equitable relief
for an alleged breach of fiduciary duty by a director, stockholders may not have
any effective remedy against the challenged conduct if equitable remedies are
unavailable.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CERTIFICATE AND BY-LAWS
Certain provisions of the Company's Certificate and By-laws could have an
anti-takeover effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Company's Board of Directors
and in the policies formulated by the Board and to discourage an unsolicited
takeover of the Company if the Board determines that such takeover is not in the
best interests of the Company and its stockholders. However, these provisions
could have the effect of discouraging certain attempts to acquire the Company or
remove incumbent management even if some or a majority of stockholders deemed
such an attempt to be in their best interests.
Insofar as FCI will retain control of the Company after the Offering, the
Company is not at present vulnerable to a takeover without the approval of FCI.
Because of this, the Certificate and By-laws provide that certain provisions
thereof which could have an anti-takeover effect will not be effective until
such time (the "Threshold Time") as FCI shall no longer beneficially own 51% or
more of the Voting Stock. Pursuant to the Certificate, after the Threshold Time
the Board of Directors of the Company will be divided into three classes serving
staggered three-year terms. After the Threshold Time, Directors can be removed
from office only for cause and only by the affirmative vote of the holders of a
majority of the then outstanding shares of Voting Stock together as a single
class. Prior to the Threshold Time, directors will not be classified, will serve
one-year terms and will be removable without cause. Vacancies on the Board of
Directors may be filled only by the remaining directors and not by the
stockholders.
The By-laws establish an advance notice procedure, to take effect after the
Threshold Time, for the nomination, other than by or at the direction of the
Board of Directors, of candidates for election as directors as well as for other
stockholder proposals to be considered at the annual meeting of stockholders. In
general, notice must be received by the Company not less than 50 days nor more
than 75 days prior to the meeting and must contain certain specified information
concerning the persons to be nominated or the matters to be brought before the
meeting and concerning the stockholder submitting the proposal.
Certain transactions with the Company may be subject to Section 203 of the
Delaware General Corporation Law. Section 203 prohibits certain "business
combinations" between an "interested stockholder" and a corporation for three
years after a stockholder becomes interested, unless one of the statute's
exceptions applies. Section 203(c)(5) defines an interested stockholder as a
person, broadly defined to include a group, who owns at least 15% of a company's
outstanding voting stock. The statute defines business combinations expansively
to include any merger or consolidation of, with, or caused by the interested
stockholder. Section 203(a) provides three exceptions to the business
combination prohibition. First, there is no constraint if the interested
stockholder obtains prior board approval for the business combination or the
transaction resulting in ownership of 15% of the target's voting stock. Second,
the statute does not apply if, in completing the transaction that crosses the
15% threshold, the stockholder becomes the owner of 85% of the corporation's
voting stock outstanding as of the time the transaction commenced. Any shares
owned by directors who are officers, and shares owned by certain stock option
plans are excluded from the calculation. This exception
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<PAGE> 76
applies most particularly to a tender offeror who has less than 15% of the
target's stock and receives tenders that satisfy the 85% requirement. Finally,
the statute does not apply if the interested stockholder's business combination
is approved by the board of directors and affirmed by at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
LIMITATIONS ON THE COMPANY'S BUSINESS ACTIVITIES
The Company's Certificate provides that, for so long as FCI continues to
control the Company, the Company shall not, directly or indirectly (through a
subsidiary of, or any other person controlled by, the Company) for its own
account or that of another, engage in managing, selling, distributing,
marketing, administering, leasing or otherwise providing products or services
other than the following: (i) general purpose payment cards including without
limitation, credit cards, secured bank credit cards, prepaid cards, debit cards,
co-branded cards, and affinity bank credit cards; (ii) extended service plans
and warranties; (iii) credit card registration; (iv) car buying services,
shopping club memberships and dining club memberships; (v) insurance products;
(vi) mailing lists and other lists of prospects for solicitation; (vii)
advertising on or accompanying monthly billing statements sent to customers of
the Company; (viii) tax preparation services; (ix) investment products and
services including without limitation deposit products, certificates of deposit,
annuities, and mutual funds; (x) investment and other brokerage services; (xi)
consumer loans and leases including without limitation mobile home financing,
automobile lending and leasing, equity loans and mortgages, and student loans;
and (xii) mail-grams, travelers checks, money orders, and travel services.
In addition to the above specified activities, the Certificate of
Incorporation permits the Company to engage in any other business or activity
with the consent of FCI or majority vote of the shareholders. The Certificate of
Incorporation further provides that no person shall be liable for breach of any
fiduciary duty, as a stockholder of the Company or controlling person of a
stockholder or otherwise, by reason of such person authorizing, or not
authorizing, the Company to engage in any business or activity.
CORPORATE OPPORTUNITIES
The Company's Certificate provides that no opportunity, transaction,
agreement or other arrangement to which FCI, or an entity in which FCI has an
interest, is a party, shall be a corporate opportunity of the Company unless
such opportunity, transaction, agreement or other arrangement shall have been
initially offered to the Company before it is offered to FCI or such other
entity, and either (i) the Company has an enforceable contractual interest in
such opportunity, transaction, agreement or other arrangement or (ii) the
subject matter of such opportunity, transaction, agreement or other arrangement
is a constituent element of an activity in which the Company is then actively
engaged. Even if the foregoing conditions were met, such fact alone would not
conclusively render such opportunity the property of the Company.
FCI may in the future receive business opportunities which would be
suitable for either the Company or FCI (or an affiliate of FCI other than the
Company). There can be no assurance that such business opportunities will be
undertaken through the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 18,800,000 shares of
Common Stock issued and outstanding. All of the shares of Common Stock to be
sold in the Offering will be freely tradeable without restrictions or further
registration under the Securities Act. Immediately prior to the Closing Date,
all of the outstanding shares of Common Stock will be beneficially owned by FCI
and will not have been registered under the Securities Act and may not be sold
in the absence of an effective registration statement under the Securities Act
other than in accordance with Rule 144 or another exemption from registration.
FCI has certain rights to require the Company to effect registration of shares
of Common Stock owned by FCI, which rights may be assigned. See "Transactions
Between FCI and the Company -- Registration Rights Agreement".
75
<PAGE> 77
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock for at least two years, including a person who may be deemed an
"affiliate", is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one percent of the total number of
shares of the class of stock being sold or the average weekly reported trading
volume of the class of stock being sold during the four calendar weeks preceding
such sale. A person who is not deemed an "affiliate" of the Company at any time
during the three months preceding a sale and who has beneficially owned shares
for at least three years is entitled to sell such shares under Rule 144 without
regard to the volume limitations described above. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through the use
of one or more intermediaries controls, is controlled by, or is under common
control with, such issuer. The foregoing summary of Rule 144 is not intended to
be a complete description thereof.
Prior to the Offering, there has been no market for the Common Stock, and
no prediction can be made as to the effect, if any, that market sales of
outstanding shares of Common Stock, or the availability of such shares for sale,
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of the shares of Common Stock
beneficially owned by FCI in the public market, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock offered in the Offering.
FCI, the Company and each of the Company's officers and directors have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of Smith Barney, offer, sell,
contract to sell, solicit an offer to buy, grant any option to purchase or
otherwise transfer or dispose of, any shares of Common Stock (or any securities
convertible into, or exercisable or exchangeable for, shares of Common Stock).
See "Underwriting".
76
<PAGE> 78
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date of this Prospectus, each of the underwriters named
below (the "Underwriters"), for whom Smith Barney Inc. ("Smith Barney"), Bear,
Stearns & Co. Inc. and William Blair & Company, L.L.C., are acting as the
representatives (the "Representatives"), has severally agreed to purchase, and
the Company has agreed to sell to such underwriter, the number of shares of
Common Stock set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
----------------------------------------------------------------- -----------
<S> <C>
Smith Barney Inc. ...............................................
Bear, Stearns & Co. Inc. ........................................
William Blair & Company, L.L.C. .................................
-----------
Total.......................................................
===========
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus and part of the shares of Common Stock to certain
dealers at a price that represents a concession not in excess of $ per
share below the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed by the Underwriters. The
Representatives have advised the Company that the Underwriters do not intend to
confirm sales to accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus less underwriting discounts and commissions. The
Underwriters may exercise such option to purchase additional shares solely for
the purpose of covering over-allotments, if any, incurred in connection with the
sale of the shares offered hereby. To the extent such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite such Underwriter's name in the preceding table bears
to the total number of shares in such table.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act and
other applicable securities laws, or to contribute to payments required to be
made in respect thereof.
FCI, the Company and each of the Company's officers and directors have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of Smith Barney, sell, offer to
sell, contract to sell, solicit an offer to buy, grant any option to purchase or
otherwise transfer or dispose of, any shares of Common Stock (or any securities
convertible into, or exercisable or exchangeable for, shares of Common Stock).
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock offered hereby was determined by negotiations among the Company and the
Representatives. Among the factors considered in determining the initial public
offering price were the history of, and the prospects for, the Company's
business and the industry in which it competes, an assessment of the Company's
management, its past and present operations, its past and present revenues and
earnings and the trend of such revenues and earnings, the prospects for growth
of the Company's revenues and earnings, the present state of the Company's
development, the general condition of the securities market at the time of the
Offering and the market prices and earnings of similar securities of comparable
companies at
77
<PAGE> 79
the time of the Offering, the current state of the economy and the current level
of economic activity in the industry in which the Company competes.
Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "MTRS".
LEGAL MATTERS
Certain legal matters with respect to the authorization and issuance of
Common Stock offered hereby will be passed upon for the Company by Cravath,
Swaine & Moore, New York, New York and for the Underwriters by Cahill Gordon &
Reindel (a partnership including a professional corporation), New York, New
York.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994,
and for each of the years in the three-year period ended December 31, 1995, have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
78
<PAGE> 80
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets as of June 30, 1996, and December 31, 1995 and 1994.................... F-3
Statements of Income for the Six Months Ended June 30, 1996 and 1995, and the Years
Ended December 31, 1995, 1994, and 1993............................................. F-4
Statements of Changes in Division Equity for the Years Ended December 31, 1995,
1994, and 1993...................................................................... F-5
Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995, and the
Years Ended December 31, 1995, 1994, and 1993....................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fingerhut Companies, Inc.:
We have audited the accompanying balance sheets of Metris Companies Inc. (a
division of Fingerhut Companies, Inc.) as of December 31, 1995 and 1994, and the
related statements of income, changes in division equity and cash flows, for
each of the years in the three-year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metris Companies Inc. (a
division of Fingerhut Companies, Inc.) as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 16, 1996
F-2
<PAGE> 82
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------
1996 1995 1994
----------- -------- ------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and due from banks........................................ $ 3,755 $ 4,185 $ 23
Federal funds sold............................................. 14,361 29,144 --
Short-term investments......................................... 4,114 1,414 --
-------- -------- ------
Cash and cash equivalents.................................... 22,230 34,743 23
-------- -------- ------
Credit card loans:
Loans held for securitization................................ 19,714 15,337 --
Retained interests in loans securitized...................... 112,249 79,727 --
Less: Allowance for loan losses........................... 5,303 3,679 --
-------- -------- ------
Net credit card loans........................................ 126,660 91,385 --
-------- -------- ------
Loans to Fingerhut Companies, Inc. (FCI)....................... -- -- 9,375
Premises and equipment, net.................................... 3,012 1,476 255
Accrued interest and fees receivable........................... 2,115 2,223 --
Other receivables due from credit card securitizations, net.... 5,714 31,597 --
Prepaid expenses and deferred charges.......................... 4,063 4,517 --
Deferred income taxes.......................................... 16,255 4,306 198
Other assets................................................... 5,735 4,181 5
-------- -------- ------
TOTAL ASSETS................................................. $ 185,784 $174,428 $9,856
======== ======== ======
LIABILITIES
Interest-bearing deposit from affiliate........................ $ 1,000 $ 1,000 $ --
Short-term borrowings from FCI................................. 54,318 63,482 --
Accounts payable............................................... 15,977 21,334 2,444
Current income taxes payable to FCI............................ 8,549 5,178 127
Deferred income................................................ 21,169 10,087 3
Accrued expenses and other liabilities......................... 4,559 2,029 545
-------- -------- ------
TOTAL LIABILITIES............................................ $ 105,572 $103,110 $3,119
-------- -------- ------
DIVISION EQUITY
Contributed capital............................................ 60,028 60,028 28
Retained earnings.............................................. 20,184 11,290 6,709
-------- -------- ------
TOTAL DIVISION EQUITY........................................ 80,212 71,318 6,737
-------- -------- ------
TOTAL LIABILITIES AND DIVISION EQUITY........................ $ 185,784 $174,428 $9,856
======== ======== ======
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE> 83
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Credit card loans.............................. $12,119 $ 1,371 $ 7,054 $ -- $ --
Federal funds sold............................. 436 43 487 -- --
Other.......................................... 64 46 75 487 279
------- ------- ------- ------- -------
Total interest income..................... 12,619 1,460 7,616 487 279
------- ------- ------- ------- -------
INTEREST EXPENSE
Deposit........................................ 24 11 36 -- --
Short-term borrowings from FCI................. 1,834 269 1,181 -- --
------- ------- ------- ------- -------
Total interest expense.................... 1,858 280 1,217 -- --
------- ------- ------- ------- -------
NET INTEREST INCOME............................ 10,761 1,180 6,399 487 279
Provisions for loan losses..................... 5,173 534 4,393 -- --
------- ------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES....................................... 5,588 646 2,006 487 279
------- ------- ------- ------- -------
OTHER OPERATING INCOME:
Net extended warranty revenues................. 8,615 6,687 17,779 12,244 7,935
Net securitization and credit card servicing
income....................................... 20,536 3,154 16,003 -- --
Credit card fees, interchange and other credit
card income.................................. 12,078 4,704 10,639 -- --
Fee-based product revenues..................... 12,067 1,549 6,662 1,994 2,118
------- ------- ------- ------- -------
53,296 16,094 51,083 14,238 10,053
------- ------- ------- ------- -------
OTHER OPERATING EXPENSE:
Credit card account and other product
solicitation and marketing expenses.......... 16,461 9,338 23,089 3,739 4,092
Employee compensation.......................... 7,723 764 2,466 442 300
Data processing services and communications.... 5,196 880 3,090 109 11
Third party servicing expenses................. 4,613 1,178 5,300 473 356
Warranty and debt waiver underwriting and
claims servicing expenses.................... 4,061 2,423 6,552 4,109 3,033
Credit card fraud losses....................... 1,066 281 775 -- --
Other.......................................... 5,302 1,738 4,368 2,350 541
------- ------- ------- ------- -------
44,422 16,602 45,640 11,222 8,333
------- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES..................... $14,462 $ 138 $ 7,449 $ 3,503 $ 1,999
Income taxes................................... 5,568 53 2,868 1,305 737
------- ------- ------- ------- -------
NET INCOME..................................... $ 8,894 $ 85 $ 4,581 $ 2,198 $ 1,262
======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE> 84
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
STATEMENTS OF CHANGES IN DIVISION EQUITY
<TABLE>
<CAPTION>
CONTRIBUTED TOTAL DIVISION
CAPITAL RETAINED EARNINGS EQUITY
----------- ----------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992.......................... $ 28 $ 3,249 $ 3,277
Net income.......................................... -- 1,262 1,262
------- ------- -------
BALANCE AT DECEMBER 31, 1993.......................... $ 28 $ 4,511 $ 4,539
Net income.......................................... -- 2,198 2,198
------- ------- -------
BALANCE AT DECEMBER 31, 1994.......................... $ 28 $ 6,709 $ 6,737
Net income.......................................... -- 4,581 4,581
Contributions from FCI.............................. 60,000 -- 60,000
------- ------- -------
BALANCE AT DECEMBER 31, 1995.......................... $60,028 $11,290 $ 71,318
Net income (unaudited).............................. -- 8,894 8,894
------- ------- -------
BALANCE AT JUNE 30, 1996 (unaudited).................. $60,028 $20,184 $ 80,212
======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE> 85
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- ------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................... $ 8,894 $ 85 $ 4,581 $ 2,198 $ 1,262
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Provision for loan losses.............. 5,173 534 4,393 -- --
Depreciation and amortization.......... 3,277 573 2,808 26 8
(Gain)/Net amortization of gain on
securitization of credit card
loans............................... 2,728 (2,455) (7,267) -- --
Deferred income tax provision.......... (12,062) (1,318) (4,291) (95) 61
Changes in operating assets and
liabilities:
Accrued interest and fees
receivable........................ 108 (2,088) (2,223) -- --
Other receivables due from credit
card securitizations, net......... 22,953 (16,576) (24,572) -- --
Prepaid expenses and deferred
charges............................. (2,148) (2,411) (6,696) 176 (176)
Accounts payable and accrued
expenses............................ (2,827) 7,937 20,374 1,198 477
Current income taxes payable to FCI.... 3,371 834 5,051 (86) (256)
Deferred income........................ 11,082 10,119 10,084 (69) 72
Other.................................. (1,754) (1,303) (4,248) 64 (68)
--------- --------- --------- ------- -------
Net cash provided by (used in) operating
activities............................. $ 38,795 $ (6,069) $ (2,006) $ 3,412 $ 1,380
--------- --------- --------- ------- -------
INVESTING ACTIVITIES
Proceeds from sales of loans............. 487,500 145,256 448,555 -- --
Net loans originated or collected........ (527,948) (189,770) (528,864) -- --
Credit card portfolio acquisition........ -- -- (15,469) -- --
Net (increase) decrease in loans to
FCI.................................... -- 9,375 9,375 (3,215) (1,356)
Additions to premises and equipment...... (1,696) (210) (1,353) (239) (28)
--------- --------- --------- ------- -------
Net cash used in investing activities.... $ (42,144) $ (35,349) $ (87,756) $(3,454) $(1,384)
--------- --------- --------- ------- -------
FINANCING ACTIVITIES
Increase in interest-bearing deposit..... -- 1,000 1,000 -- --
Net (decrease) increase in short-term
borrowings from FCI.................... (9,164) 28,204 63,482 -- --
Capital contributions from FCI........... -- 20,000 60,000 -- --
--------- --------- --------- ------- -------
Net cash (used in) provided by financing
activities............................. $ (9,164) $ 49,204 $ 124,482 $ -- $ --
--------- --------- --------- ------- -------
Net (decrease) increase in cash and cash
equivalents............................ (12,513) 7,786 34,720 (42) (4)
Cash and cash equivalents at beginning of
period................................. 34,743 23 23 65 69
--------- --------- --------- ------- -------
Cash and cash equivalents at end of
period................................. $ 22,230 $ 7,809 $ 34,743 $ 23 $ 65
========= ========= ========= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE> 86
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- THE COMPANY AND BASIS OF PRESENTATION
The financial statements include the assets, liabilities, equity, and
revenues and expenses of Fingerhut Companies, Inc.'s ("FCI") businesses engaged
in offering certain consumer credit products, extended service plans, and other
fee-based products and services to moderate income consumers ("Metris Companies
Inc." or the "Company"). This business is conducted through Metris Direct, Inc.,
Direct Merchants Credit Card Bank, National Association ("Direct Merchants
Bank") and Metris Receivables, Inc. ("MRI"), each a direct or indirect
wholly-owned subsidiary of FCI, and certain portions of the retail extended
service plan business ("Extended Service Plan Business") of Fingerhut
Corporation ("Fingerhut"), a wholly-owned subsidiary of FCI. In connection with
the planned initial public offering of the Company, FCI intends to contribute
the assets, liabilities and equity of the Extended Service Plan Business and all
of the outstanding stock of Metris Direct, Inc., Direct Merchants Bank and MRI
to Metris Companies Inc.
The financial statements include an allocation of FCI interest expense for
the net borrowings of the Company from FCI, or a net interest credit for the net
cash flows of the Company loaned to FCI in certain periods. Prior to 1995, the
Company maintained a net loan position to FCI since its extended service plan
and other fee-based products and services businesses generated positive cash
flows above its business needs. Therefore, for periods prior to 1995, the
Company's small cash position was due to this practice of loaning all available
funds to FCI on a daily basis. However, with the establishment of the Company's
consumer credit products business in early 1995, the Company's need for cash to
fund credit card loans and for other general business purposes increased above
the cash generated by its other businesses. Therefore, since early 1995, the
Company has borrowed funds or obtained capital from FCI to fund its ongoing
operations. Correspondingly, the financial statements reflect a $60 million
allocation of capital from FCI to the Company during 1995. This capital
contribution was made in installments at the beginning of each month throughout
1995, in order to maintain the Company's equity at a level sufficient to support
the growth in managed assets experienced by the Company during 1995 (generally
at a level approximating 10% of total managed assets at the end of each month).
The financial statements also include an allocation of expenses for data
processing and information systems, audit, certain accounting and similar
administrative functions, treasury, legal, human resources, customer service and
other administrative support historically provided by FCI and its subsidiaries
to the Company. Such expenses were based on the actual use of such services or
were based on other allocation methods which, in the opinion of management, are
reasonable. During 1996, FCI and the Company entered into an administrative
services agreement which covers such expense allocations and the provision of
future services using similar rates and allocation methods for various terms,
the latest of which expires at the end of 1998. The financial statements also
reflect the retroactive effects of intercompany agreements entered into during
1996 including co-brand credit card, database access, and data sharing
agreements with Fingerhut, and extended service plan and tax sharing agreements
with FCI. These agreements have terms ranging up to seven years (see Notes 2 and
10).
All significant intradivisional balances and transactions have been
eliminated in preparation of these financial statements.
INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements and the related unaudited
interim financial information in the footnotes have been prepared in accordance
with generally accepted accounting principles and the rules and regulations of
the Securities and Exchange Commission for interim financial statements. Such
interim financial statements reflect all adjustments, consisting of normal
recurring accruals, which in the opinion of management, are necessary to present
fairly the financial position of the Company at June 30, 1996, and the results
of its operations and cash flows for the six-month periods ended June 30, 1996
and 1995. The nature of
F-7
<PAGE> 87
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
the Company's business is such that the results of any interim period may not be
indicative of the results to be expected for the entire year.
COMPARABILITY OF FINANCIAL STATEMENTS
The Company's consumer credit products business and a substantial portion
of its fee-based products and services business began operations in February of
1995, with the opening of Direct Merchants Bank. Therefore, the financial
statements prior to 1995 are not necessarily comparable to the financial
statements for periods ending in 1995 and thereafter.
PERVASIVENESS OF ESTIMATES
The financial statements have been prepared in accordance with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amount of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting and reporting
policies used in preparing the financial statements.
FEDERAL FUNDS SOLD
Federal funds sold are short-term loans made to banks through the Federal
Reserve System. It is the Company's policy to make such loans only to banks
which are considered to be in compliance with their regulatory capital
requirements.
CREDIT CARD LOANS HELD FOR SECURITIZATION
Credit card loans held for securitization are loans the Company intends to
securitize, generally no later than three months from origination and are
recorded at the lower of aggregate cost or market value.
SECURITIZATIONS, RETAINED INTERESTS IN LOANS SECURITIZED AND SECURITIZATION
INCOME
Substantially all credit card loans have been securitized and sold to
investors through a master trust (see Note 3). The Company retains an interest
in the trust in an amount equal to the amount of the retained subordinated
certificates of each series held by MRI, plus the amount equal to the loans in
excess of the principal balance of the certificates. The sales of these loans
have been recorded in accordance with Statement of Financial Accounting
Standards No. 77, "Reporting by Transferors for Transfers of Receivables with
Recourse". Upon sale, the loans are removed from the balance sheet, and a gain
on sale is recognized for the difference between the carrying value of the loans
and the adjusted sales proceeds. The adjusted sales proceeds are based on a
present value estimate of future cash flows to be received over the life of the
loans, net of certain funding and servicing costs. The resulting gain is further
reduced for estimated loan losses over the life of the related loans under the
limited recourse provisions. Because these estimates are influenced by factors
outside of the Company's control, the uncertainty inherent in these estimates
makes it reasonably possible that these estimates could change in the near term.
The securitization and sale of credit card loans changes the Company's
interest in such loans from that of a lender to that of a servicer. Accordingly,
there is a change in how revenue is reported in the income statement. For
securitized and sold credit card loans, amounts that otherwise would have been
recorded as
F-8
<PAGE> 88
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
interest income, interest expense, fee income and provision for loan losses are
instead reported in the statements of income as "Net securitization and credit
card servicing income".
ALLOWANCE FOR LOAN LOSSES
Provisions for loan losses are made in amounts necessary to maintain the
allowance at a level estimated to be sufficient to absorb future losses of
principal and interest, net of recoveries (including recovery of collateral, if
applicable), inherent in the existing on-balance sheet loan portfolio. In
evaluating the adequacy of the allowance for loan losses, management considers
several factors including: historical charge-off and recovery activity by age
(vintage) of each loan portfolio (noting any particular trends over recent
periods); recent delinquency and collection trends by vintage; current economic
conditions and the impact such conditions might have on borrowers' ability to
repay; the risk characteristics of the portfolios; and other factors.
Significant changes in these factors could impact the adequacy of the allowance
for loan losses in the near term.
Credit card accounts are generally charged-off at the end of the month
during which the loan becomes contractually 180 days past due, with the
exception of bankrupt accounts, which are charged-off immediately upon formal
notification of bankruptcy, and accounts of deceased cardholders without a
surviving, contractually liable individual, or an estate large enough to pay the
debt in full, which are also charged-off immediately upon notification.
DEBT WAIVER CLAIMS RESERVES
Since 1995, Direct Merchants Bank has offered various debt-waiver products
to its credit card customers for which it retains the claims risk. Revenue for
such products is recognized ratably over the coverage period, generally one
month, and additional reserves are provided for pending claims based on Direct
Merchants Bank's historical experience with settlement of such claims. These
reserves are recorded in the balance sheets in "Accrued Expenses and Other
Liabilities" and amounted to $1,580 and $698 as of June 30, 1996, and December
31, 1995, respectively.
PREMISES AND EQUIPMENT
Premises, furniture and equipment, and computer hardware and software, are
stated at cost and depreciated on a straight-line basis over their estimated
economic useful lives (three to ten years for furniture and equipment, three to
five years for computer hardware, five years for software; and over the shorter
of the estimated useful life or the term of the lease for leasehold
improvements). The Company capitalizes software developed for internal use that
represents major enhancements or replacements of operating and management
information systems. Amortization of such capitalized software begins when the
systems are fully developed and ready for implementation. Repairs and
maintenance are charged to expense as incurred.
INTEREST INCOME ON CREDIT CARD LOANS
Interest income on credit card loans is accrued and earned based on the
principal amount of the loans outstanding using the effective yield method.
Accrued interest which has been billed to the customer but not yet received is
classified on the balance sheet with the related credit card loans. Accrued
interest which has not yet been billed to the customer is estimated and
classified on the balance sheet separate from the loan balance. Interest income
is generally recognized until a loan is charged off. At that time, the accrued
interest portion of the charged-off balance is deducted from current period
interest income.
F-9
<PAGE> 89
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
EXTENDED SERVICE PLANS
The Company coordinates all of the marketing activities for Fingerhut's
sales of extended warranties or service plans. Revenues for extended warranties
sold, and related provisions for service contract returns are recorded at the
time of Fingerhut's shipment to the customer of the related extended service
plan merchandise. The provision for service contract returns charged against
revenues for the six months ended June 30, 1996, and 1995, and for the years
ended December 31, 1995, 1994, and 1993, amounted to $1,747 and $1,379, and
$3,626, $2,558, and $1,905, respectively. Additionally, the Company reimburses
Fingerhut for the cost of its marketing media and other services utilized in the
sales of service plans, based on contracts sold and on media utilization costs
as agreed to by the Company and the retailer. These media cost reimbursements
were $2,458 and $1,676 for the six months ended June 30, 1996, and 1995,
respectively, and $4,166, $2,780, and $1,785 for the years ended December 31,
1995, 1994, and 1993, respectively.
The Company has contracted with a third-party underwriter and claims
administrator to service and absorb the risk of loss from most claims. These
claims servicing contract costs are expensed as the service contracts are sold,
net of the related cost of anticipated service contract returns.
CREDIT CARD FEES AND ORIGINATION COSTS
Credit card fees include annual, late payment, over-credit limit, returned
check, and cash advance transaction fees. These fees are assessed according to
the terms of the related cardholder agreements.
The Company defers direct credit card origination costs associated with
successful credit card solicitations that it incurs in transactions with
independent third parties, and certain other costs that it incurs in connection
with loan underwriting and the preparation and processing of loan documents.
These deferred credit card origination costs are netted against the related
credit card annual fee, if any, and amortized on a straight-line basis over the
cardholder's privilege period, generally 12 months.
SOLICITATION EXPENSES
Credit card account and other product solicitation costs, including
printing, credit bureaus, list processing costs, telemarketing and postage, are
generally expensed as incurred over the two to three month period during which
the related responses to such solicitations are received.
CREDIT CARD FRAUD LOSSES
The Company experiences credit card fraud losses from the unauthorized use
of credit cards. These fraudulent transactions are expensed when identified,
through the establishment of a reserve for the full amount of the transactions.
These amounts are charged off after 90 days, after all attempts to recover the
amounts from such transactions, including chargebacks to merchants and claims
against cardholders, are exhausted.
INTEREST RATE CONTRACTS
The nature and composition of the Company's assets and liabilities and
off-balance sheet items expose the Company to interest rate risk. The Company
enters into a variety of interest rate contracts such as interest rate swap and
cap agreements in the management of its interest rate exposures. These interest
rate contracts are designated, and effective, as synthetic alterations of
specific assets or liabilities (or groups of assets or liabilities) and
off-balance sheet items. The monthly interest rate differential to be paid or
received on these contracts is accrued and included in "Net securitization and
credit card servicing income" in the statements of income. Premiums paid for
such contracts and the related interest payable or receivable under such
contracts are classified under "Other receivables due from credit card
securitizations, net," in the balance sheets.
F-10
<PAGE> 90
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Premiums paid for interest rate contracts are recorded at cost and amortized on
a straight-line basis over the life of the contract.
INCOME TAXES
The Company is included in the Federal income tax return and certain state
income tax returns of FCI. Based on a tax sharing agreement between the Company
and FCI, the provisions for Federal and state income taxes are computed on a
separate-return basis. Deferred tax assets and liabilities are determined based
on the temporary differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
STATEMENTS OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect
method, which requires a reconciliation of net income to net cash from operating
activities. In addition, the Company nets certain cash receipts and cash
payments from credit card loans made to customers, including principal
collections on those loans. For purposes of the statements of cash flows, cash
and cash equivalents include cash and due from banks, federal funds sold,
short-term investments, (mainly money market mutual funds) and all other highly
liquid investments with original maturities of three months or less.
Cash paid for interest during the six months ended June 30, 1996 and 1995,
and the years ended December 31, 1995, 1994, and 1993, was $1,858 and $280 and
$1,217, $0, and $0, respectively. Cash paid for income taxes for the same
periods was $14,259 and $434, and $2,004, $1,589, and $932, respectively.
NOTE 3 -- CREDIT CARD SECURITIZATIONS
The Company securitizes and sells its credit card loans to both public and
private investors. In May of 1995, the Fingerhut Financial Services Master Trust
("the Trust") was established to allow the Company to sell, on a continuous
basis, an undivided interest in a pool of credit card loans generated or
acquired by Direct Merchants Bank. Concurrently, the Trust issued the Series
1995-1 variable funding certificates with maximum proceeds of $512.6 million,
$400 million of which represents the periodic proceeds from the issuance of
short-term asset-backed commercial paper under a liquidity facility. The Series
1995-1 certificates will enter into their amortization period beginning in May
of 1999. In April of 1996, the Trust issued the Series 1996-1 certificates with
a principal amount of $655.5 million, generating proceeds of $653.9 million,
$400 million of which was used to pay down the short-term asset-backed
commercial paper issued under Series 1995-1. Remaining proceeds were utilized to
reduce short-term borrowings from FCI. The series 1996-1 certificates will enter
into their amortization period beginning in August of 1998.
Credit card loans are transferred to the Trust, which issues certificates
representing undivided ownership interests in the Trust, primarily to
institutional investors. The Company also retains participation interests in the
Trust (under "Retained interests in loans securitized" on the balance sheets),
in an amount equal to the amount of the retained subordinated certificates of
each series held by MRI plus the amount equal to the loans in excess of the
principal balance of the certificates. Although the Company continues to service
the underlying credit card accounts and maintains the customer relationships,
these transactions are treated as sales for financial reporting purposes to the
extent of the investors interests in the Trust. Accordingly, the associated
loans are not reflected on the balance sheets.
As reflected in the balance sheets, the Company also has other receivables
from the Trust as a result of the credit card securitization transactions. These
include interest-bearing deposits, which constitute amounts subject to liens by
the certificateholders of the individual securitizations, amounts deposited in
an investor reserve account held by the trustee for the benefit of the Trust's
certificateholders, and amounts to be
F-11
<PAGE> 91
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
distributed to investors for interest payments on the certificates. As discussed
in Note 2, these amounts also include the excess servicing asset, which
represents the net gain recorded at any point in time for loans sold under asset
securitizations, net of recourse reserves for the securitized loans. As the
balance of the excess servicing asset, net of recourse reserves, is influenced
by factors outside of the Company's control, there is uncertainty inherent in
these estimates, making it possible that they could change in the near term.
NOTE 4 -- ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- --------------------------
1996 1995 1995 1994 1993
------ ---- ------ ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period................... $3,679 $ -- $ -- $-- $--
Provision for loan losses........................ 5,173 534 4,393 -- --
------ ---- ------ --- ---
Loans charged-off................................ 3,629 -- 720 -- --
Recoveries....................................... 80 -- 6 -- --
------ ---- ------ --- ---
Net loan charge-offs............................. 3,549 -- 714 -- --
------ ---- ------ --- ---
Balance at end of period......................... $5,303 $534 $3,679 $-- $--
====== ==== ====== === ===
</TABLE>
NOTE 5 -- PREMISES AND EQUIPMENT
The carrying value of premises and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------
1996 1995 1994
----------- ------ ----
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment....................................... $ 638 $ 300 $166
Computer equipment............................................ 1,110 1,110 128
Computer software in development.............................. 629 110 --
Construction in progress...................................... 890 48 --
Leasehold improvements........................................ 74 74 --
------ ------ ----
Total.................................................... $ 3,341 $1,642 $294
Less: Accumulated depreciation and amortization............... 329 166 39
------ ------ ----
Balance at end of period...................................... $ 3,012 $1,476 $255
====== ====== ====
</TABLE>
Depreciation and amortization expense for the six months ended June 30,
1996 and 1995, and for the years ended December 31, 1995, 1994, and 1993 was
$163 and $44, and $127, $26, and $8, respectively.
NOTE 6 -- SHORT TERM BORROWINGS
The Company currently borrows from FCI to fund on-balance sheet loans and
for other general business purposes. Such borrowings from FCI are made from
FCI's cash balances and borrowings under its revolving credit facility which
provides for aggregate commitments of up to $400 million. At June 30, 1996, and
December 31, 1995, and 1994, FCI had outstanding revolving credit balances of
$201 million, $115 million and $0, respectively, of which the Company had
borrowed $54.3 million, $63.5 million, and $0, respectively, from FCI. The
interest rate on the borrowings was 6.0%, 7.1%, and 8.5% at June 30, 1996, and
December 31, 1995 and 1994, respectively.
F-12
<PAGE> 92
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
On July 1, 1996, FCI executed a commitment letter with a securities
underwriter and bank (the "Underwriter" and "Bank") in which the Underwriter
will act as the exclusive advisor and arranger of the following credit
facilities: (1) a $300 million, five-year revolving credit facility for the
Company (the "Revolving Credit Facility"), guaranteed by FCI; (2) a $400 million
increase of the current $800 million commercial paper liquidity facility (the
"Liquidity Facility") which matures in May 1999, and supports the Fingerhut
Owner Trust Commercial Paper program in which the Company participates; and (3)
up to $112.6 million of additional asset-backed certificates (the
"Certificates") to support the aforementioned increase in the Fingerhut Owner
Trust asset-backed commercial paper program.
The Bank and the Underwriter have agreed to provide the entire amount of
the Revolving Credit Facility and the entire amount of the increase in the
Liquidity Facility. In addition, the Underwriter has agreed to underwrite the
entire amount of the Certificates, in each case subject to the conditions set
forth or referred to in the Commitment Letter. However, these funding
commitments may be arranged and placed with such other parties as the Bank and
Underwriter deem necessary to distribute the concentration of the funding
commitments among various parties.
The Revolving Credit Facility will be guaranteed by FCI and will be further
supported by the pledge of the stock of certain subsidiaries of the Company and
certain accounts receivable and interests held therein by the Company. The
Company must pay a facility fee on the entire amount of the Revolving Credit
Facility, the level of which is determined by the non-credit enhanced senior
debt rating of FCI. The range of the facility fee is from 8 basis points to 25
basis points. The Revolving Credit Facility has Alternate Base Rate ("ABR") and
LIBOR borrowing options. The ABR rate is a per annum rate equal to the highest
of either (i) the rate of interest publicly announced by the Bank as its prime
rate in effect at its principal office in New York City, (ii) the secondary
market rate for three-month certificates of deposit plus 1%, or (iii) the
federal funds rate effective from time to time plus 0.5%. The borrowing spread
on the LIBOR borrowing option is determined by the same FCI credit rating as the
facility fee. The LIBOR borrowing spread range is from 17 basis points to 50
basis points. The Revolving Credit Facility will also contain certain financial
covenants standard for revolving credit facilities of this type including
minimum net worth, minimum equity to managed assets ratio, maximum leverage and
a limitation on indebtedness. In addition, the FCI guarantee will include
certain covenants including interest coverage, leverage and minimum net worth
for FCI.
The terms of the Revolving Credit Facility and the Liquidity Facility
include aggregate up-front fees of $2,970, which are non-refundable when paid.
In addition, the Company is obligated to pay certain ongoing administrative fees
to the administrative agent for the facilities.
NOTE 7 -- EMPLOYEE BENEFIT PLANS
Employees of the Company are participants in two non-contributory, defined
benefit plans of FCI which cover substantially all full-time non-union
employees. These plans have vesting periods of five years and provide monthly
retirement benefits based on years of service and level of compensation. FCI's
funding policy is to make annual contributions equal to, or exceeding, the
minimum required by the Employee Retirement Income Security Act of 1974, and
plan assets were primarily invested in an equity fund at December 31, 1995 and
1994. Due to the small number of the Company's employees with a significant
number of years of service, the amounts of the actuarial present value of
benefit obligations and the plan assets to be allocated to the Company were
immaterial at December 31, 1995 and 1994. Pension expense allocated to the
Company for the six months ended June 30, 1996 and 1995, and for the years ended
December 31, 1995, 1994, and 1993, was $30 and $11, and $28, $7, and $4,
respectively.
Employees of the Company are also participants in certain defined
contribution plans of FCI, (some of which have, or are limited to, 401(k)
provisions) which cover substantially all non-union employees. Employer
contributions to the plans are discretionary and are generally determined by the
Board of Directors
F-13
<PAGE> 93
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
of each of the individual companies which participate in such plans, but are not
to exceed 15 percent of each individual's compensation. The cost allocated to
the Company for these plans for the six months ended June 30, 1996 and 1995, and
for the years ended December 31, 1995, 1994, and 1993, was $465 and $75, and
$184, $34, and $28, respectively.
NOTE 8 -- STOCK OPTIONS
Effective March of 1994, FCI granted the Company's Chief Executive Officer
("CEO") a tandem option, which vests evenly over four years from the effective
date, for either (a) 55,000 shares of FCI's common stock at an exercise price of
$15.00 per share or (b) a 3.3% equity interest in the adjusted fair value of the
Company, as defined, that exceeds two times the estimated fair value of the
Company in March of 1994 (the "Initial Value"). The exercise of either option
terminates the other and if the CEO terminates his employment prior to the
completion of the Company's public offering of its stock, the entire vested
obligation is to be settled in cash. Accordingly, since March of 1994, the
Company has recorded compensation expense for this cash settlement obligation
only if the current estimated fair value of the Company, as adjusted, exceeds
the Initial Value. Compensation expense of $1.8 million was recorded based on
this calculation for the six months ended June 30, 1996, and has been recorded
on the balance sheet as "Accrued expenses and other liabilities". Additionally,
upon the initial public offering of the Company's stock, the 3.3% equity
interest option in the fair value of the Company will be converted into an
equivalent option for shares of the Company.
NOTE 9 -- INCOME TAXES
The components of the provision for income taxes consisted of the
following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------
1996 1995 1995 1994 1993
-------- ------- ------- ------ ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............................... $ 15,665 $ 1,195 $ 6,238 $1,274 $620
State................................. 1,965 176 921 126 56
Deferred................................ (12,062) (1,318) (4,291) (95) 61
-------- ------- ------- ------ ----
$ 5,568 $ 53 $ 2,868 $1,305 $737
======== ======= ======= ====== ====
</TABLE>
A reconciliation of the Company's effective income tax rate compared to the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ---------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory federal income tax rate............... 35.00% 35.00% 35.00% 35.00% 35.00%
State income taxes, net of federal benefit...... 2.79 3.22 3.22 2.19 2.00
Effect of change in federal tax rate on net
deferred tax asset............................ -- -- -- -- (.23)
Other, net...................................... .71 .28 .28 .07 .11
----- ----- ----- ----- -----
Effective income tax rate....................... 38.50% 38.50% 38.50% 37.26% 36.88%
===== ===== ===== ===== =====
</TABLE>
F-14
<PAGE> 94
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Significant components of the Company's deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------
1996 1995 1994
----------- ------ ----
(UNAUDITED)
<S> <C> <C> <C>
Deferred income tax assets resulting from future deductible
temporary differences are:
Allowance for loan losses and recourse reserves.................. $16,991 $8,455 $ --
Deferred annual credit card fees................................. 2,634 243 --
Other deferred revenue........................................... 1,304 -- --
Other product reserves........................................... 828 518 175
Other............................................................ 505 470 34
------- ------ ----
$22,262 $9,686 $209
======= ====== ====
Deferred income tax liabilities resulting from future taxable
temporary differences are:
Net gain on securitization of credit card loans.................. $ 1,713 $2,694 $ --
Deferred origination costs....................................... 1,471 1,594 --
Accrued interest on credit card loans............................ 2,797 1,061 --
Other............................................................ 26 31 11
------- ------ ----
$ 6,007 $5,380 $ 11
======= ====== ====
</TABLE>
Management believes, based on the Company's history of prior operating
earnings, expectations for operating earnings in the future and the expected
reversals of taxable temporary differences, that it is more likely than not that
all of the deferred tax assets will be realized.
NOTE 10 -- RELATED PARTY TRANSACTIONS
FCI and its various subsidiaries have historically provided significant
financial and operational support to the Company. Direct expenses incurred by
FCI and/or its subsidiaries for the Company, and other expenses, have been
allocated to the Company using various methods (headcount, actual or estimated
usage, etc.). Since the Company has not historically operated as a separate
stand-alone entity for all periods presented, these allocations do not
necessarily represent the expenses and costs that would have been incurred
directly by the Company had it operated on a stand-alone basis. However,
management believes such allocations reasonably approximate market rates for the
services performed. The direct and allocated expenses represent charges for
services such as data processing and information systems, audit, certain
accounting and other similar functions, treasury, legal, human resources,
certain customer service and marketing analysis functions, and certain executive
time, and space and property usage allocations. In addition, the Company has
historically managed the sales of credit insurance products for Fingerhut. In
accordance therewith, the Company has allocated back to Fingerhut, certain
direct and other expenses using methods similar to those mentioned above. The
historical expenses and cost allocations have been agreed to by the management
of both FCI and the Company, the terms of which are summarized in an ongoing
Administrative Services Agreement between FCI and the Company. This agreement
provides for similar future services using similar rates and cost allocation
methods for various terms, the latest of which expires on December 31, 1998.
The financial statements also include an allocation of FCI interest expense
for the net borrowings of the Company from FCI, or a net interest credit for the
net cash flows of the Company loaned to FCI in certain periods. These
allocations of interest expense or granting of a net interest credit for each of
the periods presented were based on the net loans made or borrowings received
between the Company and FCI, plus or minus the effects of intercompany balances
outstanding during such periods. The interest rate used to
F-15
<PAGE> 95
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
calculate such interest expense or credit during such periods was based on the
average short-term borrowing rates of FCI during the periods presented.
The Company and Fingerhut have also entered into several other agreements
which detail further business arrangements between the companies. The
retroactive effects of these additional intercompany agreements and business
arrangements have been reflected in the financial statements of the Company. The
agreements entered into include a Co-Brand Credit Card Agreement and a Data
Sharing Agreement which provide for a payment to Fingerhut for every credit card
account booked, as defined, and a payment based on card usage from such
accounts. The parties have also entered into a Database Access Agreement which
provides the Company with the exclusive right to access and market financial
services products, as defined, to the Fingerhut database of customers, in
exchange for an escalating non-refundable license fee, payable annually, ranging
from $0.5 million to $2.0 million, based on the year within the term of the
agreement ($1.0 million is payable in January of 1997). The agreement also calls
for a solicitation fee per consumer name mailed a product offer from such
database, and a suppress file fee for each consumer name obtained from a third
party and matched to the Fingerhut suppress file before its solicitation.
The following table summarizes the amounts of these direct expense charges
and cost allocations (including net interest income or expense), and the costs
to the Company of the intercompany agreements mentioned above, for each of the
periods reflected in the financial statements of the Company:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income................................ $ -- $ -- $ -- $ 487 $279
Expenses:
Interest expense............................... 1,834 269 1,181 -- --
Credit card account and other product
solicitation and marketing expenses......... 2,481 1,669 4,038 696 701
Data processing services and communications.... 639 28 320 7 11
Third party customer service and collections
expenses.................................... -- 326 500 473 356
Other affiliate cost allocations............... 182 856 1,680 1,688 450
</TABLE>
The Company and Fingerhut have also entered into an Extended Service Plan
Agreement which provides the Company with the exclusive right to provide and
coordinate the marketing of extended service plans to the customers of
Fingerhut. Revenues are received from Fingerhut from such sales and the Company
reimburses Fingerhut and/or its subsidiaries for certain costs which Fingerhut
or its subsidiaries incur in assisting the Company in marketing this product.
Additionally, the Company and FCI have entered into a tax sharing agreement (See
Note 2).
At or prior to the time the Company becomes a public entity, it will enter
into a Transfer Agreement with FCI and its subsidiaries detailing, in part, the
determination of vested benefits of the Company's employees in the FCI employee
benefit plans, and other terms necessary for the eventual transfer of the
Company's employees and their related benefits to its own plans.
Finally, the Company and FCI will enter into a registration rights
agreement under which FCI has the right to require the Company to register under
the Securities Act or to qualify for sale, any securities of the Company that
FCI owns, and the Company will be required to use reasonable efforts to cause
such registration to occur, subject to certain limitations and conditions. The
Company will bear the entire cost of the first three demand registrations
attributable to FCI, and FCI will bear one-half of the costs of any
F-16
<PAGE> 96
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
subsequent demand registrations. These costs include legal fees and expenses of
counsel for the Company, registration fees, printing expenses and other related
costs. FCI, however, will be required to pay any underwriting discounts and
commissions associated with the sale of its securities and the fees and expenses
of its own counsel.
In the ordinary course of business, executive officers of the Company or
FCI may have credit card loans issued by the Company. Pursuant to the Company's
policy, such loans are issued on the same terms as those prevailing at the time
for comparable loans with unrelated persons and do not involve more than the
normal risk of collectibility.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Commitments to extend credit to consumers represent the unused credit
limits on open credit card accounts. These commitments amounted to $1.07 billion
and $709.5 million as of June 30, 1996, and December 31, 1995, respectively.
While these amounts represent the total lines of credit available to the
Company's customers, the Company has not experienced and does not anticipate
that all of its customers will exercise their entire available line at any given
point in time. The Company also has the right to increase, reduce, cancel, alter
or amend the terms of these available lines of credit at any time.
The Company leases certain office facilities and equipment under various
cancelable and non-cancelable operating lease agreements that provide for the
payment of a proportionate share of property taxes, insurance and other
maintenance expenses. These leases also may include scheduled rent increases and
renewal options. In addition, certain of these lease obligations have been
guaranteed by FCI. Rental expense for such operating leases was $587 and $72,
and $150, $79 and $0 for the six months ended June 30, 1996 and 1995, and for
the years ended December 31, 1995, 1994, and 1993, respectively.
Future minimum lease commitments at December 31, 1995, under non-cancelable
operating leases are as follows:
<TABLE>
<S> <C>
1996................................................................. $1,602
1997................................................................. 1,762
1998................................................................. 1,652
1999................................................................. 762
2000................................................................. 657
------
Total minimum lease payments.................................... $6,435
======
</TABLE>
NOTE 12 -- CAPITAL REQUIREMENTS AND DIVIDEND AND LOAN RESTRICTIONS
In the normal course of business, the Company enters into agreements, or is
subject to regulatory requirements, that result in cash, debt and dividend or
other capital restrictions.
The Federal Reserve Act imposes various legal limitations on the extent to
which banks that are members of the Federal Reserve System can finance or
otherwise supply funds to certain of their affiliates. In particular, Direct
Merchants Bank is subject to certain restrictions on any extensions of credit
to, or other covered transactions, such as certain purchases of assets, with the
Company or its affiliates. Such restrictions prevent Direct Merchants Bank from
lending to the Company and its affiliates with certain limited exceptions.
Additionally, Direct Merchants Bank is limited in its ability to declare
dividends to the Company. Such restrictions were not material to the operations
of the Company or to the Company's ability to declare and pay dividends at June
30, 1996, and December 31, 1995.
F-17
<PAGE> 97
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the Office of the Comptroller of the Currency and the Federal Reserve
Board, and monitored by the Federal Deposit Insurance Corporation and the Office
of the Comptroller of the Currency. These regulators consider a range of factors
when determining capital adequacy, such as the organization's size, quality and
stability of earnings, interest rate risk exposure, risk diversification,
management expertise, asset quality, liquidity and internal controls. At June
30, 1996, and December 31, 1995, Direct Merchants Bank's Tier 1 risk-based
capital ratio, risk-based total capital ratio and Tier 1 leverage ratio exceeded
the minimum required capital levels, and Direct Merchants Bank was considered a
"well capitalized" depository institution under regulations of the Office of the
Comptroller of the Currency.
NOTE 13 -- CONCENTRATIONS OF CREDIT RISK
A concentration of credit risk is defined as a significant credit exposure
with an individual or group engaged in similar activities or affected similarly
by economic conditions. The Company is active in originating credit card loans
throughout the United States and no individual or group had a significant
concentration of credit risk at June 30, 1996, or December 31, 1995. The
following table details the geographic distribution of the Company's retained,
sold and managed credit card loans:
<TABLE>
<CAPTION>
RETAINED SOLD MANAGED
-------- -------- ----------
<S> <C> <C> <C>
JUNE 30, 1996 (UNAUDITED)
California.................................................. $ 21,943 $107,980 $ 129,923
New York.................................................... 14,241 70,079 84,320
Texas....................................................... 13,639 67,119 80,758
Florida..................................................... 13,246 65,182 78,428
Ohio........................................................ 7,975 39,242 47,217
Pennsylvania................................................ 7,630 37,546 45,176
Illinois.................................................... 7,132 35,099 42,231
All others.................................................. 94,573 465,392 559,965
-------- -------- ----------
Total.................................................. $180,379 $887,639 $1,068,018
======== ======== ==========
DECEMBER 31, 1995
California.................................................. $ 9,765 $ 46,076 $ 55,841
New York.................................................... 7,480 35,295 42,775
Texas....................................................... 7,184 33,897 41,081
Florida..................................................... 6,091 28,740 34,831
Pennsylvania................................................ 4,465 21,069 25,534
Ohio........................................................ 4,157 19,617 23,774
Illinois.................................................... 4,052 19,120 23,172
All others.................................................. 51,870 244,741 296,611
-------- -------- ----------
Total.................................................. $ 95,064 $448,555 $ 543,619
======== ======== ==========
</TABLE>
Also at June 30, 1996, and December 31, 1995, all federal funds sold were
made to one bank, which represents a concentration of credit risk to the
Company. The Company is able to monitor and mitigate this risk since federal
funds are sold on a daily origination and repayment basis and therefore may be
recalled quickly should the credit risk of the counterparty bank increase above
certain limits set by the Company.
F-18
<PAGE> 98
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 14 -- FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated the fair value of its financial instruments in
accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments" ("SFAS No. 107").
Financial instruments include both assets and liabilities, whether or not
recognized in the Company's balance sheets, for which it is practicable to
estimate fair value. Additionally, certain intangible assets recorded on the
balance sheets, such as purchased credit card relationships, and other
intangible assets not recorded on the balance sheets (such as the value of
credit card account relationships for originated loans and the franchise values
of the Company's various lines of business) are not considered financial
instruments and, accordingly, are not valued for purposes of this disclosure.
The Company believes that there is substantial value associated with these
assets based on current market conditions, including the purchase and sale of
such assets. Accordingly, the aggregate estimated fair value amounts presented
do not represent the entire underlying value of the Company.
Quoted market prices generally are not available for all of the Company's
financial instruments. Accordingly, in cases where quoted market prices are not
available, fair values were estimated using present value and other valuation
techniques which are significantly affected by the assumptions used, including
the discount rate and estimated future cash flows. Such assumptions are based on
historical experience and assessments regarding the ultimate collectibility of
assets and related interest, and estimates of product lives and repricing
characteristics used in the Company's asset/liability management process. These
assumptions involve uncertainties and matters of judgment, and therefore, cannot
be determined with precision. Thus, changes in these assumptions could
significantly affect the fair value estimates.
A description of the methods and assumptions used to estimate the fair
value of each class of the Company's financial instruments is as follows:
CASH AND CASH EQUIVALENTS AND ACCRUED INTEREST AND FEES RECEIVABLE
The carrying amounts approximate fair value due to the short term nature of
these instruments.
CREDIT CARD LOANS, NET OF ALLOWANCE FOR LOAN LOSSES
Currently, credit card loans are originated with variable rates of interest
that adjust with changing market interest rates. Thus, carrying value
approximates fair value. However, this valuation does not include the value that
relates to estimated cash flows generated from new loans from existing customers
over the life of the cardholder relationship. Accordingly, the aggregate fair
value of the credit card loans does not represent the underlying value of the
established cardholder relationships.
OTHER RECEIVABLES DUE FROM CREDIT CARD SECURITIZATIONS, NET
The fair value of the excess servicing rights component of other
receivables due from credit card securitizations, net, is estimated by
discounting the future cash flows at rates which management believes to be
consistent with those that would be used by an independent third party. However,
because there is no active market for these financial instruments, the fair
values presented may not be indicative of the value negotiated in an actual
sale. The future cash flows used to estimate the fair values of these financial
instruments are adjusted periodically for prepayments on loans sold, net of
anticipated charge-offs over the life of the loans under the recourse
provisions, and allow for the value of normal servicing fees. For the other
components of other receivables due from credit card securitizations, net, the
carrying amount is a reasonable estimate of the fair value.
F-19
<PAGE> 99
METRIS COMPANIES INC. (A DIVISION OF FINGERHUT COMPANIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
SHORT-TERM LOANS TO AND BORROWINGS FROM FINGERHUT COMPANIES, INC.
Short-term loans to and borrowings from Fingerhut Companies, Inc. are made
with variable rates of interest that adjust with changing market interest rates.
Thus, carrying value approximates fair value.
INTEREST RATE CAP AND SWAP AGREEMENTS
The fair values of interest rate cap and swap agreements were obtained from
dealer quoted prices. These values generally represent the estimated amounts
that the Company would receive or pay (denoted by bracketed numbers) to
terminate the agreements at the reporting dates, taking into consideration
current interest rates and the current creditworthiness of the counterparties.
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------- ---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 22,230 $ 22,230 $ 34,743 $ 34,743 $ 23 $ 23
Credit card loans, net............. 126,660 126,660 91,385 91,385 -- --
Other receivables due from credit
card securitizations, net........ 5,714 5,714 31,597 31,597 -- --
Short-term borrowings from FCI..... 54,318 54,318 63,482 63,482 -- --
Interest rate swap agreements in a
net receivable position.......... -- (2,219) -- -- -- --
Interest rate cap agreements....... 2,806 1,584 3,008 1,488 -- --
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
The Company has entered into interest rate cap and swap agreements to hedge
its economic exposure to fluctuating interest rates associated with the floating
and fixed rate certificates issued by the FFS Master Trust. Particularly, in
connection with the issuance of the $512.6 million FFS Master Trust Series
1995-1 certificates in May 1995, the Company entered into an eight-year
agreement capping the certificate interest rate at 11.2%. Additionally, the
Company entered into two interest rate swap agreements in April 1996, to
synthetically alter the fixed rate of the FFS Master Trust Series 1996-1
certificates to a floating rate to manage interest rate sensitivity and better
match this rate to the variable interest rate of the Company's loans that are
sold and serviced with limited recourse. Total notional amounts of these swap
transactions amounted to $605.5 million, and exchanged an obligation to pay a
fixed rate of 6.26% for a one-month floating rate based on the prevailing
monthly investment grade LIBOR rate. This floating rate was 5.45% at June 30,
1996. The obligations of the Company and the counterparties under these swap
agreements are settled on a monthly basis.
Interest rate contracts are generally expressed in notional principal or
contract amounts which are much larger than the amounts potentially at risk for
nonpayment by counterparties. Therefore, in the event of nonperformance by the
counterparties, the Company's credit exposure is limited to the uncollected
interest and contract market value related to the contracts that have become
favorable to the Company. Although the Company does not require collateral from
counterparties on its existing agreements, the Company does control the credit
risk of such contracts through established credit approvals, risk control
limits, and the ongoing monitoring of the credit ratings of counterparties. The
Company currently has no reason to anticipate nonperformance by the
counterparties.
F-20
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses incurred in connection with the
sale and distribution of the securities being registered which will be paid
solely by the Company. All the amounts shown are estimates, except the
Commission registration fee, the listing fee and the NASD filing fee.
<TABLE>
<S> <C>
Commission registration fee......................................... $17,977
NASD filing fee..................................................... 5,713
NASDAQ listing fee.................................................. 19,167
Blue sky fees and expenses.......................................... *
Transfer agent and registrar fees and expenses...................... *
Accounting fees and expenses........................................ *
Legal fees and expenses............................................. *
Printing and engraving expenses..................................... *
Miscellaneous expenses.............................................. *
-------
Total.......................................................... $ *
=======
</TABLE>
- -------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides that under certain circumstances a corporation may indemnify any person
who or is a party or is threatened to be made a party any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at its request in such
capacity in another corporation or business association, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
The Certificate and By Laws of the registrant provide that (a) the
registrant shall indemnify to the full extent permitted by law any person made,
or threatened to be made, a party to any action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that he
is or was a director, officer or employee of the registrant serving at its
request as a director, officer, employee, trustee or agent of another enterprise
and (b) the registrant shall pay the expenses, including attorney's fees,
incurred by a director or officer in defending or investigating a threatened or
pending action, suit or proceeding, in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount by the registrant. The Certificate
of Incorporation also provides that, to the extent permitted by law, the
directors of the registrant shall have no liability to the registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Company intends to purchase policies of insurance under which the
registrant's directors and officers are insured, within the limits and subject
to the limitations of the policies, against certain expenses in connection with
the defense of actions, suits or proceedings, and certain liabilities which
might be imposed as a result of such actions, suits or proceedings, to which
they are parties by reason of being or having been such directors or officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
II-1
<PAGE> 101
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
1 Form of Underwriting Agreement
ARTICLES OF INCORPORATION AND BYLAWS
- ------------------------------------
3.a Amended and Restated Certificate of Incorporation of the Registrant
3.b Bylaws of the Registrant
5 Form of Opinion of Cravath, Swaine & Moore
MATERIAL CONTRACTS
- ------------------
10.a Pooling and Servicing Agreement dated as of May 26, 1995 among
Fingerhut Financial Services Receivables, Inc., as Transferor, Direct
Merchants Credit Card Bank, National Association, as Servicer, and
The Bank of New York (Delaware), as Trustee (Incorporated by reference
to Exhibit 10.u to Fingerhut Companies, Inc.'s Quarterly Report on
Form 10-Q (File No. 1-8668) for the fiscal quarter ended June 30,
1995).
(i) Amended and Restated Series 1995-1 Supplement dated as of
September 16, 1996.
(ii) Series 1996-1 Supplement dated as of April 23, 1996
(Incorporated by reference to Exhibit 10.c(ii) to Fingerhut
Companies, Inc.'s Quarterly Report on Form 10-Q (File No.
1-8668) for the fiscal quarter ended March 29, 1996).
(iii) Amendment No. 1 to the Pooling and Servicing Agreement dated
as of June 10, 1996.**
(iv) Amendment No. 2 to the Pooling and Servicing Agreement dated
as of September 16, 1996.
10.b Amended and Restated Bank Receivables Purchase Agreement dated as of
May 26, 1995 between Fingerhut Companies, Inc., as Buyer, and Direct
Merchants Credit Card Bank, National Association, as Seller
(i) Assignment and Assumption Agreement dated as of September 16,
1996 among Fingerhut Companies, Inc., as assignor, Metris
Companies, Inc., as assignee, and Direct Merchants Credit Card
Bank, National Association
10.c Purchase Agreement dated as of May 26, 1995 between Fingerhut
Financial Services Receivables, Inc., as Buyer, and Fingerhut
Companies, Inc., as Seller
(i) Assignment and Assumption Agreement dated as of September 16,
1996 among Fingerhut Companies, Inc., as assignor, Metris
Companies, Inc., as assignee, and Metris Receivables, Inc.
10.d* Stock Option and Valuation Rights Agreement dated as of March 21,
1994, between Fingerhut Companies, Inc. and Ronald N. Zebeck
(Incorporated by reference to Exhibit 10.1 to Fingerhut Companies,
Inc.'s Annual report on Form 10-K for the fiscal year ended December
29, 1995).
10.e* Fingerhut Corporation Profit Sharing Plan 1989 Revision (Incorporated
by reference to Exhibit 10(d) to Fingerhut Companies, Inc.'s
Registration Statement on Form S-1 (No. 33-33923)).
10.f* Fingerhut Companies, Inc. and Subsidiaries 1995 Key Management
Incentive Bonus Plan for Designated Corporate Officers (Incorporated
by reference to Exhibit 10.e to Fingerhut Companies, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 29,
1995).
10.g* Fingerhut Corporation Pension Plan 1990 Revision (Incorporated by
reference to Exhibit 10(f) to Fingerhut Companies, Inc.'s
Registration Statement on Form S-1 (No. 33-33923)).
10.h* Fingerhut Companies, Inc. Stock Option Plan (Incorporated by
reference to Exhibit 10(h) to Fingerhut Companies, Inc.'s
Registration Statement on Form S-1 (No. 33-33923)).
</TABLE>
II-2
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<C> <S>
10.i* Fingerhut Companies, Inc. 1995 Long-Term Incentive and Stock Option Plan
(Incorporated by reference to Exhibit 10.i to Fingerhut Companies, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 29, 1995).
(i) Form of option agreement (Incorporated by reference to Exhibit 10.i(i) to
Fingerhut Companies, Inc.'s Annual report on Form 10-K for the fiscal year ended
December 29, 1995).
10.j Form of Transfer Agreement between the Registrant and Fingerhut Companies, Inc.
10.k Form of Co-Brand Credit Card Agreement between the Registrant and Fingerhut
Corporation.
10.l Form of Extended Service Plan Agreement between the Registrant and Fingerhut
Corporation.
10.m Form of Database Access Agreement between the Registrant and Fingerhut Corporation.
10.n Form of Administrative Services Agreement between the Registrant and Fingerhut
Companies, Inc.
10.o Form of Tax Sharing Agreement between the Registrant and Fingerhut Companies, Inc.
10.p Form of Registration Rights Agreement between the Registrant and Fingerhut
Companies, Inc.
10.q Form of Metris Companies Inc. Long-Term Incentive and Stock Option Plan.
10.r Form of Data Sharing Agreement between Fingerhut Corporation and Direct Merchants
Credit Card Bank, National Association.
10.s Revolving Credit and Letter of Credit Facility Agreement dated as of
September 16, 1996.
OTHER EXHIBITS
- --------------
22 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
25 Powers of Attorney (included on Page II-6).
27 Financial Data Schedule**
</TABLE>
- -------------------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
** Previously filed
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by a final
adjudication of such issue.
II-3
<PAGE> 103
(3) The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Minnetonka,
Minnesota, on October 7, 1996.
METRIS COMPANIES INC.
By: /s/ RONALD N. ZEBECK
------------------------------------
Ronald N. Zebeck
President, Chief Executive Officer
and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Ronald N. Zebeck, Robert W. Oberrender
and David P. Turk, or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in his name, place and stead, in any and all capacities, in
connection with Registrant's Registration Statement on Form S-1 under the
Securities Act of 1933, including to sign the Registration Statement in the name
and on behalf of the Registrant or on behalf of the undersigned as a director or
officer of the Registrant, and any and all amendments or supplements to the
Registration Statement, including any and all stickers and post-effective
amendments to the Registration Statement and to sign any and all additional
registration statements relating to the same offering of securities as those
that are covered by the Registration Statement that are filed pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATES
- ------------------------------------- -------------------------------------- ----------------
<C> <S> <C>
/s/ THEODORE DEIKEL Chairman of the Board of Directors October 7, 1996
- -------------------------------------
Theodore Deikel
/s/ RONALD N. ZEBECK President, Chief Executive Officer and October 7, 1996
- ------------------------------------- Director
Ronald N. Zebeck (Principal Executive Officer)
/s/ ROBERT W. OBERRENDER Chief Financial Officer October 7, 1996
- ------------------------------------- (Principal Financial Officer)
Robert W. Oberrender
/s/ JEAN C. BENSON Controller October 7, 1996
- ------------------------------------- (Principal Accounting Officer)
Jean C. Benson
Director October , 1996
- -------------------------------------
Dudley C. Mecum
/s/ MICHAEL P. SHERMAN Director October 7, 1996
- -------------------------------------
Michael P. Sherman
Director October , 1996
- -------------------------------------
Frank D. Trestman
</TABLE>
II-5
<PAGE> 1
Exhibit 1: Form of Underwriting Agreement
[ ] Shares
METRIS COMPANIES INC.
Common Stock
UNDERWRITING AGREEMENT
[ ], 1996
SMITH BARNEY INC.
BEAR, STEARNS & CO. INC.
WILLIAM BLAIR & COMPANY L.L.C.
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Metris Companies Inc., a Delaware corporation (the
"Company") and an indirect wholly owned subsidiary of Fingerhut
Companies, Inc., a Minnesota Corporation ("FCI"), proposes to
issue and sell an aggregate of [ ] shares (the "Firm
Shares") of its Common Stock, par value $0.01 per share (the
"Common Stock"), to the several Underwriters named in Schedule
I hereto (the "Underwriters") for whom Smith Barney Inc., Bear,
Stearns & Co. Inc. and William Blair & Company L.L.C. are
acting as representatives (the "Representatives"). The Company
also proposes to sell to the Underwriters, upon the terms and
conditions set forth in Section 2 hereof, up to an additional
[ ] shares (the "Additional Shares") of Common Stock.
The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares".
The Shares are being issued and sold in connection
with a reorganization (the "Reorganization") of the Company and
certain other subsidiaries of FCI pursuant to a transfer
agreement (the "Transfer Agreement") to be dated as of the
Closing Date (as defined herein) between FCI and the Company.
The relationship between and obligations of the Company and its
subsidiaries, on the one hand, and FCI and its subsidiaries, on
the other, will be governed by the Database Access Agreement,
Extended Service Plan Agreement, Co-brand Credit Card
Agreement, Data Sharing Agreement, Tax Sharing Agreement and
Administrative Services Agreement (together with the Transfer
Agreement, the "Transaction Documents"), each in the form
described in the Registration Statement (as defined herein) and
the Prospectus (as defined herein).
Each of the Company and FCI wishes to confirm as follows its
agreement with you and the other several Underwriters on whose behalf you
are acting, in connection with the several purchases of the Shares by the
Underwriters.
1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "Act"), a registration statement on Form S-1
under the Act (the "registration statement"), including a prospectus
subject to completion, relating to the Shares. The term "Registration
Statement" as used in this Agreement means the registration statement
referred to above (including all financial schedules and exhibits), and any
registration statement filed pursuant to Rule 462(b) under the Act, each as
amended at the time it becomes effective, and as thereafter amended by any
post-effective amendment. The term "Prospectus" as used in this Agreement
means the prospectus in the forms included in the Registration Statement
or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b)
under the Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as
supplemented by the addition of the Rule 430A information contained in the
prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus
subject to completion in the form included in the Registration Statement at
the time of the initial filing of the Registration Statement with the
Commission, and as such prospectus shall have been amended from time to
time prior to the date of the Prospectus.
<PAGE> 2
2. Agreements to Sell and Purchase. Upon the basis of the
representations, warranties and agreements contained herein and subject to
all the terms and conditions set forth herein, the Company hereby agrees to
issue and sell to each Underwriter and each Underwriter agrees, severally
and not jointly, to purchase from the Company, at a purchase price of
$[ ] per share (the "purchase price per share"), the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto
(or such number of Firm Shares increased as set forth in Section 10
hereof).
Upon the basis of the representations, warranties and
agreements contained herein and subject to all the terms and conditions set
forth herein, the Company also agrees to sell to the Underwriters, and the
Underwriters shall have the right to purchase from the Company, solely for
the purpose of covering over-allotments in connection with sales of the
Firm Shares, at the purchase price per share, pursuant to an option (the
"over-allotment option") which may be exercised at any time and from time to
time prior to 9:00 P.M., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the Nasdaq National
Market is open for trading), up to an aggregate of [ ] Additional
Shares. Upon the exercise of the over-allotment option, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number
of Additional Shares (subject to such adjustments as you may determine in
order to avoid fractional shares) that bears the same proportion to the
aggregate number of Additional Shares to be sold by the Company upon such
exercise of the over-allotment option as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto (or such
number of Firm Shares increased as set forth in Section 10 hereof) bears to
the aggregate number of Firm Shares.
3. Terms of Public Offering. The Company has been advised
by you that the Underwriters propose to make a public offering of their
respective portions of the Shares as soon after the Registration Statement
and this Agreement have become effective as in your judgment is advisable
and initially to offer the Shares upon the terms set forth in the
Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to
the Underwriters of and payment for the Firm Shares shall be made at the
office of Smith Barney Inc., 388 Greenwich Street, New York, New York
10013, at 9:00 A.M., New York City time, on [ ], 1996 (the "Closing
Date"). The place of closing for the Firm Shares and the Closing Date may
be varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the
aforementioned office of Smith Barney Inc. at such time on such date (the
"Option Closing Date"), which may be the same as the Closing Date but shall
in no event be earlier than the Closing Date nor earlier than two nor later
than ten business days after the giving of the notice hereinafter referred
to, as shall be specified in a written notice from you on behalf of the
Underwriters to the Company of the Underwriters' determination to purchase
a number, specified in such notice, of Additional Shares. The place of
closing for any Additional Shares and the Option Closing Date for such
Shares may be varied by agreement between you and the Company.
Certificates for the Firm Shares and for any Additional Shares
to be purchased hereunder shall be registered in such names and in such
denominations as you shall request prior to 9:30 A.M., New York City time,
on the second business day preceding the Closing Date or any Option Closing
Date, as the case may be. Such certificates shall be made available to you
in New York City for inspection and packaging not later than
9:30 A.M., New York City time, on the business day next preceding the
Closing Date or the Option Closing Date, as the case may be. The
certificates evidencing the Firm Shares and any Additional Shares to be
purchased hereunder shall be delivered to you on the Closing Date or the
Option Closing Date, as the case may be, against payment of the purchase
price therefor by wire transfer to or upon the order of the Company in
immediately available funds.
<PAGE> 3
5. Agreements of the Company. The Company and FCI agree
with the several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the sale of the
Shares by the Underwriters may commence, the Company and FCI will
endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will advise you
promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective
amendment has become effective.
(b) The Company and FCI will advise you promptly and, if
requested by you, will conform such advice in writing (i) of any
request by the Commission for amendment of or a supplement to the
Registration Statement, any Prepricing Prospectus or the Prospectus
or for additional information; (ii) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any
proceeding for such purpose; and (iii) within the period of time
referred to in paragraph (f) below, of any change in the condition
(financial or otherwise), business, prospects, properties, net worth
or results of operations of the Company or its subsidiaries, or of
the happening of any event which makes any statement of a material
fact made in the Registration Statement or the Prospectus (as then
amended or supplemented) untrue or which requires the making of any
additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a
material fact required by the Act to be stated therein or necessary
in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any
time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company and FCI will
make every reasonable effort to obtain the withdrawal of such order
at the earliest possible time.
(c) The Company will furnish to you, without charge, four
signed copies of the registration statement as originally filed with
the Commission and of each amendment thereto, including financial
statements and all exhibits thereto, and will also furnish to you,
without charge, such number of conformed copies of the registration
statement as originally filed and of each amendment thereto, but
without exhibits, as you may request.
(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to
which you shall object after being so advised or (ii) during such
period as, in the opinion of counsel for the Underwriters, a
Prospectus is required to be delivered in connection with sales by
any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder (collectively, the
"Exchange Act"), without delivering a copy of such information,
documents or reports to you, as Representatives of the Underwriters,
prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement,
the Company has delivered to you, without charge, in such quantities
as you have requested, copies of each form of the Prepricing
Prospectus. The Company consents to the use, in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of
each Prepricing Prospectus so furnished by the Company.
<PAGE> 4
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such
period as in the opinion of counsel for the Underwriters a Prospectus
is required by the Act to be delivered in connection with sales by
any Underwriter or dealer, the Company will expeditiously deliver to
each Underwriter and each dealer, without charge, as many copies of
the Prospectus (and of any amendment or supplement thereto) as you
may request. The Company consents to the use of the Prospectus (and
of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several
Underwriters and by all dealers to whom Shares may be sold, both in
connection with the offering and sale of the Shares and for such
period of time thereafter as the Prospectus is required by the Act to
be delivered in connection with sales by any Underwriter or dealer.
If during such period of time any event shall
occur that in the judgment of the Company or in the opinion of
counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary to supplement or amend the Prospectus to comply with the
Act or any other law, the Company and FCI will forthwith prepare and,
subject to the provisions of paragraph (d) above, file with the
Commission an appropriate supplement or amendment thereto, and will
expeditiously deliver to each Underwriter and each dealer as many
copies thereof as you may reasonably request. In the event that the
Company and you, as Representatives of the several Underwriters,
agree that the Prospectus should be amended or supplemented, the
Company, if requested by you, will promptly issue a press release
announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company and FCI will cooperate with you and with
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offering and sale by the several
Underwriters and by dealers under the securities or Blue Sky laws of
such jurisdictions as you may designate and will file such consents
to service of process or other documents necessary or appropriate in
order to effect such registration or qualification; provided that in
no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any
action which would subject it to service of process in suits, other
than those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of
the Registration Statement and ending not later than 15 months
thereafter, as soon as practicable after the end of such period,
which consolidated earnings statement shall satisfy the provisions of
Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company
will furnish to you, as soon as available, a copy of each report of
the Company mailed to stockholders or filed with the Commission or
the Nasdaq National Market.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than
pursuant to the second paragraph of Section 10 hereof or by notice
given by you terminating this Agreement pursuant to Section 10 or
Section 11 hereof) or if this Agreement shall be terminated by the
Underwriters because of any failure or refusal on the part of the Company
to comply with the terms or fulfill any of the conditions of this
Agreement, the Company agrees to reimburse the Representatives for
all out-of-pocket expenses (including fees and expenses of counsel
for the Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of
the Shares substantially in accordance with the description set forth
in the Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and
will advise you of the time and manner of such filing.
<PAGE> 5
(m) Except as provided in this Agreement, the Company and FCI
will not sell, solicit an offer to buy, contract to sell, grant any
option to purchase or otherwise transfer or dispose of, or register
or announce the sale or offering of, any share of Common Stock of the
Company, or any securities that are convertible into, or exercisable
or exchangeable for, shares of Common Stock, for a period of 180 days
after the date of the Prospectus without the prior written consent to
Smith Barney Inc., except pursuant to employee stock option plans or
in connection with other employee or non-employee director
compensation arrangements or agreements, in each case, in effect on
the date hereof.
(n) The Company has furnished or will furnish to you "lock-
up" letters, in form and substance satisfactory to you, signed by
each of its current officers and directors.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it
take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale
or resale of the Shares.
(p) The Company will use its best efforts to have the Shares
approved for quotation, subject to notice of issuance of Shares, on
the Nasdaq National Market concurrently with the effectiveness of the
Registration Statement.
6. Representations and Warranties. The Company and FCI
represent and warrant to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part
of any amendment or supplement thereto, or filed pursuant to Rule 424
under the Act, complied when so filed in all material respects with
the provisions of the Act, except that this representation and
warranty does not apply to statements in the Prepricing Prospectus
(or any amendment or supplement thereto) made in reliance upon and in
conformity with information relating to any Underwriter and furnished
in writing to the Company by or on behalf of any Underwriter through
you expressly for use therein. The Commission has not issued any
order preventing or suspending the use of any Prepricing Prospectus.
(b) The Registration Statement in the form in which it became
or becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective and the
Prospectus and any supplement or amendment thereto when filed with
the Commission under Rule 424(b) under the Act, complied or will
comply in all material respects with the provisions of the Act and
did not or will not at any such times contain an untrue statement of
a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; except that this representation and warranty does not
apply to statements in or omissions from the Registration Statement
or the Prospectus made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by or on behalf of any Underwriter through you expressly for
use therein.
(c) The Company's authorized, issued and outstanding
capitalization on the Closing Date will be as set forth under the
caption "Capitalization" in the Registration Statement and the
Prospectus; all of the shares of capital stock of the Company
outstanding prior to the issuance of the Shares have been duly
authorized and validly issued, are fully paid and nonassessable and
are free of any preemptive or similar rights; the Shares have been
duly authorized and, when issued and delivered to the Underwriters
against payment therefor in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable and free of any
preemptive or similar rights; and the capital stock of the Company
conforms, in all material respects, to the description thereof in the
Registration Statement and the Prospectus.
(d) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and
operate its properties and conduct its business, as described in the
Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct
of such business requires such registration or qualification, except
where the failure so to register or qualify would not have a material
adverse effect on the condition (financial
or other), business, properties, net worth or results of operations
of the Company and the Subsidiaries, taken as a whole (any such
effect, a "Material Adverse Effect").
<PAGE> 6
(e) FCI is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota, with full
corporate power and authority to own, lease and operate its
properties and conduct its business.
(f) All of the Company's subsidiaries (each a "Subsidiary"
and collectively the "Subsidiaries") are listed on Exhibit 21.1 of
the Registration Statement. Each of the Subsidiaries is a
corporation or other legal entity duly organized, validly existing
and in good standing under the laws of its jurisdiction of
organization, with full power and authority to own, lease and operate
its properties and conduct its business as described in the
Registration Statement and Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the
conduct of such business requires such registration or qualification,
except where the failure so to register or qualify would not have a
Material Adverse Effect; all of the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable, and are owned by the
Company directly, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance; the Company does not own,
directly or indirectly, shares of capital stock of or other equity
interest in any corporation or other entity other than the
Subsidiaries;
(g) There are no legal or governmental proceedings pending
or, to the knowledge of the Company or FCI, threatened, against the
Company or any of the Subsidiaries, or to which the Company or any of
the Subsidiaries or any of their respective properties is subject,
required to be described in the Registration Statement or the
Prospectus that are not described as required, nor any agreements,
contracts, indentures, leases or other documents required to be
described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement by the Act that have
not been described or filed as required.
(h) Neither FCI, the Company nor any of the Subsidiaries is
in violation of its certificate or articles of incorporation or
by-laws, or other organizational documents, or of any law, ordinance,
administrative or governmental rule or regulation applicable to FCI,
the Company or any of the Subsidiaries or of any decree of any court
or governmental agency or body having jurisdiction over FCI, the Company
or any of the Subsidiaries. None of the Company or any Subsidiary is in
default in any material respect in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any material agreement,
indenture, lease or other instrument (collectively, "Contracts") to
which the Company or any of the Subsidiaries is a party or by which
any of them or any of their respective properties may be bound, has
received notice or claim of any such default or has knowledge of any
breach of any Contract.
(i) Each of FCI and its subsidiaries has, to the extent each
is or will be a party hereto or thereto, the corporate power and
authority to execute, deliver and perform its obligations under the
Transaction Documents and this Agreement. The execution and delivery
of, and the performance by each of FCI and its subsidiaries, to the
extent a party hereto or thereto, of its obligations under this
Agreement and the Transaction Documents has been duly and validly
authorized, and this Agreement has been duly executed and delivered
by FCI and each of this Agreement and the Transaction Documents
constitutes or will constitute when duly executed and delivered by
each of FCI and its subsidiaries, to the extent a party hereto or
thereto, the valid and legally binding agreement of FCI and its
subsidiaries, to the extent a party hereto or thereto, enforceable in
accordance with its terms (assuming, in the case of this Agreement,
the due authorization, execution and delivery by the
Representatives), except (A) the enforcement hereof and thereof may
be subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in
effect relating to creditor's rights generally, and (ii) general
principles of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding at law or in equity and (B)
rights to indemnity or contribution under this Agreement may be
limited by federal or state securities laws or public policy relating
thereto.
(j) Each of the Company and the Subsidiaries has, to the
extent each is or will be a party hereto or thereto, the corporate
power and authority to execute, deliver and perform its obligations
under each of this Agreement and the Transaction Documents. The
execution and delivery of, and the performance by each of the Company
and the Subsidiaries, to the extent a party hereto or thereto, of its
obligations under this Agreement and the Transaction Documents has been
duly and validly authorized, and this Agreement
has been duly executed and delivered by the Company and each of this
Agreement and the Transaction Documents constitutes or will
constitute when duly executed and delivered by each of the Company
and the Subsidiaries, to the extent a party hereto or thereto, the
valid and legally binding agreement of the Company and the
Subsidiaries, to the extent a party hereto or thereto, enforceable in
accordance with its terms (assuming, in the case of this Agreement,
the due authorization, execution and delivery by the
Representatives), except (A) the enforcement hereof and thereof may
be subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in
effect relating to creditor's rights generally, and (ii) general
principles of equity and the discretion of the court before which any
proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding at law or in equity and (B)
rights to indemnity or contribution under this Agreement may be
limited by federal or state securities laws or public policy relating
thereto.
<PAGE> 7
(k) No consent, approval, authorization or order of any court
or governmental agency or body is required for the performance of
this Agreement or any of the Transaction Documents by each of FCI and
its subsidiaries, the Company and the Subsidiaries, to the extent a
party hereto or thereto, or the consummation by each of FCI and its
Subsidiaries, the Company and the Subsidiaries, to the extent a party
hereto or thereto, of the transactions contemplated hereby and
thereby, except such as have been obtained and such as may be
required under state securities or "Blue Sky" laws in connection with
the purchase and distribution of the Shares by the Underwriters.
(l) Neither the issuance and sale of the Shares, nor the
execution, delivery and performance by FCI or its subsidiaries, the
Company or the Subsidiaries, to the extent a party hereto or thereto,
of each of this Agreement and the Transaction Documents and the
consummation by FCI and its subsidiaries, the Company and the
Subsidiaries, to the extent a party hereto or thereto, of the
transactions contemplated hereby and thereby will conflict with or
constitute or result in a breach or violation of any of (i) the terms
or provisions of, or constitute a default under, any Contract to
which FCI, any of the subsidiaries of FCI, the Company or any of the
Subsidiaries is a party or to which any of them or their respective
properties is subject, which conflict, breach, violation or default
would have a Material Adverse Effect, (ii) the certificate or
articles of incorporation or by-laws, or other organizational
documents, of FCI, any of the subsidiaries of FCI, the Company
or any of the Subsidiaries or (iii) (assuming compliance with all
applicable state securities and "Blue Sky" laws) any statute, judgment,
decree, order, rule or regulation of any court or governmental agency
or other body applicable to FCI, any of the subsidiaries of FCI, the
Company or any of Subsidiaries, or any of their respective properties,
which conflict, breach, violation or default would have a Material
Adverse Effect.
(m) The audited consolidated financial statements and
schedules and related notes of the Company included in the
Registration Statement and the Prospectus present fairly, in all
material respects, the consolidated financial position, results of
operations and cash flows of the Company at the dates and for the
periods to which they relate and have been prepared in accordance
with generally accepted accounting principles applied on a consistent
basis, except as otherwise stated therein. The unaudited
consolidated financial statements and the related notes included in
the Registration Statement and the Prospectus present fairly, in all
material respects (on the basis stated therein), the consolidated
financial position, results of operations and cash flows of the
Company at the dates and for the periods to which they relate,
subject to year-end audit adjustments, and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis, except as otherwise stated therein. The
assumptions used in the preparation of the consolidated financial
statements are reasonable and the allocations of assets, liabilities,
equity, revenues and expenses to the Company are appropriate. The
Company knows of no reason that future financial statements will not
be prepared on the same basis as the consolidated financial
statements included in the Registration Statement and Prospectus.
The other financial and statistical information and data included in
the Registration Statement and the Prospectus are accurately
presented and prepared on a basis consistent with the audited
consolidated financial statements and the books and records of the
Company and the Subsidiaries. KPMG Peat Marwick LLP, which has
examined certain of such consolidated financial statements and
schedules as set forth in its reports included in the Registration
Statement and the Prospectus, is an independent public accounting
firm as required by the Act and the Rules and Regulations.
(n) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus and
except as described therein or contemplated thereby, (i) none of the
Company or any of the Subsidiaries has incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business; and
(ii) none of the Company, or any of the Subsidiaries has purchased
any of its outstanding capital stock, or declared, paid or otherwise
made any dividend or distribution of any kind on its capital stock;
and (iii) there has not been any change in the capital stock, or
material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change,
or any development involving or which may reasonably be expected to
involve, a prospective material adverse change, in the condition
(financial or other), business, net worth or results of operations of
the Company and the Subsidiaries, taken as a whole.
<PAGE> 8
(o) Each of the Company and the Subsidiaries has good and
marketable title to all real property and personal property described
in the Prospectus as being owned by it and good and marketable title
to all leasehold estates in the real and personal property described
in the Prospectus as being leased by it (except for those leases of
real property in which the Company or such Subsidiary has good title
and that would be marketable but for the requirement that the
landlord consent to an assignment or sublease of the lease), free and
clear of all liens, charges, encumbrances or restrictions, except, in
each case, as described in the Prospectus or to the extent the
failure to have such title or the existence of such liens, charges,
encumbrances or restrictions would not, individually or in the
aggregate, have a Material Adverse Effect.
(p) The Company has not distributed and, prior to the later
to occur of (i) the Closing Date and (ii) completion of the
distribution of the Shares, will not distribute any offering material
in connection with the offering and sale of the Shares other than the
Registration Statement, the Prepricing Prospectus, the Prospectus or
other materials, if any, permitted by the Act.
(q) Each of the Company and the Subsidiaries possesses all
licenses, permits, franchises, certificates, consents, orders,
approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and other
governmental authorities, all self-regulatory organizations and all
courts and other tribunals, presently required or necessary to own or
lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be
conducted as set forth in the Prospectus ("Permits"), except where
the failure to obtain such Permits would not, individually or in the
aggregate, have a Material Adverse Effect; each of the Company and
the Subsidiaries has fulfilled and performed all of its obligations
with respect to such Permits and no event has occurred
which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such Permit; and none
of the Company or the Subsidiaries has received any notice of any
proceeding relating to revocation or modification of any such Permit,
except as described in the Prospectus and except where such
revocation or modification would not, individually or in the
aggregate, have a Material Adverse Effect.
(r) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only
in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(s) To the knowledge of the Company or FCI, none of the
Company, any of the Subsidiaries or any of their respective employees
or agents has made any payment of funds of the Company or any
Subsidiary, as the case may be, or received or retained any funds in
violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the
Prospectus.
(t) Each of the Company and the Subsidiaries has filed all
necessary federal, state, local and foreign income and franchise tax
returns, except where the failure to so file such returns would not
have a Material Adverse Effect and each has paid all taxes shown as
due thereon; and other than tax deficiencies which the Company or any
of the Subsidiaries is contesting in good faith and for which
adequate reserves have been provided, there is no tax deficiency that
has been asserted against the Company or any of the Subsidiaries that
would, individually or in the aggregate, have a Material Adverse
Effect.
(u) No holder of any security of the Company or any
Subsidiary has any right to require registration of shares of Common
Stock or any other security of the Company because of the filing of
the Registration Statement or consummation of the transactions
contemplated by this Agreement, or otherwise. Except as described in
or contemplated by the Prospectus, there are no outstanding options,
warrants or other rights calling for the issuance
of, and there are no commitments, plans or arrangements to issue, any
shares of Common Stock or any security convertible into or
exchangeable or exercisable for Common Stock.
(v) Each of the Company and the Subsidiaries owns or
possesses adequate licenses or other rights to use all patents,
trademarks, service marks, trade names, copyrights and know-how
necessary to conduct the businesses now operated by it or proposed to
be operated by it, as described in the Prospectus, and none of the
Company or any of the Subsidiaries has received any notice of
infringement of, or conflict with (or knows of any such infringement
of or conflict with), asserted rights of others with respect to any
patents, trademarks, service marks, trade names, copyrights or know-
how which, if such assertion of infringement or conflict were
sustained, would have a Material Adverse Effect.
(w) The Company is not now and after sale of the Shares to be
sold by it hereunder and application of the net proceeds from such
sale as described in the Prospectus under the caption "Use of
Proceeds" will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act").
<PAGE> 9
(x) The Company has complied with all provisions of Florida
Statutes, Section 517.075, relating to issuers doing business with Cuba,
to the extent applicable.
7. Indemnification and Contribution. (a) Each of the
Company and FCI agrees, jointly and severally, to indemnify and hold
harmless each of you and each other Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus
or in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prepricing
Prospectus or the Prospectus, in light of the circumstances under which
such statements were made) not misleading, except insofar as such losses,
claims, damages, liabilities or expenses arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in
conformity with information relating to such Underwriter furnished in
writing to the Company by or on behalf of any Underwriter through you
expressly for use in connection therewith; provided, however, that the
indemnification contained in this paragraph (a) with respect to any
Prepricing Prospectus shall not inure to the benefit of any Underwriter (or
to the benefit of any person controlling such Underwriter) on account of
any such loss, claim, damage, liability or expense arising from the sale of
the Shares by such Underwriter to any person if a copy of the Prospectus
shall not have been delivered or sent to such person within the time
required by the Act, and the untrue statement or alleged untrue statement
or omission or alleged omission of a material fact contained in such
Prospectus was corrected in the Prospectus, provided that the Company has
delivered the Prospectus to the several Underwriters in requisite quantity
on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Company
or FCI may otherwise have.
(b) If any action, suit or proceeding shall be brought
against any Underwriter or any person controlling any Underwriter in
respect of which indemnity may be sought against the Company, such
Underwriter or such controlling person shall promptly notify the Company
and FCI, and the Company or FCI shall assume the defense thereof, including
the employment of counsel and payment of all fees and expenses. Such
Underwriter or any such controlling person shall have the right to employ
separate counsel in any such action, suit or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Underwriter or such controlling person unless
(i) the Company has agreed in writing to pay such fees and expenses,
(ii) the Company has failed to assume the defense and employ counsel, or
(iii) the named parties to any such action, suit or proceeding (including
any impleaded parties) include both such Underwriter or such controlling
person and either the Company or FCI and such Underwriter or such
controlling person shall have been advised by its counsel that
representation of such indemnified party and the Company or FCI by the same
counsel would be inappropriate under applicable standards of professional
conduct due to actual or potential differing interests between them (in
which case the Company and FCI shall not have the right to assume the
defense of such action, suit or proceeding on behalf of such Underwriter or
such controlling person). It is understood, however, that the Company and
FCI shall, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time
for all such Underwriters and controlling persons not having actual or
potential differing interests with you or among themselves, which firm
shall be designated in writing by Smith Barney Inc., and that all such fees
and expenses shall be reimbursed as they are incurred. Neither the Company
nor FCI shall not be liable for any settlement of any such action, suit or
proceeding effected without its written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the Company and FCI agree to indemnify and hold
harmless any Underwriter, to the extent provided in the preceding
paragraph, and any such controlling person from and against any loss,
claim, damage, liability or expense by reason of such settlement or
judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, and any person who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, to the same extent as the foregoing indemnity from the Company to each
Underwriter, but only with respect to information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter
through you expressly for use in the Registration Statement, the Prospectus
or any Prepricing Prospectus, or any amendment or supplement thereto. If
any action, suit or proceeding shall be brought against the Company, any of
its directors, any such officer, or any such controlling person based on
the Registration Statement, the Prospectus or any Prepricing Prospectus, or
any amendment or supplement thereto, and in respect of which indemnity may
be sought against any Underwriter pursuant to this paragraph (c), such
Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the
defense thereof such Underwriter shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof, but
the fees and expenses of such counsel shall be at such Underwriter's
expense), and the Company, its directors, any such officer, and any such
controlling person shall have the rights and duties given to the
Underwriters by paragraph (b) above. The foregoing indemnity agreement
shall be in addition to any liability which the Underwriters may otherwise
have.
<PAGE> 10
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other hand shall be deemed to be in
the same proportion as the total net proceeds from the offering of the Shares
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or by the Underwriters
on the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that
does not take account of the equitable considerations referred to in
paragraph (d) above. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities and expenses referred
to in paragraph (d) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating any
claim or defending any such action, suit or proceeding. Notwithstanding
the provisions of this Section 7, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price of
the Shares underwritten by it and distributed to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations to contribute pursuant to this Section 7 are
several in proportion to the respective number of Firm Shares set forth
opposite their names in Schedule 1 hereto (or such numbers of Firm Shares
increased as set forth in Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding.
<PAGE> 11
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution
under this Section 7 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses
are incurred. The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company and FCI set
forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, FCI, the Company its
directors or officers or any person controlling the Company,
(ii) acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any
person controlling any Underwriter, or to the Company, its directors or
officers, or any person controlling the Company, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares hereunder
are subject to the following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective
amendment thereto to be declared effective before the offering of the
Shares by the Underwriters may commence, the registration statement
or such post-effective amendment shall have become effective not
later than 5:30 P.M. (or, in the case of a registration statement
filed pursuant to Rule 462(b) under the Act, not later than 10:00
P.M.), New York City time, on the date hereof, or at such later date
and time as shall be consented to in writing by you, and all filings,
if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for
that purpose shall have been instituted or, to the knowledge of the
Company or any Underwriter, threatened by the Commission, and any
request of the Commission for additional information (to be included
in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to your reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving
a prospective change, in or affecting the condition (financial or
other), business, properties, net worth or results of operations of
the Company or the Subsidiaries not contemplated by the Prospectus,
which in your opinion, as Representatives of the several Underwriters,
would materially, adversely affect the market for the Shares, or (ii)
any event or development relating to or involving the Company or FCI
or any officer or director of the Company or FCI or any Subsidiary
which makes any statement made in the Prospectus untrue or which, in
the opinion of the Company and its counsel or the Underwriters and
their counsel, requires the making of any addition to or change in
the Prospectus in order to state a material fact required by the Act
or any other law to be stated therein or necessary in order to make
the statements therein not misleading, if amending or supplementing
the Prospectus to reflect such event or development would, in your
opinion, as Representatives of the several Underwriters, materially
adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion
of Cravath, Swaine & Moore, counsel for the Company and FCI, dated
the Closing Date and addressed to you, as Representatives of the
several Underwriters to the effect that:
(i) The Company's authorized, issued and outstanding
capitalization is as set forth under the caption "Capitalization" in
the Registration Statement and the Prospectus; all of the shares of
capital stock of the Company outstanding prior to the issuance of the
Shares have been duly authorized and validly issued, are fully paid
and nonassessable and are free of any preemptive or similar rights;
the Shares have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable
and free of any preemptive or similar rights; and the authorized
capital stock of the Company conforms as to legal matters, in all
material respects, to the description thereof in the Registration
Statement and the Prospectus under the caption "Description of
Capital Stock";
(ii) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and
operate its properties and conduct its business, as described in the
Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the
conduct of such business requires such registration or qualification,
except where the failure so to register or qualify would not have a
Material Adverse Effect;
(iii) FCI is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Minnesota, with full corporate power and authority to own, lease and
operate its properties and conduct its business;
(iv) Each of the Subsidiaries is a corporation or other
legal entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of its organization, with full
power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement and
Prospectus, and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of such business requires
such registration or qualification, except where the failure so to
register or qualify would not have a Material Adverse Effect; all of
the outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued, are fully paid and nonassessable,
and are owned by the Company directly, free and clear of any lien,
adverse claim, security interest, equity or other encumbrance; the
Company does not own, directly or indirectly, shares of capital stock
of or other equity interest in any corporation or other entity other
than the Subsidiaries;
(v) To the best knowledge of such counsel after due
inquiry, (A) other than as described in the Prospectus, there are no
legal or governmental proceedings pending or threatened against the
Company or any of the Subsidiaries, or to which the Company or any of
the Subsidiaries or any of their respective properties is subject,
which are required to be described in the Registration Statement or
the Prospectus and (B), there are no Contracts that are required to
be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement by the Act that have
not been described or filed as required;
<PAGE> 12
(vi) Neither FCI, the Company nor any of the
Subsidiaries is in violation of its certificate or articles of
incorporation or by-laws, or other organizational documents, or of
any law, ordinance, administrative or governmental rule or regulation
applicable to FCI, the Company or any of the Subsidiaries or of any
decree of any court or governmental agency or body having
jurisdiction over FCI, the Company or any of the Subsidiaries. To
the best knowledge of such counsel, none of the Company or any
Subsidiary is in default in the performance of any Contracts to which
the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties may be bound, except
where any such breach would not, individually or in the aggregate,
have a Material Adverse Effect;
(vii) Each of FCI and its subsidiaries has, to the
extent each is or will be a party hereto or thereto, the corporate
power and authority to execute, deliver and perform its obligations
under the Transaction Documents and this Agreement. The execution
and delivery of, and the performance by each of FCI and its
subsidiaries, to the extent a party hereto or thereto, of its
obligations under this Agreement and the Transaction Documents has
been duly and validly authorized, and this Agreement and the
Transaction Documents have been duly executed and delivered by FCI
and its subsidiaries, to the extent a party hereto or thereto, and
each of this Agreement and the Transaction Documents constitutes the
valid and legally binding agreement of FCI and its subsidiaries, to
the extent a party hereto or thereto, enforceable in accordance with
its terms (assuming, in the case of this Agreement, the due
authorization, execution and delivery by the Representatives), except
(A) the enforcement hereof and thereof may be subject to (i)
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect relating
to creditor's rights generally, and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor
may be brought (regardless of whether such enforcement is considered
in a proceeding at law or in equity and (B) rights to indemnity or
contribution under this Agreement may be limited by federal or state
securities laws or public policy relating thereto;
(viii) Each of the Company and the Subsidiaries has,
to the extent each is or will be a party hereto or thereto, the
corporate power and authority to execute, deliver and perform its
obligations under each of this Agreement and the Transaction
Documents. The execution and delivery of, and the performance by
each of the Company and the Subsidiaries, to the extent a party
hereto or thereto, of its obligations under this Agreement and the
Transaction Documents has been duly and validly authorized, and this
Agreement and the Transaction Documents have been duly executed and
delivered by the Company and the Subsidiaries, to the extent a party
hereto or thereto, and each of this Agreement and the Transaction
Documents constitutes the valid and legally binding agreement of the
Company and the Subsidiaries, to the extent a party hereto or
thereto, enforceable in accordance with its terms (assuming, in the
case of this Agreement, the due authorization, execution and delivery
by the Representatives), except (A) the enforcement hereof and
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other
similar laws now or hereafter in effect relating to creditor's rights
generally, and (ii) general principles of equity and the discretion
of the court before which any proceeding therefor may be brought
(regardless of whether such enforcement is considered in a proceeding
at law or in equity and (B) rights to indemnity or contribution under
this Agreement may be limited by federal or state securities laws or
public policy relating thereto;
(ix) No consent, approval, authorization or order of any
court or governmental agency or body is required for the performance
of this Agreement or any of the Transaction Documents by each of FCI
and its subsidiaries, the Company and the Subsidiaries, to the extent
a party hereto or thereto, or the consummation by each of FCI and its
Subsidiaries, the Company and the Subsidiaries, to the extent a party
hereto or thereto, of the transactions contemplated hereby and
thereby, except such as have been obtained and such as may be
required under state securities or "Blue Sky" laws in connection with
the purchase and distribution of the Shares by the Underwriters;
<PAGE> 13
(x) Neither the issuance and sale of the Shares, nor
the execution, delivery and performance by FCI or its subsidiaries,
the Company or the Subsidiaries, to the extent a party hereto or
thereto, of each of this Agreement and the Transaction Documents and
the consummation by FCI and its subsidiaries, the Company and the
Subsidiaries, to the extent a party hereto or thereto, of the
transactions contemplated hereby and thereby will conflict with or
constitute or result in a breach or violation of any of (i) the terms
or provisions of, or constitute a default under, any Contract listed
as an exhibit to the Registration Statement or known to such counsel
to which FCI, any of the subsidiaries of FCI, the Company or any of
the Subsidiaries is a party or to which any of them or their
respective properties is subject, which conflict, breach, violation
or default would have a Material Adverse Effect, (ii) the certificate
or articles of incorporation or by-laws, or other organizational
documents, of FCI, any of the subsidiaries of FCI, the Company or any
of the Subsidiaries or (iii) (assuming compliance with all applicable
state securities and "Blue Sky" laws) any statute, judgment, decree,
order, rule or regulation of any court or governmental agency or
other body applicable to FCI, any of the subsidiaries of FCI, the
Company or any of Subsidiaries, or any of their respective
properties, which conflict, breach, violation or default would have a
Material Adverse Effect;
(xi) Each of the Company and the Subsidiaries has good
and marketable title to all real property and personal property
described in the Prospectus as being
owned by it and good and marketable title to all leasehold estates in
the real and personal property described in the Prospectus as being
leased by it (except for those leases of real property in which the
Company or such Subsidiary has good title and that would be
marketable but for the requirement that the landlord consent to an
assignment or sublease of the lease), free and clear of all liens,
charges, encumbrances or restrictions, except, in each case, as
described in the Prospectus or to the extent the failure to have such
title or the existence of such liens, charges, encumbrances or
restrictions would not, individually or in the aggregate, have a
Material Adverse Effect;
(xii) Each of the Company and the Subsidiaries
possesses all Permits presently required or necessary to own or
lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be
conducted as set forth in the Prospectus, except where the failure to
obtain such Permits would not, individually or in the aggregate, have
a Material Adverse Effect; each of the Company and the Subsidiaries
has fulfilled and performed all of its obligations with respect to
such Permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the holder
of any such Permit;
(xiii) The form of certificates for the Shares
conforms to the requirements of the Delaware General Corporation Law;
(xiv) The Registration Statement and all
post-effective amendments, if any, have become effective and, to the
best knowledge of such counsel after due inquiry, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose are pending before or
contemplated by the Commission; and any required filing of the
Prospectus pursuant to Rule 424(b) has been made in accordance with
Act;
(xv) The Registration Statement and the Prospectus and
any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other
financial and statistical data included therein, as to which such
counsel need not express any opinion) comply as to form in material
respects with the requirements of the Act;
(xvi) The statements in the Registration Statement
and Prospectus, insofar as they are descriptions of contracts,
agreements, or other legal documents, or
refer to statements of law or legal conclusions, are accurate and
present fairly the information required to be stated therein;
At the time the foregoing opinion is delivered, such
counsel shall additionally state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the
Company, representatives of the Underwriters and counsel for the
Underwriters, at which conferences the contents of the Registration
Statement and the Prospectus and related matters were discussed, and,
although it has not independently verified and is not passing upon
and assumes no responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
the Prospectus (except to the extent specified in subsection
8(c)(xvi)), no facts have come to its attention which lead it to
believe that the Registration Statement at the time it became
effective, or the Prospectus, as of its date and as of the Closing
Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under
which they were made, not misleading (it being understood that such
counsel need express no opinion with respect to the financial
statements and related notes thereto and the other financial,
statistical and accounting data included in the Registration
Statement or Prospectus).
<PAGE> 14
(d) [Intentionally left blank.]
(e) You shall have received on the Closing Date the opinion,
in form and substance satisfactory to you, of Cahill Gordon &
Reindel, counsel for the Underwriters, with respect to certain legal
matters relating to this Agreement and such other related matters as
you may reasonably require. In rendering such opinion, Cahill Gordon
& Reindel shall have received and may rely upon such certificates and
other documents and information as it may reasonably request to pass
upon such matters.
(f) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date
hereof and the Closing Date from KPMG Peat Marwick LLP, independent
certified public accountants, substantially in the forms heretofore
approved by you.
(g) (i) Each of the representations and warranties of the
Company and FCI contained in this Agreement shall be true and
correct, in all material respects, on and as of the date hereof and
on and as of the Closing Date as if made on and as of the Closing
Date; and (ii) you shall have received certificates, dated the
Closing Date and signed by the chief executive officer and the chief
financial officer of the Company and FCI (or such other officers as
are acceptable to you), to the effect set forth in this Section 8(g)
and in Section 8(h) hereof.
(h) Neither FCI, the Company nor any of the Subsidiaries
shall have failed at or prior to the Closing Date to have performed
or complied, in all material respects, with any of its agreements or
covenants or satisfied, in all material respects, any condition, in
each case, contained in this Agreement and required to be performed,
complied with or satisfied by it hereunder at or prior to the Closing
Date.
(i) The Transaction Documents shall have been executed and
delivered and be in full force and effect.
(j) The Shares shall have been listed or approved for listing
upon notice of issuance on the Nasdaq National Market.
(k) Neither the sale of the shares hereunder nor any of the
transactions contemplated hereby or by the Transfer Agreement shall
be enjoined (temporarily or permanently) on the Closing Date.
(l) [The Working Capital Facility will be in full force and
effect].
(m) The Reorganization shall have been consummated on the
terms and conditions set forth in the Transfer Agreement.
(n) On the Closing Date, the Underwriters shall have received
copies of all certificates, documents and opinions, reasonably
requested by the Underwriters or counsel to the Underwriters,
delivered by the Company or FCI, or any of their counsels.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only
if they are satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the
Company or FCI and delivered to you, as Representatives of the
Underwriters, or to counsel for the Underwriters, shall be deemed a
representation and warranty by the Company or FCI, as the case may be, to
such Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of
any Option Closing Date of the conditions set forth in this Section 8,
except that, if any Option Closing Date is other than the Closing Date, the
certificates, opinions and letters referred to in paragraphs (c)
through (h) shall be dated the Option Closing Date in question and the
Opinions called for by paragraphs (c), (d) and (e) shall be revised to
reflect the sale of Additional Shares.
<PAGE> 15
9. Expenses. The Company agrees to pay the following costs
and expenses and all other costs and expenses incident to the performance
by it of its obligations hereunder: (i) the preparation, printing or
reproduction, and filing with the Commission of the registration statement
(including financial statements and exhibits thereto), each Prepricing
Prospectus, the Prospectus, and each amendment or supplement to any of
them; (ii) the printing (or reproduction) and delivery (including postage,
air freight charges and charges for counting and packaging) of such copies
of the registration statement, each Prepricing Prospectus, the Prospectus,
and all amendments or supplements to any of them as may be reasonably
requested for use in connection with the offering and sale of the Shares;
(iii) the preparation, printing, authentication, issuance and delivery of
certificates for the Shares, including any stamp taxes in connection with
the original issuance and sale of the Shares; (iv) the printing (or
reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of
the Shares; (v) the registration of the Common Stock under the Exchange Act
and the listing of the Shares on the Nasdaq National Market; (vi) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states as provided in
Section 5(g) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental
Blue Sky Memoranda and such registration and qualification); (vii) the
filing fees in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; (viii) the transportation
and other expenses incurred by or on behalf of
representatives of the Company or FCI in connection with presentations to
prospective purchasers of the Shares; and (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local
and special counsel) for the Company.
10. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties
hereto; or (ii) if, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective
amendment thereto to be declared effective before the offering of the
Shares may commence, when notification of the effectiveness of the
Registration Statement or such post-effective amendment has been released
by the Commission. Until such time as this Agreement shall have become
effective, it may be terminated by the Company, by notifying you, or by
you, as Representatives of the several Underwriters, by notifying the
Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares that it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares that such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is
not more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date, each non-
defaulting Underwriter shall be obligated, severally, in the proportion
which the number of Firm Shares set forth opposite its name in Schedule I
hereto bears to the aggregate number of Firm Shares set forth opposite the
names of all non-defaulting Underwriters or in such other proportion as you
may specify in accordance with Section 20 of the Master Agreement Among
Underwriters of Smith Barney Inc., to purchase the Shares which such
defaulting Underwriter or Underwriters are obligated, but fail or refuse,
to purchase. If any one or more of the Underwriters shall fail or refuse
to purchase Shares that it or they are obligated to purchase on the Closing
Date and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one
or more non-defaulting Underwriters or other party or parties approved by
you are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter
or the Company. In any such case which does not result in termination of
this Agreement, either you or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that
the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any such default of
any such Underwriter under this Agreement. The term "Underwriter" as used
in this Agreement includes, for all purposes of this Agreement, any party
not listed in Schedule I hereto who, with your approval and the approval of
the Company, purchases Shares which a defaulting Underwriter is obligated,
but fails or refuses, to purchase.
Any notice under this Section 10 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be
subject to termination in your absolute discretion, without liability on
the part of any Underwriter to the Company, by notice to the Company, if
prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may
be, (i) trading in securities generally on the New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market shall have been
suspended or materially limited, (ii) a general moratorium on commercial
banking activities in New York shall have been declared by either federal,
state or other governmental authorities, (iii) any securities of the
Company (including, without limitation, any securities issued by an entity
utilized by the Company for the securitization of its receivables) shall
have been downgraded or placed on any "watch list" for possible downgrading
by any nationally recognized statistical rating organization, or (iv) there
shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political,
financial or economic conditions, the effect of which on the financial
markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the
Shares at the offering price to the public set forth on the cover page of
the Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination may be given to the Company by
telegram, telecopy or telephone and shall be subsequently confirmed by
letter.
<PAGE> 16
12. Information Furnished by the Underwriters. The
statements set forth in the last paragraph on the cover page, the
stabilization legend on the inside cover page, and the first and third
paragraphs under the caption "Underwriting" in any Prepricing Prospectus
and in the Prospectus, constitute the only information relating to any
Underwriter furnished to the Company in writing by or on behalf of the
Underwriters through you as such information to the Company in writing is
referred to in Sections 6(a), 6(b) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in
Sections 5, 10 and 11 hereof, notice given pursuant to any provision of
this Agreement shall be in writing and shall be delivered (i) if to the
Company, at the office of the Company at [ ]; (ii) if to FCI,
at the office of FCI at [ ]; or (iii) if to you, as
Representatives of the several Underwriters, care of Smith Barney Inc.,
388 Greenwich Street, New York, New York 10013, Attention: Manager,
Investment Banking Division.
This Agreement has been and is made solely for the benefit of
the several Underwriters, FCI, the Company, its directors and officers, and
the other controlling persons referred to in Section 7 hereof and their
respective successors and assigns, to the extent provided herein, and no
other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York applicable to contracts made and to be performed within the State of
New York.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in
counterparts, this Agreement shall not become effective unless at least one
counterpart hereof shall have been executed and delivered on behalf of each
party hereto.
Please confirm that the foregoing correctly sets forth the
agreement among the Company, FCI and the several Underwriters.
Very truly yours,
METRIS COMPANIES INC.
By: ___________________________
Name:
Title:
FINGERHUT COMPANIES, INC.
By: ___________________________
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in
Schedule I hereto.
SMITH BARNEY INC.
BEAR, STEARNS & CO. INC.
WILLIAM BLAIR & COMPANY L.L.C.
As Representatives of the
Several Underwriters
By SMITH BARNEY INC.
By:
Name:
Title:
<PAGE> 17
SCHEDULE I
METRIS COMPANIES INC.
Number of
Underwriter Firm Shares
Smith Barney Inc. ..................................
Bear, Stearns & Co. Inc. ...........................
William Blair & Company L.L.C. .....................
Total .........................................
<PAGE> 1
Exhibit 3.a
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
METRIS COMPANIES INC.
(adopted in accordance with Sections 245 and 242
of the General Corporation Law of the State of Delaware)
ARTICLE I
Name
The name of the Corporation is Metris Companies
Inc.
ARTICLE II
Registered Office and Registered Agent
The address of the Corporation's registered office
in the State of Delaware is 1013 Centre Road, in the City of
Wilmington, New Castle County. The name of its registered
agent at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE III
Purpose
SECTION 1. Permitted Activities. The purpose of
the Corporation is to engage in any business, and in any
activity and to exercise any powers permitted to
corporations under the General Corporation Law of the State
of Delaware except as set forth in this Section 1 of
Article III. At any time prior to the date immediately
following the third annual meeting of stockholders to be
held after FCI no longer beneficially owns in the aggregate
50% or more of the combined Voting Power of the then
outstanding shares of Voting Stock, the Corporation shall
not, without the consent of FCI, directly or indirectly
(through a Subsidiary of the Corporation or any other person
controlled by the Corporation or its Subsidiaries or
controlled persons by contract, lease or other arrangement)
for its own account or that of another, engage in managing,
selling, distributing, marketing, administering, leasing or
otherwise providing products or services other than the
financial products and services listed in the following
paragraphs (a) through (l):
(a) general purpose payment cards including
without limitation bank credit cards, secured bank
credit cards, prepaid cards, debit cards, co-branded
cards, and affinity bank credit cards;
(b) extended service plans and warranties;
(c) credit card registration;
(d) car buying services, shopping club
memberships and dining club memberships;
(e) insurance products; provided, however,
that the Corporation shall not offer any insurance
product within the Fingerhut Corporation closed-end
installment loan coupon book or any credit insurance
that is directly tied to a revolving credit balance
owed directly to Fingerhut Corporation, its wholly
owned subsidiaries or the wholly owned subsidiaries of
Fingerhut Companies, Inc., other than the Corporation;
(f) mailing lists and other lists of
prospects for solicitation;
<PAGE> 2
(g) advertising on or accompanying monthly
billing statements sent to customers of the
Corporation;
(h) tax preparation services;
(i) investment products and services
including without limitation deposit products,
certificates of deposit, annuities, and mutual funds;
(j) investment and other brokerage services;
(k) consumer loans and leases including
without limitation mobile home financing, automobile
lending and leasing, equity loans and mortgages, and
student loans; provided, however, that the Corporation
shall not offer any closed end installment or revolving
credit loans to Fingerhut Corporation customers for the
exclusive purchase of Fingerhut Corporation
merchandise; and
(l) mail-grams, travelers checks, money
orders, and travel services.
SECTION 2. Other Activities Authorized by
Shareholders. In addition to the activities permitted under
Section 1 of this Article [III], the Corporation may engage
in any business or activity authorized by the affirmative
vote of a majority of the combined Voting Power of the then
outstanding shares of all classes and series of Voting Stock
voting together as a single class. No person shall be
liable for breach of any fiduciary duty, as a stockholder of
the Corporation or controlling person of a stockholder or
otherwise, by reason of such person authorizing, or not
authorizing, the Corporation to engage in any business or
activity.
ARTICLE IV
Authorized Shares
SECTION 1. Number of Shares. The total number of
shares of all classes of stock which the Corporation shall
have authority to issue is 110,000,000 shares, consisting of
100,000,000 shares of Common Stock with par value $.01 per
share ("Common Stock"), and 10,000,000 shares of Preferred
Stock with par value $.01 per share ("Preferred Stock").
SECTION 2. Dividends. Subject to the provisions
of law and the rights of the Preferred Stock and any other
class or series of stock then outstanding having a
preference as to dividends over the Common Stock, dividends
may be paid on the Common Stock at such times and in such
amounts as the Board of Directors shall determine.
SECTION 3. Relative Rights of Shareholders. Upon
the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after any
preferential amounts to be distributed to the holders of the
Preferred Stock and any other class or series of stock then
outstanding having a preference over the Common Stock have
been paid or declared and set apart for payment, the holders
of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation available for
distribution to its stockholders.
<PAGE> 3
SECTION 4. Rights and Terms of Preferred Stock.
The Board of Directors is hereby authorized to provide, out
of the unissued shares of Preferred Stock, for one or more
series of Preferred Stock. Before any shares of any such
series are issued, the Board of Directors shall fix, and
hereby is expressly empowered to fix, by the adoption and
filing in accordance with the Delaware General Corporation
Law of an amendment or amendments to this Certificate of
Incorporation, the terms of such Preferred Stock or series
of Preferred Stock, including the following terms:
(a) the designation of such series, the number of
shares to constitute such series and the stated value
thereof if different from the par value thereof;
(b) whether the shares of such series shall have
voting rights, in addition to any voting rights
provided by law, and, if so, the terms of such voting
rights, which may be special, conditional or limited or
no voting rights except as required by law;
(c) the dividends, if any, payable on such series,
whether any such dividends shall be cumulative, and, if
so, from what dates, the conditions and dates upon
which such dividends shall be payable, the preference
or relation which such dividends shall bear to the
dividends payable on any shares of stock of any other
class or any other series of Preferred Stock;
(d) whether the shares of such series shall be
subject to redemption by the Corporation and, if so,
the times, prices and other conditions of such
redemption;
(e) the amount or amounts payable upon shares of
such series upon, and the rights of the holders of such
series in, the voluntary or involuntary liquidation,
dissolution or winding up, or upon any distribution of
the assets, of the Corporation;
(f) whether the shares of such series shall be
subject to the operation of a retirement or sinking
fund and, if so, the extent to and manner in which any
such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for
retirement or other corporate purposes and the terms
and provisions relative to the operation thereof;
(g) whether the shares of such series shall be
convertible into, or exchangeable for, shares of stock
of any other class or any other series of Preferred
Stock or any other securities (whether or not issued by
the Corporation) or other property and, if so, the
price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or
exchange;
(h) the limitations and restrictions, if any, to
be effective while any shares of such series are
outstanding upon the payment of dividends or the making
of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of,
the Common Stock or shares of stock of any other class
or any other series of Preferred Stock;
<PAGE> 4
(i) the conditions or restrictions, if any, upon
the creation of indebtedness of the Corporation or upon
the issuance of any additional stock, including
additional shares of such series or of any other series
of Preferred Stock or of any other class of stock; and
(j) any other powers, preferences and relative
participating, optional and other special rights, and
any qualifications, limitations and restrictions
thereof.
Except to the extent otherwise expressly required by law,
(i) no share of Preferred Stock shall have any voting rights
other than those which shall be fixed by the Board of
Directors pursuant to this Section 4 and (ii) no share of
Common Stock shall have any voting rights with respect to an
amendment to the terms of any series of Preferred Stock;
provided, however, that in the case of this clause (ii) the
terms of such series of Preferred Stock, as so amended,
could have been established without any vote of any shares
of Common Stock.
SECTION 5. Redemption Related to License or
Franchise. Notwithstanding any other provision of these
Restated Articles of Incorporation to the contrary, but
subject to the provisions of an amendment or amendments
adopted pursuant to this Article IV creating any series of
Preferred Stock or any other class or series of stock having
a preference over the Common Stock as to dividends or upon
liquidation, outstanding shares of Common Stock, Preferred
Stock or any other class or series of stock of the
Corporation shall always be subject to redemption by the
Corporation, by action of the Board of Directors, if in the
judgment of the Board of Directors such action should be
taken, pursuant to any applicable provision of law, to the
extent necessary to prevent the loss or secure the
reinstatement of any license or franchise from any
governmental agency held by the Corporation or such
Subsidiary to conduct any portion of the business of the
Corporation or such Subsidiary (as defined herein), which
license or franchise is conditional upon some or all of the
holders of the Corporation's stock of any class or series
possessing prescribed qualifications. The terms and
conditions of such redemption shall be as follows:
(a) the redemption price of the shares to be
redeemed pursuant to this Section 5 shall be equal to
the Fair Market Value (as defined herein) of such
shares;
(b) the redemption price of such shares may be
paid in cash, Redemption Securities (as defined herein)
or any combination thereof;
(c) if less than all the shares held by
Disqualified Holders (as defined herein) are to be
redeemed, the shares to be redeemed shall be selected
in such manner as shall be determined by the Board of
Directors, which may include selection first of the
most recently purchased shares thereof, selection by
lot or selection in any other manner determined by the
Board of Directors;
<PAGE> 5
(d) at least 30 days' written notice of the
Redemption Date shall be given to the record holders of
the shares selected to be redeemed (unless waived in
writing by such holder), provided that the Redemption
Date may be the date on which written notice shall be
given to record holders if the cash or Redemption
Securities necessary to effect the redemption shall
have been deposited in trust for the benefit of such
record holders and subject to immediate withdrawal by
them upon surrender of the stock certificates for their
shares to be redeemed;
(e) from and after the Redemption Date, any and
all rights of whatever nature, which may be held by the
owners of shares selected for redemption (including
without limitation any rights to vote or participate in
dividends declared on stock of the same class or series
as such shares), shall cease and terminate and they
shall henceforth be entitled only to receive the cash
or Redemption Securities payable upon redemption; and
(f) such other terms and conditions as the Board
shall determine.
For purposes of this Section 5:
(i) "Disqualified Holder" shall mean any holder of
shares of stock of the Corporation of any class or
series whose holding of such stock may result in the
loss of any license or franchise from any governmental
agency held by the Corporation or any Subsidiary to
conduct any portion of the business of the Corporation
or any Subsidiary.
<PAGE> 6
(ii) "Redemption Date" shall mean the date fixed
by the Board of Directors for the redemption of any
shares of stock of the Corporation pursuant to this
Section 5.
(iii) "Redemption Securities" shall mean any debt
or equity securities of the Corporation, any Subsidiary
or any other corporation, or any combination thereof,
having such terms and conditions as shall be approved
by the Board of Directors and which, together with any
cash to be paid as part of the redemption price, in the
opinion of any nationally recognized investment banking
firm selected by the Board of Directors (which may be a
firm which provides other investment banking, brokerage
or other services to the Corporation), has a value, at
the time notice of redemption is given pursuant to
paragraph (d) of this Section 5, at least equal to the
Fair Market Value of the shares to be redeemed pursuant
to this Section 5 (assuming, in the case of Redemption
Securities to be publicly traded, such Redemption
Securities were fully distributed and subject only to
normal trading activity).
SECTION 6. Assessability. Upon receipt by the
Corporation of the consideration for which the Board of
Directors authorized the issuance of stock, the stock issued
therefor shall be fully paid and nonassessable.
SECTION 7. Subscription Rights. No holder of
stock of the Corporation shall, as such holder, have any
right to purchase or subscribe for any shares of stock of
the corporation of any class, now or hereafter authorized,
or any obligations or instruments which the corporation may
issue or sell that shall be convertible into or exchangeable
for or entitle the holders thereof to subscribe for or
purchase any shares of stock of the Corporation of any
class, now or hereafter authorized, other than such rights,
if any, as the Board of Directors, in its sole discretion,
may determine.
ARTICLE V
Term of Directors and Vacancy on Board
SECTION 1. Term of Director. Except as otherwise
provided by the terms of any series of Preferred Stock or
any other securities of the Corporation, the number of
directors of the Corporation shall be fixed from time to
time by or pursuant to the By-laws of the Corporation.
Prior to the Threshold Time (as defined in Article VII), the
term of each director of the Corporation shall expire at the
next annual meeting of stockholders following such
director's election and until such director's successor
shall have been elected and qualified. The election of
directors need not be by written ballot.
<PAGE> 7
SECTION 2. Vacancy. Except as otherwise provided
by the terms of any series of Preferred Stock or any other
securities of the Corporation, newly created directorships
resulting from any increase in the number of directors may
be filled by the Board of Directors, or as otherwise
provided in the By-laws, and any vacancies on the Board of
Directors resulting from death, resignation, removal or
other cause shall only be filled by the affirmative vote of
a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors, or by a
sole remaining director, or as otherwise provided in the By-
laws.
ARTICLE VI
Provisions of By-Laws
The Board of Directors of the Corporation shall
have the power, without the assent or vote of the
stockholders, to adopt, repeal, alter or amend the By-laws
of the Corporation pursuant to a resolution adopted by the
vote of a majority of the entire Board of Directors
including, without limitation, provisions governing the
conduct of, and the matters which may properly be brought
before, meetings of the stockholders and provisions
specifying the manner and extent to which prior notice shall
be given of the submission of proposals to be submitted at
any meeting of stockholders or of nominations or elections
of directors to be held at any such meeting.
ARTICLE VII
Provisions Relating to Threshold Time
SECTION 1. Threshold Time. The provisions of
Sections 2, 3, 4 and 5 of this Article VII shall become
effective at such time, but only from and after such time
(the "Threshold Time"), as the Permitted Stockholder and
Permitted Transferees, taken together, shall no longer
beneficially own in the aggregate 51% or more of the
combined Voting Power (as defined herein) of the then
outstanding shares of Voting Stock (as defined herein) and
shall continue to be effective from and after the Threshold
Time. The term "Permitted Stockholder" shall mean FCI or
any subsidiary of FCI. The term "Permitted Transferee"
shall mean each of the following:
(a) a trust or trustee, guardian, custodian or
similar entity established or acting for the benefit of
the Permitted Stockholder;
(b) any corporation or other entity 100% of the
voting stock (or equivalent interests) of which is
owned, directly or indirectly, by the Permitted
Stockholder and/or any other person or entity referred
to in clause (a); and
(c) a trust or trustee, guardian, custodian or
similar entity established or acting for the benefit of
any person or entity referred to in clause (b).
SECTION 2. Change in Control. (a) In addition
to any affirmative vote required by law or by this Amended
and Restated Certificate of Incorporation or the terms of
any series of Preferred Stock or any other securities of the
Corporation, and except as otherwise expressly provided in
subsection (c) of this Section 2:
(i) any merger or consolidation of the Corporation
with (1) any Interested Stockholder or (2) any other
corporation (whether or not it is itself an Interested
Stockholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate (as
defined herein) of an Interested Stockholder (as
defined herein); or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a
series of transactions) to or with any Interested
Stockholder or any Affiliate or Associate of any
Interested Stockholders of (1) all or substantially all
the assets of the Corporation or (2) assets of the
Corporation or any of its Subsidiaries representing in
the aggregate more than 75% of the total value of the
assets of the Corporation and its consolidated
Subsidiaries as reflected on the most recent
consolidated balance sheet of the Corporation and its
consolidated Subsidiaries prepared in accordance with
generally accepted accounting principles then in
effect; or
<PAGE> 8
(iii) (1) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one
transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate or Associate of
any Interested Stockholder of any assets of the
Corporation or of any Subsidiary of the Corporation
having an aggregate Fair Market Value of $10,000,000 or
more, but less than the amount referred to in clause
(2) of paragraph (ii) of this subsection (a), or (2)
any merger or consolidation of any Subsidiary of the
Corporation having assets with an aggregate Fair Market
Value of $10,000,000 or more in a transaction not
covered by paragraph (ii) of this subsection (a) with
(x) any Interested Stockholder or (y) any other
corporation (whether or not it is itself an Interested
Stockholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate of an
Interested Stockholder; or
(iv) the issuance or transfer by the Corporation
or any Subsidiary of the Corporation (in one
transaction or a series of transactions) to any
Interested Stockholder or any Affiliate or Associate of
any Interested Stockholder of any securities of the
Corporation or any Subsidiary of the Corporation in
exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market
Value of $10,000,000 or more, other than the issuance
of securities upon the conversion of convertible
securities of the Corporation or any Subsidiary of the
Corporation which were not acquired by such Interested
Stockholder (or such Affiliate or Associate) from the
Corporation or a Subsidiary of the Corporation; or
(v) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed
by or on behalf of any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder;
or
(vi) any reclassification of securities (including
any reverse stock split) or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries, or any other
transaction (whether or not with or into or otherwise
involving any Interested Stockholder), which in any
such case has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding
shares of any class or series of stock or securities
convertible into stock of the Corporation or any
Subsidiary of the Corporation which is directly or
indirectly beneficially owned by any Interested
Stockholder or any Affiliate or Associate of any
Interested Stockholder;
shall not be consummated without (1) the affirmative vote of
the holders of at least 80% of the combined Voting Power of
the then outstanding shares of all classes and series of
Voting Stock and (2) the affirmative vote of a majority of
the combined Voting Power of the then outstanding shares of
all classes and series of Voting Stock held by Disinterested
Stockholders (as defined herein), in each case voting
together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by
law or by this Certificate of Incorporation or the terms of
any series of Preferred Stock or any other securities of the
Corporation or in any agreement with any national securities
exchange or otherwise.
(b) The term "Business Combination" as used in
this Section 2 shall mean any transaction which is referred
to in any one or more of paragraphs (i) through (vi) of
subsection (a) of this Section 2.
(c) The provisions of subsection (a) of this
Section 2 shall not be applicable to any particular Business
Combination, and such Business Combination shall require
only such affirmative vote as is required by law and any
other provision of this Certificate of Incorporation and the
terms of any series of Preferred Stock or any other
securities of the Corporation, if all the conditions
specified in any of the following paragraphs (i), (ii),
(iii) or (iv) are met:
(i) (1) such Business Combination shall have been
approved by a majority of the Disinterested Directors
(as defined herein) and (2) the Interested Stockholder
involved in such Business Combination has (x) acquired
such status as an Interested Stockholder in a manner
substantially consistent with an agreement or
memorandum of understanding approved by the Board of
Directors prior to the time such Interested Stockholder
became an Interested Stockholder and (y) complied with
all requirements imposed by such agreement or
memorandum of understanding; or
(ii) in the case of any Business Combination
described in paragraph (i) of subsection (a) of this
Section 2, (1) such Business Combination shall have
been approved by a majority of the Disinterested
Directors, (2) such Business Combination shall not have
resulted, directly or indirectly, in an increase of
more than 10% in the total amount of shares of any
class or series of stock or securities convertible into
stock of the Corporation or any Subsidiary which was
directly or indirectly beneficially owned by any
Interested Stockholder and all Affiliates and
Associates of such Interested Stockholder at the time
of the approval of such Business Combination by a
majority of the Disinterested Directors, and (3) such
Business Combination shall not have been consummated
within a period of two years after the consummation of
any other Business Combination described in
paragraph (i), (ii), (iii), (iv), (v) or (vi) of
subsection (a) of this Section 2 (whether or not such
other Business Combination shall have been approved by
a majority of the Disinterested Directors) which had
the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any
class or series of stock or securities convertible into
stock of the Corporation or any Subsidiary of the
Corporation which was directly or indirectly
beneficially owned by such Interested Stockholder or
any Affiliate or Associate of such Interested
Stockholder; or
<PAGE> 9
(iii) in the case of any Business Combination
described in paragraph (iii), (iv) or (vi) of
subsection (a) of this Section 2, such Business
Combination shall have been approved by a majority of
the Disinterested Directors; or
(iv) all of the six conditions specified in the
following clauses (1) through (6) shall have been met:
(1) the transaction constituting the
Business Combination shall provide for a
consideration to be received by holders of each
then existing class of Common Stock in exchange
for all their shares of each class of Common
Stock, and the aggregate amount of the cash and
the Fair Market Value as of the date of the
consummation of the Business Combination of any
consideration other than cash to be received per
share by holders of each class of Common Stock in
such Business Combination shall be at least equal
to the highest of the following:
(A) (if applicable) the
highest per share price (including any
brokerage commissions, transfer taxes and
soliciting dealers' fees) paid in order to
acquire any shares of the particular class of
Common Stock in question beneficially owned
by the Interested Stockholder which were
acquired (i) within the two-year period
immediately prior to the Announcement Date or
(ii) in the transaction in which it became an
Interested Stockholder, whichever is higher;
and
(B) the Fair Market Value per
share of the class of Common Stock in
question on the Announcement Date (as defined
herein) or on the Determination Date (as
defined herein), whichever is higher; and
(2) if the transaction constituting the
Business Combination shall provide for a
consideration to be received by holders of any
class or series of outstanding Voting Stock other
than Common Stock, the aggregate amount of the
cash and the Fair Market Value as of the date of
the consummation of the Business Combination of
any consideration other than cash to be received
per share by holders of shares of such Voting
Stock shall be at least equal to the highest of
the following (the requirements of this clause
(iv)(2) must be met with respect to every class
and series of such outstanding Voting Stock,
whether or not the Interested Stockholder
beneficially owns any shares of a particular class
or series of Voting Stock):
(A) (if applicable) the
highest per share price (including any
brokerage commissions, transfer taxes and
soliciting dealers' fees) paid in order to
acquire any shares of such class or series of
Voting Stock beneficially owned by the
Interested Stockholder which were acquired
(i) within the two-year period immediately
prior to the Announcement Date or (ii) in the
transaction in which it became an Interested
Stockholder, whichever is higher;
(B) (if applicable) the
highest preferential amount per share to
which the holders of shares of such class or
series of Voting Stock are entitled in the
event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation; and
(C) the Fair Market Value per
share of such class or series of Voting Stock
on the Announcement Date or on the
Determination Date, whichever is higher; and
(3) the consideration to be received by
holders of a particular class or series of
outstanding Voting Stock (including any class of
Common Stock) shall be in cash or in the same form
as was previously paid in order to acquire shares
of such class or series of Voting Stock which are
beneficially owned by the Interested Stockholder
and, if the Interested Stockholder beneficially
owns shares of any class or series of Voting Stock
which were acquired with varying forms of
consideration, the form of consideration to be
received by holders of such class or series of
Voting Stock shall be either cash or the form used
to acquire the largest number of shares of such
class or series of Voting Stock beneficially owned
by it; the prices determined in accordance with
clauses (1) and (2) of this paragraph (iv) shall
be appropriately adjusted in the event of any
stock dividend, stock split or subdivision or
combination of shares or any similar event; and
<PAGE> 10
(4) after such Interested Stockholder
has become an Interested Stockholder and prior to
the consummation of such business Combination:
(A) except as approved by a
majority of the Disinterested Directors,
there shall have been no failure to declare
and pay at the regular dates therefor the
full amount of any dividends (whether or not
cumulative) payable on the Preferred Stock or
any class or series of stock having a
preference over the Common Stock as to
dividends or upon liquidation;
(B) there shall have been
(x) no reduction in the annual rate of
dividends paid on any class of Common Stock
(except as necessary to reflect any
subdivision of such class of Common Stock),
except as approved by a majority of the
Disinterested Directors, and (y) an increase
in such annual rate of dividends (as
necessary to prevent any such reduction) in
the event of any reclassification (including
any reverse stock split), recapitalization,
reorganization or any similar transaction
which has the effect of reducing the number
of outstanding shares of the Common Stock,
unless the failure so to increase such annual
rate is approved by a majority of the
Disinterested Directors; and
(C) such Interested
Stockholder shall not have become the
beneficial owner of any additional shares of
Voting Stock except as part of the
transaction in which it became an Interested
Stockholder; and
(5) after such Interested Stockholder
has become an Interested Stockholder, such
Interested Stockholder shall not have received the
benefit, directly or indirectly (except
proportionately as a stockholder) of any loan,
advance, guarantee, pledge or other arrangement
provided by the Corporation or any Subsidiary,
whether in anticipation of or in connection with
such Business Combination or otherwise; and
(6) a proxy or information statement
describing the proposed Business Combination and
complying with the requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or
regulations) shall be mailed to public
stockholders of the Corporation at least 30 days
prior to the consummation of such Business
Combination (whether or not such proxy or
information statement is required to be mailed
pursuant to such Act or subsequent provisions).
(d) A majority of the Disinterested Directors of
the Corporation shall have the power and duty to determine,
on the basis of information known to them after reasonable
inquiry, all facts necessary to determine compliance with
this Section 2, including, without limitation, (i) whether a
person is an Interested Stockholder, (ii) the number of
shares of each class or series of Voting Stock beneficially
owned by any person, (iii) whether a person is an Affiliate
or Associate of another person, (iv) whether the
requirements of subsection (c) of this Section 2 have been
met with respect to any Business Combination and (v) whether
the assets which are the subject of any Business Combination
have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any
Subsidiary of the Corporation in any Business Combination
has, an aggregate Fair Market Value of $10,000,000 or more
or whether such assets or consideration, as the case may be,
represent in the aggregate more than 75% of the total value
of the assets of the Corporation and its consolidated
Subsidiaries as reflected on the most recent consolidated
balance sheet of the Corporation and its consolidated
Subsidiaries prepared in accordance with generally accepted
accounting principles then in effect; and the good faith
determination of a majority of the Disinterested Directors
on such matters shall be conclusive and binding for all
purposes of this Section 2.
(e) Nothing contained in this Section 2 shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
<PAGE> 11
SECTION 3. Staggered Board. (a) The directors
of the Corporation, other than those who may be elected
pursuant to the terms of any series of Preferred Stock or
any other securities of the Corporation, shall be
classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal
in number as possible, as shall be provided in the By-laws
of the Corporation, one class whose term expires at the
first annual meeting of stockholders to be held after the
Threshold Time, another class whose term expires at the
second annual meeting of stockholders to be held after the
Threshold Time, and another class whose term expires at the
third annual meeting of stockholders to be held after the
Threshold Time, with each class to hold office until its
successors are elected and qualified. The classes shall be
initially comprised of directors serving on the Board of
Directors at the Threshold Time, and the membership of each
class shall be initially determined by the Board of
Directors at such time. At each annual meeting of the
stockholders of the Corporation, the date of which shall be
fixed by or pursuant to the By-laws of the Corporation, the
successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the
third year following the year of their election. No
decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent
director. Any director elected to fill a newly created
directorship or any vacancy on the Board of Directors
resulting from any death, resignation, removal or other
cause shall hold office for the remainder of the full term
of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
(b) Except as otherwise provided by the terms of
any series of Preferred Stock or any other securities of the
Corporation, any director of the Corporation may be removed
from office only for cause and only by the affirmative vote
of the holders of a majority of the combined Voting Power of
the then outstanding shares of Voting Stock, voting together
as a single class. For purposes of this subsection (b),
"cause" shall mean the willful and continuous failure of a
director to substantially perform such director's duties to
the Corporation (other than any such failure resulting from
incapacity due to physical or mental illness) or the willful
engaging by a director in gross misconduct materially and
demonstrably injurious to the Corporation.
SECTION 4. Special Meetings. Subject to the
terms of any series of Preferred Stock or any other
securities of the Corporation, special meetings of
stockholders of the Corporation may be called only by the
Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors or as otherwise
provided in the By-laws of the Corporation.
SECTION 5. Amendments of Certificate. In
addition to any requirements of law and any other provisions
of this Certificate of Incorporation or the terms of any
series of Preferred Stock or any other securities of the
Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of
Incorporation or the terms of any series of Preferred Stock
or any other securities of the Corporation), the affirmative
vote of (i) the holders of 80% or more of the combined
Voting Power of the then outstanding shares of Voting Stock
and (ii) a majority of the combined Voting Power of the then
outstanding shares of Voting Stock held by the Disinterested
Stockholders, in each case voting together as a single
class, shall be required to amend, alter or repeal, or adopt
any provision inconsistent with, this Article VII or
Article VIII insofar as the definitions set forth in
Article VIII relate to this Article VII.
<PAGE> 12
ARTICLE VIII
Certain Definitions
For purposes of this Certificate of Incorporation:
"Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act, as
in effect on the date this Certificate of Incorporation are
filed.
"Announcement Date" shall mean the date of first
public announcement of the proposed Business Combination.
A person shall be a "beneficial owner" of any
Voting Stock or other security or interest:
(a) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly;
or
(b) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such
right is exercisable immediately or only after the
passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or
options, or otherwise, or (ii) the right to vote or to
direct the vote pursuant to any agreement, arrangement
or understanding; or
(c) which are beneficially owned, directly or
indirectly, by any other person with which such person
or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any
shares of Voting Stock or such other security or
interest.
"Determination Date" means the date on which the
Interested Stockholder became an Interested Stockholder.
"Disinterested Director" means any member of the
Board of Directors of the Corporation who is unaffiliated
with, and not a nominee of, an Interested Stockholder or any
Affiliate or Associate of such Interested Stockholder and
was a member of the Board of Directors prior to the time
that such Interested Stockholder became an Interested
Stockholder, and any successor of a Disinterested Director
who is unaffiliated with, and not a nominee of, an
Interested Stockholder or any Affiliate or Associate of such
Interested Stockholder and who is recommended for election
or elected to succeed a Disinterested Director by a majority
of Disinterested Directors then on the Board of Directors.
"Disinterested Stockholder" shall mean a
stockholder of the Corporation who is not an Interested
Stockholder or an Affiliate or an Associate of an Interested
Stockholder.
"Equity Interest" shall mean (i) in the case of a
corporation, capital stock, beneficially owned directly or
indirectly, representing any portion of, or, where a
specified percentage of Equity Interest is referred to, the
specified percentage of, either (x) the total common equity
of such corporation or (y) the total outstanding Voting
Power in respect of the election of directors and (ii) in
the case of a partnership or other person, partnership or
other ownership interests, beneficially owned directly or
indirectly, representing any portion of, or, where a
specified percentage of Equity Interest is referred to, the
specified percentage of, either (x) the total partnership or
other ownership interests in such partnership or other
person or (y) the total outstanding Voting Power in respect
of any matter submitted to a vote of all partners or other
owners.
"Fair Market Value" means: (a) in the case of
stock, the highest closing sale price during the 30-day
period immediately preceding the date in question of a share
of such stock as reported in the consolidated transaction
reporting system for the principal United States securities
exchange registered under the Exchange Act on which such
stock is listed, or, if such stock is not listed on any such
exchange, the highest closing sales price or bid quotation
with respect to a share of such stock during the 30-day
period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or, if no such quotations
are available, the fair market value on the date in question
of a share of such stock as determined by a majority of the
Disinterested Directors in good faith; and (b) in the case
of stock of any class or series which is not traded on any
securities exchange or in the over-the-counter market or in
the case of property other than cash or stock, the fair
market value of such stock or property, as the case may be,
on the date in question as determined by a majority of the
Disinterested Directors in good faith.
<PAGE> 13
"Interested Stockholder" shall mean any person who
or which:
(a) is the beneficial owner, directly or
indirectly, of 20% or more of the combined Voting Power
of the then outstanding shares of Voting Stock; or
(b) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to
the date in question was the beneficial owner, directly
or indirectly, of 20% or more of the combined Voting
Power of the then outstanding shares of Voting Stock;
or
(c) is an assignee of or has otherwise succeeded
to the beneficial ownership of any shares of Voting
Stock which were at any time within the two-year period
immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment
or succession shall have occurred in the course of a
transaction or series of transactions not involving a
public offering within the meaning of the Securities
Act of 1933 or other public distribution regardless of
whether registered under such Act.
Notwithstanding the foregoing, "Interested
Stockholder" shall not include:
(a) the Corporation or any Subsidiary of the
Corporation;
(b) any employee benefit plan of the Corporation
or of any Subsidiary of the Corporation or any person
holding any class or series of Voting Stock for or
pursuant to the terms of any such employee benefit
plan;
(c) the Permitted Stockholder or any Permitted
Transferee; or
(d) any transferee of the Permitted Stockholder or
a Permitted Transferee that would not absent such
transfer be an Interested Stockholder.
For the purposes of determining whether a person
is an Interested Stockholder, the number of shares of Voting
Stock deemed to be outstanding shall include shares of which
such person is the beneficial owner as defined in this
Article VIII but shall not include any other shares of
Voting Stock which may be issuable to other persons pursuant
to any agreement, arrangement or understanding, or upon
exercise of conversion rights, exchange rights, warrants or
options, or otherwise.
A "person" shall mean any individual, firm,
corporation, partnership, trust or other entity.
"Subsidiary" shall mean a person, a majority of
the total outstanding Voting Power of which is owned,
directly or indirectly, by another person or by one or more
other Subsidiaries of such other person or by such person
and one or more other Subsidiaries of such other person;
provided, however, that for the purposes of the definition
of Interested Stockholder set forth in this Article VIII,
the term "Subsidiary" shall mean only a person, a majority
the total outstanding Voting Power of which is owned by the
Corporation, by a Subsidiary of the Corporation or by the
Corporation and one or more of its Subsidiaries.
"Voting Power", when used with reference to the
capital stock of, or units of equity interests in, any
person, shall mean the power under ordinary circumstances
(and not merely as a result of the occurrence of a
contingency) to vote in the election of directors of such
person (if such person is a corporation) or to participate
in the management and control of such person (if such person
is not a corporation).
"Voting Stock" means capital stock of the
Corporation of all classes and series entitled to vote
generally in the election of directors of the Corporation.
<PAGE> 14
ARTICLE IX
Amendments
Subject to the provisions of this Certificate of
Incorporation (including Section 5 of Article VII, Section 3
of Article X, and Section 2 of Article XII) the Corporation
reserves the right to amend, alter or repeal any provision
contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by the laws of Delaware,
and all rights and powers conferred on directors and stock
holders herein are granted subject to this reservation.
ARTICLE X
Director Liability and Indemnification
SECTION 1. No Liability. To the fullest extent
that the Delaware General Corporation Law as it exists on
the date hereof or as it may hereafter be amended permits
the limitation or elimination of the liability of directors,
no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. No amendment to
this Certificate of Incorporation, directly or indirectly by
merger, consolidation or otherwise, having the effect of
amending, altering, changing or repealing any of the provi
sions of this Section 1 shall apply to or have any effect on
the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal,
unless such amendment shall have the effect of further
limiting or eliminating such liability.
SECTION 2. Indemnification. (a) The Corporation
shall, to the fullest extent permitted by applicable law as
then in effect, indemnify any person (the "indemnitee") who
was or is involved in any manner (including, without
limitation, as a party or a witness) or was or is threatened
to be made so involved in any threatened, pending or
completed investigation, claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative
(including, without limitation, any action, suit or
proceeding by or in the right of the Corporation to procure
a judgment in its favor) (a "proceeding") by reason of the
fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation,
or of a partnership, joint venture, trust or other enter
prise (including, without limitation, service with respect
to any employee benefit plan), whether the basis of any such
proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving
as a director or officer, against all expenses, liabilities
and loss (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and
amounts paid or to be paid in settlement) actually and
reasonably incurred by him in connection with such
proceeding. Such indemnification shall continue as to a
person who has ceased to be a director or officer and shall
inure to the benefit of his heirs and legal representatives.
The right to indemnification conferred in this Article X
shall include the right to receive payment in advance of any
expenses incurred by the indemnitee in connection with such
proceeding, consistent with applicable law as then in
effect, and shall be a contract right. The Corporation may,
by action of its Board of Directors, provide indemnification
for employees, agents, attorneys and representatives of the
Corporation with up to the same scope and extent as
hereinabove provided for officers and directors. No
amendment to this Certificate of Incorporation having the
effect of amending, altering, changing or repealing any of
the provisions of this Section 2 shall remove, abridge or
adversely affect any right to indemnification or other
benefits under this Section 2 with respect to any acts or
omissions occurring prior to such amendment or repeal.
(b) The right of indemnification, including the
right to receive payment in advance of expenses, conferred
in this Article X shall not be exclusive of any other rights
to which any person seeking indemnification may otherwise be
entitled under any provisions of the Certificate of
Incorporation, By-laws, agreement, or otherwise.
(c) In any action or proceeding relating to the
right to indemnification conferred in this Article X, the
Corporation shall have the burden of proof that the
indemnitee has not met any standard of conduct or belief
which may be required by applicable law to be applied in
connection with a determination of whether the indemnitee is
entitled to indemnity, or otherwise is not entitled to
indemnity, and neither a failure to make such a
determination nor an adverse determination of entitlement to
indemnity shall be a defense of the Corporation in such an
action or proceeding or create any presumption that the
indemnitee has not met any such standard of conduct or
belief or is otherwise not entitled to indemnity. If
successful in whole or in part in such an action or pro
ceeding, the indemnitee shall be entitled to be indemnified
by the Corporation for the expenses actually and reasonably
incurred by him in connection with such action or proceed
ing.
<PAGE> 15
SECTION 3. Amendments of Certificate. No
amendment to this Certificate of Incorporation, directly or
indirectly by merger, consolidation or otherwise, shall
amend, alter, change or repeal any of the provisions of this
Article X, unless the amendment effecting such amendment,
alteration, change or repeal shall receive the affirmative
vote of the holders of at least 80% of the outstanding
shares of stock of the Corporation entitled to vote in
elections of directors, provided that this Section 3 shall
not apply to any such amendment if such amendment is
submitted to the stockholders for adoption with the
unanimous recommendation of the entire Board of Directors.
ARTICLE XI
Compromise or Arrangement
Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of
them and/or between the Corporation and its stockholders or
any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stock
holder thereof or on the application of any receiver or
receivers appointed for the Corporation under Section 291 of
Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers
appointed for the Corporation under Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be
summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stock
holders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned
by the court to which said application has been made, be
binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of the
Corporation, as the case may be, and also on the
Corporation.
ARTICLE XII
Meetings of Stockholders
SECTION 1. Meetings Required. No action required
to be taken or which may be taken at any annual or special
meeting of stockholders of the Corporation may be taken
without a meeting, except on written consent, setting forth
the action so taken, signed by the holders of record of at
least 80% of the outstanding shares entitled to vote
thereon.
SECTION 2. Amendments of Certificate. No
amendment to this Certificate of Incorporation, directly or
indirectly by merger, consolidation or otherwise, shall
amend, alter, change or repeal any of the provisions of this
Article XII, unless the amendment effecting such amendment,
alteration, change or repeal shall receive the affirmative
vote of the holders of at least 80% of the outstanding
shares of stock of the Corporation entitled to vote in
elections of directors; provided that this Section 2 shall
not apply to any such amendment if such amendment is
submitted to the stockholders for adoption with the
unanimous recommendation of the entire Board of Directors.
ARTICLE XIII
Corporate Opportunities
No opportunity, transaction, agreement or other
arrangement to which Fingerhut Companies, Inc. (FCI), or any
other person in which FCI has or acquires a financial
interest, is or shall become a party, shall be the property
or a corporate opportunity of the Corporation, unless
(a) such opportunity, transaction, agreement or other
arrangement is offered to the Corporation for its benefit
before it is offered to FCI or such other person, and
(b) either (i) the Corporation has an enforceable
contractual interest in such opportunity, transaction,
agreement or other arrangement or (ii) the subject matter of
such opportunity, transaction, agreement or other
arrangement is a constituent element of an activity in which
the Corporation is then actively engaged.
In the event an opportunity, transaction,
agreement or other arrangement shall be offered to (a) FCI
or any other person in which FCI has or acquires a financial
interest or (b) an officer or director of the Corporation,
after it has been offered to the Corporation, the existence
or presence of one or more of the conditions set forth in
clauses (b)(i) and (ii) in the immediately preceding
paragraph shall not be deemed to conclusively entitle the
Corporation to the benefit of such opportunity, transaction,
agreement or other arrangement.
<PAGE> 1
37
Exhibit 3.b: By-Laws
BY-LAWS
OF
METRIS COMPANIES INC.
(a Delaware Corporation)
ARTICLE I
Offices
SECTION 1. Registered Office. The location of
the Corporation's registered office within the State of
Delaware, the name of the registered agent of the
Corporation at such office and the post office address to
which the Secretary of State of the State of Delaware shall
mail a copy of process in any action or proceeding against
the Corporation that may be served upon him, shall be in
each case as stated in the Certificate of Incorporation.
SECTION 2. Other Offices. The Corporation may
also have offices at such other places both within and
without the State of Delaware as the Board of Directors may
from time to time determine or the business of the
Corporation may require.
<PAGE> 2
ARTICLE II
Meeting of Stockholders
SECTION 1. Place of Meeting. All meetings of the
stockholders of the Corporation shall be held at such place
within or without the State of Delaware as shall be
designated by the Board of Directors.
SECTION 2. Annual Meeting. The annual meeting of
the stockholders of the Corporation for the election of
directors and for the transaction of such other business as
may properly come before the meeting shall be held on such
date as may be fixed from time to time by resolution of the
Board of Directors.
SECTION 3. Special Meeting. Special meetings of
the stockholders for any purpose or purposes may be called
only by a majority of the entire board of Directors. Only
such business as is specified in the notice of any special
meeting of the stockholders shall come before such meeting.
SECTION 4. Notice of Meetings. Written notice of
each meeting of the stockholders, whether annual or special,
shall be given, either by personal delivery or by mail, not
less than 10 nor more than 60 days before the date of the
meeting to each stockholder of record entitled to notice of
such meeting. If mailed, such notice shall be deemed given
when deposited in the United States mail, postage prepaid,
directed to the stockholder at such stockholder's address as
it appears on the records of the Corporation. Each such
notice shall state the place, date and hour of the meeting,
and the purpose or purposes for which the meeting is called.
Notice of any meeting of stockholders shall not be required
to be given to any stockholder who shall attend such meeting
in person or by proxy without protesting, prior to or at the
commencement of the meeting, the lack of proper notice to
such stockholder, or who shall waive notice thereof as
provided in Article X of these By-laws. Notice of
adjournment of a meeting of stockholders need not be given
if the time and place to which it is adjourned are announced
at such meeting, unless the adjournment is for more than
30 days or, after adjournment, a new record date is fixed
for the adjourned meeting.
<PAGE> 3
SECTION 5. Quorum. Except as otherwise required
by law or the Certificate of Incorporation, the holders of a
majority of the votes entitled to be cast by the
stockholders entitled to vote, which if any vote is to be
taken by classes shall mean the holders of a majority of the
votes entitled to be cast by the stockholders of each such
class, present in person or by proxy, shall constitute a
quorum for the transaction of business at any meeting of the
stockholders.
SECTION 6. Adjournments. In the absence of a
quorum, the holders of a majority of the votes entitled to
be cast by the stockholders present in person or by proxy,
may adjourn the meeting from time to time without notice
other than the announcement at the meeting at which there is
no quorum of the date, time and place of the adjourned
meeting, unless the date of the adjourned meeting requires
that a new record date be fixed, in which case notice of the
adjourned meeting shall be given. At any such adjourned
meeting at which a quorum may be present, any business may
be transacted which might have been transacted at the
meeting as originally called.
SECTION 7. Order of Business. At each meeting of
the stockholders, the Chairman of the Board, or, in the
absence of the Chairman of the Board, such person designated
by the Board of Directors, shall act as chairman. At any
annual meeting held after the Threshold Time (as defined in
the Certificate of Incorporation), only such business shall
be conducted as shall have been brought before the annual
meeting (i) by or at the direction of the Board of Directors
or (ii) by any stockholder who complies with the procedures
set forth in this Section 7.
For business properly to be brought by a
stockholder before an annual meeting held after the
Threshold Time, the stockholder must have given timely
notice thereof in proper written form to the Secretary of
the Corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal
office of the Corporation not less than 30 days nor more
than 60 days prior to the annual meeting; provided, however,
that in the event that less than 40 days' notice or prior
public disclosure of the date of the annual meeting is given
or made to stockholders, notice by the stockholder to be
timely must be received not later than the close of business
on the tenth day following the day on which such notice of
the date of the annual meeting was mailed or such public
disclosure was made. To be in proper written form, a
stockholder's notice to the Secretary shall set forth in
writing as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual
meeting; (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of stock of
the Corporation which are beneficially owned by the
stockholder; and (iv) any material interest of the
stockholder in such business. Notwithstanding anything in
these By-laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the
procedures set forth in this Section 7. The chairman of an
annual meeting shall, if the facts warrant, determine and
declare to the annual meeting that business was not properly
brought before the annual meeting in accordance with the
provisions of this Section 7 and, if he should so determine,
he shall so declare to the annual meeting and any such
business not properly brought before the annual meeting
shall not be transacted.
<PAGE> 4
SECTION 8. List of Stockholders. The Secretary
or other officer of the Corporation who has charge of the
stock ledger shall prepare before each meeting of the
stockholders, a complete list of the stockholders entitled
to vote thereat, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares
registered in such stockholder's name. Such list shall be
produced and kept available at the times and places required
by law.
SECTION 9. Voting. Each stockholder of record of
any class or series of stock having a preference over the
Common Stock of the Corporation as to dividends or upon
liquidation shall be entitled at each meeting of
stockholders to such number of votes for each share of such
stock as may be fixed in the Certificate of Incorporation,
each stockholder of record of Common Stock shall be entitled
at each meeting of stockholders to one (1) vote for each
share of such stock registered in such stockholder's name on
the books of the Corporation:
(1) on the date fixed pursuant to Section 6 of
Article VII of these By-laws as the record date for the
determination of stockholders entitled to notice of and
to vote at such meeting; or
(2) if no such record date shall have been so
fixed, then at the close of business on the day next
preceding the day on which notice of such meeting is
given, or, if notice is waived, at the close of
business on the day next preceding the day on which the
meeting is held, but in no event more than 70 days
prior to the meeting.
Each stockholder entitled to vote at any meeting
of stockholders may authorize not in excess of three persons
to act for such stockholder by a proxy signed by such
stockholder or such stockholder's attorney-in-fact. Any
such proxy shall be delivered to the secretary of such
meeting at or prior to the time designated for holding such
meeting, but in any event not later than the time designated
in the order of business for so delivering such proxies. No
such proxy shall be voted or acted upon after eleven months
from its date, unless the proxy expressly provides for a
shorter or longer period.
At each meeting of the stockholders, except as
provided in Article III, Section 2 with respect to the
election of directors or as required by law, all corporate
actions to be taken by vote of the stockholders shall be
approved if the number of votes cast in favor of the action
exceeds the number of votes cast opposing the action, and
where a separate vote by class is required the number of
votes cast by stockholders of such class in favor of the
action exceeds the number of votes cast by stockholders of
such class opposing the action.
<PAGE> 5
Unless required by law or determined by the
chairman of the meeting to be advisable, the vote on any
matter, including the election of directors, need not be by
written ballot. In the case of a vote by written ballot,
each ballot shall be signed by the stockholder voting, or by
such stockholder's proxy, and shall state the number of
shares voted.
SECTION 10. Inspectors. Either the Board of
Directors or, in the absence of designation of inspectors by
the Board, the chairman of any meeting of stockholders may,
in its or such person's discretion, appoint two or more
inspectors to act at any meeting of stockholders. Such
inspectors shall perform such duties as shall be specified
by the Board or the chairman of the meeting. Inspectors
need not be stockholders. No director or nominee for the
office of director shall be appointed such inspector.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and
affairs of the Corporation shall be managed by or under the
direction of the Board of Directors, which may exercise all
such powers of the Corporation and do all such lawful acts
and things as are not by law or by the Certificate of
Incorporation directed or required to be exercised or done
by the stockholders.
SECTION 2. Number, Qualification and Election.
Except as otherwise fixed by or pursuant to the provisions
of the Certificate of Incorporation relating to the rights
of the holders of any class or series of stock having
preference over the Common Stock as to dividends or upon
liquidation, the number of directors of the Corporation
shall be determined from time to time by vote of a majority
of the entire Board of Directors, provided that the number
thereof may not be less than three.
<PAGE> 6
Until the Threshold Time, each of the directors of
the Corporation shall hold office until the next annual
meeting of stockholders following such director's election
and until such director's successor shall have been elected
and qualified, or until his earlier death, or resignation or
removal in the manner hereinafter provided. After the
Threshold Time, the directors, other than those who may be
elected by the holders of shares of any class or series of
stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation pursuant to
the terms of the Certificate of Incorporation shall be
classified, with respect to the time for which they
severally hold office, into three classes as nearly equal in
number as possible: one class whose term expires at the
first annual meeting of stockholders after the Threshold
Time, another class whose term expires at the second annual
meeting of stockholders to be held after the Threshold Time
and another class whose term expires at the third annual
meeting of stockholders to be held after the Threshold Time,
with each class to hold office until its successors are
elected and qualified. The classes shall be initially
comprised of directors serving on the Board of Directors at
the Threshold Time, and the membership of each class shall
be initially determined by the Board of Directors at such
time. If the number of directors is changed by the Board of
Directors after the Threshold Time, any newly created
directorships or any decrease in directorships shall be so
apportioned among the classes as to make all classes as
nearly equal as possible; provided, however, that no
decrease in the number of directors shall shorten the term
of any incumbent director. At each annual meeting of the
stockholders of the Corporation after the Threshold Time,
subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation, the
successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the
third year following the year of their election.
<PAGE> 7
Directors need not be stockholders of the
Corporation. At least two-thirds of the members of the
Board of Directors shall be citizens of the United States.
A person that is not a U.S. citizen may not be a candidate
for director of the Corporation if such person's election,
together with the incumbent directors that are not
candidates for election as directors at the same time, would
cause less than two-thirds of the Corporation's directors to
be U.S. citizens. If, as a result of the election of
directors in any given year, less than two-thirds of the
duly elected directors will be U.S. citizens, the incumbent
directors, together with the directors who were elected in
such election who are U.S. citizens, shall have the absolute
authority to deny such person that is not a U.S. citizen his
office as director of the Corporation.
In any election of directors, the persons
receiving a plurality of the votes cast, up to the number of
directors to be elected in such election, shall be deemed
elected.
SECTION 3. Notification of Nominations. Subject
to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or
upon liquidation, nominations for the election of directors
may be made by the Board of Directors or any nominating
committee or person appointed by the Board of Directors or
by any stockholder entitled to vote for the election of
directors at a meeting which complies with the provisions of
this Section 3. After the Threshold Time, any stockholder
entitled to vote for the election of directors at a meeting
may nominate persons for election as directors by giving
timely notice thereof in proper written form to the
Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than
50 days nor more than 75 days prior to the meeting;
provided, however, that in the event that less than 60 days'
notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of
business on the tenth day following the day on which such
notice of the date of the meeting was mailed or such public
disclosure was made. To be in proper written form, such
stockholder's notice shall set forth in writing (i) as to
each person whom the stockholder proposes to nominate for
election or reelection as a director, all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is
otherwise required pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, including,
without limitation, such person's written consent to being
named in the proxy statement as a nominee and to serving as
a director if elected; and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the
Corporation's books, of such stockholder and (y) the class
and number of shares of stock of the Corporation which are
beneficially owned by such stockholder. At the request of
the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the
Secretary of the Corporation the information required to be
set forth in a stockholder's notice of nomination which
pertains to the nominee. In the event that a stockholder
seeks to nominate one or more directors, the Secretary shall
appoint two inspectors, who shall not be affiliated with the
Corporation, to determine whether a stockholder has complied
with this Section 3. If the Inspectors shall determine that
a stockholder has not complied with this Section 3, the
inspectors shall direct the chairman of the meeting to
declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the By-laws of
the Corporation, and the chairman shall so declare to the
meeting and the defective nomination shall be disregarded.
<PAGE> 8
SECTION 4. Quorum and Manner of Acting. Except
as otherwise provided by these By-laws, a majority of the
entire Board of Directors shall constitute a quorum for the
transaction of business at any meeting of the Board, and,
except as so provided, or otherwise required by law, the
vote of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board.
In the absence of a quorum, a majority of the directors
present may adjourn the meeting to another time and place.
At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted
at the meeting as originally called.
SECTION 5. Place of Meetings. The Board of
Directors may hold its meetings at such place or places
within or without the State of Delaware as the Board may
from time to time determine or as shall be specified or
fixed in the respective notices or waivers of notice
thereof.
SECTION 6. Regular Meetings. Regular meetings of
the Board of Directors shall be held at such times and
places as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be
a legal holiday under the laws of the place where the
meeting is to be held, the meeting which would otherwise be
held on that day shall be held at the some hour on the next
succeeding business day.
SECTION 7. Special Meetings. Special meetings of
the Board of Directors shall be held whenever called by the
Chairman of the Board or by a majority of the directors.
SECTION 8. Notice of Meetings. Notice of regular
meetings of the Board of Directors or of any adjourned
meeting thereof need not be given. Notice of each special
meeting of the Board shall be mailed to each director,
addressed to such director at such director's residence or
usual place of business, at least two days before the day on
which the meeting is to be held or shall be sent to such
director at such place by telegraph or be given personally
or by telephone, not later than the day before the meeting
is to be held, but notice need not be given to any director
who shall, either before or after the meetings submit a
signed waiver of such notice or who shall attend such
meeting without protesting, prior to or at its commencement,
the lack of notice to such director. Every such notice
shall state the time and place but need not state the
purpose of the meeting.
SECTION 9. Rules and Regulations. The Board of
Directors may adopt such rules and regulations not
inconsistent with the provisions of these By-laws for the
conduct of its meetings and management of the affairs of the
Corporation as the Board may deem necessary or proper. In
the absence of the Chairman of the Board, such person
designated by the Board of Directors shall preside at
meetings of the Board.
<PAGE> 9
SECTION 10. Participation in Meeting by Means of
Communications Equipment. Any one or more members of the
Board of Directors or any committee thereof may participate
in any meeting of the Board or of any such committee by
means of conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
SECTION 11. Action Without Meeting. Any action
required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken
without a meeting if all of the members of the Board or of
any such committee consent thereto in writing and the
writing or writings are filed with the minutes of
proceedings of the Board or of such committee.
SECTION 12. Resignations. Any director of the
corporation may at any time resign by giving written notice
to the Board of Directors, the Chairman of the Board, the
President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein
or, if the time be not specified, upon receipt thereof; and,
unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 13. Removal of Directors. Prior to the
Threshold Time, any director may be removed at any time for
cause or without cause by vote of the holders of a majority
in voting interest of shares of stock then entitled to vote
in the election of directors. The vacancy in the Board
caused by any such removal may be filled by the stockholders
at such meeting or as provided in Section 14 of Article III
of these By-laws. Any director may also be removed at any
time prior to the Threshold Time for cause by vote of a
majority of the entire Board of Directors.
After the Threshold Time, directors may be removed
only as provided in the Certificate of Incorporation.
SECTION 14. Vacancies. Prior to the Threshold
Time, in the case of any vacancy on the Board or in case of
any newly created directorship, a director to fill the
vacancy or the newly created directorship for the unexpired
portion of the term being filled may be elected by a
majority of the directors of the Corporation then in office,
though less than a quorum, or by a sole remaining director.
The director elected to fill such a vacancy shall hold
office for the unexpired term in respect of which such
vacancy occurred and until his successor shall be elected
and shall qualify or until his earlier death or resignation
or removal in the manner provided herein.
After the Threshold Time, subject to the rights of
the holders of any class or series of stock having a
preference over any class of the Common Stock of the
Corporation as to dividends or upon liquidation, any
vacancies on the Board of Directors resulting from death,
resignation, removal or other cause shall only be filled by
the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of
the Board of Directors, or by a sole remaining director, and
newly created directorships resulting from any increase in
the number of directors shall be filled by the Board, or if
not so filled, by the stockholders at the next annual
meeting thereof or at a special meeting called for that
purpose in accordance with Section 3 of Article II of these
By-laws. Any director elected in accordance with the
preceding sentence of this Section 14 shall hold office for
the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy
occurred and until such director's successor shall have been
elected and qualified.
<PAGE> 10
SECTION 15. Compensation. Each director who
shall not at the time also be a salaried officer or employee
of the Corporation or any of its subsidiaries (hereinafter
referred to as an "outside director"), in consideration of
such person serving as a director, shall be entitled to
receive from the Corporation such amount per annum and such
fees for attendance at meetings of the Board of Directors or
of committees of the Board or both, as the Board shall from
time to time determine. In addition each director, whether
or not an outside director, shall be entitled to receive
from the Corporation reimbursement for the reasonable
expenses incurred by such person in connection with the
performance of such person's duties as a director. Nothing
contained in this Section shall preclude any director from
serving the Corporation or any of its subsidiaries in any
other capacity and receiving proper compensation therefor.
ARTICLE IV
Executive and Other Committees
SECTION 1. Executive Committee. The Board of
Directors may, by resolution adopted by a majority of the
entire Board, designate annually three or more of its
members, one of whom shall be the Chairman of the Board, to
constitute members or alternate members of an Executive
Committee, which Committee shall have and may exercise,
between meetings of the Board, all the powers and authority
of the Board in the management of the business and affairs
of the Corporation, except that the Executive Committee may
not:
(a) authorize dividends or other distributions,
except the Executive Committee may authorize or approve
a reacquisition of stock, if done according to a
formula or method prescribed by the Board of Directors;
(b) approve or propose to stockholders action that
is required to be approved by stockholders;
(c) fill vacancies on the Board of Directors or on
any of its committees;
(d) amend the Corporation's Certificate of
Incorporation;
(e) adopt, amend, repeal, or waive provisions of
these By-Laws,
(f) approve a plan of merger not requiring
stockholder approval; or
(g) authorize or approve the issuance or sale or a
contract for sale of stock, or determine the
designation and relative rights, preferences, and
limitations of a class or series of preferred stock,
except the Board of Directors may authorize the
Executive Committee to take the action described herein
within limits prescribed by the Board of Directors.
The Board shall have power at any time to change the
membership of the Executive Committee, to fill all vacancies
in it and to discharge it, either with or without cause.
<PAGE> 11
SECTION 2. Other Committees. The Board of
Directors may, by resolution adopted by a majority of the
entire Board, designate from among its members one or more
other committees, each of which shall have such authority of
the Board as may be specified in the resolution of the Board
designating such committee. A majority of all the members
of such committee may determine its action and fix the time
and place of its meetings, unless the Board shall otherwise
provide. The board shall have power at any time to change
the membership of, to fill all vacancies in and to discharge
any such committee, either with or without cause.
SECTION 3. Procedure; Meetings; Quorum. Regular
meetings of the Executive Committee or any other committee
of the Board of Directors, of which no notice shall be
necessary, may be held at such times and places as shall be
fixed by resolution adopted by a majority of the members
thereof. Special meetings of the Executive Committee or any
other committee of the Board shall be called at the request
of the Chairmen of such committee, if any, or any two or
more members thereof. Notice of each special meeting of the
Executive Committee or any other committee of the Board
shall be sent by mail, telegraph or telephone, or be
delivered personally to each member thereof not later than
the day before the day on which the meeting is to be held,
but notice need not be given to any member who shall, either
before or after the meeting, submit a signed waiver of such
notice or who shall attend such meeting without protesting,
prior to or at its commencement, the lack of such notice to
such member. Any special meeting of the Executive Committee
or any other committee of the Board shall be a legal meeting
without any notice thereof having been given, if all the
members thereof shall be present thereat. Notice of any
adjourned meeting of any committee of the Board need not be
given. The Executive Committee or any other committee of
the Board may adopt such rules and regulations not
inconsistent with the provisions of law, the Certificate of
Incorporation or these By-laws for the conduct of its
meetings as the Executive Committee or any other committee
of the Board may deem proper. A majority of the Executive
Committee or any other committee of the Board shall
constitute a quorum for the transaction of business at any
meeting, and the vote of a majority of the members thereof
present at any meeting at which a quorum is present shall be
the act of such committee. The Executive Committee or any
other committee of the Board of Directors shall keep written
minutes of its proceedings and shall report on such
proceedings to the Board.
<PAGE> 12
ARTICLE V
Officers
SECTION 1. Number; Term of Office; Citizenship.
The officers of the Corporation shall be a Chairman of the
Board, one or more Vice-Chairmen of the Board, a Chairman of
the Executive Committee, if any, a President, a Chief
Financial Officer, one or more Vice Presidents, one or more
of whom may be designated as Executive or Senior Vice
Presidents, a Treasurer, a Secretary and such other officers
or agents with such titles and such duties as the Board of
Directors may from time to time determine, each to have such
authority, functions or duties as in these By-laws provided
or as the Board may from time to time determine, and each to
hold office for such term as may be prescribed by the Board
and until such person's successor shall have been chosen and
shall qualify, or until such person's death or resignation,
or until such person's removal in the manner hereinafter
provided. The Chairman of the Board, the Vice-Chairmen of
the Board, if any, and the Chairman of the Executive
Committee, if any, shall be elected from among the
directors. One person may hold the offices and perform the
duties of any two or more of said officers; provided,
however, that no officer shall execute, acknowledge or
verify any instrument in more than one capacity if such
instrument is required by law, the Certificate of
Incorporation or these By-laws to be executed, acknowledged
or verified by two or more officers. The Board may from
time to time authorize any officer to appoint and remove any
such other officers and agents and to prescribe their powers
and duties. The Board may require any officer or agent to
give security for the faithful performance of such person's
duties. The President and at least two-thirds of the
persons designated as executive officers for purposes of the
Corporation's periodic reports under the Securities Exchange
Act of 1934 shall at all times be citizens of the United
States.
SECTION 2. Removal. Any officer may be removed,
either with or without cause, by the Board of Directors at
any meeting thereof called for the purpose, or, except in
the case of any officer elected by the Board, by any
committee or superior officer upon whom such power may be
conferred by the Board.
SECTION 3. Resignation. Any officer may resign
at any time by giving notice to the Board of Directors, the
Chairman of the Board or the Secretary of the Corporation.
Any such resignation shall take effect at the date of
receipt of such notice or at any later date specified
therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to
make it effective.
SECTION 4. Vacancies. A vacancy in any office
because of death, resignation, removal or any other cause
may be filled for the unexpired portion of the term in the
manner prescribed in these By-laws for election to such
office.
SECTION 5. Chairman of the Board. The Chairman
of the Board shall be the chief executive officer of the
Corporation and as such shall have general supervision and
direction of the business and affairs of the Corporation,
subject to the control of the Board of Directors. The
Chairman of the Board shall, if present, preside at meetings
of the Board of Directors and, if present, preside at
meetings of the stockholders.
<PAGE> 13
SECTION 6. The President. The President, if any,
shall be the chief operating officer of the Corporation and
a U.S. citizen. The President shall perform such other
duties as the Board may from time to time determine.
SECTION 7. Vice Chairman of the Board. Any Vice
Chairman of the Board shall, when requested, counsel with
and advise the Chairman of the Board and other officers of
the Corporation and shall perform such other duties as the
Board may from time to time determine.
SECTION 8. Chairman of the Executive Committee.
The Chairman of the Executive Committee, if any, shall, if
present, preside at meetings of the Executive Committee.
Any chairman of the Executive Committee shall, when
requested, counsel with and advise the Chairman of the Board
and other officers of the Corporation and shall perform such
other duties as the Board or the Executive Committee may
from time to time determine.
SECTION 9. Vice Presidents. Each Vice President
shall have such powers and duties as shall be prescribed by
the Chairman of the Board or the Board of Directors.
SECTION 10. Treasurer. The Treasurer shall
perform all duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to
the Treasurer by the Chairman of the Board, the chief
financial officer or the Board of Directors.
SECTION 11 Secretary. The Secretary shall see
that all notices required to be given by the corporation are
duly given and served; the Secretary shall be custodian of
the seal of the Corporation. The Secretary shall have
charge of the stock ledger and also of the other books,
records and papers of the Corporation and shall see that the
reports, statements and other documents required by law are
properly kept and filed; and shall in general perform all
the duties incident to the office of Secretary and such
other duties as from time to time may be assigned to such
person by the Chairman of the Board or the Board of
Directors.
SECTION 12. Assistant Treasurers, Secretaries and
Controllers. The Assistant Treasurers, the Assistant
Secretaries and the Assistant Controllers shall perform such
duties as shall be assigned to them by the Treasurer,
Secretary or Controller, respectively, or by the Chairman of
the Board or the Board of Directors.
<PAGE> 14
ARTICLE VI
Indemnification of Directors, Officers,
Employees and Agents
SECTION 1. Right to Indemnification. The
Corporation shall, to the fullest extent permitted by
applicable law as then in effect, indemnify any person (the
"Indemnitee") who was or is involved in any manner
(including, without limitation, as a party or a witness) or
was or is threatened to be made so involved in any
threatened, pending or completed investigation, claim,
action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without
limitation, any action, suit or proceeding by or in the
right of the Corporation to procure a judgement in its
favor)(a "Proceeding") by reason of the fact that he is or
was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or
officer of another corporation or of a partnership, joint
venture, trust or other enterprise (including, without
limitation, service with respect to any employee benefit
plan), whether the basis of any such Proceeding is alleged
action in an official capacity as a director or officer or
in any other capacity while serving is a director or
officer, against all expenses, liability and loss
(including, without limitation, attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or
to be paid in settlement) actually and reasonably incurred
by him in connection with such Proceeding. The right to
indemnification conferred in this Article VI shall include
the right to receive payment in advance of any expenses
incurred by the Indemnitee in connection with such
Proceeding, consistent with applicable law as then in
effect. All right to indemnification conferred in this
Article VI, including such right to advance payments and the
evidentiary, procedural and other provisions of this
Article VI, shall be a contract right. The Corporation may,
by action of its Board of Directors, provide indemnification
for employees, agents, attorneys and representatives of the
Corporation with up to the same scope and extent as provided
for officers and directors.
SECTION 2. Insurance, Contracts and Funding. The
Corporation may purchase and maintain insurance to protect
itself and any person who is, was or may become an officer,
director, employee, agent, attorney or representative of the
Corporation or, at the request of the Corporation, an
officer, director, employee, agent, attorney or
representative of another corporation or entity, against any
expense, liability or loss asserted against him or incurred
by him in connection with any Proceeding in any such
capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him
against such expense, liability or loss under the provisions
of this Article VI or otherwise. The Corporation may enter
into contracts with any director, officer, employee, agent,
attorney or representative of the Corporation, or any person
serving as such at the request of the Corporation for
another corporation or entity, in furtherance of the
provisions of Article XI of the Certificate of Incorporation
or this Article VI and may create a trust fund, grant a
security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification
of any person entitled thereto.
SECTION 3. Indemnification; Not Exclusive Right.
The right of indemnification provided in this Article VI
shall not be exclusive of any other rights to which any
person seeking indemnification may otherwise be entitled
under any provision of the Certificate of Incorporation,
Bylaw or agreement or otherwise. The provisions of this
Article VI shall inure to the benefit of the heirs and legal
representatives of any person entitled to indemnity under
this Article VI and shall be applicable to all Proceedings,
whether arising from acts or omissions occurring before or
after the adoption of this Article VI. No amendment or
repeal of any provision of this Article VI shall remove,
abridge or adversely affect any right of indemnification or
any other benefits of the indemnitee under the provisions of
this Article VI with respect to any Proceeding involving any
act or omission which occurred prior to such amendment.
<PAGE> 15
SECTION 4. Advancement of Expenses; Procedures;
Presumptions and Effect of Certain Proceedings; Remedies.
In furtherance, but not in limitation, of the provisions of
the Certificate of Incorporation or the foregoing provisions
of this Article VI, the following procedures, presumptions
and remedies shall apply with respect to advancement of
expenses and the right to indemnification under the
Certificate of Incorporation or this Article VI:
(a) Advancement of Expenses. All reasonable
expenses incurred by or on behalf of the Indemnitee in
connection with any Proceeding shall be advanced to the
Indemnitee by the Corporation within 20 days after the
receipt by the Corporation of a statement or statements from
the Indemnitee requesting such advance or advances from time
to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements reasonably shall
evidence the expenses incurred by the Indemnitee and, if
required by law at the time of such advance, shall include
or be accompanied by an undertaking by or on behalf of the
Indemnitee to repay the amounts advanced if it should
ultimately be determined that the Indemnitee is not entitled
to be indemnified against such expense pursuant to this
Article VI.
(b) Procedure for Determination of Entitlement to
Indemnification. (i) To obtain indemnification, an
Indemnitee shall submit to the Chairman of the Board, if
any, the President or Secretary of the Corporation a written
request, including such documentation and information as is
reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the
Indemnitee is entitled to indemnification (the "Supporting
Documentation"). The determination of the Indemnitee's
entitlement to indemnification shall be made not later than
60 days after receipt by the Corporation of the written
request for indemnification together with the Supporting
Documentation. The Chairman of the Board, if any, President
or Secretary of the Corporation shall, promptly upon receipt
of such a request for indemnification, advise the Board of
Directors in writing that the Indemnitee has requested
indemnification.
(ii) The Indemnitee's entitlement to
indemnification shall be determined in one of the following
ways: (A) by a majority vote of the Disinterested Directors
(as hereinafter defined) (or the Disinterested Director, if
only one); (B) by a written opinion of Independent Counsel
(as hereinafter defined) if (x) a Change of Control (as
hereinafter defined) shall have occurred and the Indemnitee
so requests or (y) there is no Disinterested Director or a
majority of the Disinterested Directors (or the
Disinterested Director, if only one) so directs; (C) by the
stockholders of the Corporation (but only if a majority of
the Disinterested Directors (or the Disinterested Director,
if only one) determines that the issue of entitlement to
indemnification should be submitted to the stockholders for
their determination); or (D) as provided in Section 4(c) of
this Article VI.
(iii) In the event the determination of
entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 4(b)(ii) of this Article VI, a
majority of the Disinterested Directors (or the
Disinterested Director, if only one) shall select the
Independent Counsel, but only an Independent Counsel to
which the Indemnitee does not reasonably object; provided,
however, that if a Change of Control shall have occurred,
the Indemnitee shall select such Independent Counsel, but
only an Independent Counsel to which the Board of Directors
does not reasonably object.
<PAGE> 16
(c) Presumptions and Effect of Certain
Proceedings. Except as otherwise expressly provided in this
Article VI, the Indemnitee shall be presumed to be entitled
to indemnification upon submission of a request for
indemnification together with the supporting Documentation
in accordance with Section 4(b)(i) of this Article VI, and
thereafter the Corporation shall have the burden of proof to
overcome that presumption in reaching a contrary
determination. In any event, if the person or persons
empowered under Section 4(b) of this Article VI to determine
entitlement to indemnification shall not have been appointed
or shall not have made a determination within 60 days after
receipt by the Corporation of the request therefor together
with the Supporting Documentation, the Indemnitee shall be
deemed to be entitled to indemnification. With regard to
the right to indemnification for expenses, if and to the
extent that the Indemnitee has been successful on the merits
or otherwise in any Proceeding, or if and to the extent that
the Indemnitee was not a party to the Proceeding or if a
Proceeding was terminated without a determination of
liability on the part of the Indemnitee with respect to any
claim, issue or matter therein or without any payments in
settlement or compromise being made by the Indemnitee with
respect to a claim, issue or matter therein, the Indemnitee
shall be deemed to be entitled to indemnification, which
entitlement shall not be diminished by any determination
which may be made pursuant to Sections (4)(b)(ii)(A), (B) or
(C). In either case, the Indemnitee shall be entitled to
such indemnification, unless (A) the Indemnitee
misrepresented or failed to disclose a material fact in
making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by
law, in either case as finally determined by adjudication
or, at the Indemnitee's sole option, arbitration (as
provided in Section 4(d)(i) of this Article VI). The
termination of any Proceeding described in Section 1 of this
Article VI, or of any claim, issue or matter therein, by
judgment, order, settlement or conviction, or upon a plea of
nolo contender or its equivalent, shall not, of itself,
adversely affect the right of the Indemnitee to
indemnification or create any presumption with respect to
any standard of conduct or belief or any other matter which
might form a basis for a determination that the Indemnitee
is not entitled to indemnification.
<PAGE> 17
(d) Remedies of Indemnitee. (i) In the event
that a determination is made pursuant to Section 4(b) of
this Article VI that the Indemnitee is not entitled to
indemnification under this Article VI, (A) the Indemnitee
shall be entitled to seek an adjudication of his entitlement
to such indemnification either, at the Indemnitee's sole
option, in (x) an appropriate court of the State of Delaware
or any other court of competent jurisdiction or (y) an
arbitration to be conducted by three arbitrators (or, if the
dispute involves less than $100,000, by a single arbitrator)
pursuant to the rules of the American Arbitration
Association; (B) any such judicial proceeding or arbitration
shall be de novo and the Indemnitee shall not be prejudiced
by reason of such adverse determination; and (C) in any such
judicial proceeding or arbitration the Corporation shall
have the burden of proof that the Indemnitee is not entitled
to indemnification under this Article VI.
(ii) If a determination shall have been made or
deemed to have been made, pursuant to Section 4(b) or (c) of
this Article VI, that the Indemnitee is entitled to
indemnification, the Corporation shall be obligated to pay
the amounts constituting such indemnification within
five days after such determination has been made or deemed
to have been made and shall be conclusively bound by such
determination, unless (A) the Indemnitee misrepresented or
failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or
(B) such indemnification is prohibited by law, in either
case as finally determined by adjudication or, at the
Indemnitee's sole option, arbitration (as provided in
Section 4(d)(i) of this Article VI). In the event that
(C) advancement of expenses is not timely made pursuant to
Section 4(a) of this Article VI or (D) payment of
indemnification is not made within five days after a
determination of entitlement to indemnification has been
made or deemed to have been made pursuant to Section 4(b) or
(c) of this Article VI, the Indemnitee shall be entitled to
seek judicial enforcement of the Corporation's obligation to
pay to the Indemnitee such advancement of expenses or
indemnification. Notwithstanding the foregoing, the
Corporation may bring an action, in an appropriate court in
the State of Delaware or any other court of competent
jurisdiction, contesting the right of the Indemnitee to
receive indemnification hereunder due to the occurrence of
an event described in subclause (A) or (B) of this
clause (ii) (a "Disqualifying Event"); provided, however,
that if the Indemnitee shall elect, at his sole option, that
such dispute shall be determined by arbitration (as provided
in Section 4(d)(i) of this Article VI), the Corporation
shall proceed by such arbitration. In any such enforcement
or other proceeding or action in which whether a
Disqualifying Event has occurred is an issue, the
corporation shall have the burden of proving the occurrence
of such Disqualifying Event.
(iii) The Corporation shall be precluded from
asserting in any judicial proceeding or arbitration
commenced pursuant to this Section 4(d) that the procedures
and presumptions of this Article VI are not valid, binding
and enforceable and shall stipulate in any such court or
before any such arbitrator or arbitrators that the
Corporation is bound by all the provisions of this
Article VI.
<PAGE> 18
(iv) In the event that the Indemnitee, pursuant
to this Article VI, seeks a judicial adjudication of or an
award in arbitration to enforce his rights under, or to
recover damages for breach of, this Article VI, or is
otherwise involved in any adjudication or arbitration with
respect to his right to indemnification, the Indemnitee
shall be entitled to recover from the Corporation, and shall
be indemnified by the Corporation against, any expenses
actually and reasonably incurred by him if the Indemnitee
prevails in such judicial adjudication or arbitration. If
it shall be determined in such judicial adjudication or
arbitration that the Indemnitee is entitled to receive part
but not all of the indemnification or advancement of
expenses sought, the expenses incurred by the Indemnitee in
connection with such judicial adjudication or arbitration
shall be prorated accordingly.
(e) Definitions. For purposes of this Section 4:
(i) "Change in Control" means a change in control of the
Corporation of a nature that would be required to be
reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act
of 1934 (the "Act"), whether or not the Corporation is then
subject to such reporting requirement; provided that,
without limitation, such a change in control shall be deemed
to have occurred if (A) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Corporation
representing 20 percent or more of the combined voting power
of the Corporation's then outstanding securities without the
prior approval of at least two-thirds of the members of the
Board of Directors in office immediately prior to such
acquisition; (B) the Corporation is a party to a merger,
consolidation, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the
Board of Directors in office immediately prior to such trans
action or event constitute less than a majority of the Board
of Directors thereafter; or (C) during any period of two
consecutive years, individuals who at the beginning of such
period constituted the Board of Directors (including for
this purpose any new director whose election or nomination
for election by the Corporation's stockholders was approved
by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such
period) cease for any reason to constitute at least a
majority of the Board of Directors.
(ii) "Disinterested Director" means a director of
the Corporation who is not or was not a material party to
the Proceeding in respect of which indemnification is sought
by the Indemnitee.
<PAGE> 19
(iii) "Independent Counsel" means a law firm or a
member of a law firm that neither presently is, nor in the
past five years has been, retained to represent: (A) the
Corporation or the Indemnitee in any matter or (B) any other
party to the Proceeding giving rise to a claim for
indemnification under this Article VI. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of
professional conduct then prevailing under the law of the
State of Delaware, would have a conflict of interest in
representing either the Corporation or the Indemnitee in an
action to determine the Indemnitee's rights under this
Article VI.
SECTION 5. Acts of Disinterested Directors.
Disinterested Directors considering or acting on any
indemnification matter under this Article VI or otherwise
may consider or take action as the Board of Directors or may
consider or take action as a committee or individually or
otherwise. In the event Disinterested Directors consider or
take action as the Board of Directors, one-third of the
total number of directors shall constitute a quorum.
SECTION 6. Severability. If any provision or
provisions of this Article VI shall be held to be invalid,
illegal or unenforceable for any reason whatsoever: (i) the
validity, legality and enforceability of the remaining
provisions of this Article VI (including, without
limitation, all portions of any paragraph of this Article VI
containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired
thereby; and (ii) to the fullest extent possible, the
provisions of this Article VI (including, without
limitation, all portions of any paragraph of this Article VI
containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal
or unenforceable.
<PAGE> 20
ARTICLE VII
Capital Stock
SECTION 1. Certificates for Shares. Certificates
representing shares of stock of each class of the
Corporation, whenever authorized by the Board of Directors,
shall be in such form as shall be approved by the Board.
Certificates for each class, or series within a class, of
stock, shall be numbered consecutively as issued. Each
certificate shall state: the name of the Corporation; that
it is organized under the laws of the State of Delaware; the
name of the registered holder; the number of shares and
class and the designation of the series, if any, of the
stock represented thereby; and a summary of the
designations, relative rights, preferences and limitations
applicable to such class and, if applicable, the variations
in rights, preferences and limitations determined for each
series and the authority of the Board to determine such
variations for future series; provided, however, that such
summary may be omitted if the certificate states
conspicuously on its front or back that the Corporation will
furnish the stockholder such information upon written
request and without charge. The certificates shall be
signed by, or in the name of, the Corporation by the
Chairman of the Board or the President or a Vice President
and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer of the Corporation, and
may be sealed with the seal of the Corporation or a
facsimile thereof. Any or all such signatures may be
facsimiles if countersigned by a transfer agent or
registrar. Although any officer, transfer agent or
registrar whose manual or facsimile signature is affixed to
such a certificate ceases to be such officer, transfer agent
or registrar before such certificate has been issued, it may
nevertheless be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were
still such at the date of its issue.
The Stock ledger and blank certificates shall be
kept by the Secretary or by a transfer agent or by a
registrar or by any other officer or agent designated by the
Board.
SECTION 2. Transfer of Stock. Transfers of
shares of stock of each class of the Corporation shall be
made only on the books of the Corporation by the holder
thereof, or by such holder's attorney thereunto authorized
by a power of attorney duly executed and filed with the
Secretary of the Corporation or a transfer agent for such
stock, if any, and on surrender of the certificate or
certificates for such stock properly endorsed or accompanied
by a duly executed stock transfer power and the payment of
all taxes thereon. The person in whose name stock stands on
the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation;
provided, however, that whenever any transfer of stock shall
be made for collateral security and not absolutely, and
written notice thereof shall be given to the Secretary or to
such transfer agent, such fact shall be stated in the entry
of the transfer. No transfer of stock shall be valid as
against the Corporation, its stockholders and creditors for
any purpose, except to render the transferee liable for the
debts of the Corporation to the extent provided by law,
until it shall have been entered in the stock records of the
Corporation by an entry showing from and to whom trans
ferred.
<PAGE> 21
SECTION 3. Addresses of Stockholders. Each
stockholder shall designate to the Secretary or transfer
agent of the Corporation an address at which notices of
meetings and all other corporate notices may be served or
mailed to such person, and, if any stockholder shall fail to
designate such address, corporate notices may be served upon
such person by mail directed to such person at such person's
post office address, if any, as the same appears on the
share record books of the Corporation or at such person's
last known post office address.
SECTION 4. Lost, Destroyed and Mutilated
Certificates. The holder of any share of stock of the
Corporation shall immediately notify the Corporation of any
loss, theft, destruction or mutilation of the certificate
therefor; the Corporation may issue to such holder a new
certificate or certificates for shares, upon the surrender
of the mutilated certificate or, in the case of loss, theft
or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction; the Board of Directors,
or a committee designated thereby, or the transfer agents
and registrars for the stock, may, in their discretion,
require the owner of the lost, stolen or destroyed
certificate, or such person's legal representative, to give
the Corporation a bond in such sum and with such surety or
sureties as they may direct to indemnify the Corporation and
said transfer agents and registrars against any claim that
may be made on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such
new certificate.
SECTION 5. Regulations. The Board of Directors
may make such additional rules and regulations as it may
deem expedient concerning the issue and transfer of
certificates representing shares of stock of each class of
the Corporation and may make such rules and take such action
as it may deem expedient concerning the issue of
certificates in lieu of certificates claimed to have been
lost, destroyed, stolen or mutilated.
SECTION 6. Fixing Date for Determination of
Stockholders of Record. In order that the Corporation may
determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other
distribution or allotment or any rights, or entitled to
exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record
date, which shall not be more than 70 days before the date
of such meeting. A determination of stockholders entitled
to notice of or to vote at a meeting of the stockholders
shall apply to any adjournment of the meeting unless the
Board of Directors fixes a new record date which it must do
if the adjourned meeting is not within 120 days of the date
fixed for the original meeting.
<PAGE> 22
SECTION 7. Stockholder's Right of Inspection.
Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours of
business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other
books and records, and to make copies or extracts therefrom.
A proper purpose shall mean a purpose reasonably related to
such person's interest as a stockholder. In every instance
where an attorney or other agent shall be the person who
seeks the right to inspection, the demand under oath shall
be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be
directed to the Corporation at its registered office in the
State of Delaware or at its principal place of business.
ARTICLE VIII
Seal
If so directed by the Board of Directors, the
Corporation may use a corporate seal. The failure to use
such seal, however, shall not affect the validity of any
documents executed on behalf of the Corporation. The seal
need only include the word "seal," but it may also include,
at the direction of the Board of Directors, such additional
wording as is permitted by law.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE X
Waiver of Notice
Whenever any notice whatsoever is required to be
given by these By-laws, by the Certificate of Incorporation
or by law, the person entitled thereto may, either before or
after the meeting or other matter in respect of which such
notice is to be given, waive such notice in writing, which
writing shall be filed with or entered upon the records of
the meeting or the records kept with respect to such other
matter, as the case may be, and in such event such notice
need not be given to such person and such waiver shall be
deemed equivalent to such notice.
<PAGE> 23
ARTICLE XI
Amendments
These By-laws may be amended or repealed, or new
By-laws may be adopted, except as provided in Section 3 of
Article VI of these By-laws, (a) at any annual or special
meeting of the stockholders, by a majority of the total
votes of the stockholders or when stockholders are entitled
to vote by class, by a majority of the appropriate class,
present in person or represented by proxy and entitled to
vote on such action; provided, however, that the notice of
such meeting shall have been given as provided in these By-
Laws, which notice shall mention that amendment or repeal of
these By-laws or the adoption of new By-laws is one of the
purposes of such meeting, or (b) by the Board of Directors
at any meeting thereof; provided, however, that notice of
such meeting shall have been given as provided in these By-
Laws, which notice shall mention that amendment or repeal of
the By-laws or the adoption of new By-laws is one of the
purposes of such meeting; provided further that By-laws
adopted by the Board of Directors may be amended or repealed
by the stockholders as hereinabove provided; provided
further, that the stockholders may limit the power of the
Board of Directors to make, amend, alter or repeal the By-
Laws of the Company. Notwithstanding the foregoing the
provisions of these By-laws with respect to the number,
classification, term of office, qualifications, election and
removal of directors and the filling of vacancies and newly
created directorships, and the amendment thereof, may be
amended or repealed or new By-laws affecting such provisions
may be adopted only with the unanimous approval of the
entire Board of Directors or by the affirmative vote of the
holders of at least 80% of the outstanding shares of stock
of the Corporation entitled to vote in elections of
directors (except that if such proposed amendment or repeal
or adoption of new By-laws shall be submitted to the
stockholders with the unanimous recommendation of the entire
Board of Directors, such provisions may be amended or
repealed or such new By-laws may be adopted by the
affirmative vote of the holders of a majority of such
stock).
ARTICLE XII
Dividends
Subject to the provisions of the Certificate of
Incorporation relating thereto, if any, dividends upon the
capital stock of the Corporation may be declared by the
Board of Directors at any regular or special meeting,
pursuant to law. Subject to the provisions of the
Certificate of Incorporation, dividends may be paid in cash,
in property or in shares of the capital stock of the
Corporation.
Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for
dividends such sum or sums as the Board of Directors from
time to time, in its absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of
the Corporation, or for such other purpose or purposes as
the Board of Directors shall determine to be in the interest
of the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was
created.
<PAGE> 24
ARTICLE XIII
Miscellaneous
SECTION 1. Execution of Documents. The Board of
Directors or any Committee thereof shall designate the
officers, employees and agents of the Corporation who shall
have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, notes, checks, drafts and
other orders for the payment of money and other documents
for and in the name of the Corporation and may authorize
such officers, employees and agents to delegate such power
(including authority to redelegate) by written instrument to
other officers, employees or agents of the Corporation.
Such delegation may be by resolution or otherwise and the
authority granted shall be general or confined to specific
matters, all as the Board of Directors or any such committee
may determine. In the absence of such designation referred
to in the first sentence of this Section, the officers of
the Corporation shall have such power so referred to, to the
extent incident to the normal performance of their duties.
SECTION 2. Deposits. All funds of the
Corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks,
trust companies or other depositaries as the Board of
Directors may from time to time designate or as may be
designated by any officer or officers of the Corporation to
whom such power of designation may from time to time be
delegated by the Board of Directors. For the purpose of
deposit and for the purpose of collection for the account of
the Corporation, checks, drafts and other orders for the
payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any
officer or agent of the Corporation.
SECTION 3. Checks, Drafts, Etc. All checks,
drafts, bills of exchange or other orders for the payment of
money out of the funds of the Corporation, and all notes or
other evidences of indebtedness of the Corporation shall be
signed in the name and on behalf of the Corporation by such
person or persons and in such manner as shall from time to
time be authorized by the Board of Directors.
SECTION 4. General and Special Bank Accounts.
The Board of Directors may from time to time authorize the
opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as
the Board may designate or as may be designated by any
officer or officers of the Corporation to whom such power of
designation may from time to time be delegated by the Board
of Directors. The Board of Directors may make such special
rules and regulations with respect to such bank accounts,
not inconsistent with provisions of these By-laws, as it may
deem expedient.
<PAGE> 25
SECTION 5. Proxies in Respect of Securities of
Other Corporations. Unless otherwise provided by resolution
adopted by the Board of Directors, the Chairman of the
Board, if any, the President or any Vice President may from
time to time appoint an attorney or attorneys or agent or
agents of the Corporation in the name and on behalf of the
Corporation to cast the votes which the Corporation may be
entitled to cast as the holder of stock or other securities
in any other corporation, any of whose stock or other
securities may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other
corporation, or to consent in writing in the name of the
Corporation as such holder to any action by such other
corporation, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its
corporate seal, or otherwise, all such written proxies or
other instruments as he may deem necessary or proper in
order that the Corporation may exercise its said powers and
rights.
SECTION 6. By-laws Subject to Law and Certificate
of Incorporation. Each provision of these By-laws is
subject to any contrary provision of the Certificate of
Incorporation or of any applicable law as from time to time
in effect, and to the extent any such provision is
inconsistent therewith, such provision shall be superseded
thereby for as long as it is inconsistent, but for all other
purposes of these By-laws shall continue in full force and
effect.
SECTION 7. Definition of Certificate of
Incorporation. The term "Certificate of Incorporation" as
used in these By-laws means the Certificate of Incorporation
of the Corporation as from time to time in effect.
<PAGE> 1
[LETTERHEAD OF CRAVATH, SWAINE & MOORE]
October 7, 1996
Dear Ladies and Gentlemen:
Reference is made to the initial public offering by Metris
Companies Inc., a Delaware corporation (the "Company"), of up to 2,833,333
shares of the Company's Common Stock, par value $0.01 per share (the "Shares"),
pursuant to a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Registration Statement"). Capitalized terms used but
not defined herein have the meanings assigned thereto in the Registration
Statement.
As counsel for the Company, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of such
documents, corporate records, and other instruments as we have deemed necessary
or appropriate for the purposes of this opinion, including: (a) the Restated
Certificate of Incorporation, as amended; (b) the By-Laws of the Company, as
amended; (c) various corporate records and proceedings relating to the
organization of the Company and the issuance of the Shares; and (d) a specimen
certificate representing the Shares.
Based upon the foregoing, we are of the opinion that the
Shares will, when delivered and sold in accordance with the Underwriting
Agreement, be duly authorized and validly issued and be fully-paid and
non-assessable.
We are furnishing this opinion solely for the benefit of the
Company. This opinion may not be relied upon by any other person or for any
other purpose or used, circulated, quoted or otherwise referred to for any
other purpose.
We consent to the use of this opinion as an Exhibit to the
Registration Statement, and we consent to the reference to our firm under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement.
Very truly yours,
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
<PAGE> 1
Exhibit 10.a(i)
AMENDED AND RESTATED SERIES 1995-1 SUPPLEMENT,
dated as of September 16, 1996 (this "Series Supplement")
by and among METRIS RECEIVABLES, INC. (formerly Fingerhut
Financial Services Receivables, Inc.), a corporation
organized and existing under the laws of the State of
Delaware, as Transferor (the "Transferor"), DIRECT MER-
CHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION, a national
banking organization organized under the laws of the
United States, as Servicer (the "Servicer"), and THE BANK
OF NEW YORK (DELAWARE), a Delaware banking corporation
organized and existing under the laws of the State of
Delaware as trustee (together with its successors in
trust thereunder as provided in the Agreement referred to
below, the "Trustee"), under the Pooling and Servicing
Agreement dated as of May 26, 1995 as amended, supple-
mented or otherwise modified from time to time (the
"Agreement") among the Transferor, the Servicer and the
Trustee.
WHEREAS, the Series 1995-1 Supplement was
entered into among the Transferor, the Servicer and the
Trustee as of May 26, 1995;
WHEREAS, the Transferor, the Servicer and the
Trustee desire to amend and restate the Series 1995-1
Supplement to the Pooling and Servicing Agreement pursu-
ant to Section 13.1(a) therein in order to provide for
the terms contained herein;
WHEREAS, in June 1995, the Transferor caused
the Trust to issue the Class A Certificate, $64,806,000
aggregate principal amount of Class B Certificates,
$35,349,000 aggregate principal amount of Class C Certif-
icates and the Class D Certificate (collectively, the
"Previously Issued Certificates") and the Transferor
desires to cause the Trust to issue an additional
$64,806,000 aggregate principal amount of Class B Certif-
icates (the "Additional Class B Certificates") and an
additional $35,349,000 aggregate principal amount of
Class C Certificates (the "Additional Class C Certifi-
cates" and together with the Additional Class B Certifi-
cates, the "Additional Certificates"), and in connection
therewith to increase the maximum invested amounts of the
Class A Certificate and the Class D Certificate;
WHEREAS, in connection with a business realign-
ment of FCI's subsidiaries and its affiliates, FCI has
assigned to Metris Companies Inc., a Delaware corporation
("Metris"), all of its rights arising under the Bank
Receivables Purchase Agreement and the Purchase Agreement
and Metris has assumed all of FCI's obligations thereun-
der pursuant to that certain Assignment and Assumption
Agreement, dated as of September 16, 1996, by and among
FCI, Metris and DMCCB, and that certain Assignment and
Assumption Agreement, dated as of September 16, 1996, by
and among FCI, Metris and the Transferor, respectively;
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual
agreements herein contained, each party agrees for the
benefit of the other parties and the Certificateholders
that the Amended and Restated Series 1995-1 Supplement
shall read as follows: Section 6.9 of the Agreement provides, among
other things, that the Transferor and the Trustee may at
any time and from time to time enter into a supplement to
the Agreement for the purpose of authorizing the issuance
by the Trustee to the Transferor, for execution and
redelivery to the Trustee for authentication, of one or
more Series of Certificates.
Pursuant to this Series Supplement, the Trans-
feror and the Trustee shall create a new Series of Inves-
tor Certificates and shall specify the Principal Terms
thereof.
SECTION 1. Designation. There is hereby
created a Series of Investor Certificates to be issued
pursuant to the Agreement and this Series Supplement to
be known generally as the "Series 1995-1 Certificates."
The Series 1995-1 Certificates shall be issued in four
Classes, which shall be designated generally as the
Variable Funding Trust Certificate, Series 1995-1, Class
A (the "Class A Certificate"), the Floating Rate Accounts
Receivable Trust Certificates, Series 1995-1, Class B
(the "Class B Certificates"), the Floating Rate Accounts
Receivable Trust Certificates, Series 1995-1, Class C
(the "Class C Certificates") and the Variable Funding
Trust Certificate, Series 1995-1, Class D (the "Class D
Certificate").
SECTION 2. Definitions. In the event that any
term or provision contained herein shall conflict with or
be inconsistent with any provision contained in the
Agreement, the terms and provisions of this Series Sup-
plement shall govern with respect to the Series 1995-1
Certificates. All Article, Section or subsection refer-
ences herein shall mean Article, Section or subsections
of the Agreement, as amended or supplemented by this
Series Supplement, except as otherwise provided herein.
All capitalized terms not otherwise defined herein are
defined in the Agreement. Each capitalized term defined
herein shall relate only to the Series 1995-1 Certifi-
cates and no other Series of Certificates issued by the
Trust.
"ABC Fixed/Floating Allocation Percentage"
shall mean for any Business Day the percentage equivalent
of a fraction, the numerator of which is the sum of the
Class A Adjusted Invested Amount, the Class B Invested
Amount and the Class C Invested Amount at the end of the
last day of the Revolving Period and the denominator of
which is the greater of (a) the sum of the aggregate
amount of Principal Receivables and the amount on deposit
in the Excess Funding Account at the end of the preceding
Business Day and (b) the sum of the numerators used to
calculate the allocation percentages with respect to
Principal Receivables for all Series; provided, however,
that during any Class A Pay Down Period, the numerator
used in the above calculation shall be the sum of the
Class A Invested Amount, the Class B Invested Amount and
the Class C Invested Amount as of the day immediately
preceding the commencement of the Class A Pay Down Peri-
od.
<PAGE> 3
"ABC Investor Default Amount" shall mean (i) on
any Business Day other than a Default Recognition Date,
an amount equal to the product of (a) the sum of the
Class A Floating Allocation Percentage, the Class B
Floating Allocation Percentage and the Class C Floating
Allocation Percentage applicable on such Business Day and
(b) the aggregate Default Amount identified since the
prior reporting date and (ii) on any Default Recognition
Date, an amount equal to the product of (a) the sum of
the Class A Default Recognition Allocation Percentage,
the Class B Default Recognition Allocation Percentage and
the Class C Default Recognition Allocation Percentage
applicable on such Default Recognition Date and (b) the
Default Amount with respect to such Default Recognition
Date.
"ABC Revolving Principal Collections" shall
have the meaning specified in Section 4.9(b) of the
Agreement.
"Additional Certificates" shall have the mean-
ing specified in the third WHEREAS clause hereof.
"Additional Class A Invested Amounts" shall
have the meaning specified in Section 6.15 of the Agree-
ment.
"Additional Class B Certificates" shall have
the meaning specified in the third WHEREAS clause hereof.
"Additional Class C Certificates" shall have
the meaning specified in the third WHEREAS clause hereof.
"Additional Class D Invested Amounts" shall
have the meaning specified in Section 6.16 of the Agree-
ment.
"Additional Interest" shall mean, at any time
of determination, the sum of Class B Additional Interest
and Class C Additional Interest.
"Adjusted Portfolio Yield" shall mean for the
Series 1995-1 Certificates, with respect to any Monthly
Period, the annualized percentage equivalent of a frac-
tion, the numerator of which is an amount equal to the
sum of the aggregate amount of Available Series 1995-1
Finance Charge Collections (without giving effect to any
portion thereof representing amounts withdrawn from the
Payment Reserve Account) for such Monthly Period, minus
the aggregate Investor Default Amount for such Monthly
Period and the Series Allocation Percentage of any Ad-
justment 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 sum of the Class A Invested
Amount, the Class B Invested Amount and the Class C
Invested Amount.
<PAGE> 4
"Administration Agreement" shall mean the
Amended and Restated Administration Agreement, dated as
of May 26, 1995, between the Fingerhut Owner Trust and
Fingerhut Corporation, as the same may from time to time
be amended, restated, modified and in effect.
"Administrator" shall mean Fingerhut Corpora-
tion as administrator under the Administration Agreement.
"Aggregate ABC Principal Amount" shall mean
with respect to any date of determination an amount equal
to the sum of the Class A Outstanding Principal Amount,
the Class B Invested Amount and the Class C Invested
Amount, each as of such date of determination.
"Aggregate Interest Rate Caps Notional Amount"
shall mean with respect to any date of determination an
amount equal to the sum of the notional amounts or equiv-
alent amounts of all outstanding Cap Agreements, Replace-
ment Interest Rate Caps and Qualified Substitute Arrange-
ments, each as of such date of determination.
"Amortization Period" shall mean the period
beginning on the day following the last day of the Re-
volving Period and ending on the Series 1995-1 Termina-
tion Date.
"Amortization Period Commencement Date" shall
mean (i) the earlier of May 28, 1999 and the Pay Out
Commencement Date or (ii) if there is any Extension, the
earlier of the date specified as such in the most recent
Extension Notice and the Pay Out Commencement Date.
"Available Series 1995-1 Finance Charge Collec-
tions" shall have the meaning specified in subsection
4.9(a) of the Agreement.
"Base Rate" shall mean, as of any Business Day,
the sum of (i) the average of (A) the Class A Certificate
Rate, (B) the Class B Certificate Rate and (C) the Class
C Certificate Rate, each of (A), (B) and (C) weighted by
the unpaid principal amount of each respective Class of
Certificates as of such Business Day, plus (ii) the
product of 2% per annum and the percentage equivalent of
a fraction the numerator of which is the sum of the Class
A Adjusted Invested Amount, the Class B Invested Amount,
the Class C Invested Amount and the Class D Invested
Amount and the denominator of which is the Invested
Amount.
"Cap Agreements" shall mean the interest rate
cap agreements, between the Transferor, the Trustee and a
Cap Provider, as amended from time to time, with respect
to the Class A Certificate Rate, Class B Certificate Rate
and Class C Certificate Rate, respectively, and any
additional interest rate protection agreement or agree-
ments, entered into between the Transferor, the Trustee
and a Cap Provider, as the same may from time to time be
amended, restated, modified and in effect.
"Cap Proceeds Account" shall have the meaning
specified in subsection 3A(b) of this Series Supplement.
<PAGE> 5
"Cap Provider" shall mean (i) a third party cap
provider having a senior unsecured debt rating of at
least "AA" by Standard & Poor's and "Aa2" by Moody's and
(ii) a third party cap provider or its corporate parent
having a short term rating from Standard & Poor's of A-1.
"Cap Receipt Amount" shall mean, with respect
to any Business Day the amount on deposit in the Cap
Proceeds Account.
"Cap Settlement Date" shall have the meaning
specified in subsection 3A(b) of this Series Supplement.
"Carryover Class B Interest" shall mean (a) any
Class B Interest due but not paid on any previous Distri-
bution Date plus (b) any Class B Additional Interest.
"Carryover Class C Interest" shall mean (a) any
Class C Interest due but not paid on any previous Distri-
bution Date plus (b) any Class C Additional Interest.
"Class A Adjusted Invested Amount" shall mean,
with respect to any date of determination, an amount
equal to the Class A Invested Amount minus the Defeasance
Account Balance on such date of determination.
"Class A Certificateholder" shall mean the
Person in whose name a Class A Certificate is registered
in the Certificate Register.
"Class A Certificateholders' Interest" shall
mean the portion of the Series 1995-1 Certificateholders'
Interest evidenced by the Class A Certificate.
"Class A Certificate" shall mean the variable
funding certificate executed by the Transferor and au-
thenticated by or on behalf of the Trustee, substantially
in the form of Exhibit A-1 hereto.
"Class A Certificate Rate" shall mean with
respect to any Business Day, a per annum interest rate
equal to the rate which if multiplied by the Class A
Outstanding Principal Amount as of the close of business
on the preceding Business Day would produce, on the basis
of a 365- or 366-day year, as the case may be, an amount
equal to the Cost of Funds for the period from and in-
cluding the immediately preceding Business Day to but
excluding such Business Day.
<PAGE> 6
"Class A Costs" shall mean with respect to any
Business Day, (i) the Series 1995-1 Allocation Percentage
of the sum of (x) the Liquidity Bank Increased Costs (as
defined in the Collateral Trust Agreement), (y) OTC
Article VI Costs (as defined in the Collateral Trust
Agreement) and (z) any amounts described in subsection
5.3(a)(ii)(I)(a) of the Collateral Trust Agreement, in
each case to the extent such amount is due and payable
and has not previously been paid, and (ii) (a) the Series
1995-1 Non-Utilized Allocation Percentage of any Commit-
ment Fees (as defined in the Liquidity Agreement) accrued
from and including the preceding Business Day to but
excluding such Business Day pursuant to Section 2.9 of
the Liquidity Agreement with respect to Unutilized Avail-
able Commitments (as defined in the Liquidity Agreement)
plus (b) any such Commitment Fees allocated to the Class
A Certificate which accrued with respect to prior Busi-
ness Days but have not been paid pursuant to Section 2.9
of the Liquidity Agreement.
"Class A Default Recognition Allocation Per-
centage" shall mean, with respect to each Default Recog-
nition Date, the percentage equivalent of a fraction, the
numerator of which is the Weighted Average Class A Ad-
justed Invested Amount for the related Monthly Period and
the denominator of which is the Weighted Average Princi-
pal Receivables in the Trust for the related Monthly
Period.
"Class A Event of Default" shall have the
meaning specified for the term "Event of Default" in the
Liquidity Agreement.
"Class A Floating Allocation Percentage" shall
mean, with respect to any Business Day, the percentage
equivalent of a fraction, the numerator of which is the
Class A Adjusted Invested Amount on such day after taking
into account all adjustments of the Class A Invested
Amount on such day and the denominator of which is the
greater of (a) the total amount of Principal Receivables
in the Trust and the amounts on deposit in the Excess
Funding Account as of the end of the preceding Business
Day and (b) the sum of the numerators with respect to all
Classes of all Series then outstanding used to calculate
the applicable allocation percentage.
"Class A Funding Purchase" shall have the
meaning specified in Section 4.14 of the Agreement.
"Class A Interest" shall mean the interest
distributable in respect of the Class A Certificate as
calculated in accordance with subsection 4.6(a) of the
Agreement.
"Class A Interest Adjustment" shall have the
meaning specified in Section 4.6A of the Agreement.
"Class A Interest Shortfall" shall have the
meaning specified in subsection 4.6(a) of the Agreement.
<PAGE> 7
"Class A Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the principal amount of Class A Certificates purchased
pursuant to any Class A Funding Purchase pursuant to
Section 4.14(b) of the Agreement, minus (b) the aggregate
amount of principal payments made to Class A Certificate-
holders through and including such Business Day, minus
(c) the aggregate amount of Class A Investor Charge-Offs
for all prior Distribution Dates, plus (d) the sum of the
aggregate amount allocated with respect to Class A Inves-
tor Charge-Offs and available on all prior Distribution
Dates pursuant to subsection 4.9(a)(viii) of the Agree-
ment and, with respect to such subsection and pursuant to
subsections 4.10(a) and (b) and Section 4.15 of the
Agreement, for the purpose of reinstating amounts reduced
pursuant to the foregoing clause (d) plus (e) the aggre-
gate principal amount of any Additional Class A Invested
Amounts purchased pursuant to Section 6.15 of the Agree-
ment.
"Class A Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(d) of the Agreement.
"Class A Investor Percentage" shall mean, for
any Business Day, (a) with respect to Finance Charge
Receivables and Receivables in Defaulted Accounts at any
time or Principal Receivables during the Revolving Period
(except for any portion of the Revolving Period that
occurs during the Class A Pay Down Period), the Class A
Floating Allocation Percentage and (b) with respect to
Principal Receivables during the Amortization Period and
the Class A Pay Down Period, the ABC Fixed/Floating
Allocation Percentage.
"Class A Maximum Invested Amount" shall mean
$824,800,000.
"Class A Outstanding Principal Amount" shall
mean with respect to the Class A Certificate, when used
with respect to any Business Day, an amount equal to (a)
the principal amount of Class A Certificates purchased
pursuant to any Class A Funding Purchase pursuant to
Section 4.14(b) of the Agreement, plus (b) the aggregate
principal amount of any Additional Class A Invested
Amounts purchased by the Class A Certificateholder on or
prior to such Business Day pursuant to Section 6.15 of
the Agreement minus (c) the aggregate amount of principal
payments made to the Class A Certificateholder on or
prior to such Business Day.
<PAGE> 8
"Class A Pay Down Period" shall have the mean-
ing specified in Section 8A of this Series Supplement.
"Class A Percentage" shall mean a fraction the
numerator of which is the Class A Invested Amount and the
denominator of which is the sum of the Class A Invested
Amount, the Class B Invested Amount and the Class C
Invested Amount.
"Class A Principal" shall mean the principal
distributable in respect of the Class A Certificate as
calculated in accordance with subsection 4.7(a) of the
Agreement.
"Class A Purchase Agreement" shall mean the
Class A Purchase Agreement, dated as of May 26, 1995,
between Fingerhut Owner Trust and the Transferor, as the
same may from time to time be amended, restated, modified
and in effect.
"Class A Required Amount" shall mean the amount
determined by the Servicer on each Business Day equal to
the excess, if any, of (x) the sum of (i) the amount
described in subsection 4.9(a)(i)(y) for such Business
Day, (ii) the Class A Floating Allocation Percentage of
the Daily Portion of the Servicing Fee for the then
current Monthly Period, (iii) the Class A Floating Allo-
cation Percentage of the Default Amount, if any, for such
Business Day and, to the extent not previously paid, for
any previous Business Day in such Monthly Period, (iv) on
each Transfer Date the Class A Percentage of the Series
Allocation Percentage of the Adjustment Payment required
to be made by the Transferor but not made on such Trans-
fer Date and (v) the amount of unreimbursed Class A
Investor Charge-Offs over (y) the Available Series 1995-1
Finance Charge Collections plus any Excess Finance Charge
Collections from other Series and any Transferor Finance
Charge Collections allocated with respect to the amounts
described in clauses (x)(i) through (iv).
"Class B Additional Interest" shall have the
meaning specified in subsection 4.6(b) of the Agreement.
"Class B Certificateholder" shall mean the
Person in whose name a Class B Certificate is registered
in the Certificate Register.
"Class B Certificateholders' Interest" shall
mean the portion of the Series 1995-1 Certificateholders'
Interest evidenced by the Class B Certificates.
"Class B Certificate Rate" shall mean with
respect to each Interest Accrual Period, a per annum rate
.625% in excess of LIBOR, as determined on the related
LIBOR Determination Date.
<PAGE> 9
"Class B Certificates" shall mean any of the
certificates executed by the Transferor and authenticated
by or on behalf of the Trustee, substantially in the form
of Exhibit A-2 hereto.
"Class B Daily Principal Amount" shall have the
meaning specified in subsection 4.9(c)(ii) of the Agree-
ment.
"Class B Default Recognition Allocation Per-
centage" shall mean, with respect to each Default Recog-
nition Date, the percentage equivalent of a fraction, the
numerator of which is the Weighted Average Class B In-
vested 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.
"Class B Fixed/Floating Allocation Percentage"
shall mean for any Business Day the percentage equivalent
of a fraction, the numerator of which is the Class B
Invested Amount at the end of the last day of the Revolv-
ing Period and the denominator of which is the greater of
(a) the sum of the aggregate amount of Principal Receiv-
ables and the amount on deposit in the Excess Funding
Account at the end of the preceding Business Day and (b)
the sum of the numerators used to calculate the alloca-
tion percentages with respect to Principal Collections
for all Series.
"Class B Floating Allocation Percentage" shall
mean, with respect to any Business Day, the percentage
equivalent of a fraction, the numerator of which is the
Class B Invested Amount as of the end of the preceding
Business Day and the denominator of which is the greater
of (a) the total amount of Principal Receivables in the
Trust and the amount on deposit in the Excess Funding
Account as of the end of the preceding Business Day and
(b) the sum of the numerators with respect to all Classes
of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class B Full Invested Amount" shall mean $129,
612,000.
"Class B Funding Purchase" shall have the
meaning specified in Section 4.14A of the Agreement.
"Class B Interest" shall mean the interest
distributable in respect of the Class B Certificates as
calculated in accordance with subsection 4.6(b) of the
Agreement.
"Class B Interest Adjustment" shall have the
meaning specified in Section 4.6A of the Agreement.
"Class B Interest Shortfall" shall have the
meaning specified in subsection 4.6(b) of the Agreement.
<PAGE> 10
"Class B Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
$129,612,000, minus (b) the aggregate amount of principal
payments made to Class B Certificateholders prior to such
Business Day, minus (c) the aggregate amount of Class B
Investor Charge-Offs for all prior Distribution Dates,
minus (d) the aggregate amount of Reallocated Class B
Principal Collections for which neither the Class D
Invested Amount nor the Class C Invested Amount has been
reduced for all prior Business Days, and plus (e) the sum
of the aggregate amount allocated and available on all
prior Business Days pursuant to subsection 4.9(a)(xi) of
the Agreement and, with respect to such subsection and
pursuant to subsections 4.10(a) and (b) and Section 4.15
of the Agreement, for the purpose of reinstating amounts
reduced pursuant to the foregoing clauses (c) and (d).
"Class B Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(c) of the Agreement.
"Class B Investor Percentage" shall mean, for
any Distribution Date, (a) with respect to Finance Charge
Receivables and Receivables in Defaulted Accounts at any
time or Principal Receivables during the Revolving Peri-
od, the Class B Floating Allocation Percentage and (b)
with respect to Principal Receivables during the Amorti-
zation Period, the ABC Fixed/Floating Allocation Percent-
age.
"Class B Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) the principal amount of Class B
Certificates purchased pursuant to any Class B Funding
Purchase pursuant to Section 4.14(b) of the Agreement,
minus (b) the aggregate amount of principal payments made
to Class B Certificateholders prior to such Business Day.
<PAGE> 11
"Class B Percentage" shall mean a fraction the
numerator of which is the Class B Invested Amount and the
denominator of which is the sum of the Class A Invested
Amount, the Class B Invested Amount and the Class C
Invested Amount.
"Class B Pool Factor" shall mean, with respect
to any Record Date, a number carried out to seven decimal
places representing the ratio of the Class B Invested
Amount as of the last day of the related Monthly Period
(determined after taking into account any increases or
decreases in the Class B Invested Amount which will occur
on the following Distribution Date) to the highest Class
B Invested Amount on or prior to the last day of such
Monthly Period during the Revolving Period.
"Class B Principal" shall mean the principal
distributable in respect of the Class B Certificates as
calculated in accordance with subsection 4.7(b) of the
Agreement.
"Class B Principal Payment Commencement Date"
shall mean the earlier of (a) the first Distribution Date
in an Amortization Period on which the Class A Invested
Amount equals or is reduced to zero or, if there are no
Principal Collections allocable to the Series 1995-1
Certificates remaining after payments have been made to
the Class A Certificate on such Distribution Date, the
Distribution Date following the Distribution Date on
which the Class A Invested Amount is paid in full and (b)
the Distribution Date following a sale or repurchase of
the Receivables as set forth in Section 2.4(e), 9.2,
10.2, 12.1 or 12.2 of the Agreement or Section 3 of this
Series Supplement.
"Class B Purchase Agreement" shall mean the
Class B Purchase Agreement, dated as of May 26, 1995,
between the Transferor and the purchasers of the Class B
Certificates specified therein, as the same may from time
to time be amended, restated, modified and in effect.
<PAGE> 12
"Class B Required Amount" shall mean the amount
determined by the Servicer on each Business Day equal to
the excess, if any, of (x) the sum of (i) the Daily
Portion of the Class B Interest for the then current
Monthly Period, (ii) any Carryover Class B Interest
previously due but not paid to the Class B Certificate-
holders on a prior Business Day, (iii) the Class B Float-
ing Allocation Percentage of the Servicing Fee for the
then current Monthly Period, (iv) the Class B Floating
Allocation Percentage of the Default Amount, if any, for
such Business Day and, to the extent not previously paid,
for any previous Business Day in such Monthly Period, (v)
the Class B Percentage of the Series Allocation Percent-
age of the Adjustment Payment required to be made by the
Transferor but not made on the related Transfer Date and
(vi) the unreimbursed amount by which the Class B Invest-
ed Amount has been reduced on prior Business Days pursu-
ant to clauses (c) and (d) of the definition of Class B
Invested Amount over (y) the Available Series 1995-1
Finance Charge Collections plus any Excess Finance Charge
Collections from other Series and any Transferor Finance
Charge Collections allocated with respect to the amounts
described in clauses (x)(i) through (v).
"Class C Additional Interest" shall have the
meaning specified in subsection 4.6(c) of the Agreement.
"Class C Certificateholder" shall mean the
Person in whose name a Class C Certificate is registered
in the Certificate Register.
"Class C Certificateholders' Interest" shall
mean the portion of the Series 1995-1 Certificateholders'
Interest evidenced by the Class C Certificates.
"Class C Certificate Rate" shall mean with
respect to each Interest Accrual Period, a per annum rate
.75% in excess of LIBOR as determined on the related
LIBOR Determination Date.
"Class C Certificates" shall mean any of the
certificates executed by the Transferor and authenticated
by or on behalf of the Trustee, substantially in the form
of Exhibit A-3 hereto.
"Class C Daily Principal Amount" shall have the
meaning specified in subsection 4.9(c)(iii) of the Agree-
ment.
"Class C Default Recognition Allocation Per-
centage" shall mean, with respect to each Default Recog-
nition Date, the percentage equivalent of a fraction, the
numerator of which is the Weighted Average Class C In-
vested 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.
"Class C Fixed/Floating Allocation Percentage"
shall mean for any Business Day the percentage equivalent
of a fraction, the numerator of which is the Class C
Invested Amount at the end of the last day of the Revolv-
ing Period and the denominator of which is the greater of
(a) the sum of the aggregate amount of Principal Receiv-
ables and the amount on deposit in the Excess Funding
Account at the end of the preceding Business Day and (b)
the sum of the numerators used to calculate the alloca-
tion percentages with respect to Principal Collections
for all Series.
<PAGE> 13
"Class C Floating Allocation Percentage" shall
mean, with respect to any Business Day, the percentage
equivalent of a fraction, the numerator of which is the
Class C Invested Amount as of the end of the preceding
Business Day and the denominator of which is the greater
of (a) the total amount of Principal Receivables in the
Trust and the amount on deposit in the Excess Funding
Account as of the end of the preceding Business Day and
(b) the sum of the numerators with respect to all Classes
of all Series then outstanding used to calculate the
applicable allocation percentage.
"Class C Full Invested Amount" shall mean
$70,698,000.
"Class C Funding Purchase" shall have the
meaning specified in Section 4.14 of the Agreement.
"Class C Interest" shall mean the interest
distributable in respect of the Class C Certificates as
calculated in accordance with subsection 4.6(c) of the
Agreement.
"Class C Interest Adjustment" shall have the
meaning specified in Section 4.6A of the Agreement.
"Class C Interest Shortfall" shall have the
meaning specified in subsection 4.6(c) of the Agreement.
"Class C Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
$70,698,000, minus (b) the aggregate amount of principal
payments made to Class C Certificateholders prior to such
Business Day, minus (c) the aggregate amount of Class C
Investor Charge-Offs for all prior Distribution Dates,
minus (d) the aggregate amount of Reallocated Class B
Principal Collections and Reallocated Class C Principal
Collections for which the Class D Invested Amount has not
been reduced for all prior Business Days and plus (e) the
sum of the aggregate amount allocated and available on
all prior Business Days pursuant to subsection
4.9(a)(xii) of the Agreement and, with respect to such
subsection, pursuant to subsections 4.10(a) and (b) and
Section 4.15 of the Agreement, for the purpose of rein-
stating amounts reduced pursuant to the foregoing clauses
(c) and (d).
"Class C Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(b) of the Agreement.
"Class C Investor Percentage" shall mean, for
any Distribution Date, (a) with respect to Finance Charge
Receivables and Receivables in Defaulted Accounts at any
time or Principal Receivables during the Revolving Peri-
od, the Class C Floating Allocation Percentage and (b)
with respect to Principal Receivables during the Amorti-
zation Period, the ABC Fixed/Floating Allocation Percent-
age.
<PAGE> 14
"Class C Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) the principal amount of Class C
Certificates purchased pursuant to any Class C Funding
Purchase pursuant to Section 4.14(b) of the Agreement,
minus (b) the aggregate amount of principal payments made
to Class C Certificateholders prior to such Business Day.
"Class C Percentage" shall mean a fraction the
numerator of which is the Class C Invested Amount and the
denominator of which is the sum of the Class A Invested
Amount, the Class B Invested Amount and the Class C
Invested Amount.
"Class C Pool Factor" shall mean, with respect
to any Record Date, a number carried out to seven decimal
places representing the ratio of the Class C Invested
Amount as of the last day of the related Monthly Period
(determined after taking into account any increases or
decreases in the Class C Invested Amount which will occur
on the following Distribution Date) to the highest Class
C Invested Amount on or prior to the last day of such
Monthly Period during the Revolving Period.
"Class C Principal" shall mean the principal
distributable in respect of the Class C Certificates as
calculated in accordance with subsection 4.7(c) of the
Agreement.
"Class C Principal Payment Commencement Date"
shall mean the earlier of (a) the first Distribution Date
in an Amortization Period on which the Class B Invested
Amount is paid in full or, if there are no Principal
Collections allocable to the Series 1995-1 Certificates
remaining after payments have been made to the Class B
Certificates on such Distribution Date, the Distribution
Date following the Distribution Date on which the Class B
Invested Amount is paid in full and (b) the Distribution
Date following a sale or repurchase of the Receivables as
set forth in Sections 2.4(e), 9.2, 10.2, 12.1 or 12.2 of
the Agreement and Section 3 of this Series Supplement.
"Class C Purchase Agreement" shall mean the
Class C Purchase Agreement, dated as of May 26, 1995,
between the Transferor and the Class C Certificate pur-
chasers specified therein, as the same may from time to
time be amended, restated, modified and in effect.
<PAGE> 15
"Class C Required Amount" shall mean the amount
determined by the Servicer on each Business Day equal to
the excess, if any, of (x) the sum of (i) Class C Inter-
est for the then current Monthly Period, (ii) any Carry-
over Class C Interest previously due but not paid to the
Class C Certificateholders on a prior Distribution Date,
(iii) the Class C Floating Allocation Percentage of the
Servicing Fee for the then current Monthly Period, (iv)
the Class C Floating Allocation Percentage of the Default
Amount, if any, for such Business Day and, to the extent
not previously paid, for any previous Business Day in
such Monthly Period, (v) the Class C Percentage of the
Series Allocation Percentage of the Adjustment Payment
required to be made by the Transferor but not made on the
related Transfer Date and (vi) the unreimbursed amount by
which the Class C Invested Amount has been reduced on
prior Business Days pursuant to clauses (c) and (d) of
the definition of Class C Invested Amount over (y) the
Available Series 1995-1 Finance Charge Collections plus
any Excess Finance Charge Collections from other Series
and any Transferor Finance Charge Collections allocated
with respect to the amounts described in clauses (x)(i)
through (v).
"Class D Certificateholder" shall mean the
Person in whose name a Class D Certificate is registered
in the Certificate Register.
"Class D Certificateholders' Interest" shall
mean the portion of the Series 1995-1 Certificateholders'
Interest evidenced by the Class D Certificate.
"Class D Certificate" shall mean any of the
certificates executed by the Transferor and authenticated
by or on behalf of the Trustee, substantially in the form
of Exhibit A-4 hereto.
"Class D Daily Principal" shall have the mean-
ing specified in Section 4.7(d) of the Agreement.
"Class D Default Recognition Allocation Per-
centage" shall mean with respect to each Default Recogni-
tion Date, the percentage equivalent of a fraction, the
numerator of which is the Weighted Average Class D In-
vested 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.
<PAGE> 16
"Class D Fixed/Floating Allocation Percentage"
shall mean for any Business Day the percentage equivalent
of a fraction, the numerator of which is the Class D
Invested Amount at the end of the last day of the Revolv-
ing Period and the denominator of which is the greater of
(a) the sum of the aggregate amount of Principal Receiv-
ables and the amount on deposit in the Excess Funding
Account as of the end of the preceding Business Day and
(b) the sum of the numerators used to calculate the
allocation percentages with respect to Principal Collec-
tions for all Series.
"Class D Floating Allocation Percentage" shall
mean with respect to any Business Day the percentage
equivalent of a fraction, the numerator of which is the
Class D Invested Amount on such day after taking into
account all adjustments of the Class D Invested Amount on
such day and the denominator of which is the greater of
(a) the total amount of Principal Receivables and the
amount on deposit in the Excess Funding Account at the
end of the preceding Business Day and (b) the sum of the
numerators with respect to all Classes of all Series then
outstanding used to calculate the applicable allocation
percentage.
"Class D Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
upon the initial issuance of the Class D Certificate the
initial amount designated by the Transferor (which shall
not be less than the Stated Class D Amount), plus (b) the
aggregate principal amount of any Additional Class D
Invested Amounts pursuant to Section 6.16 of the Agree-
ment, minus (c) the aggregate amount of principal pay-
ments made to Class D Certificateholders prior to such
Business Day, minus (d) the aggregate amount of Class D
Investor Charge-Offs for all prior Distribution Dates,
minus (e) the aggregate amount of Reallocated Principal
Collections for all prior Business Days, plus (f) the sum
of the aggregate amount allocated and available on all
prior Business Days pursuant to subsection 4.9(a)(xiii)
of the Agreement and, with respect to such subsection,
pursuant to subsections 4.10(a) and (b) of the Agreement,
for the purpose of reinstating amounts reduced pursuant
to the foregoing clauses (d) and (e).
<PAGE> 17
"Class D Investor Charge-Offs" shall have the
meaning specified in subsection 4.13(a) of the Agreement.
"Class D Investor Default Amount" shall mean
(i) on any Business Day other than a Default Recognition
Date, for any Business Day an amount equal to the product
of (a) the Class D Floating Allocation Percentage appli-
cable on such Business Day and (b) the aggregate Default
Amount identified since the prior reporting date and (ii)
on any Default Recognition Date, an amount equal to the
product of (a) the sum of the Class D Default Recognition
Allocation Percentage applicable on such Default Recogni-
tion Date and (b) the Default Amount with respect to such
Default Recognition Date.
"Class D Investor Percentage" shall mean, for
any Business Day, (a) with respect to Finance Charge
Receivables and Receivables in Defaulted Accounts at any
time or Principal Receivables during the Revolving Peri-
od, the Class D Floating Allocation Percentage and (b)
with respect to Principal Receivables during the Amorti-
zation Period, the Class D Fixed/Floating Allocation
Percentage.
"Class D Maximum Required Amount" shall mean
$153,178,000.
"Class D Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) upon the initial issuance of the
Class D Certificate, the initial amount designated by the
Transferor (which shall not be less than the Stated Class
D Amount), plus (b) the aggregate principal amount of any
Additional Class D Invested Amounts pursuant to Section
6.16 of the Agreement, minus (c) the aggregate amount of
principal payments made to Class D Certificateholders
prior to such Business Day.
"Class D Principal" shall mean the principal
distributable in respect of the Class D Certificate as
specified in subsection 4.7(d) of the Agreement.
"Class D Principal Payment Commencement Date"
shall mean the earlier of (a) the first Distribution Date
on which the Class C Invested Amount is paid in full or,
if there are no Principal Collections allocable to the
Series 1995-1 Certificates remaining after payments have
been made to the Class C Certificates on such Distribu-
tion Date, the Distribution Date following the Distribu-
tion Date on which the Class C Invested Amount is paid in
full and (b) the Distribution Date following a sale or
repurchase of the Receivables as set forth in Sections
2.4(e), 9.2, 10.2, 12.1 and 12.2 of the Agreement and
Section 3 of this Series Supplement.
<PAGE> 18
"Closing Date" shall mean the date of initial
issuance of the Additional Certificates.
"Collateral Trust Agreement" shall mean the
Amended and Restated Collateral Trust Agreement dated as
of May 26, 1995, between Fingerhut Owner Trust and State
Street Bank and Trust Company, as Collateral Trustee, as
the same may from time to time be amended, restated,
modified and in effect.
"Commercial Paper" shall mean the promissory
notes issued by the Fingerhut Owner Trust in the commer-
cial paper market pursuant to the Liquidity Agreement and
the Depositary Agreement.
"Cost of Funds" shall mean with respect to any
day the sum of (a) the greater of (i) the OT Allocation
Percentage of the sum of interest on Loans outstanding
and the Interest Component of outstanding Commercial
Paper accrued with respect to such day and (ii) the
Administrator's written estimate delivered to the Trustee
on the first Business Day preceding the first day of the
then current Monthly Period, as may be modified from time
to time during such Monthly Period, of the OT Allocation
Percentage of the average daily amount of interest that
will accrue on the Loans and Commercial Paper during such
Monthly Period; provided, however, that the amount deter-
mined pursuant to this clause (a) (ii) shall not exceed
on any day (I) the product of (x) the OT Allocation
Percentage of the sum of the aggregate outstanding prin-
cipal amount of the Loans and the aggregate Principal
Component of the Commercial Paper outstanding on such
Business Day after giving effect to all transactions on
such Business Day, (y) the greater of (A) LIBOR prevail-
ing on such preceding Business Day plus .75% and (B) 12%
and (z) a fraction the numerator of which is one and the
denominator of which is the actual number of days in the
then current calendar year minus (II) the sum of the
amount determined pursuant to clause (b) below and the OT
Allocation Percentage of the Total Program Fees for such
day, (b) the OT Allocation Percentage of the amount of
any Commitment Fees (as defined in the Liquidity Agree-
ment) accrued with respect to such day pursuant to Sec-
tion 2.9 of the Liquidity Agreement with respect to
Utilized Available Commitments (as defined in the Liquid-
ity Agreement), and (c) the Series 1995-1 Allocation
Percentage of the Daily Portion of the Interest Amount
(as defined in the Owner Trust Agreement) accrued with
respect to such day.
<PAGE> 19
"Daily Portion" shall mean, with respect to any
amount determined pursuant hereto, the product of such
amount and a fraction the numerator of which shall be the
number of days from and including the preceding Business
Day to but excluding such Business Day and the denomina-
tor of which shall be the number of days in the then
current Monthly Period.
"Defeasance Account" shall have the meaning
specified in Section 9A of this Series Supplement.
"Defeasance Account Balance" shall mean, with
respect to any date of determination, the principal
amount, if any, on deposit in the Defeasance Account on
such date of determination.
"Depositary" shall mean The First National Bank
of Chicago, any successor to the Depositary or such other
banking institution as the Fingerhut Owner Trust shall
appoint, with the prior written consent of the Majority
Lenders (as defined in the Liquidity Agreement).
"Depositary Agreement" shall mean the Amended
and Restated Depositary Agreement, dated as of May 26,
1995, between the Fingerhut Owner Trust and the Deposi-
tary, as the same may from time to time be amended,
restated, modified and in effect.
"Distribution Date" shall mean, with respect to
the Previously Issued Certificates, July 20, 1995, and
the twentieth day of each month thereafter, or if such
day is not a Business Day, the next succeeding Business
Day and, with respect to the Additional Certificates,
October 21, 1996 and the twentieth day of each month
thereafter, or if such day is not a Business Day, the
next succeeding Business Day; provided, however, that
solely with respect to the payment of principal with
respect to the Class B Certificates, Class C Certificates
and Class D Certificate during the Amortization Period,
Distribution Date shall mean the first Business Day of
each Monthly Period beginning with the Monthly Period
next succeeding the Monthly Period in which the Amortiza-
tion Period Commencement Date occurs; provided further,
that the final Distribution Date with respect to the
payment of principal and interest shall be the Scheduled
Series 1995-1 Termination Date.
"Early Amortization Period" shall mean the
period beginning on the day on which a Pay Out Event
occurs or is deemed to have occurred and ending on the
earlier of (i) the date on which the Class A Invested
Amount, the Class B Invested Amount, the Class C Invested
Amount and the Class D Invested Amount have been paid in
full and (ii) the Series 1995-1 Termination Date.
<PAGE> 20
"Election Date" shall have the meaning speci-
fied in subsection 6.17(a) of the Agreement.
"Election Notice" shall have the meaning speci-
fied in subsection 6.17(a) of the Agreement.
"Enhancement" shall mean, with respect to the
Class A Certificate, the subordination of the Class B
Invested Amount, the Class C Invested Amount, and the
Class D Invested Amount, with respect to the Class B
Certificates, the subordination of the Class C Invested
Amount and the Class D Invested Amount, and with respect
to the Class C Certificates, the subordination of the
Class D Invested Amount.
"Excess Finance Charge Collections" shall mean,
with respect to any Business Day, as the context re-
quires, either (x) the amount described in subsection
4.9(a)(xix) of the Agreement allocated to the Series
1995-1 Certificates but available to cover shortfalls in
amounts paid from Finance Charge Collections for other
Series, if any, or (y) the aggregate amount of Finance
Charge Collections allocable to other Series in excess of
the amounts necessary to make required payments with
respect to such Series, if any, and available to cover
shortfalls with respect to the Series 1995-1 Certifi-
cates.
"Extension" shall mean the procedure by which
the Investor Certificateholders consent to the extension
of the Revolving Period to the new Amortization Period
Commencement Date set forth in the Extension Notice,
pursuant to Section 6.17 of the Agreement.
"Extension Date" shall mean April 23, 1999 or
if an Extension has already occurred, the date of the
next Extension Date set forth in the Extension Notice
relating to the Extension then in effect (or, if any such
date is not a Business Day, the next preceding Business
Day).
"Extension Notice" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Extension Opinion" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Extension Tax Opinion" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Face Amount" shall mean (i) with respect to
Commercial Paper issued on a discount basis, the face
amount stated therein, and (ii) with respect to Commer-
cial Paper which is interest-bearing, the principal
amount of and interest accrued and to accrue on such
Commercial Paper to its stated maturity.
"Fingerhut Owner Trust" shall mean the Delaware
business trust created pursuant to the Owner Trust Agree-
ment.
<PAGE> 21
"Fixed/Floating Allocation Percentage" shall
mean for any Business Day the percentage equivalent of a
fraction, the numerator of which is the Invested Amount
at the end of the last day of the Revolving Period and
the denominator of which is the greater of (a) the sum of
the aggregate amount of Principal Receivables and the
amount on deposit in the Excess Funding Account as of the
end of the preceding Business Day and (b) the sum of the
numerators with respect to all Classes of all Series then
outstanding used to calculate the applicable allocation
percentage; provided, however, that during any Class A
Pay Down Period, the numerator used in the above calcula-
tion shall be the sum of the Class A Invested Amount, the
Class B Invested Amount and the Class C Invested Amount
as of the day immediately preceding the commencement of
the Class A Pay Down Period.
"Floating Allocation Percentage" shall mean for
any Business Day the sum of the applicable Class A Float-
ing Allocation Percentage, Class B Floating Allocation
Percentage, Class C Floating Allocation Percentage, and
Class D Floating Allocation Percentage for such Business
Day.
"Initial Closing Date" shall mean the date of
initial issuance of the Previously Issued Certificates.
"Interest Accrual Period" shall mean a Monthly
Period and, with respect to a Distribution Date, the
preceding Monthly Period; provided, however, that the
initial Interest Accrual Period for the Previously Issued
Certificates shall be the period from the Initial Closing
Date to and including the last day of the Monthly Period
preceding the initial Distribution Date for the Previous-
ly Issued Certificates, and the initial Interest Accrual
Period with respect to the Additional Certificates shall
be the period from the Closing Date to and including the
last day of the Monthly Period preceding the initial
Distribution Date for the Additional Certificates.
"Interest Component" shall mean, with respect
to any Commercial Paper (i) issued on a discount basis,
the portion of the Face Amount of such Commercial Paper
representing the discount incurred in respect thereof and
(ii) issued on an interest-bearing basis, the interest
payable on such Commercial Paper (in each case including
the related Commercial Paper dealer fees payable in
connection with the issuance of such Commercial Paper).
<PAGE> 22
"Interest Rate Caps" shall mean the interest
rate caps provided pursuant to Cap Agreements by one or
more Cap Providers to the Trustee on behalf of any of the
Certificateholders which shall entitle the Trust to
receive monthly payments equal to the product of (i) the
positive difference, if any, between LIBOR in effect for
each applicable Interest Period and 12%, (ii) the notion-
al amount of such interest rate cap and (iii) the actual
number of days in the Interest Period divided by 360.
"Invested Amount" shall mean, when used with
respect to any Business Day, an amount equal to the sum
of (a) the Class A Invested Amount as of such Business
Day, (b) the Class B Invested Amount as of such Business
Day, (c) the Class C Invested Amount as of such Business
Day and (d) the Class D Invested Amount as of such Busi-
ness Day; provided, however, that for purposes of deter-
mining the Servicing Fee and the Aggregate Invested
Amount, the Invested Amount shall mean an amount equal to
the sum of (a) the Class A Adjusted Invested Amount as of
such Business Day, (b) the Class B Invested Amount as of
such Business Day, (c) the Class C Invested Amount as of
such Business Day and (d) the Class D Invested Amount as
of such Business Day.
"Investment Earnings" shall mean, with respect
to any Business Day, the investment earnings on amounts
on deposit in (i) the Payment Reserve Account, deposited
in the Collection Account pursuant to subsection 4.17(c)
and (ii) the Defeasance Account, deposited in the Collec-
tion Account pursuant to subsection 9A(a).
"Investment Period" shall have the meaning
specified in Section 4.14 of this Series Supplement.
"Investor Certificateholder" shall mean the
Holder of record of an Investor Certificate of Series
1995-1.
"Investor Certificates" shall mean the Class A
Certificate, the Class B Certificates, the Class C Cer-
tificates and the Class D Certificate.
"Investor Charge-Offs" shall mean the sum of
Class A Investor Charge-Offs, Class B Investor Charge-
Offs, Class C Investor Charge-Offs and Class D Investor
Charge-Offs.
"Investor Default Amount" shall mean, with
respect to each Business Day, an amount equal to the
product of the Default Amount identified since the prior
reporting date and the Floating Allocation Percentage
applicable for such Business Day.
<PAGE> 23
"Investor Percentage" shall mean for any Busi-
ness Day, (a) with respect to Finance Charge Receivables
and Receivables in Defaulted Accounts at any time or
Principal Receivables during the Revolving Period (ex-
cept, with respect to the Class A Certificates, for any
portion of the Revolving Period that occurs during the
Class A Pay Down Period), the Floating Allocation Per-
centage and (b) with respect to Principal Receivables
during the Amortization Period and the Class A Pay Down
Period, the Fixed/Floating Allocation Percentage.
"Investor Reserve Account" shall have the
meaning specified in Section 4.18 hereof.
"LIBOR" shall mean, for any Interest Accrual
Period, the London interbank offered quotations for one-
month Dollar deposits determined by the Trustee for each
Interest Accrual Period in accordance with the provisions
of Section 4.16 of the Agreement.
"LIBOR Determination Date" shall mean the
second Business Day prior to the commencement of each
Interest Accrual Period; provided, however, that with
respect to the initial Interest Accrual Period for the
Class C Certificates that are Previously Issued Certifi-
cates, LIBOR Determination Date shall mean a date select-
ed by the Transferor which shall not be in excess of two
Business Days prior to the date of initial issuance of
Certificates of the applicable Class; provided, further,
that with respect to the initial Interest Accrual Period
for the Class B Certificates and the Class C Certificates
that are Additional Certificates, LIBOR Determination
Date shall mean August 29, 1996. For purposes of this
definition, a Business Day is any day on which banks in
London and New York are open for the transaction of
international business.
"Liquidity Agreement" shall mean the Amended
and Restated Liquidity Agreement, dated as of May 26,
1995, by and among the Fingerhut Owner Trust, the several
banks signatory thereto, and Chemical Bank, as Adminis-
trative Agent, as the same may from time to time be
amended, restated, modified and in effect.
"Liquidity Bank" shall mean any liquidity bank
providing liquidity for the Commercial Paper from time to
time pursuant to the Liquidity Agreement, as evidenced by
its execution thereof, and any successor or assignee
liquidity banks under the Liquidity Agreement.
"Loans" shall mean any loans made pursuant to
the Liquidity Agreement.
"Metris" shall mean Metris Companies Inc., a
Delaware Corporation.
"Metris Receivables Note" or "FFSRI Note" shall
have the meaning specified in Section 18 of this Series
Supplement.
"Metris Receivables Note Required Amount" or
"FFSRI Note Required Amount" shall have the meaning
specified in Section 18 of this Series Supplement.
<PAGE> 24
"Minimum Retained Percentage" shall mean 2%.
"Minimum Transferor Percentage" shall mean 0%;
provided, however, that in certain circumstances such
percentage may be increased.
"Monthly Period" shall have the meaning speci-
fied in the Agreement, except that the first Monthly
Period with respect to the Previously Issued Certificates
shall begin on and include the Initial Closing Date and
shall end on and include June 30, 1995.
"Negative Carry Amount" shall have the meaning
specified in subsection 4.10(a) of the Agreement.
"Net ABC Revolving Principal Collections" shall
have the meaning specified in Section 4.9(b) of the
Agreement.
"OT Allocation Percentage" shall mean, on any
date of determination, the percentage equivalent of a
fraction the numerator of which is the Class A Outstand-
ing Principal Amount minus the Series 1995-1 Allocation
Percentage of the Aggregate OTC Amount (as defined in the
Liquidity Agreement) and the denominator of which is the
sum of the Class A Outstanding Principal Amount and all
other outstanding principal amounts of all other certifi-
cates or securities or interests in receivables held by
the Owner Trust less the Aggregate OTC Amount (as defined
in the Liquidity Agreement) then outstanding; provided,
however, that if the denominator of the foregoing frac-
tion is zero, then the OT Allocation Percentage shall be
zero.
"Owner Trust Agreement" shall mean the Amended
and Restated Owner Trust Agreement, dated as of May 26,
1995, between Fingerhut Receivables, Inc., as Depositor,
and Wilmington Trust Company as Owner Trustee, as the
same may from time to time be amended, restated, modified
and in effect.
"Paying Agent" shall mean, for the Series
1995-1 Certificates, the Trustee.
"Payment Reserve Account" shall have the mean-
ing specified in subsection 4.17 of the Agreement.
"Pay Out Commencement Date" shall mean the date
on which a Trust Pay Out Event is deemed to occur pursu-
ant to Section 9.1 of the Agreement or a Series 1995-1
Pay Out Event is deemed to occur pursuant to Section 8 of
this Series Supplement.
"Percentage" for each Liquidity Bank shall mean
its "Commitment Percentage" as defined in Section 1.1 of
the Liquidity Agreement.
<PAGE> 25
"Portfolio Yield" shall mean for the Series
1995-1 Certificates, with respect to any Monthly Period,
the annualized percentage equivalent of a fraction, the
numerator of which is an amount equal to the sum of the
aggregate amount of Available Series 1995-1 Finance
Charge Collections for such Monthly Period (not including
the amounts on deposit in the Payment Reserve Account, if
any and amounts on deposit in the Investor Reserve Ac-
count, if any, calculated on a cash basis, minus the
aggregate Investor Default Amount for such Monthly Period
and the Series Allocation 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.
"Previously Issued Certificates" shall have the
meaning specified in the third WHEREAS clause hereof.
"Principal Shortfalls" shall mean on any Busi-
ness Day (i) prior to the Amortization Period Commence-
ment Date other than during the Class A Pay Down Period,
zero, (ii) after the Amortization Period Commencement
Date, the Invested Amount of the class then receiving
principal payments after the application of Principal
Collections on such Business Day and (iii) during the
Class A Pay Down Period, the Class A Invested Amount
after the application of Principal Collections on such
Business Day.
"Qualified Substitute Arrangement" shall have
the meaning specified in Section 3A(d) of this Series
Supplement.
"Rating Agency" shall mean Standard & Poor's
Ratings Group, a division of McGraw-Hill, and Moody's
Investors Service, Inc.
"Reallocated Class B Principal Collections"
shall have the meaning specified in subsection 4.15(c) of
the Agreement.
"Reallocated Class C Principal Collections"
shall have the meaning specified in subsection 4.15(b) of
the Agreement.
<PAGE> 26
"Reallocated Class D Principal Collections"
shall have the meaning specified in subsection 4.15(a) of
the Agreement.
"Reallocated Principal Collections" shall mean
the sum of Reallocated Class B Principal Collections,
Reallocated Class C Principal Collections and Reallocated
Class D Principal Collections.
"Reference Banks" shall mean four major banks
in the London interbank market selected by the Trustee.
"Replacement Interest Rate Cap" shall mean one
or more Interest Rate Caps, which in combination with all
other Interest Rate Caps then in effect, after giving
effect to any planned cancellations of any presently
outstanding Interest Rate Caps satisfies the Transferor's
covenant contained in Section 3A of this Series Supple-
ment to maintain Interest Rate Caps.
"Required Amount" shall have the meaning speci-
fied in Section 4.10 of the Agreement.
"Reserve Application Date" shall mean the last
Business Day of each Monthly Period and each Determina-
tion Date.
"Revolving Period" shall mean the period from
and including the Initial Closing Date (with respect to
the Previously Issued Certificates) or the Closing Date
(with respect to the Additional Certificates), to but not
including, the Amortization Period Commencement Date.
"Scheduled Series 1995-1 Termination Date"
shall mean May 30, 2003, unless a different date shall be
set forth in any Extension Notice.
"Series 1995-1" shall mean the Series of the
Metris Master Trust (formerly Fingerhut Financial Servic-
es Master Trust) represented by the Series 1995-1 Certif-
icates.
"Series 1995-1 Allocation Percentage" shall
mean, on any date of determination, the percentage equiv-
alent of a fraction the numerator of which is the Class A
Maximum Invested Amount and the denominator of which is
the sum of the Class A Maximum Invested Amount and the
other maximum invested amounts relating to all other
certificates, securities or interests in collateral held
by the Fingerhut Owner Trust.
<PAGE> 27
"Series 1995-1 Non-Utilized Allocation Percent-
age" shall mean, on any date of determination, the per-
centage equivalent of a fraction the numerator of which
is the Class A Maximum Invested Amount minus the sum of
(x) the Class A Outstanding Principal Amount and (y) the
Series 1995-1 Allocation Percentage of the Aggregate OTC
Amount (as defined in the Liquidity Agreement) and the
denominator of which is the sum of (i) the Class A Maxi-
mum Invested Amount minus the Class A Outstanding Princi-
pal Amount plus (ii) the other maximum invested amounts
relating to all other certificates, securities or inter-
ests in collateral held by the Fingerhut Owner Trust
minus the invested amounts or principal amounts relating
to all other series or interests in collateral held by
the Fingerhut Owner Trust minus (iii) the Aggregate OTC
Amount (as defined in the Liquidity Agreement).
"Series 1995-1 Certificates" shall mean the
Class A Certificate, the Class B Certificates, the Class
C Certificates and the Class D Certificate.
"Series 1995-1 Certificateholder" shall mean
the holder of record of any Series 1995-1 Certificate.
"Series 1995-1 Certificateholders' Interest"
shall have the meaning specified in Section 4.4 of the
Agreement.
"Series 1995-1 Pay Out Event" shall have the
meaning specified in Section 8 of this Series Supplement.
"Series 1995-1 Termination Date" shall mean the
earlier to occur of (i) the day after the Distribution
Date on which the Series 1995-1 Certificates are paid in
full, or (ii) the Scheduled Series 1995-1 Termination
Date.
"Series Servicing Fee Percentage" shall mean
2.00% per annum.
"Servicing Fee" shall mean for any Business
Day, an amount equal to the product of (i) a fraction the
numerator of which is the actual number of days from but
excluding the next preceding Business Day to and includ-
ing such Business Day and the denominator of which is 365
or 366, as the case may be, (ii) the applicable Series
Servicing Fee Percentage and (iii) the Invested Amount on
such Business Day after giving effect to all transactions
on such Business Day.
"Shared Principal Collections" shall mean, as
the context requires, either (a) the amount allocated to
the Series 1995-1 Certificates which, in accordance with
subsections 4.9(b), 4.9(c)(v), and 4.9(e)(ii) of the
Agreement, may be applied in accordance with Section
4.3(d) of the Agreement or (b) the amounts allocated to
the investor certificates (other than Transferor Retained
Certificates) of other Series which the applicable Series
Supplements for such Series specify are to be treated as
"Shared Principal Collections" and which may be applied
to cover Principal Shortfalls with respect to the Series
1995-1 Certificates.
<PAGE> 28
"Specified Investor Reserve Amount" shall mean
an amount equal to 0% of the sum of the Class A Outstand-
ing Principal Amount, the Class B Outstanding Principal
Amount, the Class C Outstanding Principal Amount and the
Class D Outstanding Principal Amount; provided, however,
that the percentage specified above shall be 2% from the
date hereof until a date to be specified by the Transfer-
or on which date such percentage may be reduced to a
lesser percentage (but not less than 0%) so long as the
Trustee shall have received written confirmation from
Standard & Poor's that the reduction of such percentage
will not cause Standard & Poor's to lower or withdraw its
then current rating of the Investor Certificates.
"Stated Class D Amount" shall mean on any date
of determination the greater of (i) zero and (ii) a
number rounded to the nearest dollar obtained by multi-
plying the sum of the Class A Invested Amount, the Class
B Invested Amount and the Class C Invested Amount by a
fraction the numerator of which is 13 and the denominator
of which is 87; provided, however, that in no event shall
the Stated Class D Amount exceed the Class D Maximum
Required Amount; and provided further that during any
Early Amortization Period or Class A Pay Down Period the
Stated Class D Amount shall be equal to the Stated Class
D Amount immediately preceding the commencement of the
Early Amortization Period or Class A Pay Down Period.
"Termination Payment Date" shall mean the
earlier of the first Distribution Date following the
liquidation or sale of the Receivables as a result of an
Insolvency Event and the occurrence of the Scheduled
Series 1995-1 Termination Date.
"Total Program Fees" shall mean with respect to
any day, recurring fees payable to the Collateral Trustee
(as defined in the Liquidity Agreement), the Owner Trust-
ee (as defined in the Liquidity Agreement), the Adminis-
trative Agent (as defined in the Liquidity Agreement) and
the Depositary and Basic Administration Fees (as defined
in the Collateral Trust Agreement) that arise or accrue
on such day.
"Transferor Finance Charge Collections" shall
mean on any Business Day the product of (a) the Finance
Charge Collections for such Business Day, (b) the Trans-
feror Percentage and (c) the Series Allocation Percent-
age.
<PAGE> 29
"Transferor Retained Certificates" shall mean
investor certificates of any Series, including the Class
D Certificate, which the Transferor retains, but only to
the extent that and for so long as the Transferor is the
Holder of such Certificates.
"Transferor Retained Finance Charge Collec-
tions" shall mean with respect to each Business Day other
than a Default Recognition Date, the amount specified in
subsection 4.9(a)(xix).
"Weighted Average Class A Adjusted Invested
Amount" shall mean with respect to any Monthly Period the
weighted average Class A Adjusted Invested Amount based
on the Class A Adjusted Invested Amount outstanding on
each Business Day after giving effect to all transactions
on such Business Day from but excluding the Default
Recognition Date related to the preceding Monthly Period
to and including the Default Recognition Date with re-
spect to such Monthly Period.
"Weighted Average Class B Invested Amount"
shall mean with respect to any Monthly Period the weight-
ed average Class B Invested Amount based on the Class B
Invested Amount outstanding on each Business Day after
giving effect to all transactions on such Business Day
from but excluding the Default Recognition Date related
to the preceding Monthly Period to and including the
Default Recognition Date with respect to such Monthly
Period.
"Weighted Average Class C Invested Amount"
shall mean with respect to any Monthly Period the weight-
ed average Class C Invested Amount based on the Class C
Invested Amount outstanding on each Business Day after
giving effect to all transactions on such Business Day
from but excluding the Default Recognition Date related
to the preceding Monthly Period to and including the
Default Recognition Date with respect to such Monthly
Period.
"Weighted Average Class D Invested Amount"
shall mean with respect to any Monthly Period the weight-
ed average Class D Invested Amount based on the Class D
Invested Amount outstanding on each Business Day after
giving effect to all transactions on such Business Day
from but excluding the Default Recognition Date related
to the preceding Monthly Period to and including the
Default Recognition Date with respect to such Monthly
Period.
"Weighted Average Principal Receivables" shall
mean with respect to any Monthly Period the weighted
average sum of the total amount of Principal Receivables
and the amount on deposit in the Excess Funding Account
on each Business Day after giving effect to all transac-
tions on such Business Day from but excluding the Default
Recognition Date related to the preceding Monthly Period
to and including the Default Recognition Date with re-
spect to such Monthly Period.
<PAGE> 30
SECTION 3. Reassignment Terms. The Series
1995-1 Certificates shall be subject to termination by
the Transferor at its option, in accordance with the
terms specified in subsection 12.2(a) of the Agreement,
on any Distribution Date on or after the Distribution
Date on which the sum of the Class A Invested Amount, the
Class B Invested Amount and the Class C Invested Amount
is reduced to an amount less than or equal to 10% of the
sum of the highest Class A Invested Amount, the highest
Class B Invested Amount and the highest Class C Invested
Amount during the Revolving Period. The deposit required
in connection with any such termination and final distri-
bution shall be equal to the sum of the Class A Invested
Amount, the Class B Invested Amount and the Class C
Invested Amount plus accrued and unpaid interest on the
Series 1995-1 Certificates through the day prior to the
Distribution Date on which the final distribution occurs.
SECTION 3A. Conveyance of Interest in Interest
Rate Cap; Cap Proceeds Account. (a) The Transferor
hereby covenants and agrees that, on or prior to the
issuance of any of the Class C Certificates, it shall
obtain and at all times prior to the close of business on
the Series 1995-1 Termination Date maintain one or more
Interest Rate Caps whose notional amounts singly or taken
as a group equal or exceed the Aggregate ABC Principal
Amount. The Transferor hereby assigns, sets-over, con-
veys, pledges and grants a security interest and lien
(free and clear of all other Liens) to the Trustee for
the benefit of the Series 1995-1 Certificateholders, in
all of the Transferor's right, title and interest now
existing or hereafter arising in and to the Cap Agree-
ments 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 Series 1995-1 Certificateholders. The Transferor
hereby further agrees to execute all such instruments,
documents and financing statements and take all such
further action requested by the Trustee to evidence and
perfect the assignment of the Cap Agreements and the
Interest Rate Caps pursuant to this Section 3A. The
Transferor agrees that each Interest Rate Cap shall
provide for payments to the Trustee and that the Trust's
interest in respect of such payments shall be deposited
into the Cap Proceeds Account.
(b) The Trustee, for the benefit of the Series
1995-1 Certificateholders, shall establish and maintain
with a Qualified Institution, which may be the Trustee,
in the name of the Trustee, on behalf of the Certificate-
holders, a certain segregated trust account (the "Cap
Proceeds Account"). All amounts paid pursuant to the
Interest Rate Caps or any Qualified Substitute Arrange-
ment on any Business Day (a "Cap Settlement Date") shall
be deposited in the Cap Proceeds Account. Any amounts
paid pursuant to the Interest Rate Caps or any Qualified
<PAGE> 31
Substitute Arrangement on the first Business Day of any
Monthly Period shall be treated for all purposes herein,
including application in accordance with Section 4.9 of
the Agreement, as if they had been received on the last
Business Day of the preceding Monthly Period. Funds in
the Cap Proceeds Account shall be invested at the direc-
tion of the Servicer, in Cash Equivalents with maturities
not later than the next succeeding Business Day. Any
earnings on such invested funds shall be deposited and
held in the Cap Proceeds Account and applied in the same
manner and priority as payments pursuant to the Interest
Rate Caps.
(c) In the event that the Cap Provider de-
faults in its obligation to make a payment to the Trustee
under one or more Cap Agreements on any Cap Settlement
Date, the Trustee shall make a demand on such Cap Provid-
er, or any guarantor, if applicable, demanding payment by
12:30 p.m., New York time, on such date. The Trustee
shall give notice to the Certificateholders upon the
continuing failure by any Cap Provider to perform its
obligation during the two Business Days following a
demand made by the Trustee on such Cap Provider, and
shall take such action with respect to such continuing
failure directed to be taken by the Certificateholders.
(d) In the event that the senior unsecured
debt rating of a Cap Provider is withdrawn or reduced
below AA by Standard & Poor's or is withdrawn or reduced
below Aa2 by Moody's, then within 30 days after receiving
notice of such decline in the creditworthiness of the Cap
Provider as determined by the Rating Agency, either (x)
the Cap Provider, with the prior written confirmation of
the Rating Agency that such arrangement will not result
in the reduction or withdrawal of the rating of the Class
A Certificates, the Class B Certificates or the Class C
Certificates, will enter into an arrangement the purpose
of which shall be to assure performance by the Cap Pro-
vider of its obligations under the Interest Rate Cap; or
(y) the Servicer shall at its option either (i) with the
prior written confirmation of the Rating Agency that such
action will not result in a reduction or withdrawal of
the rating of the Class A Certificates, the Class B
<PAGE> 32
Certificates or the Class C Certificates, (A) cause the
Cap Provider to pledge securities in the manner provided
by applicable law or (B) if permitted to do so, itself
pledge or cause to be pledged securities, which shall be
held by the Trustee or its agent free and clear of the
Lien of any third party, in a manner conferring on the
Trustee a perfected first Lien in such securities secur-
ing the Cap Provider's performance of its obligations
under the applicable Interest Rate Cap, or (ii) provided
that a Replacement Interest Rate Cap or Qualified Substi-
tute Arrangement meeting the requirements of Section
3A(e) has been obtained, direct the Trustee (A) to pro-
vide written notice to the Cap Provider of its intention
to terminate the applicable Interest Rate Cap within such
30-day period and (B) to terminate the applicable Inter-
est Rate Cap within such 30-day period, to request the
payment to it of all amounts due to the Trust under the
applicable Interest Rate Cap through the termination date
and to deposit any such amounts so received, on the day
of receipt, to the Cap Proceeds Account for the benefit
of the Certificateholders, or (iii) establish any other
arrangement (including an arrangement or arrangements in
addition to or in substitution for any prior arrangement
made in accordance with the provisions of this Section
3A(d)) satisfactory to the Rating Agency such that the
Rating Agency will not reduce or withdraw the rating of
the Class A Certificates, the Class B Certificates or the
Class C Certificates (a "Qualified Substitute Arrange-
ment"); provided, however, that in the event at any time
any alternative arrangement established pursuant to
clause (x) or (y)(i) or (y)(iii) above shall cease to be
satisfactory to the Rating Agency then the provisions of
this Section 3A(d) shall again be applied and in connec-
tion therewith the 30-day period referred to above shall
commence on the date the Servicer receives notice of such
cessation or termination, as the case may be.
(e) Unless an alternative arrangement pursuant
to clause (x) or (y)(i) of Section 3A(d) is being estab-
lished, the Servicer shall use its best efforts to obtain
a Replacement Interest Rate Cap or Qualified Substitute
Arrangement meeting the requirements of this Section
3A(e) during the 30-day period referred to in Section
3A(d). The Trustee shall not terminate the Interest Rate
Cap unless, prior to the expiration of the 30-day period
referred to in said Section 3A(d), the Servicer delivers
to the Trustee (i) a Replacement Interest Rate Cap or
Qualified Substitute Arrangement, (ii) to the extent
applicable, an Opinion of Counsel as to the due authori-
zation, execution and delivery and validity and enforce-
ability of such Replacement Interest Rate Cap or Quali-
fied Substitute Arrangement, as the case may be, and
(iii) a letter from the Rating Agency confirming that the
termination of the Interest Rate Cap and its replacement
with such Replacement Interest Rate Cap or Qualified
Substitute Arrangement will not adversely affect its
rating of the Class A Certificates, the Class B Certifi-
cates or the Class C Certificates.
<PAGE> 33
(f) The Servicer shall notify the Trustee and
the Rating Agency within five Business Days after obtain-
ing knowledge that the senior unsecured debt rating of
the Cap Provider has been withdrawn or reduced by Stan-
dard & Poor's or Moody's.
(g) Notwithstanding the foregoing, the
Servicer may at any time obtain a Replacement Interest
Rate Cap, provided that the Servicer delivers to the
Trustee (i) an Opinion of Counsel as to the due authori-
zation, execution and delivery and validity and enforce-
ability of such Replacement Interest Rate Cap and (ii) a
letter from the Rating Agency confirming that the termi-
nation of the then current Interest Rate Cap and its
replacement with such Replacement Interest Rate Cap will
not adversely affect its rating of the Class A Certifi-
cates, the Class B Certificates or the Class C Certifi-
cates.
(h) The Trustee hereby appoints the Adminis-
trator to perform the duties of the calculation agent
under the Interest Rate Cap and the Servicer accepts such
appointment.
(i) The Trustee, on behalf of the Certificate-
holders, upon notification from the Servicer shall, sell
all or a portion of the Interest Rate Caps subject to the
following conditions having been met:
(x) the Aggregate Interest Rate Caps
Notional Amount after giving effect to such sale shall
equal or exceed the Aggregate ABC Principal Amount as of
the date of such sale after giving effect to all payments
and allocations made pursuant to this Agreement;
(y) such sale will not result in a down-
grading or withdrawal of the then current rating on any
class of the Certificates by the Rating Agencies; and
(z) the minimum notional amount denomina-
tion of any Interest Rate Cap to be sold is $500,000.
<PAGE> 34
The Servicer shall have the duty of obtaining a
fair market value price for the sale of the Trust's
rights under any Interest Rate Cap, notifying the Trustee
of prospective purchasers and bids, and selecting the
purchaser of such Interest Rate Cap. The Trustee upon
receipt of the purchase price in the Collection Account
shall execute all documentation necessary to effect the
transfer of the Trust's rights under the Interest Rate
Cap and to release the Lien of the Trustee on the Inter-
est Rate Cap and proceeds thereof.
Funds deposited in the Collection Account in
respect of the sale of all or a portion of an Interest
Rate Cap shall be applied as Principal Collections allo-
cable to Series 1995-1 and shall be applied on the next
Distribution Date in accordance with subsections 4.7(a),
(b) and (c) and 4.9(b), (c) and (e).
SECTION 4. Delivery and Payment for the Series
1995-1 Certificates. The Transferor shall execute and
deliver the Series 1995-1 Certificates to the Trustee for
authentication in accordance with Section 6.1 of the
Agreement. The Trustee shall deliver the Series 1995-1
Certificates to or upon the order of the Transferor when
authenticated in accordance with Section 6.2 of the
Agreement.
SECTION 5. Form of Delivery of Series 1995-1
Certificates. The Class A Certificate, the Class B
Certificates, the Class C Certificates and the Class D
Certificate shall be delivered as Registered Certificates
as provided in Section 6.1 of the Agreement.
SECTION 6. Article IV of Agreement. Sections
4.1, 4.2 and 4.3 of the Agreement shall read in their
entirety as provided in the Agreement. Article IV of the
Agreement (except for Sections 4.1, 4.2 and 4.3 thereof)
shall read in its entirety as follows and shall be appli-
cable only to the Series 1995-1 Certificates:
<PAGE> 35
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.4 Rights of Certificateholders. The
Series 1995-1 Certificates shall represent undivided
interests in the Trust, including the right to receive,
to the extent necessary to make the required payments
with respect to such Series 1995-1 Certificates at the
times and in the amounts specified in this Agreement, (a)
the Floating Allocation Percentage and the Fixed/Floating
Allocation Percentage (as applicable from time to time)
of Collections (including Finance Charge Collections)
available in the Collection Account, (b) funds allocable
to the Series 1995-1 Certificates on deposit in the
Excess Funding Account and (c) funds on deposit in the
Interest Funding Account, the Principal Account, the
Distribution Account, the Cap Proceeds Account, the
Payment Reserve Account and the Defeasance Account (for
such Series, the "Series 1995-1 Certificateholders'
Interest"). The Class B Invested Amount, the Class C
Invested Amount and the Class D Invested Amount shall be
subordinated to the Class A Certificate; the Class C
Invested Amount and the Class D Invested Amount shall be
subordinated to the Class B Certificates; and the Class D
Invested Amount shall be subordinated to the Class C
Certificates, in each case to the extent provided in this
Article IV. The Class B Certificates will not have the
right to receive payments of principal until the Class A
Invested Amount has been paid in full. The Class C
Certificates will not have the right to receive payments
of principal until the Class A Invested Amount and the
Class B Invested Amount have been paid in full. Except
in connection with a payment of Class D Daily Principal
pursuant to subsection 4.9(f) of this Agreement, the
Class D Certificate will not have the right to receive
payments of principal until the Class A Invested Amount,
the Class B Invested Amount and the Class C Invested
Amount have been paid in full.
Section 4.5 Collections and Allocation;
Payments on Exchangeable Transferor Certificate.
(a) Collections and Allocations. The
Servicer will apply or will instruct the Trustee to apply
all funds on deposit in the Collection Account and the
Excess Funding Account allocable to the Series 1995-1
Certificates, and all funds on deposit in the Interest
Funding Account, the Principal Account, the Cap Proceeds
Account, the Distribution Account, the Payment Reserve
Account and the Defeasance Account maintained for this
Series, as described in this Article IV. On each Busi-
ness Day, (i) the amount of Finance Charge Collections
available in the Collection Account allocable to Series
1995-1 Certificates shall be determined by multiplying
the aggregate amount of such Finance Charge Collections
by the Floating Allocation Percentage, (ii) the amount of
Principal Collections available in the Collection Account
<PAGE> 36
allocable to the Series 1995-1 Certificates shall be
determined by multiplying the aggregate amount of such
Principal Collections by (x) during the Revolving Period,
the Floating Allocation Percentage and (y) during any
Amortization Period, the Fixed/Floating Allocation Per-
centage, and (iii) the Receivables in Defaulted Accounts
allocable to the Series 1995-1 Certificates shall be
determined by multiplying the aggregate amount of such
Receivables in Defaulted Accounts by the Floating Alloca-
tion Percentage.
(b) Payments to the Holder of the Ex-
changeable Transferor Certificate. On each Business Day,
the Servicer shall determine whether a Pay Out Event is
deemed to have occurred with respect to the Series 1995-1
Certificates, and the Servicer shall allocate and pay
Collections in accordance with the Daily Report with
respect to such Business Day to the Holder of the Ex-
changeable Transferor Certificate as follows:
(i) For each Business Day with respect to the
Revolving Period, in addition to amounts allocated
and paid to the Holder of the Exchangeable Transfer-
or Certificate pursuant to subsection 4.3(b) of the
Agreement, an amount equal to (x) the product of the
Class D Floating Allocation Percentage and the
amount of Principal Collections on such Business
Day, minus (y) the Reallocated Class D Principal
Collections for such Business Day minus (z) the
amount of any Class D Daily Principal for such
Business Day;
<PAGE> 37
(ii) For each Business Day with respect to the
Amortization Period prior to the Business Day on
which an amount equal to the Class C Invested Amount
has been deposited in the Principal Account to be
applied to the payment of Class C Principal, in
addition to amounts allocated and paid to the Holder
of the Exchangeable Transferor Certificate pursuant
to subsection 4.3(b) of the Agreement, an amount
equal to (x) the product of the Class D
Fixed/Floating Allocation Percentage and the amount
of Principal Collections on such Business Day minus
(y) the Reallocated Class D Principal Collections
for such Business Day minus (z) the amount of any
Class D Daily Principal for such Business Day; and
(iii) For each Business Day on and after the
day on which Principal Collections are being depos-
ited in the Principal Account pursuant to Section
4.9(c)(iv), the amount of payments of Principal
Collections made to the Holder of the Exchangeable
Transferor Certificate shall be determined only as
provided in subsection 4.3(b) of the Agreement.
Notwithstanding the foregoing, amounts payable
to the Transferor pursuant to subsection 4.5(b)(i) or
(ii) 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.
The allocations to be made pursuant to this
subsection 4.5(b) also apply to deposits into the Collec-
tion Account that are treated as Collections, including
Adjustment Payments, payment of the reassignment price
pursuant to Section 2.4(e) of the Agreement and proceeds
from the sale, disposition or liquidation of the Receiv-
ables pursuant to Section 9.2, 10.2, 12.1 or 12.2 of the
Agreement and Section 3 of this Series Supplement. Such
deposits to be treated as Collections will be allocated
as Finance Charge Receivables or Principal Receivables as
provided in the Agreement.
<PAGE> 38
Section 4.6 Determination of Interest for the
Series 1995-1 Certificates. (a) The amount of interest
(the "Class A Interest") allocable to the Class A Certif-
icate with respect to any Business Day shall be an amount
equal to the sum of (x) the Series 1995-1 Allocation
Percentage of the Total Program Fees accrued from and
including the preceding Business Day to but excluding
such Business Day and (y) the product of (i) the Class A
Certificate Rate and (ii) a fraction the numerator of
which is the actual number of days from and including the
immediately preceding Business Day to but excluding such
Business Day and the denominator of which is 365 or 366,
as the case may be, and (iii) the Class A Outstanding
Principal Amount on such Business Day after giving effect
to all transactions on such Business Day.
On each Business Day, the Servicer shall deter-
mine an amount (the "Class A Interest Shortfall") equal
to the excess, if any, of (x) the Class A Interest for
such Business Day plus the Class A Interest Shortfall for
the preceding Business Day over (y) the amount available
to be paid to the Class A Certificateholder in respect of
Class A Interest on such Business Day. The Class A
Interest Shortfall shall initially be zero.
(b) The amount of monthly interest (the
"Class B Interest") allocable to the Class B Certificates
with respect to any Interest Accrual Period shall be an
amount equal to the product of (i) the Class B Certifi-
cate Rate and (ii) a fraction the numerator of which is
the actual number of days in such Interest Accrual Period
and the denominator of which is 360 and (iii) the Class B
Invested Amount as of the close of business on the first
day of such Interest Accrual Period.
On the Determination Date preceding each Dis-
tribution Date, the Servicer shall determine an amount
(the "Class B Interest Shortfall") equal to the excess,
if any, of (x) the aggregate Class B Interest for the
Interest Accrual Period applicable to the Distribution
Date over (y) the amount available to be paid to the
Class B Certificateholders in respect of interest on such
Distribution Date. If there is a Class B Interest Short-
fall with respect to any Distribution Date, an additional
amount ("Class B Additional Interest") shall be payable
as provided herein with respect to the Class B Certifi-
cates on each Distribution Date following such Distribu-
tion Date, to and including the Distribution Date on
which such Class B Interest Shortfall is paid to Class B
Certificateholders, equal to the product of (i) the Class
B Certificate Rate plus 2% per annum and (ii) such Class
B Interest Shortfall remaining unpaid calculated on the
basis of 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. Notwithstanding any-
thing to the contrary herein, Class B Additional Interest
shall be payable or distributed to Class B Certificate-
holders only to the extent permitted by applicable law.
<PAGE> 39
(c) The amount of monthly interest (the
"Class C Interest") allocable to the Class C Certificates
with respect to any Interest Accrual Period shall be an
amount equal to the product of (i) the Class C Certifi-
cate Rate and (ii) a fraction the numerator of which is
the actual number of days in such Interest Accrual Period
and the denominator of which is 360 and (iii) the Class C
Invested Amount as of the close of business on the first
day of such Interest Accrual Period.
On the Determination Date preceding each Dis-
tribution Date, the Servicer shall determine an amount
(the "Class C Interest Shortfall") equal to the excess,
if any, of (x) the aggregate Class C Interest for the
Interest Accrual Period applicable to the Distribution
Date over (y) the amount available to be paid to the
Class C Certificateholders in respect of interest on such
Distribution Date. If there is a Class C Interest Short-
fall with respect to any Distribution Date, an additional
amount ("Class C Additional Interest") shall be payable
as provided herein with respect to the Class C Certifi-
cates on each Distribution Date following such Distribu-
tion Date, to and including the Distribution Date on
which such Class C Interest Shortfall is paid to Class C
Certificateholders, equal to the product of (i) the Class
C Certificate Rate plus 2% per annum and (ii) such Class
C Interest Shortfall remaining unpaid calculated on the
basis of 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. Notwithstanding any-
thing to the contrary herein, Class C Additional Interest
shall be payable or distributed to Class C Certificate-
holders only to the extent permitted by applicable law.
Section 4.6A Determination of the Class A
Interest Adjustment. On each Business Day on which any
obligations of the Trust to the Class A Certificateholder
remain outstanding, the Servicer shall compute the ex-
cess, if any, of (i) the amount payable pursuant to
subsection 4.9(a)(i) over (ii) the aggregate amounts
actually paid to the Class A Certificateholder pursuant
to subsection 4.9(a)(i) on such Business Day. The great-
er of zero and the amount of the excess, if any, computed
in the immediately preceding sentence shall be the "Class
A Interest Adjustment" for such Business Day and the
Servicer shall provide the Trustee with written notice by
facsimile or otherwise of the Class A Interest Adjust-
ment. If the Class A Interest Adjustment is greater than
zero, the Trustee shall withdraw from the Interest Fund-
ing Account and deposit in the Distribution Account an
amount equal to the lesser of the aggregate amounts
deposited in the Interest Funding Account pursuant to
subsections 4.9(a)(iii) and 4.9(a)(x) of the Agreement
<PAGE> 40
during the then current Monthly Period on and prior to
such Business Day (less the amount of any prior withdraw-
als therefrom pursuant to this third sentence of Section
4.6A on each prior Business Day in the then current
Monthly Period) and the Class A Interest Adjustment (the
greater of any such amount withdrawn and zero, the "Class
C Interest Adjustment" for such Business Day). If the
Class A Interest Adjustment for such Business Day exceeds
the Class C Interest Adjustment for such Business Day,
the Trustee shall withdraw from the Interest Funding
Account and deposit in the Distribution Account an amount
equal to the lesser of (i) the aggregate amounts deposit-
ed in the Interest Funding Account pursuant to subsection
4.9(a)(ii) and 4.9(a)(ix) of the Agreement during the
then current Monthly Period on and prior to such Business
Day (less the amount of any prior withdrawals therefrom
pursuant to this fourth sentence of Section 4.6A on each
prior Business Day in the then current Monthly Period and
(ii) the difference between the Class A Interest Adjust-
ment and the Class C Interest Adjustment (the greater of
any such amount withdrawn and zero, the "Class B Interest
Adjustment" for such Business Day).
Section 4.7 Determination of Principal
Amounts. (a) The amount of principal (the "Class A
Principal") distributable from the Distribution Account
with respect to the Class A Certificate on each Business
Day with respect to (A) the Revolving Period (except for
any portion of the Revolving Period during a Class A Pay
Down Period) shall be an amount equal to the sum of (x)
amounts deposited into the Principal Account from the
Defeasance Account pursuant to Section 9A of this Series
Supplement and (y) the amount, if any, specified in the
last sentence of Section 3A(i) of this Series Supplement
and (B) the Amortization Period or the Class A Pay Down
Period shall be equal to an amount calculated as follows:
<PAGE> 41
the sum of (i) an amount equal to the product of the ABC
Fixed/Floating Allocation Percentage and the aggregate
amount of Principal Collections (less the amount of
Reallocated Class B Principal Collections and Reallocated
Class C Principal Collections) with respect to such
Business Day, (ii) any amount on deposit in the Excess
Funding Account allocated to the Class A Certificate
pursuant to subsection 4.9(d) with respect to such Busi-
ness Day, (iii) the amount, if any, allocated to the
Class A Certificate pursuant to subsections 4.9(a)(v),
(vii), (viii), (xi), and (xii) of the Agreement and, with
respect to such subsections, pursuant to subsections
4.10(a) and (b) and 4.15(a), (b) and (c) on such Business
Day, (iv) the amount of Shared Principal Collections
allocated to the Class A Certificate with respect to such
Business Day pursuant to Section 4.3(d) and (v) the
amount, if any, specified in the last sentence of Section
3A(i) of this Series Supplement; provided, however, that
with respect to any Business Day, Class A Principal may
not exceed the Class A Invested Amount; provided, fur-
ther, that with respect to the Scheduled Series 1995-1
Termination Date, the Class A Principal shall be an
amount equal to the Class A Invested Amount.
(b) The amount of principal (the "Class B
Principal") distributable from the Distribution Account
with respect to the Class B Certificates on each Distri-
bution Date, beginning with the Class B Principal Payment
Commencement Date, shall equal an amount calculated as
follows: the sum of (i) an amount equal to the product
of the ABC Fixed/Floating Allocation Percentage and the
aggregate amount of Principal Collections (less the
amount of Reallocated Class B Principal Collections and
Reallocated Class C Principal Collections) with respect
to the preceding Monthly Period (or, in the case of the
first Distribution Date in the Amortization Period fol-
lowing the date on which an amount equal to the Class A
Invested Amount is paid to the Class A Certificateholder
in respect of Class A Principal, the ABC Fixed/Floating
Allocation Percentage of Principal Collections from the
date on which such deposit is made), (ii) any amount on
deposit in the Excess Funding Account allocated to the
Class B Certificates pursuant to subsection 4.9(d) with
respect to the preceding Monthly Period, (iii) the
amount, if any, allocated to the Class B Certificates
pursuant to subsections 4.9(a)(v), (vii), (xi) and (xii)
<PAGE> 42
of the Agreement and, with respect to such subsections,
pursuant to subsections 4.10(a) and (b) and 4.15(a) and
(b) of the Agreement with respect to such Distribution
Date, (iv) the amount of Shared Principal Collections
allocated to the Class B Certificates with respect to the
preceding Monthly Period pursuant to Section 4.3(d) of
the Agreement on and after the Class B Principal Payment
Commencement Date and (v) the amount, if any, specified
in the last sentence of Section 3A(i) of this Series
Supplement; provided, further, that with respect to any
Distribution Date, Class B Principal may not exceed the
Class B Invested Amount; provided, further, that with
respect to the Scheduled Series 1995-1 Termination Date,
the Class B Principal shall be an amount equal to the
Class B Invested Amount.
(c) The amount of principal (the "Class C
Principal") distributable from the Distribution Account
with respect to the Class C Certificates on each Distri-
bution Date, beginning with the Class C Principal Payment
Commencement Date, shall be an amount equal to and calcu-
lated as follows: the sum of (i) an amount equal to the
product of the ABC Fixed/Floating Allocation Percentage
and the aggregate amount of Principal Collections (less
the amount of Reallocated Class C Principal Collections)
with respect to the preceding Monthly Period (or, in the
case of the first Distribution Date following the date on
which an amount equal to the Class B Invested Amount is
deposited in the Principal Account to be applied to the
payment of Class B Principal, the ABC Fixed/Floating
Allocation Percentage of Principal Collections from the
date on which such deposit is made), (ii) any amounts on
deposit in the Excess Funding Account allocated to the
Class C Certificates pursuant to subsection 4.9(d) with
respect to the preceding Monthly Period, (iii) the
amount, if any, allocated to the Class C Certificates
pursuant to subsections 4.9(a)(v), (vii) and (xii) of the
Agreement and, with respect to such subsections, pursuant
to subsections 4.10(a) and (b) and 4.15(a) on such Busi-
ness Day, (iv) the amount of Shared Principal Collections
allocated to the Class C Certificates with respect to the
preceding Monthly Period pursuant to Section 4.3(d) of
the Agreement on and after the Class C Principal Payment
Commencement Date and (v) the amount, if any, specified
in the last sentence of Section 3A(i) of this Series
Supplement; provided that with respect to any Distribu-
tion Date, Class C Principal may not exceed the Class C
Invested Amount; provided, further, that with respect to
the Scheduled Series 1995-1 Termination Date, the Class C
Principal shall be an amount equal to the Class C Invest-
ed Amount.
<PAGE> 43
(d) The amount of principal (the "Class D
Principal") distributable from the Distribution Account
with respect to the Class D Certificate on each Distribu-
tion Date beginning with the Class D Principal Payment
Commencement Date, or in the case of distributions of
Class D Daily Principal pursuant to the last proviso of
this subsection 4.7(d), on each Business Day, shall be an
amount equal to and calculated as follows: the sum of
(i) an amount equal to the product of the Class D
Fixed/Floating Allocation Percentage of Principal Collec-
tions (less the amount of Reallocated Class D Principal
Collections) with respect to the preceding Monthly Period
(or, in the case of the first Distribution Date following
the date on which an amount equal to the Class C Invested
Amount is deposited in the Principal Account to be ap-
plied to the payment of Class C Principal, the Class D
Fixed/Floating Allocation Percentage of Principal Collec-
tions from the date on which such deposit is made), (ii)
any amount on deposit in the Excess Funding Account
allocated to the Class D Certificate pursuant to subsec-
tion 4.9(d) with respect to the preceding Monthly Period,
and (iii) the amount, if any, allocated to the Class D
Certificate pursuant to subsections 4.9(a)(vi), (vii) and
(xiii) of the Agreement and, with respect to such subsec-
tions, pursuant to subsection 4.10(a) and (b) of the
Agreement with respect to such Distribution Date; provid-
ed, however, that with respect to the Scheduled Series
1995-1 Termination Date, the Class D Principal shall be
an amount equal to the Class D Invested Amount; provided
further, that on any Business Day during any period other
than an Early Amortization Period or Class A Pay Down
Period, the Transferor may designate that either (x) an
amount up to the lesser of (i) the excess of the Class D
Invested Amount over the Stated Class D Amount on such
day after taking into account all adjustments of the
Class A Invested Amount on such day and (ii) (I) during
the Revolving Period an amount equal to (x) the product
of the Class D Floating Allocation Percentage and the
amount of Principal Collections on such Business Day
minus (y) Reallocated Class D Principal Collections on
such Business Day or (II) after the Amortization Period
Commencement Date an amount equal to (x) the product of
the Class D Fixed/Floating Allocation Percentage and the
amount of Principal Collections on such Business Day
minus (y) Reallocated Class D Principal Collections on
such Business Day (such designated amount, the "Class D
Daily Principal") shall be distributed in accordance with
subsection 4.9(f) or (y) an amount up to the excess of
the Class D Invested Amount over the Stated Class D
Amount on such day after taking into account all adjust-
ments of the Class A Invested Amount on such day, shall
be subtracted from the Class D Invested Amount and added
to the Transferor Interest.
<PAGE> 44
Section 4.8 Shared Principal Collections.
Shared Principal Collections allocated to the Series
1995-1 Certificates and to be applied pursuant to subsec-
tions 4.9 (b), 4.9(c)(i)(z), 4.9(c)(ii)(z),
4.9(c)(iii)(z), 4.9(c)(iv)(z) and 4.9(e)(i)(z) for any
Business Day shall mean an amount equal to the sum of
(i) the product of (x) Shared Principal Collections for
all Series for such Business Day and (y) a fraction, the
numerator of which is the Principal Shortfall for the
Series 1995-1 Certificates for such Business Day and the
denominator of which is the aggregate amount of Principal
Shortfalls for all Series for such Business Day and (ii)
Shared Principal Collections for all Series for such
Business Day, less the amount thereof to be applied with
respect to Principal Shortfalls for all Series for such
Business Day, which the Transferor has opted to apply to
the Variable Funding Certificates of Series 1995-1 in
accordance with Section 4.3(d) of the Agreement.
Section 4.9 Application of Funds. (a) On
each Business Day, the Servicer shall deliver to the
Trustee a Daily Report in which it shall instruct the
Trustee to withdraw, and the Trustee, acting in accor-
dance with such instructions, shall withdraw from the
Collection Account and the Cap Proceeds Account, to the
extent of the sum of (v) prior to the Pay Out Commence-
ment Date, the Floating Allocation Percentage of Finance
Charge Collections available in the Collection Account
or, on and after the Pay Out Commencement Date, the
Fixed/Floating Allocation Percentage of Finance Charge
Collections available in the Collection Account, (w)
Investment Earnings on deposit in the Collection Account,
(x) amounts on deposit in the Payment Reserve Account, if
any, if and to the extent so designated by the Transfer-
or, (y) the Cap Receipt Amount, if any, for such Business
Day and (z) on each Reserve Application Date amounts on
deposit in the Investor Reserve Account, if any (the
"Available Series 1995-1 Finance Charge Collections") the
amounts set forth in subsections 4.9(a)(i) through
4.9(a)(xix) in the following priority.
(i) Class A Interest. On each Business
Day during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer,
shall withdraw first from the Cap Proceeds Account
to the extent of the Cap Receipt Amount and then
from the Collection Account and then from the Pay-
ment Reserve Account and then, on each Reserve
Application Date, from the Investor Reserve Account
and pay to the Class A Certificateholders on such
Business Day, to the extent of the Available Series
1995-1 Finance Charge Collections, an amount equal
to the lesser of (x) the Available Series 1995-1
Finance Charge Collections and (y) the sum of (A)
the lesser of (I) the Class A Interest for such
Business Day and (II) the product of (i) the greater
of LIBOR then in effect plus 0.75% per annum and 12%
<PAGE> 45
per annum and (ii) a fraction the numerator of which
is the number of days from and including the preced-
ing Business Day to but excluding such Business Day
and the denominator of which is the actual number of
days in the then current calendar year and (iii) the
Class A Outstanding Principal Balance as of the
close of business on the preceding Business Day plus
(B) the excess, if any, of the amount payable to the
Class A Certificateholders pursuant to clause (A) on
each prior Business Day over the amount which has
been paid to the Class A Certificateholders with
respect thereto on each prior Business Day.
(ii) Class B Interest. On each Business
Day during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer,
shall allocate to the Class B Certificates and
withdraw first from the Cap Proceeds Account to the
extent of the remaining Cap Receipt Amount for such
Business Day, and then from the Collection Account
and then from the Payment Reserve Account and then,
on each Reserve Application Date, from the Investor
Reserve Account and deposit into the Interest Fund-
ing Account, to the extent of the Available Series
1995-1 Finance Charge Collections remaining after
giving effect to the withdrawal pursuant to subsec-
tion 4.9(a)(i), an amount equal to the lesser of (x)
any such remaining Available Series 1995-1 Finance
Charge Collections and (y) the sum of (A) the Daily
Portion of Class B Interest to be distributed on the
Distribution Date following such Monthly Period plus
(B) the excess, if any, of the amount required to be
<PAGE> 46
deposited pursuant to clause (A) above on each prior
Business Day over the amount on deposit in the
Interest Funding Account with respect thereto on
such Business Day plus (C) an amount equal to the
portion of Carryover Class B Interest attributable
to amounts required to be deposited pursuant to
clause (A) above that were not so deposited prior to
such Business Day minus the amounts required to be
deposited pursuant to clause (B) above.
(iii) Class C Interest. On each Business
Day during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer,
shall allocate to the Class C Certificates and
withdraw first from the Cap Proceeds Account, to the
extent of the remaining Cap Receipt Amount for such
Business Day and then from the Collection Account
and then from the Payment Reserve Account and then,
on each Reserve Application Date, from the Investor
Reserve Account and deposit into the Interest Fund-
ing Account, to the extent of the Available Series
1995-1 Finance Charge Collections remaining after
giving effect to the withdrawal pursuant to subsec-
tions 4.9(a)(i) and (ii), an amount equal to the
lesser of (x) any such remaining Available Series
1995-1 Finance Charge Collections and (y) the sum of
(A) the Daily Portion of Class C Interest to be
distributed on the Distribution Date following such
Monthly Period plus (B) the excess, if any, of the
amount required to be deposited pursuant to clause
(A) above on each prior Business Day over the amount
on deposit in the Interest Funding Account with
respect thereto on such Business Day plus (C) an
amount equal to the portion of Carryover Class C
Interest attributable to amounts required to be
deposited pursuant to clause (A) above that were not
so deposited prior to such Business Day minus the
amounts required to be deposited pursuant to clause
(B) above.
(iv) Servicing Fee. On each Business
Day, the Trustee, acting in accordance with instruc-
tions from the Servicer, shall withdraw first from
the Cap Proceeds Account to the extent of the re-
maining Cap Receipt Amount and then from the Collec-
tion Account and then from the Payment Reserve
Account and then, on each Reserve Application Date,
from the Investor Reserve Account and distribute to
the Servicer, to the extent of any Available Series
1995-1 Finance Charge Collections remaining after
giving effect to the withdrawals pursuant to subsec-
tions 4.9(a)(i) through (iii), an amount equal to
the lesser of (x) any such remaining Available
Series 1995-1 Finance Charge Collections and (y) the
Servicing Fee for such Business Day plus any Servic-
ing Fee due with respect to any prior Business Day
but not distributed to the Servicer
<PAGE> 47
(v) ABC Investor Default Amount. On each
Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first
from the Cap Proceeds Account to the extent of the
remaining Cap Receipt Amount second, only if such
day is a Default Recognition Date, from the Trans-
feror an amount equal to the aggregate Transferor
Retained Finance Charge Collections for each day
during the related Monthly Period and then from the
Collection Account and then from the Payment Reserve
Account and then, on each Reserve Application Date,
from the Investor Reserve Account, to the extent of
any Available Series 1995-1 Finance Charge Collec-
tions remaining after giving effect to the withdraw-
als pursuant to subsections 4.9(a)(i) through (iv),
an amount equal to the lesser of (x) any such re-
maining Available Series 1995-1 Finance Charge
Collections and (y) the sum of (1) the aggregate ABC
Investor Default Amount for such Business Day plus
(2) the unpaid ABC Investor Default Amount for each
previous Business Day during such Monthly Period,
such amount to be (A) during the Revolving Period
(except for any portion of the Revolving Period
during a Class A Paydown Period) treated as Shared
Principal Collections, (B) during the Amortization
Period or the Class A Pay Down Period on and prior
to the day on which an amount equal to the Class A
Invested Amount is deposited in the Principal Ac-
count, to be deposited in the Principal Account for
distribution to the Class A Certificateholder on the
next Distribution Date, (C) during the Amortization
Period, on and after the day on which such deposit
to the Principal Account with respect to the Class A
Invested Amount has been made and on and prior to
the day on which an amount equal to the Class B
Invested Amount is deposited in the Principal Ac-
count, to be deposited in the Principal Account for
payment to the Class B Certificateholders on the
next Distribution Date, (D) during the Amortization
Period on and after the day on which such deposit to
the Principal Account with respect to the Class B
Invested Amount has been made on and prior to the
day on which an amount equal to the Class C Invested
Amount is deposited in the Principal Account, to be
deposited in the Principal Account for payment to
the Class C Certificateholders on the next Distribu-
tion Date and (E) on and after the day such deposit
to the Principal Account with respect to Class C
Invested Amount has been made, to be paid to the
Class D Certificateholders.
(vi) Class D Investor Default Amount. On
each Business Day, the Trustee, acting in accordance
with instructions from the Servicer, shall withdraw
first from the Cap Proceeds Account to the extent of
the remaining Cap Receipt Amount, second, if such
day is a Default Recognition Date, from the Trans-
feror an amount equal to the aggregate Transferor
Retained Finance Charge Collections for each day
during the related Monthly Period and then from the
Collection Account and then from the Payment Reserve
Account and then, on each Reserve Application Date,
from the Investor Reserve Account, to the extent of
any Available Series 1995-1 Finance Charge Collec-
tions remaining after giving effect to the withdraw-
als pursuant to subsections 4.9(a)(i) through (v),
an amount equal to the lesser of (x) any such re-
maining Available Series 1995-1 Finance Charge
Collections and (y) the sum of (1) the aggregate
Class D Investor Default Amount for such Business
Day plus (2) the unpaid Class D Investor Default
Amount for each previous Business Day during such
Monthly Period, such amount to be (A) paid to the
Transferor during the Revolving Period and the
Amortization Period prior to the payment in full of
the Class C Invested Amount, and (B) to the extent
allocated to Class D Principal pursuant to Section
4.7 during the Amortization Period following the
payment in full of the Class C Invested Amount,
deposited in the Principal Account for distribution
to the Class D Certificateholders on the next Dis-
tribution Date.
<PAGE> 48
(vii) Adjustment Payment Shortfalls. On
each Business Day, the Trustee, acting in accordance
with instructions from the Servicer, shall withdraw
first from the Cap Proceeds Account to the extent of
the remaining Cap Receipt Amount and then from the
Collection Account and then from the Payment Reserve
Account and then, on each Reserve Application Date,
from the Investor Reserve Account, to the extent of
any Available Series 1995-1 Finance Charge Collec-
tions remaining after giving effect to the withdraw-
als pursuant to subsections 4.9(a)(i) through (vi),
an amount equal to the lesser of (x) any such re-
maining Available Series 1995-1 Finance Charge
Collections and (y) an amount equal to the Series
Allocation Percentage of any Adjustment Payment
which the Transferor is required but fails to make
pursuant to subsection 3.8(a) of the Agreement, such
amount, (i) during the Revolving Period (except for
any portion of the Revolving Period during a Class A
Paydown Period), to be treated as Shared Principal
Collections, (ii) during the Amortization Period or
the Class A Pay Down Period on and prior to the day
on which an amount equal to the Class A Invested
Amount is deposited in the Principal Account, to be
deposited in the Principal Account for distribution
to the Class A Certificateholder on the next Distri-
bution Date, (iii) during the Amortization Period,
on and after the day on which such deposit to the
Principal Account with respect to the Class A In-
vested Amount has been made and on and prior to the
day on which an amount equal to the Class B Invested
Amount is deposited in the Principal Account for
payment to the Class B Certificateholders on the
next Distribution Date, (iv) during the Amortization
Period on and after the day on which such deposit to
the Principal Account with respect to the Class B
Invested Amount has been made on and prior to the
day on which an amount equal to the Class C Invested
Amount is deposited in the Principal Account, to be
deposited in the Principal Account for payment to
the Class C Certificateholders on the next Distribu-
tion Date and (v) on and after the day such deposit
to the Principal Account with respect to Class C
Invested Amount has been made, to be paid to the
Class D Certificateholders.
<PAGE> 49
(viii) Reimbursement of Class A Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt
Amount and then from the Collection Account and then
from the Payment Reserve Account, on each Reserve
Application Date, and then from the Investor Reserve
Account, to the extent of any Available Series 1995-
1 Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections
4.9(a)(i) through (vii), an amount equal to the
lesser of (x) any such remaining Available Series
1995-1 Finance Charge Collections and (y) the
unreimbursed Class A Investor Charge-Offs, if any;
such amount will be applied to reimburse Class A
Investor Charge-Offs, and, during the Revolving
Period (except for any portion of the Revolving
Period during a Class A Paydown Period), will be
treated as Shared Principal Collections, and during
the Amortization Period or the Class A Pay Down
Period on and prior to the day on which an amount
equal to the Class A Invested Amount is deposited in
the Principal Account will be deposited in the
Principal Account for distribution to the Class A
Certificateholders on the next Distribution Date.
(ix) Unpaid Class B Interest. On each
Business Day, the Trustee, acting in accordance with
the instructions from the Servicer, shall allocate
to the Class B Certificates and withdraw first from
the Cap Proceeds Account, to the extent of the
remaining Cap Receipt Amount for such Business Day
and then from the Collection Account and then from
the Payment Reserve Account and then, on each Re-
serve Application Date, from the Investor Reserve
Account and deposit in the Interest Funding Account,
to the extent of the Available Series 1995-1 Finance
Charge Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.9(a)(i)
through (viii), an amount equal to the lesser of (x)
any such remaining Available Series 1995-1 Finance
Charge Collections and (y) the sum of (1) the excess
of the Daily Portion of the product of (i) the Class
B Certificate Rate and (ii) a fraction the numerator
of which is the actual number of days in the then
current Interest Accrual Period and the denominator
of which is 360 and (iii) the Class B Outstanding
Principal Amount as of the close of business on the
first day of such Interest Accrual Period, over the
amount on deposit in the Interest Funding Account or
previously paid to the Class B Certificateholders
with respect thereto and (2) any additional interest
(to the extent permitted by applicable law) at the
Class B Certificate Rate plus 2% for interest that
has accrued on interest that was due during a prior
Monthly Period pursuant to this subsection but was
not deposited in the Interest Funding Account or
paid to the Class B Certificateholders.
(x) Unpaid Class C Interest. On each
Business Day, the Trustee, acting in accordance with
the instructions from the Servicer, shall allocate
to the Class C Certificates and withdraw first from
the Cap Proceeds Account, to the extent of the
remaining Cap Receipt Amount for such Business Day
and then from the Collection Account and then from
the Payment Reserve Account and then, on each Re-
serve Application Date, from the Investor Reserve
Account and deposit in the Interest Funding Account,
to the extent of any Available Series 1995-1 Finance
Charge Collections remaining after giving effect to
the withdrawals pursuant to subsections 4.9(a)(i)
through (ix), an amount equal to the lesser of (x)
any such remaining Available Series 1995-1 Finance
Charge Collections and (y) the sum of (1) the excess
of the Daily Portion of the product of (i) the Class
C Certificate Rate and (ii) a fraction the numerator
of which is the actual number of days in the then
current Interest Accrual Period and the denominator
of which is 360 and (iii) the Class C Outstanding
Principal Amount as of the close of business on the
first day of such Interest Accrual Period over the
amount on deposit in the Interest Funding Account or
previously paid to the Class C Certificateholders
with respect thereto and (2) any additional interest
(to the extent permitted by applicable law) at the
Class C Certificate Rate plus 2% for interest that
has accrued on interest that was due during a prior
Monthly Period pursuant to this subsection but was
not deposited in the Interest Funding Account or
paid to the Class C Certificateholders.
<PAGE> 50
(xi) Reimbursement of Class B Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt
Amount for such Business Day and then from the
Collection Account and then from the Payment Reserve
Account and then, on each Reserve Application Date,
from the Investor Reserve Account, to the extent of
any Available Series 1995-1 Finance Charge Collec-
tions remaining after giving effect to the withdraw-
als pursuant to subsections 4.9(a)(i) through (x),
an amount equal to the lesser of (x) any such re-
maining Available Series 1995-1 Finance Charge
Collections and (y) the unreimbursed amount by which
the Class B Invested Amount has been reduced on
prior Business Days pursuant to clauses (c) and (d)
of the definition of Class B Invested Amount, if
any, such amount, (i) during the Revolving Period
(except for any portion of the Revolving Period
during a Class A Paydown Period), to be treated as
Shared Principal Collections, (ii) during the Amor-
tization Period or the Class A Pay Down Period, on
and prior to the day on which an amount equal to the
Class A Invested Amount is deposited in the Princi-
pal Account, to be deposited in the Principal Ac-
count for distribution to the Class A Certificate-
holders on the next Distribution Date, and (iii)
during the Amortization Period, on and after the day
on which such deposit has been made and on and prior
to the day on which the Class B Invested Amount has
been deposited in the Principal Account, to be
deposited in the Principal Account for payment to
the Class B Certificateholders on the next Distribu-
tion Date.
(xii) Reimbursement of Class C Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt
Amount for such Business Day and then from the
Collection Account and then from the Payment Reserve
Account and then, on each Reserve Application Date,
from the Investor Reserve Account, to the extent of
any Available Series 1995-1 Finance Charge Collec-
tions remaining after giving effect to the withdraw-
als pursuant to subsections 4.9(a)(i) through (xi),
an amount equal to the lesser of (x) any remaining
Available Series 1995-1 Finance Charge Collections
and (y) the unreimbursed amount by which the Class C
Invested Amount has been reduced on prior Business
Days pursuant to clauses (c) and (d) of the defini-
tion of Class C Invested Amount, if any, such
amount, (i) during the Revolving Period (except for
<PAGE> 51
any portion of the Revolving Period during a Class A
Paydown Period), to be treated as Shared Principal
Collections, (ii) during the Amortization Period or
the Class A Pay Down Period, on and prior to the day
on which an amount equal to the Class A Invested
Amount is deposited in the Principal Account, to be
deposited in the Principal Account for distribution
to the Class A Certificateholders on the next Dis-
tribution Date, (iii) during the Amortization Peri-
od, on and prior to the day on which an amount equal
to the Class B Invested Amount is deposited in the
Principal Account, to be deposited in the Principal
Account for distribution to the Class B Certificate-
holders on the next Distribution Date and (iv)
during the Amortization Period, on and after the day
on which such deposit has been made and on and prior
to the day on which an amount equal to the Class C
Invested Amount is deposited in the Principal Ac-
count, to be deposited in the Principal Account for
payment to the Class C Certificateholders on the
next Distribution Date.
(xiii) Reimbursement of Class D Investor
Charge-Offs. On each Business Day, the Trustee,
acting in accordance with instructions from the
Servicer, shall withdraw first from the Cap Proceeds
Account to the extent of the remaining Cap Receipt
Amount for such Business Day and then from the
Collection Account and then from the Payment Reserve
Account and then, on each Reserve Application Date,
from the Investor Reserve Account, to the extent of
any Available Series 1995-1 Finance Charge Collec-
tions remaining after giving effect to the withdraw-
als pursuant to subsections 4.9(a)(i) through (xii),
an amount equal to the lesser of (x) any such re-
maining Available Series 1995-1 Finance Charge
Collections and (y) the unreimbursed amount by which
the Class D Invested Amount has been reduced on
prior Business Days pursuant to clauses (d) and (e)
of the definition of Class D Invested Amount, if
any, such amount, (i) during the Revolving Period to
be paid to the Transferor and (ii) during the Amor-
tization Period, to be deposited in the Principal
Account for payment pursuant to Section 4.9(c) of
the Agreement.
(xiv) Investor Reserve Account. On each
Business Day, the Trustee acting in accordance with
instructions from the Servicer, shall withdraw first
from the Cap Proceeds Account to the extent of the
remaining Cap Receipt Amount for such Business Day
and then from the Collection Account and then from
the Payment Reserve Account, to the extent of any
Available Series 1995-1 Finance Charge Collections
remaining after giving effect to withdrawals pursu-
ant to subsections 4.9(a)(i) through (xiii), an
amount equal to the lesser of (x) any such remaining
Available Series 1995-1 Finance Charge Collections
and (y) the amount by which the Specified Investor
Reserve Amount exceeds the amount on deposit in the
Investor Reserve Account, and deposit such amount,
if any, into the Investor Reserve Account.
<PAGE> 52
(xv) Additional Class A Interest. On
each Business Day during a Monthly Period, the
Trustee, acting in accordance with instructions from
the Servicer, shall withdraw first from the Cap
Proceeds Account to the extent of the remaining Cap
Receipt Amount for such Business Day and then from
the Collection Account and then from the Payment
Reserve Account and pay to the Class A Certificate-
holder on such Business Day, to the extent of the
Available Series 1995-1 Finance Charge Collections
remaining after giving effect to the withdrawal
pursuant to subsections 4.9(a)(i) through (xiii), an
amount equal to the lesser of (x) any such remaining
Available Series 1995-1 Finance Charge Collections
and (y) the excess, if any, of (1) the sum of Class
A Interest for such Business Day and the Class A
Interest Shortfall for the preceding Business Day
over (2) the amounts previously deposited into the
Interest Funding Account on such Business Day pursu-
ant to subsection 4.9(a)(i).
(xvi) Class A Costs. On each Business
Day, the Trustee acting in accordance with instruc-
tions from the Servicer, shall withdraw first from
the Cap Proceeds Account to the extent of the re-
maining Cap Receipt Amount for such Business Day and
then from the Collection Account and then from the
Payment Reserve Account and pay to the Class A
Certificateholder, to the extent of any Available
Series 1995-1 Finance Charge Collections remaining
after giving effect to the withdrawals pursuant to
subsections 4.9(a)(i) through (xiv), an amount equal
to the lesser of (x) any such remaining Available
Series 1995-1 Finance Charge Collections and (y) the
Class A Costs for such Business Day and any such
amounts that remain unpaid from previous days to the
extent not included in Class A Costs for such Busi-
ness Day.
(xvii) Class B Increased Costs. On each
Business Day, the Trustee acting in accordance with
instructions from the Servicer, shall withdraw first
from the Cap Proceeds Account to the extent of the
remaining Cap Receipt Amount for such Business Day
and then from the Collection Account and then from
the Payment Reserve Account, to the extent of any
Available Series 1995-1 Finance Charge Collections
remaining after giving effect to the withdrawals
pursuant to subsections 4.9(a)(i) through (xv), an
amount equal to the lesser of (x) any such remaining
Available Series 1995-1 Finance Charge Collections
and (y) amounts payable to Class B Certificatehold-
ers pursuant to Section 16 of this Series Supplement
for payment to such Class B Certificateholders.
<PAGE> 53
(xviii) Class C Increased Costs. On each
Business Day, the Trustee acting in accordance with
instructions from the Servicer, shall withdraw first
from the Cap Proceeds Account to the extent of the
remaining Cap Receipt Amount for such Business Day
and then from the Collection Account and then from
the Payment Reserve Account, to the extent of any
Available Series 1995-1 Finance Charge Collections
remaining after giving effect to the withdrawals
pursuant to subsections 4.9(a)(i) through (xvi), an
amount equal to the lesser of (x) any such remaining
Available Series 1995-1 Finance Charge Collections
and (y) amounts payable to Class C Certificatehold-
ers pursuant to Section 16 of this Series Supplement
for payment to such Class C Certificateholders.
(xix) Payment Reserve Account. On each
Business Day, the Trustee acting in accordance with
instructions from the Servicer, shall withdraw first
from the Cap Proceeds Account to the extent of the
remaining Cap Receipt Amount for such Business Day
and then from the Collection Account, to the extent
of any Available Series 1995-1 Finance Charge Col-
lections remaining after giving effect to the with-
drawals pursuant to subsections 4.9(a)(i) through
(xvii) an amount equal to the lesser of (x) any such
remaining Available Series 1995-1 Finance Charge
Collections and (y) the amount designated by the
Transferor in writing (which include facsimile
transmission) in its instructions to the Trustee on
such Business Day and deposit such amount, if any,
into the Payment Reserve Account.
(xx) Excess Finance Charge Collections.
Any amounts remaining in the Cap Proceeds Account or
the Collection Account to the extent of any Avail-
able Series 1995-1 Finance Charge Collections re-
maining after giving effect to the withdrawals
pursuant to subsection 4.9(a)(i) through (xviii),
shall be treated as Excess Finance Charge Collec-
tions, and the Servicer shall direct the Trustee in
writing on each Business Day to withdraw such
amounts from the Cap Proceeds Account, if applica-
ble, and the Collection Account and the Payment
Reserve Account and to first make such amounts
available to pay to Certificateholders of other
Series to the extent of shortfalls, if any, in
amounts payable to such certificateholders from
Finance Charge Collections allocated to such other
Series, then to pay any unpaid commercially reason-
able costs and expenses of a Successor Servicer, if
any, and then on each Business Day other than the
Default Recognition Date, pay to the Transferor to
be treated as "Transferor Retained Finance Charge
Collections," and, on each Default Recognition Date
pay any remaining Excess Finance Charge Collections
to the Transferor.
<PAGE> 54
(b) For each Business Day with respect to the
Revolving Period (except for any portion of the Revolving
Period during a Class A Paydown Period), the funds on
deposit in the Collection Account to the extent of the
lesser of (A) the Class A Invested Amount and (B) the sum
of (x) product of (i) the sum of the Class A Floating
Allocation Percentage, the Class B Floating Allocation
Percentage and the Class C Floating Allocation Percentage
and (ii) the amount of Principal Collections on such
Business Day (such product the "ABC Revolving Principal
Collections") less the amount of Reallocated Class C
Principal Collections and Reallocated Class B Principal
Collections on such Business Day (the ABC Revolving
Principal Collections less the Class C Reallocated Prin-
cipal Collections and the Class B Reallocated Principal
Collections on the related Business Day, the "Net ABC
Revolving Principal Collections"), (y) the amount then on
deposit in the Collection Account pursuant to subsection
3A(i) of this Series Supplement and (z) the amount of
Shared Principal Collections allocated to the Series
1995-1 Certificates in accordance with Section 4.8 on
such Business Day may, at the option of the Transferor or
shall, if the Aggregate ABC Principal Amount exceeds the
Aggregate Interest Rate Caps Notional Amount on such
Business Day, pursuant to instructions delivered to the
Servicer and the Trustee by facsimile or other similar
means of documented communication, be deposited into the
Defeasance Account and applied as provided in Section
9A(b) of this Series Supplement. During the Revolving
Period (except for any portion of the Revolving Period
during a Class A Pay Down Period), an amount equal to the
Net ABC Revolving Principal Collections less any amount
deposited to the Defeasance Account pursuant to the
immediately preceding sentence shall be treated as Shared
Principal Collections and applied pursuant to the written
direction of the Servicer in the Daily Report for such
Business Day, as provided in Section 4.3(d) of the Agree-
ment.
(c) For each Business Day on and after the
Amortization Period Commencement Date, the amount of
funds on deposit in the Collection Account and the other
amounts described below will be distributed, pursuant to
the written direction of the Servicer in the Daily Report
for such Business Day in the following priority:
<PAGE> 55
(i) on and prior to the day on which an
amount equal to the Class A Invested Amount has been
deposited in the Principal Account to be applied to
the payment of Class A Principal, an amount (not in
excess of the Class A Invested Amount) equal to the
sum of (v) the product of the ABC Fixed/Floating
Allocation Percentage and Principal Collections in
the Collection Account at the end of the preceding
Business Day (less the amount thereof to be applied
as Reallocated Class B Principal Collections or
Reallocated Class C Principal Collections on such
Business Day), (w) any amount on deposit in the
Excess Funding Account allocated to the Class A
Certificate on such Business Day pursuant to subsec-
tion 4.9(d), (x) amounts to be paid pursuant to
subsections 4.9(a)(v), (vii), (viii), (xi), (xii)
and (xiii) of the Agreement from Available Series
1995-1 Finance Charge Collections and from amounts
available pursuant to subsections 4.10(a) and (b)
and 4.15(a), (b) and (c) of the Agreement on such
Business Day, (y) any amounts specified in the last
sentence of Section 3A(i) of this Series Supplement
and (z) the amount of Shared Principal Collections
allocated to the Series 1995-1 Certificates in
accordance with Section 4.8 on such Business Day,
will be paid to the Class A Certificateholder;
(ii) on and after the day on which an
amount equal to the Class A Invested Amount has been
paid to the Class A Certificateholder, an amount
(not in excess of the Class B Invested Amount) equal
to the sum of (v) an amount equal to the product of
the ABC Fixed/Floating Allocation Percentage and
Principal Collections in the Collection Account at
the end of the preceding Business Day (less the
amount thereof to be applied as Reallocated Class B
Principal Collections or Reallocated Class C Princi-
pal Collections on such Business Day), (w) any
amount on deposit in the Excess Funding Account
allocated to the Class B Certificates on such Busi-
ness Day pursuant to subsection 4.9(d), (x) the
amount, if any, allocated to be paid to the Class B
Certificates pursuant to subsections 4.9(a)(v),
(vii), (xi), (xii) and (xiii) of the Agreement from
Available Series Finance Charge Collections and from
amounts available pursuant to subsections 4.10(a)
and (b) and 4.15(a) and (b) of the Agreement with
respect to such Business Day, (y) any amounts speci-
fied in the last sentence of Section 3A(i) of this
Series Supplement and (z) the amount of Shared
Principal Collections allocated to the Series 1995-1
Certificates in accordance with Section 4.8 on such
Business Day (such sum, the "Class B Daily Principal
Amount") will be deposited into the Principal Ac-
count;
<PAGE> 56
(iii) on and after the day on which an
amount equal to the Class B Invested Amount has been
deposited in the Principal Account to be applied to
the payment of Class B Principal, an amount (not in
excess of the Class C Invested Amount) equal to the
sum of (v) an amount equal to the product of the ABC
Fixed/Floating Allocation Percentage and Principal
Collections in the Collection Account at the end of
the preceding Business Day (less the amount thereof
to be applied as Reallocated Class C Principal
Collections on such Business Day), (w) any amount on
deposit in the Excess Funding Account allocated to
the Class C Certificates on such Business Day pursu-
ant to subsection 4.9(d), (x) the amount, if any,
allocated to be paid to the Class C Certificates
pursuant to subsections 4.9(a)(v), (vii), (xii) and
(xiii) of the Agreement from Available Series Fi-
nance Charge Collections and from amounts available
pursuant to subsections 4.10(a) and (b) and 4.15(a)
of the Agreement with respect to such Business Day,
(y) any amounts specified in the last sentence of
Section 3A(i) of this Series Supplement and (z) the
amount of Shared Principal Collections allocated to
the Series 1995-1 Certificates in accordance with
Section 4.8 on such Business Day (such sum, the
"Class C Daily Principal Amount") will be deposited
into the Principal Account;
(iv) on and after the day on which an
amount equal to the Class C Invested Amount has been
deposited in the Principal Account to be applied to
the payment of Class C Principal, an amount equal to
the sum of (w) an amount equal to the product of the
Class D Fixed/Floating Allocation Percentage and
Principal Collections in the Collection Account at
the end of the preceding Business Day (less the
amount thereof to be applied as Reallocated Class D
Principal Collections on such Business Day), (x) any
amount on deposit in the Excess Funding Account
allocated to the Class D Certificate on such Busi-
ness Day pursuant to subsection 4.9(d), (y) the
amount, if any, allocated to be paid to the Class D
Certificate pursuant to subsections 4.9(a)(vi),
(vii) and (xiii) of the Agreement from Available
Series Finance Charge Collections and from amounts
available pursuant to subsections 4.10(a) and (b) of
the Agreement with respect to such Business Day and
(z) the amount of Shared Principal Collections
allocated to the Series 1995-1 Certificates in
accordance with Section 4.8 on such Business Day
(such sum, the "Class D Daily Principal Amount")
will be distributed to the Class D Certificatehold-
ers; and
<PAGE> 57
(v) an amount equal to the excess, if
any, of (A) the sum of the amounts described in
clauses (i)(v) and (x), (ii)(v) and (x) and (iii)(v)
and (x) above over (B) the sum of Class A Principal,
Class B Principal and Class C Principal will be
treated as Shared Principal Collections and applied
as provided in subsection 4.3(d) of the Agreement.
(d) On the first Business Day of the Amortiza-
tion Period, funds on deposit in the Excess Funding
Account will be deposited in the Principal Account,
provided that if any other Series enters its Amortization
Period, as defined in its related Series Supplement, the
amount of the foregoing deposit shall be equal to the
product of an amount equal to the amount of funds on
deposit in the Excess Funding Account and a fraction the
numerator of which is the Invested Amount and the denomi-
nator of which is equal to the sum of the invested
amounts of each Series then entering its related Amorti-
zation Period as defined in its related Series Supple-
ment. Amounts deposited in the Principal Account pursu-
ant to the foregoing sentence will be allocated in the
following order of priority: (i) to the Class A Certifi-
cate in an amount not to exceed the Class A Principal
after subtracting therefrom any amounts to be paid to the
Class A Certificateholders with respect thereto pursuant
to subsections 4.9(c)(i)(v), (y), and (z), (ii) to the
Class B Certificates in an amount not to exceed the Class
B Principal after subtracting therefrom any amounts to be
deposited in the Principal Account with respect thereto
pursuant to subsections 4.9(c)(ii)(v), (y) and (z), and
(iii) to the Class C Certificates in an amount not to
exceed the Class C Principal after subtracting therefrom
any amounts to be deposited in the Principal Account with
respect thereto pursuant to subsections 4.9(c)(iii)(v),
(y) and (z). On and after the Class D Principal Payment
Commencement Date any amounts remaining on deposit in the
Excess Funding Account and allocated to the Series 1995-1
Certificates will be deposited in the Principal Account
in an amount not to exceed the Class D Invested Amount
after subtracting therefrom any amounts to be deposited
in the Principal Account with respect thereto pursuant to
subsections 4.9(c)(iv)(w), (y) and (z).
(e) For each Business Day during the Class A
Pay Down Period:
(i) funds on deposit in the Collection
Account will be, pursuant to the written direction
of the Servicer in the Daily Report for such Busi-
ness Day, paid to the Class A Certificateholder in
respect of the Class A Principal in an amount (not
in excess of the Class A Invested Amount) equal to
the sum of (w) the product of the ABC Fixed/Floating
Allocation Percentage and Principal Collections in
the Collection Account at the end of the preceding
Business Day (less the amount thereof to be applied
<PAGE> 58
as Reallocated Class B Principal Collections or
Reallocated Class C Principal Collections on such
Business Day), (x) amounts to be paid pursuant to
subsections 4.9(a)(v), (vii), (viii), (xi), (xii)
and (xiii) of the Agreement from Available Series
1995-1 Finance Charge Collections and from amounts
available pursuant to subsections 4.10(a) and (b)
and 4.15(a), (b) and (c) of the Agreement on such
Business Day, (y) any amounts specified in the last
sentence of Section 3A(i) of this Series Supplement
and (z) the amount of Shared Principal Collections
allocated to the Series 1995-1 Certificates in
accordance with Section 4.8 of the Agreement on such
Business Day;
(ii) an amount equal to the excess, if
any, of (A) the sum of the amounts described in
clauses (i)(w) and (x) above over (B) the Class A
Principal will be treated as Shared Principal Col-
lections and applied as provided in subsection
4.3(d) of the Agreement.
(f) On each Business Day on which Class D
Daily Principal has been allocated pursuant to subsection
4.7(d) of the Agreement, funds on deposit in the Collec-
tion Account in an amount equal to the Class D Daily
Principal Amount designated by the Transferor with re-
spect to such Business Day will be distributed to the
Class D Certificateholders.
Section 4.10 Coverage of Required Amount for
the Series 1995-1 Certificates. (a) To the extent that
any amounts are on deposit in the Excess Funding Account
on any Business Day, the Servicer shall apply, in the
manner specified for application of Available Series
1995-1 Finance Charge Collections in subsections
4.9(a)(i) through (xvii), Transferor Finance Charge
Collections in an amount equal to the excess of (x) the
product of (a) the Base Rate, (b) the amounts on deposit
in the Excess Funding Account and (c) the number of days
elapsed since the previous Business Day divided by the
actual number of days in such year over (y) the aggregate
amount of all earnings since the previous Business Day
available from the Cash Equivalents in which funds on
deposit in the Excess Funding Account are invested (the
"Negative Carry Amount").
<PAGE> 59
(b) To the extent that on any Business Day
payments are being made pursuant to any of subsections
4.9(a)(i) through (xvii), respectively, and the full
amount to be paid pursuant to any such subsection receiv-
ing payments on such Business Day is not paid in full on
such Business Day, the Servicer shall apply, in the
manner specified for application of Available Series
1995-1 Finance Charge Collections in subsections
4.9(a)(i) through (xvii), all or a portion of the Excess
Finance Charge Collections from other Series with respect
to such Business Day allocable to the Series 1995-1
Certificates in an amount equal to the excess of the full
amount to be allocated or paid pursuant to the applicable
subsection over the amount applied with respect thereto
from Available Series 1995-1 Finance Charge Collections
and Transferor Finance Charge Collections on such Busi-
ness Day (the "Required Amount"). Excess Finance Charge
Collections allocated to the Series 1995-1 Certificates
for any Business Day shall mean an amount equal to the
product of (x) Excess Finance Charge Collections avail-
able from all other Series for such Business Day and (y)
a fraction, the numerator of which is the Required Amount
for such Business Day and the denominator of which is the
aggregate amount of shortfalls in required amounts or
other amounts to be paid from Finance Charge Collections
for all Series for such Business Day.
Section 4.11 Payment of Certificate Interest.
On each Transfer Date, the Trustee, acting in accordance
with instructions from the Servicer set forth in the
Daily Report for such day, shall withdraw the amount on
deposit in the Interest Funding Account with respect to
the preceding Monthly Period allocable to the Series
1995-1 Certificates and deposit such amount in the Dis-
tribution Account. On each Business Day, the Paying
Agent shall pay in accordance with Section 5.1 of the
Agreement to Class A Certificateholders from the Distri-
bution Account an amount equal to the sum of the Class C
Interest Adjustment, if any, and the Class B Interest
Adjustment, if any, deposited into the Distribution
Account pursuant to Section 4.6A. On each Distribution
Date, the Paying Agent shall pay in accordance with
Section 5.1 of the Agreement (x) to the Class B Certifi-
cateholders from the Distribution Account the amount
deposited into the Interest Funding Account during the
preceding Monthly Period pursuant to subsections
4.9(a)(ii) and (ix) and Sections 4.10 and 4.15 less the
aggregate Class B Interest Adjustment made with respect
to the related Interest Accrual Period and (y) the Class
C Certificateholders from the Distribution Account the
amount deposited into the Interest Funding Account pursu-
ant to subsections 4.9(a)(iii) and (x) and Sections 4.10
and 4.15 during the preceding Monthly Period less the
aggregate Class C Interest Adjustment made in the related
Interest Accrual Period.
<PAGE> 60
Section 4.12 Payment of Certificate Principal.
(a) On the Transfer Date preceding the Class B
Principal Payment Commencement Date and each Distribution
Date thereafter, the Trustee, acting in accordance with
instructions from the Servicer set forth in the Daily
Report for such day, shall withdraw from the Principal
Account and deposit in the Distribution Account, to the
extent of funds available, an amount equal to the Class B
Principal for such Distribution Date. On the Class B
Principal Payment Commencement Date, after the payment of
any principal amounts to the Class A Certificate on such
day, and on each Distribution Date thereafter until the
Class B Invested Amount is paid in full, the Paying Agent
shall pay in accordance with Section 5.1 to the Class B
Certificateholders from the Distribution Account such
amount deposited into the Distribution Account on the
related Transfer Date.
(b) On the Transfer Date preceding the Class C
Principal Payment Commencement Date and each Distribution
Date thereafter, the Trustee, acting in accordance with
instructions from the Servicer set forth in the Daily
Report for such day, shall withdraw from the Principal
Account and deposit in the Distribution Account an amount
equal to the lesser of the Class C Invested Amount and
the amount on deposit in the Principal Account allocable
to the Series 1995-1 Certificates (after giving effect to
transfers pursuant to subsection 4.12(b)). On the Class
C Principal Payment Commencement Date, after the payment
of any principal amounts to the Class B Certificates on
such day, and on each Distribution Date thereafter until
the Class C Invested Amount is paid in full, the Paying
Agent shall pay in accordance with Section 5.1 to the
Class C Certificateholders from the Distribution Account
such amount deposited into the Distribution Account on
the related Transfer Date.
(c) On the Transfer Date preceding the Class D
Principal Payment Commencement Date and each Business Day
thereafter, the Trustee, acting in accordance with in-
structions from the Servicer set forth in the Daily
Report for such day, shall make payments of principal to
the Class D Certificateholders in accordance with subsec-
tion 4.9(c)(iv) of the Agreement.
(d) On each Business Day the Trustee acting in
accordance with instructions from the Servicer set forth
in the Daily Report for such Business Day shall make
payments of principal to the Class D Certificateholders
of Class D Daily Principal, if any, designated by the
Transferor pursuant to Section 4.7(d) of the Agreement.
Any amounts remaining in the Principal Account
and allocable to the Series 1995-1 Certificates, after
the Class D Invested Amount has been paid in full, will
be treated as Shared Principal Collections and applied in
accordance with Section 4.3(d) of the Agreement.
Section 4.13 Investor Charge-Offs. (a) If,
on any Determination Date, the aggregate Investor De-
fault Amount and the Series Allocation Percentage of
unpaid Adjustment Payments, if any, for each Business
Day in the preceding Monthly Period exceeded the Avail-
able Series 1995-1 Finance Charge Collections applied to
the payment thereof pursuant to subsections 4.9(a)(v),
(vi) and (vii) of the Agreement and the amount of Trans-
feror Finance Charge Collections and Excess Finance
Charge Collections allocated thereto pursuant to Section
4.10 of the Agreement, and the amount of Reallocated
Principal Collections applied with respect thereto pur-
suant to Section 4.15 of the Agreement, the Class D
Invested Amount will be reduced by the amount by which
the remaining aggregate Investor Default Amount and
Series Allocation Percentage of unpaid Adjustment Pay-
ments exceed the amount applied with respect thereto
during such preceding Monthly Period (a "Class D Inves-
tor Charge-Off").
<PAGE> 61
(b) In the event that any such reduction of
the Class D Invested Amount would cause the Class D
Invested Amount to be a negative number, the Class D
Invested Amount will be reduced to zero, and, the Class
C Invested Amount will be reduced by the amount by which
the Class D Invested Amount would have been reduced
below zero, but not more than the aggregate Investor
Default Amount and Series Allocation Percentage of un-
paid Adjustment Payments for such Monthly Period (a
"Class C Investor Charge-Off").
(c) In the event that any such reduction of
the Class C Invested Amount would cause the Class C
Invested Amount to be a negative number, the Class C
Invested Amount will be reduced to zero, and, the Class
B Invested Amount will be reduced by the amount by which
the Class C Invested Amount would have been reduced
below zero, but not more than the remaining aggregate
Investor Default Amount and Series Allocation Percentage
of unpaid Adjustment Payments for such Monthly Period (a
"Class B Investor Charge-Off").
(d) 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 remaining aggregate
Investor Default Amount and Series Allocation Percentage
of unpaid Adjustment Payments for such Monthly Period (a
"Class A Investor Charge-Off").
Section 4.14. Increases in the Invested
Amount During the Investment Period. (a) The "Invest-
ment Period" shall be the period, if any, beginning on
the Initial Closing Date and ending upon the issuance of
Class A Certificates in an initial amount of at least
$12,400,000.
(b) On any Business Day during the Investment
Period, the Transferor may require that: the Persons
obligated to purchase the Class C Certificates pursuant
to the Class C Purchase Agreement purchase a principal
amount of Class C Certificates equal to the Class C Full
Invested Amount (a "Class C Funding Purchase"); the
Persons obligated to purchase the Class B Certificates
pursuant to the Class B Purchase Agreement purchase a
principal amount of Class B Certificates equal to the
Class B Full Invested Amount (a "Class B Funding Pur-
chase"); and that the Person obligated to purchase the
Class A Certificate purchase a principal amount of the
Class A Certificate according to the terms of the Class
A Certificate Purchase Agreement less than or equal to
the Class A Maximum Invested Amount, but in no event
less than $12,400,000 (a "Class A Funding Purchase");
provided, however, that any Class A Funding Purchase,
Class B Funding Purchase or Class C Funding Purchase may
<PAGE> 62
be required only upon satisfaction of the following
conditions: (i) that the purchase of the Class C Funding
Purchase be made in a single purchase on a single Busi-
ness Day and prior to or contemporaneously with the
issuance of the Class B Certificates; (ii) that the
Class B Funding Purchase be made in a single purchase on
a single Business Day and prior to or contemporaneously
with the issuance of the Class A Certificate; (iii) that
the Class A Funding Purchase be made only after or con-
temporaneously with the Class B Funding Purchase or
Class C Funding Purchase; (iv) that immediately follow-
ing the issuance of each of the Class C Certificates,
the Class B Certificates and the Class A Certificate,
the Class D Invested Amount be equal to or greater than
the Stated Class D Amount; (v) that all of the condi-
tions placed upon the issuance of a Series pursuant to
Section 6.9(b) of the Agreement be satisfied with re-
spect to the applicable Class or Classes of Certificates
as if such Class or Classes of Certificates were a Se-
ries, except for the requirement to deliver a Series
Supplement (as defined in the Agreement); and (vi) that
the Transferor have given the purchasers of the Class C
Certificates, the Class B Certificates or the Class A
Certificates, as applicable at least five Business Days'
notice of the date on which the purchase is to be made
in accordance with this Section 4.14A.
Upon satisfaction of the above conditions, and
in accordance with Section 6.9 of the Agreement to the
extent applicable, the Trustee shall issue the Class C
Certificates in the case of a Class C Funding Purchase,
the Class B Certificates in the case of a Class B Fund-
ing Purchase, and the Class A Certificates in the case
of a Class A Funding Purchase, as applicable, upon re-
ceipt of payment therefor.
Section 4.15 Reallocated Principal Collec-
tions for the Series 1995-1 Certificates. (a) On each
Business Day, the Servicer will determine an amount
equal to the least of (i) the Class D Invested Amount,
(ii) the product of (x)(I) during the Revolving Period,
the Class D Floating Allocation Percentage or (II) dur-
ing an Amortization Period, the Class D Fixed/Floating
Allocation Percentage and (y) the amount of Principal
Collections with respect to such Business Day and (iii)
an amount equal to the sum of (a) the Class A Required
Amount for such Business Day, (b) the Class B Required
Amount for such Business Day and (c) the Class C Re-
quired Amount for such Business Day (such amount called
"Reallocated Class D Principal Collections") and shall
apply Principal Collections in an amount equal to such
amount first to the components of the Class A Required
Amount, then to the components of the Class B Required
Amount and then to the components of the Class C Re-
quired Amount in the same priority as amounts are ap-
plied to such components from Available Series 1995-1
Finance Charge Collections pursuant to subsection
4.9(a).
<PAGE> 63
(b) On each Business Day, the Servicer will
determine an amount equal to the least of (i) the Class
C Invested Amount, (ii) the product of (x)(I) during the
Revolving Period, the Class C Floating Allocation Per-
centage or (II) during an Amortization Period, the Class
C Fixed/Floating Allocation Percentage and (y) the
amount of Principal Collections for such Business Day
and (iii) an amount equal to the sum of (a) the Class A
Required Amount for such Business Day over the amount of
Reallocated Class D Principal Collections applied with
respect thereto for such Business Day and (b) the Class
B Required Amount for such Business Day over the amount
of Reallocated Class D Principal Collections applied
with respect thereto for such Business Day (such amount
called "Reallocated Class C Principal Collections") and
shall apply Principal Collections in an amount equal to
such amount first to the remaining components of the
Class A Required Amount and then to the remaining compo-
nents of the Class B Required Amount in the same priori-
ty as amounts are applied to such components from Avail-
able Series 1995-1 Finance Charge Collections pursuant
to subsection 4.9(a).
(c) On each Business Day, the Servicer will
determine an amount equal to the least of (i) the Class
B Invested Amount, (ii) the product of (x)(I) during the
Revolving Period, the Class B Floating Allocation Per-
centage or (II) during an Amortization Period, the Class
B Fixed/Floating Allocation Percentage and (y) the
amount of Principal Collections for such Business Day
and (iii) an amount equal to the excess, if any, of the
Class A Required Amount for such Business Day over the
sum of the amount of Reallocated Class D Principal Col-
lections and Reallocated Class C Principal Collections
applied with respect thereto for such Business Day (such
amount called "Reallocated Class B Principal Collec-
tions") and shall apply Principal Collections equal to
such amount to the remaining components of the Class A
Required Amount in the same priority as amounts are
applied to such components from Available Series 1995-1
Finance Charge Collections pursuant to subsection
4.9(a).
Section 4.16 Determination of LIBOR. (a)
"LIBOR" shall mean, for a specific Interest Accrual
Period, the rate for deposits in United States dollars
for one month (commencing on the first day of the rele-
vant 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 Interest Accrual Period will be determined
on the basis of the rates at which deposits in the Unit-
ed 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 inter-
bank market for a period equal to one month (commencing
on the first day of 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 Interest Accrual Period will be the arithmetic mean
of the quotations. If fewer than two quotations are
provided as requested, the rate for such Interest Accru-
al Period will be the arithmetic mean of the rates quot-
ed by four major banks in New York City, selected by the
Trustee, at approximately 11:00 a.m., New York City
time, on the LIBOR Determination Date for loans in Unit-
ed States dollars to leading European banks for a period
equal to one month (commencing on the first day of such
Interest Accrual Period).
<PAGE> 64
(b) The Class B Certificate Rate and the
Class C Certificate Rate applicable to the then current
and the immediately preceding Interest Accrual Periods
may be obtained by any Series 1995-1 Certificateholder
by telephoning the Trustee at its Corporate Trust Office
at (302) 451-2500.
(c) On each LIBOR Determination Date, the
Trustee shall send to the Servicer by facsimile notifi-
cation of LIBOR for the following Interest Accrual Peri-
od.
Section 4.17 Payment Reserve Account
(a) The Servicer shall establish and maintain
or cause to be established and maintained with a Quali-
fied Institution, which may be the Trustee, in the name
of the Trustee, on behalf of the Certificateholders, the
"Payment Reserve Account," which shall be a segregated
trust account with the corporate trust department of
such Qualified Institution, bearing a designation clear-
ly indicating that the funds deposited therein are held
for the benefit of the Certificateholders. The Trustee
shall possess all right, title and interest in all funds
on deposit from time to time in the Payment Reserve
Account and in all proceeds thereof. The Payment Re-
serve Account shall be under the sole dominion and con-
trol of the Trustee for the benefit of the Certificate-
holders. If, at any time, the institution holding the
Payment Reserve Account ceases to be a Qualified Insti-
tution, the Trustee shall within 20 Business Days estab-
lish a new Payment Reserve Account meeting the condi-
tions specified above with a Qualified Institution, and
shall transfer any cash or any investments to such new
Payment Reserve Account. From the date such new Payment
Reserve Account is established, it shall be the "Payment
Reserve Account."
(b) The Transferor, at its discretion, may
withdraw on any Determination Date a part or all of any
amounts remaining in the Payment Reserve Account after
giving effect to any withdrawals required to be made
under Section 4.9(a) above.
<PAGE> 65
(c) Funds on deposit in the Payment Reserve
Account shall be invested in Cash Equivalents by the
Trustee (or, at the direction of the Trustee, by the
Servicer on behalf of the Trustee) at the direction of
the Servicer. Funds on deposit in the Payment Reserve
Account on any Business Day, after giving effect to any
withdrawals from the Payment Reserve Account, shall be
invested in Cash Equivalents that will mature so that
such funds will be available for withdrawal on or prior
to the following Business Day. The proceeds of any such
investments shall be invested in Cash Equivalents that
will mature so that such funds will be available for
withdrawal on or prior to the following Business Day.
On each Business Day following a deposit of funds to the
Payment Reserve Account, the aggregate proceeds of any
such investment shall be deposited in the Collection
Account and treated as Investment Proceeds for applica-
tion as Available Series 1995-1 Finance Charge Collec-
tions.
Section 4.18 Establishment of Investor Re-
serve Account.
(a) The Servicer, for the benefit of the
Investor Certificateholders, shall, on the Initial Clos-
ing Date, establish and maintain or cause to be estab-
lished and maintained with a Qualified Institution,
which may be the Trustee, in the name of the Trustee, on
behalf of the Investor Certificateholders, the "Investor
Reserve Account," which shall be a segregated trust
account with the corporate trust department of such
Qualified Institution, bearing a designation clearly
indicating that the funds deposited therein are held for
the benefit of the Investor Certificateholders. The
Trustee shall possess all right, title and interest in
all funds on deposit from time to time in the Investor
Reserve Account and in all proceeds thereof. The Inves-
tor Reserve Account shall be under the sole dominion and
control of the Trustee for the benefit of the Investor
Certificateholders. If, at any time, the institution
holding the Investor Reserve Account ceases to be a
Qualified Institution, the Trustee shall within 10 Busi-
ness Days establish a new Investor Reserve Account meet-
ing the conditions specified above with a Qualified
Institution, and shall transfer any cash or any invest-
ments to such new Investor Reserve Account. From the
date such new Investor Reserve Account is established,
it shall be the "Investor Reserve Account."
<PAGE> 66
(b) On the Initial Closing Date, the Trustee,
at the direction of the Servicer, shall apply the pro-
ceeds from the issuance of the Previously Issued Certif-
icates to fund the Investor Reserve Account in an amount
equal to the Specified Investor Reserve Amount on the
Initial Closing Date. On the date of issuance of any
Additional Class A Invested Amount, the Trustee shall,
at the direction of the Servicer, deposit in the Inves-
tor Reserve Account in accordance with Section 6.15
proceeds of such issuance in an amount equal to the
excess of the Specified Investor Reserve Amount follow-
ing the issuance of the Additional Class A Invested
Amount (and any related increase in the Class D Invested
Amount) over the Specified Investor Reserve Amount prior
to the issuance of Additional Class A Invested Amount.
In addition, the Servicer shall on each Business Day
deposit in the Investor Reserve Account an amount equal
to the excess of the Specified Investor Reserve Amount
over the amount on deposit in the Investor Reserve Ac-
count to the extent of funds available therefor pursuant
to subsection 4.9(a)(xiv). Funds on deposit in the
Investor Reserve Account shall be withdrawn by the
Servicer and applied in accordance with Section 4.9(a).
Amounts on deposit in the Investor Reserve Account may
be subsequently released therefrom to the extent that
the amount on deposit in the Investor Reserve Account
exceeds the Specified Investor Reserve Amount and shall
be paid to the Transferor. In connection with any re-
duction of the Specified Investor Reserve Amount, the
Transferor shall provide Moody's with at least 30 days
prior written notice of such proposed change.
(c) Funds on deposit in the Investor Reserve
Account shall be invested in Cash Equivalents by the
Trustee (or, at the direction of the Trustee, by the
Servicer on behalf of the Trustee) at the direction of
the Servicer. Funds on deposit in the Investor Reserve
Account on any Distribution Date, after giving effect to
any withdrawals from the Investor Reserve Account, shall
be invested in Cash Equivalents that will mature so that
such funds will be available for withdrawal on or prior
to the following Reserve Application Date. The proceeds
of any such investments shall be invested in Cash Equiv-
alents that will mature so that such funds will be
available for withdrawal on or prior to the following
Reserve Application Date. On each Business Day follow-
ing a deposit of funds to the Investor Reserve Account,
to the extent that the amount on deposit in the Investor
Reserve Account exceeds the Specified Investor Reserve
Amount, the aggregate proceeds of any such investment
shall be deposited in the Collection Account and treated
as Investment Proceeds for application as Available
Series 1995-1 Finance Charge Collections.
<PAGE> 67
SECTION 7. Article V of the Agreement. Arti-
cle V of the Agreement shall read in its entirety as
follows and shall be applicable only to the Series 1995-
1 Certificates:
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS
Section 5.1 Distributions. (a) On each
Business Day, the Paying Agent shall distribute (in
accordance with the Settlement Statement delivered by
the Servicer to the Trustee and the Paying Agent pursu-
ant to subsection 3.4(c)) to the Class A Certificate-
holder of record on the preceding Record Date (other
than as provided in subsection 2.4(e) or in Section 12.3
respecting a final distribution) such
Certificateholder's pro rata share (based on the aggre-
gate Undivided Interests represented by the Class A
Certificate held by such Certificateholder) of amounts
on deposit in the Distribution Account as are payable to
the Class A Certificateholder pursuant to Section 4.11
of the Agreement and amounts deposited in the Principal
Account pursuant to subsection 9A(b) of this Supplement
and amounts on deposit in the Principal Account pursuant
to subsection 4.9(c)(i) of the Agreement by wire trans-
fer to an account or accounts designated by such Class A
Certificateholder by written notice given to the Paying
Agent not less than five days prior to such Business
Day; provided, however, that the final payment in re-
tirement of the Class A Certificate will be made only
upon presentation and surrender of the Class A Certifi-
cate at the office or offices specified in the notice of
such final distribution delivered by the Trustee pursu-
ant to Section 12.3.
(b) On each Distribution Date, the Paying
Agent shall distribute (in accordance with the Settle-
ment Statement delivered by the Servicer to the Trustee
and the Paying Agent pursuant to subsection 3.4(c)) to
each Class B Certificateholder of record on the preced-
ing Record Date (other than as provided in subsection
2.4(e) or in Section 12.3 respecting a final distribu-
tion) such Certificateholder's pro rata share (based on
the aggregate Undivided Interests represented by Class B
Certificates held by such Certificateholder) of amounts
on deposit in the Distribution Account as are payable to
the Class B Certificateholders pursuant to Sections 4.11
and 4.12 of the Agreement by wire transfer to an account
or accounts designated by such Class B Certificateholder
by written notice given to the Paying Agent not less
than five days prior to the related Distributed Date;
provided, however, that the final payment in retirement
of the Class B Certificates will be made only upon pre-
sentation and surrender of the Class B Certificates at
the office or offices specified in the notice of such
final distribution delivered by the Trustee pursuant to
Section 12.3.
<PAGE> 68
(c) On each Distribution Date, the Paying
Agent shall distribute (in accordance with the Settle-
ment Statement delivered by the Servicer to the Trustee
and the Paying Agent pursuant to subsection 3.4(c)) to
each Class C Certificateholder of record on the preced-
ing Record Date (other than as provided in subsection
2.4(e) or in Section 12.3 respecting a final distribu-
tion) such Certificateholder's pro rata share (based on
the aggregate Undivided Interests represented by Class C
Certificates held by such Certificateholder) of amounts
on deposit in the Distribution Account as are payable to
the Class C Certificateholders pursuant to Sections 4.11
and 4.12 of the Agreement by wire transfer to each Class
C Certificateholder to an account or accounts designated
by such Class C Certificateholder by written notice
given to the Paying Agent not less than five days prior
to the related Distribution Date; provided, however,
that the final payment in retirement of the Class C
Certificates will be made only upon presentation and
surrender of the Class C Certificates at the office or
offices specified in the notice of such final distribu-
tion delivered by the Trustee pursuant to Section 12.3.
Section 5.2 Certificateholders' Statement.
(a) On the 20th day of each calendar month (or if such
day is not a Business Day the next succeeding Business
Day), the Paying Agent shall forward to each Certifi-
cateholder and the Rating Agencies a statement substan-
tially in the form of Exhibit C prepared by the Servicer
and delivered to the Trustee and the Paying Agent on the
preceding Determination Date setting forth the following
information:
(i) the total amount distributed;
(ii) the amount of such distribution
allocable to Certificate Principal;
(iii) the amount of such distribution
allocable to Certificate Interest;
(iv) the amount of Principal Collections
received in the Collection Account during the pre-
ceding Monthly Period and allocated in respect of
the Class A Certificate, the Class B Certificates,
the Class C Certificates and the Class D Certifi-
cate, respectively;
<PAGE> 69
(v) the amount of Finance Charge Collec-
tions processed during the preceding Monthly Period
and allocated in respect of the Class A Certifi-
cate, the Class B Certificates, the Class C Certif-
icates and the Class D Certificate, respectively;
(vi) the aggregate amount of Principal
Receivables, the Invested Amount, the Class A In-
vested Amount, the Class B Invested Amount, the
Class C Invested Amount, the Class D Invested
Amount, the Floating Allocation Percentage and,
during the Amortization Period, the ABC
Fixed/Floating Allocation Percentage, Class B
Fixed/Floating Allocation Percentage, or Class C
Fixed/Floating Allocation Percentage as applicable,
as of the end of the day on the last day of the
related Monthly Period;
(vii) the aggregate outstanding balance
of Receivables which are current, 30-59, 60-89, and
90 days and over delinquent as of the end of the
day on the last day of the related Monthly Period;
(viii) the aggregate Investor Default
Amount for the preceding Monthly Period;
(ix) the aggregate amount of Class A
Investor Charge-Offs, Class B Investor Charge-Offs,
Class C Investor Charge-Offs and Class D Investor
Charge-Offs for the preceding Monthly Period;
(x) the amount of the Servicing Fee for
the preceding Monthly Period;
(xi) the Class B Pool Factor and the
Class C Pool Factor as of the end of the last day
of the Monthly Period immediately preceding the
Determination Date;
(xii) the amount of unreimbursed Reallo-
cated Class B Principal Collections, Reallocated
Class C Principal Collections and Reallocated Class
D Principal Collections for the related Monthly
Period;
(xiii) the aggregate amount of funds in
the Excess Funding Account as of the last day of
the Monthly Period immediately preceding the Dis-
tribution Date;
(xiv) the Aggregate Interest Rate Caps
Notional Amount and the amount deposited in the Cap
Proceeds Account during the related Monthly Period.
<PAGE> 70
(b) Annual Certificateholders' Tax
Statement. On or before January 31 of each calendar
year, beginning with calendar year 1996, the Paying
Agent shall distribute to each Person who at any time
during the preceding calendar year was a Series 1995-1
Certificateholder, a statement prepared by the Servicer
containing the information required to be contained in
the regular report to Series 1995-1 Certificateholders,
as set forth in subclauses (i), (ii) and (iii) above,
aggregated for such calendar year or the applicable
portion thereof during which such Person was a Series
1995-1 Certificateholder, together with, on or before
January 31 of each year, beginning in 1996, such other
customary information (consistent with the treatment of
the Certificates as debt) as the Trustee or the Servicer
deems necessary or desirable to enable the Series 1995-1
Certificateholders to prepare their tax returns. Such
obligations of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to
any requirements of the Internal Revenue Code as from
time to time in effect.
SECTION 7A. Article VI of the Agreement.
Article VI (except for Sections 6.01 through 6.14 there-
of) shall read in its entirety as follows and shall be
applicable only to the Series 1995-1:
<PAGE> 71
ARTICLE VI
THE CERTIFICATES
Section 6.15 Additional Class A Invested
Amounts. The Class A Certificateholder agrees, by
acceptance of the Class A Certificate, that the Trans-
feror may from time to time, other than after a Pay Out
Commencement Date, request that such Class A Certifi-
cateholder acquire on any Business Day additional undi-
vided interests in the Trust in specified amounts (such
amounts, the "Additional Class A Invested Amounts");
provided, however, that if such an increase in the Class
A Invested Amount would cause a Trust Pay Out Event or a
Series 1995-1 Pay Out Event to occur, then the amount of
the increase in the Class A Invested Amount shall be
limited on such Business Day to the maximum increase in
the Class A Invested Amount that may be obtained without
causing either a Trust Pay Out Event or a Series 1995-1
Pay Out Event to occur; and provided further, that in no
case shall the Class A Invested Amount be increased
above the Class A Maximum Invested Amount. The Addi-
tional Class A Invested Amounts on any Business Day
shall not exceed an amount equal to the excess of the
aggregate amount of Principal Receivables over the
greater of (a) the sum of (i) the aggregate invested
amount of each Series then outstanding as of such day
including the Class A Certificate (prior to the addition
of such Additional Class A Invested Amount) minus
amounts on deposit in the Principal Account for any
Series, if any, and (ii) the Minimum Transferor Interest
as of such day or (b) the Minimum Aggregate Principal
Receivables. The Class A Certificateholder shall ac-
quire such Additional Class A Invested Amount, only if
(a) the Class D Invested Amount following the acquisi-
tion of such Additional Class A Invested Amount shall be
at least equal to the Stated Class D Amount (including
increases to the Class D Invested Amount pursuant to
Section 6.16 of the Agreement), (b) the notional amount
of the Interest Rate Caps shall be at least equal to the
Aggregate ABC Principal Amount after giving effect to
the proposed increase in the Class A Invested Amount,
(c) after giving effect to the proposed increase in the
Class A Invested Amount no Series 1995-1 Pay Out Event
shall occur as a result of such increase and (d) the
conditions precedent to issuance of Commercial Paper or
making a Revolving Loan (as defined in the Liquidity
Agreement) pursuant to the Liquidity Agreement have been
met. If the Class A Certificateholder acquires such
Additional Class A Invested Amount, such Class A Certif-
icateholder shall pay an amount equal to the Additional
Class A Invested Amount to the Trustee and, in consider-
ation of such Certificateholder's payment of the Addi-
tional Class A Invested Amount, the Servicer shall ap-
propriately note such Additional Class A Invested Amount
(and the increased Class A Invested Amount) on the next
succeeding Servicer's report and direct the Trustee in
writing to first make any required deposit to the Inves-
tor Reserve Account pursuant to subsection 4.18(b) and
second pay to the Transferor an amount equal to the
remaining proceeds in an amount not to exceed such Addi-
tional Class A Invested Amount, and the Invested Amount
of the Class A Certificate will be equal to the Invested
Amount of the Class A Certificate stated in such
Servicer's report.
<PAGE> 72
The purchase of any Additional Class A Invest-
ed Amount shall be in an aggregate principal amount that
is not less than $1,000,000 or integral multiples of
$1,000,000 in excess thereof.
The outstanding amounts of any Additional
Class A Invested Amount purchased by the Class A Certif-
icateholder shall be evidenced by a Class A Certificate
to be issued on the Initial Closing Date substantially
in the form of Exhibit A-1 hereto. The Class A Certifi-
cateholder shall be and is hereby authorized to record
on the grid attached to its Class A Certificate (or at
such Class A Certificateholder's option, in its internal
books and records) the date and amount of any Additional
Class A Invested Amount purchased by it, and each repay-
ment thereof; provided that failure to make any such
recordation on such grid or any error in such grid shall
not adversely affect the Class A Certificateholder's
rights with respect to its Class A Invested Amount and
its right to receive interest payments in respect of the
Class A Invested Amount held by the Class A Certificate-
holder.
Section 6.16 Additional Class D Invested
Amounts.
(a) On any Business Day while any Series
1995-1 Certificates are outstanding, the Transferor may
elect to increase the Class D Invested Amount (such
additional amounts, "Additional Class D Invested
Amounts") by written notice to the Trustee on such date
which notice shall specify the effective date and the
amount of such increase in the Class D Invested Amount;
provided, however, that if such an increase in the Class
D Invested Amount would cause a Trust Pay Out Event or a
Series 1995-1 Pay Out Event to occur, then the amount of
the increase in the Class D Invested Amount shall be
limited on such Business Day to the maximum increase in
the Class D Invested Amount that may be obtained without
causing either a Trust Pay Out Event or a Series 1995-1
Pay Out Event to occur; and provided further, that in no
case shall the Class D Invested Amount be increased
above the Class D Maximum Required Amount; provided
further that no such increase in the Class D Invested
Amount shall be permitted under this Section 6.16 un-
less: (i) after giving effect to the proposed increase
in Class D Invested Amount the Transferor Interest shall
equal or exceed the Minimum Transferor Interest, (ii)
no Series 1995-1 Pay Out Event will occur as a result of
such increase in the Class D Invested Amount and (iii)
such increase in the Class D Invested Amount shall be
made concurrently with a Class A Funding Purchase, Class
B Funding Purchase or Class C Funding Purchase pursuant
to Section 4.14(b) of the Agreement or an increase in
the Class A Invested Amount pursuant to Section 6.15 of
the Agreement.
<PAGE> 73
Section 6.17 Extension. (a) If a Pay Out
Event has not occurred or has occurred but has been
remedied on or before the 30th Business Day preceding
the Extension Date, the Transferor, in its sole discre-
tion, may deliver to the Trustee on or before such date
a notice substantially in the form of Exhibit E (the
"Extension Notice") to this Series Supplement. The
Trustee shall deliver a copy of the Extension Notice and
all documents annexed thereto to the Investor Certifi-
cateholders of record on the date of receipt thereof.
The Transferor shall state in the Extension Notice that
it intends to extend the Revolving Period until the
later Amortization Period Commencement Date set forth in
the Extension Notice. The Extension Notice shall also
set forth the next Extension Date. The following docu-
ments shall be annexed to the Extension Notice: (i) a
form of the Opinion of Counsel addressed to the Trans-
feror and the Trustee to the effect that despite the
extension the Trust will not be treated as an associa-
tion taxable as a corporation (the "Extension Tax Opin-
ion"); (ii) a form of the Opinion of Counsel addressed
to the Transferor and the Trustee (the "Extension Opin-
ion") to the effect that (A) the Transferor has the
corporate power and authority to effect the Extension,
(B) the extension has been duly authorized by the Trans-
feror, and (C) all conditions precedent to the Extension
required by this Section 6.17 have been fulfilled; (iii)
a form of Investor Certificateholder Election Notice
substantially in the form of Exhibit F (the "Election
Notice") to this Series Supplement; and (iv) a schedule
setting forth the Aggregate Interest Rate Caps Notional
Amount for the period or periods as indicated from the
Extension Date through the new Scheduled Series 1995-1
Termination Date, each as specified in the related Ex-
tension Notice. In addition, the Extension Notice shall
state that any Investor Certificateholder electing to
approve the Extension must do so on or before the Elec-
tion Date (as defined below) by returning the annexed
Election Notice properly executed to the Trustee in the
manner described below. The Extension Notice shall also
state that an Investor Certificateholder may withdraw
any such election in whole or in part on or before the
Election Date, and the Transferor, in its sole discre-
tion, may, prior to the Election Date, withdraw its
election to extend the Revolving Period. Any Holder
that elects to approve an Extension hereunder shall
deliver a duly executed Election Notice to the Trustee
at the address designated in the Extension Notice on or
before 3:00 p.m., New York City time, on or before the
fifth Business Day preceding the Extension Date (such
Business Day constituting the "Election Date").
<PAGE> 74
(b) No extension shall occur unless each of
the following conditions have been satisfied prior to
the close of business on the Election Date: (i) no Pay
Out Event shall have occurred and be continuing, (ii)
there shall have been delivered to the Trustee (A) the
Extension Tax Opinion and the Extension Opinion, each
addressed to the Trustee and (B)(1) written confirmation
from each Rating Agency rating the Class A Certificates
that the Extension will not cause such Rating Agency to
lower or withdraw its then current rating of such Inves-
tor Certificates, (2) written confirmation from each
Rating Agency rating the Class B Certificates that the
Extension will not cause such Rating Agency to lower or
withdraw its then current rating of such Investor Cer-
tificates, and (3) written confirmation from each Rating
Agency rating its Class C Certificates that the exten-
sion will not cause such Rating Agency to lower or with-
draw its then current rating of such Investor Certifi-
cates, (iii) each of the holders of the Class A Certifi-
cates, the Class B Certificates, and the Class C Certif-
icates shall have elected to approve the Extension by
returning to the Trustee on or before the Election Date
the executed Election Notice annexed to the Extension
Notice delivered to the Certificateholders pursuant to
subsection 6.17(a) of the Agreement. If, by the close
of business on the Election Date, all of the conditions
stated in this subsection 6.17(b) of the Agreement have
not been satisfied and all such documents delivered to
the Trustee pursuant to this subsection 6.17(b) of the
Agreement are not in form satisfactory to it, or if the
Transferor has notified the Trustee, prior to the Elec-
tion Date, that the Transferor has exercised its right
to withdraw its election of an Extension, no Extension
shall occur.
(c) The execution by the required number of
Investor Certificateholders of the applicable Election
Notice and return thereof to the Trustee by the required
Date and time, the continued election by the Transferor
to extend the Revolving Period at the Election Date, and
the compliance with all of the provisions of this Sec-
tion 6.17, shall evidence an extension or renewal of the
obligations represented by the Investor Certificates,
and not a novation or extinguishment of such obligations
or a substitution with respect thereto.
<PAGE> 75
(d) To the extent required by applicable laws
and regulations, as evidenced by an Opinion of Counsel
delivered by the Transferor to the Trustee, the provi-
sions of this Section 6.17 shall or may be modified to
comply with all applicable laws and regulations in ef-
fect at the time of the Extension.
SECTION 8. Series 1995-1 Pay Out Events. If
any one of the following events shall occur with respect
to the Series 1995-1 Certificates:
(a) failure on the part of the Transfer-
or (i) to make any payment or deposit required to be
made by the Transferor by the terms of (A) the Agreement
or (B) this Series Supplement, on or before the date
occurring five Business Days after the date such payment
or deposit is required to be made herein, (ii) to per-
form in all material respects the Transferor's covenant
not to sell, pledge, assign, or transfer to any person,
or grant any unpermitted lien on, any Receivable; or
(iii) duly to observe or perform in any material respect
any covenants or agreements of the Transferor set forth
in the Agreement or this Series Supplement, which fail-
ure has a material adverse effect on the Series 1995-1
Certificateholders and which continues unremedied for a
period of 60 days (or, in the case of a covenant pursu-
ant to Section 3A of this Series Supplement, 30 days)
after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given
to the Transferor by the Trustee, or to the Transferor
and the Trustee by the Holders of Series 1995-1 Certifi-
cates evidencing Undivided Interests aggregating not
less than 50% of any of the Class A Invested Amount, the
Class B Invested Amount or the Class C Invested Amount,
and continues to affect materially and adversely the
interests of the Series 1995-1 Certificateholders for
such period;
<PAGE> 76
(b) any representation or warranty made
by the Transferor in the Agreement or this Series Sup-
plement, (i) shall prove to have been incorrect in any
material respect when made, which continues to be incor-
rect in any material respect for a period of 60 days
after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given
to the Transferor by the Trustee, or to the Transferor
and the Trustee by the Holders of the Series 1995-1
Certificates evidencing Undivided Interests aggregating
more than 50% of any of the Class A Invested Amount, the
Class B Invested Amount or the Class C Invested Amount,
and (ii) as a result of which the interests of the Se-
ries 1995-1 Certificateholders are materially and ad-
versely affected and continue to be materially and ad-
versely affected for such period; provided, however,
that a Series 1995-1 Pay Out Event pursuant to this
subsection 8(b) shall not be deemed to have occurred
hereunder if the Transferor has accepted reassignment of
the related Receivable, or all of such Receivables, if
applicable, during such period in accordance with the
provisions of the Agreement;
(c) the average of the Portfolio Yields
for any three consecutive Monthly Periods is reduced to
a rate which is less than the weighted average Base
Rates for such three consecutive Monthly Periods;
(d) (i) the Transferor Interest shall be
less than the Minimum Transferor Interest, (ii) the
Series Allocation Percentage of the sum of the total
amount of Principal Receivables plus amounts on deposit
in the Excess Funding Account shall be less than (B) the
sum of the Class A Outstanding Principal Amount, the
Class B Outstanding Principal Amount, the Class C Out-
standing Principal Amount and the Class D Outstanding
Principal Amount or (iii) the total amount of Principal
Receivables and the amount on deposit in the Excess
Funding Account shall be less than the Minimum Aggregate
Principal Receivables, in each case as of any Determina-
tion Date;
(e) any Servicer Default shall occur
which would have a material adverse effect on the Series
1995-1 Certificateholders; or
<PAGE> 77
(f) the amount on deposit in the Excess
Funding Account as a percentage of the sum of the aggre-
gate amount of Principal Receivables plus the amount on
deposit in the Excess Funding Account shall equal or
exceed 30% on the last day of three consecutive Monthly
Periods;
then, in the case of any event described in subparagraph
(a), (b) or (e), after the applicable grace period, if
any, set forth in such subparagraphs, the Holders of
Series 1995-1 Certificates evidencing Undivided Inter-
ests aggregating more than 50% of any of the Class A
Invested Amount, the Class B Invested Amount or the
Class C Invested Amount by notice then given in writing
to the Trustee, the Transferor, the Cap Provider and the
Servicer may declare that a pay out event (a "Series
1995-1 Pay Out Event") has occurred as of the date of
such notice, and in the case of any event described in
subparagraphs (c), (d) or (f), a Series 1995-1 Pay Out
Event shall occur without any notice or other action on
the part of the Trustee or the Series 1995-1 Certifi-
cateholders immediately upon the occurrence of such
event.
SECTION 8A. Class A Pay Down Period. If (i)
an OTC Termination Event (as defined in the Owner Trust
Agreement) or a Class A Event of Default shall have
occurred and the Trustee shall have received written
notice from Owner Trust Certificateholders (as defined
in the Owner Trust Agreement) and Lenders (as defined in
the Liquidity Agreement) whose aggregate Voting Inter-
ests (as defined in the Collateral Trust Agreement)
exceed 50 percent of the total Voting Interests or (ii)
the principal amount of the Metris Receivables Note
shall be less than the Metris Receivables Note Required
Amount or (iii) the Transferor shall sell, transfer,
assign, pledge, hypothecate, participate or otherwise
convey or encumber the Metris Receivables Note and such
action shall not be completely revoked or otherwise
remedied within five days, or (iv) the Transferor shall
permit to exist any Lien (other than a Permitted Lien)
on the Metris Receivables Note not created with the
Transferor's consent and such Lien shall not be com-
pletely removed, revoked or otherwise remedied within 30
days, then the "Class A Pay Down Period" shall commence
without notice or any action on the part of the Trustee
or the Class A Certificateholder immediately upon the
occurrence of such event and continue until the earlier
of (i) the payment in full of the Class A Certificates
and (ii) the Amortization Period Commencement Date.
<PAGE> 78
SECTION 9. Series 1995-1 Termination. The
right of the Series 1995-1 Certificateholders to receive
payments from the Trust will terminate on the first
Business Day following the Series 1995-1 Termination
Date unless such Series is an Affected Series as speci-
fied in Section 12.1(c) of the Agreement and the sale
contemplated therein has not occurred by such date, in
which event the Series 1995-1 Certificateholders shall
remain entitled to receive proceeds of such sale when
such sale occurs.
SECTION 9A. Class A Pre-Payment. (a) During
the Revolving Period (except for any portion of the
Revolving Period during a Class A Pay Down Period), the
Holder of the Exchangeable Transferor Certificate may
specify upon an Exchange, pursuant to Section 6.9 of the
Agreement, that the purchaser of a newly issued Series
deposit payment therefor, in full or in part, in the
Defeasance Account in an amount not to exceed the Class
A Invested Amount on such date. On the Initial Closing
Date the Trustee shall, for the benefit of the Class A
Certificateholder, establish and maintain with a Quali-
fied Institution in the name of the Trust, a certain
segregated trust account (the "Defeasance Account").
Any amounts on deposit in the Defeasance Account on any
Business Day shall be invested at the direction of the
Servicer in Cash Equivalents which mature on the next
succeeding Business Day. On each Business Day following
a deposit of funds to the Defeasance Account, the aggre-
gate proceeds of any such investment shall be deposited
in the Collection Account and treated as Investment
Proceeds for application as Available Series 1995-1
Finance Charge Collections.
<PAGE> 79
(b) Upon the direction of the Servicer
any amounts, up to the Class A Invested Amount, on de-
posit in the Defeasance Account may, or upon the occur-
rence of a Pay Out Event the amount on deposit in the
Defeasance Account shall, be deposited in the Principal
Account for distribution on the next Business Day to be
applied to the payment of Class A Principal. Such
amounts shall be applied and paid in accordance with
Sections 4.7, 4.12 and 5.1 of the Agreement. Subsequent
to any reduction of the Class A Invested Amount as a
result of payments pursuant to this Section 9A, the
Class A Invested Amount may be increased pursuant to the
terms and conditions set forth in Section 6.15 of the
Agreement.
SECTION 10. Legends; Transfer and Exchange;
Restrictions on Transfer of Series 1995-1 Certificates;
Tax Treatment.
(a) Each Class A Certificate shall bear
a legend substantially in the following form:
THIS CERTIFICATE (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAW. THE TRANSFER OF
THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS
SET FORTH IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
(b) Each Class A Certificate, Class B Certif-
icate, Class C Certificate and Class D Certificate shall
bear a legend substantially in the following form:
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF METRIS RECEIVABLES, INC. (FORMERLY
FINGERHUT FINANCIAL SERVICES RECEIVABLES, INC.)
THAT, UNLESS SUCH PURCHASER, AT ITS EXPENSE, DELIV-
ERS TO THE TRUSTEE, THE SERVICER AND THE TRANSFEROR
AN OPINION OF COUNSEL SATISFACTORY TO THEM TO THE
EFFECT THAT THE PURCHASE OR HOLDING OF A CLASS A
CERTIFICATE, CLASS B CERTIFICATE, CLASS C CERTIFI-
CATE OR CLASS D CERTIFICATE BY SUCH PURCHASER WILL
NOT RESULT IN THE ASSETS OF THE TRUST BEING DEEMED
TO BE "ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO
THE PROHIBITED TRANSACTION PROVISIONS OF ERISA AND
THE CODE AND WILL NOT SUBJECT THE TRUSTEE, THE
TRANSFEROR OR THE SERVICER TO ANY OBLIGATION IN
ADDITION TO THOSE UNDERTAKEN IN THE POOLING AND
SERVICING AGREEMENT, SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3)
OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DE-
SCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVE-
NUE CODE OF 1986, AS AMENDED, OR (III) AN ENTITY
WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY
REASON OF A PLAN'S INVESTMENT IN THE ENTITY.
<PAGE> 80
(c) Each Class B and Class C Certificate
will bear a legend substantially in the following form:
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECU-
RITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS
CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE
REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND
OTHER APPLICABLE LAWS AND ONLY PURSUANT TO RULE
144A UNDER THE SECURITIES ACT TO AN INSTITUTIONAL
INVESTOR THAT THE HOLDER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A ("QIB") PURCHASING FOR ITS OWN ACCOUNT OR
A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE
HOLDER HAS INFORMED, IN EACH CASE, THAT THE
REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, OR TO THE TRANSFER-
OR. EACH CERTIFICATE OWNER BY ACCEPTING A BENEFI-
CIAL INTEREST IN THIS CERTIFICATE IS DEEMED TO
REPRESENT THAT IT IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF
ANOTHER QIB.
(d) Each Class C Certificate shall bear
a legend substantially in the following form:
NO SALE, ASSIGNMENT, PARTICIPATION, PLEDGE,
HYPOTHECATION, TRANSFER OR OTHER DISPOSITION OF A
CLASS C CERTIFICATE (OR ANY INTEREST THEREIN) SHALL
BE MADE UNLESS THE TRANSFEROR AND THE SERVICER
SHALL HAVE GRANTED THEIR PRIOR CONSENT THERETO,
WHICH CONSENT MAY NOT BE UNREASONABLY WITHHELD.
(e) Each Class D Certificate will bear a
legend substantially in the following form:
THIS CERTIFICATE (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS CERTIFICATE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAW. METRIS RECEIV-
ABLES, INC. (FORMERLY FINGERHUT FINANCIAL SERVICES
RECEIVABLES, INC.) SHALL BE PROHIBITED FROM TRANS-
FERRING ANY INTEREST IN OR PORTION OF THIS CERTIFI-
CATE UNLESS, PRIOR TO SUCH TRANSFER, IT SHALL HAVE
DELIVERED TO THE TRUSTEE AN OPINION OF COUNSEL TO
THE EFFECT THAT SUCH PROPOSED TRANSFER WILL NOT
ADVERSELY AFFECT THE FEDERAL, MINNESOTA OR DELAWARE
INCOME TAX CHARACTERIZATION OF ANY OUTSTANDING
SERIES OF INVESTOR CERTIFICATES OR THE TAXABILITY
(OR TAX CHARACTERIZATION) OF THE TRUST UNDER FEDER-
AL, MINNESOTA OR DELAWARE INCOME TAX LAWS. THE
TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN
CONDITIONS SET FORTH IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.
<PAGE> 81
(f) Upon surrender for registration of
transfer of a Class B Certificate or Class C Certificate
at the office of the Transfer Agent and Registrar, ac-
companied by a certification by the Class B Certificate-
holder or Class C Certificateholder, as applicable,
substantially in the form attached as Exhibit D if the
new purchaser is a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933
and by a written instrument of transfer in the form
approved by the Transferor and the Trustee (it being
understood that, until notice to the contrary is given
to Class B Certificateholders or Class C Certificate-
holders, the Transferor and the Trustee shall each be
deemed to have approved the form of instrument of trans-
fer, if any printed on any definitive Class B Certifi-
cate or Class C Certificate), executed by the registered
owner, in person or by such Class B Certificateholder's
or Class C Certificateholder's attorney thereunto duly
authorized in writing, such Class B Certificate or Class
C Certificate shall be transferred upon the register,
and the Transferor shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated
transferees one or more new registered Class C Certifi-
cates of any authorized denominations and of a like
aggregate principal amount and tenor. Transfers and
exchanges of Class B Certificates or Class C Certifi-
cates shall be subject to such restrictions as shall be
set forth in the text of the Class B Certificates or
Class C Certificates and such reasonable regulations as
may be prescribed by the Transferor. Successive regis-
trations and registrations of transfers as aforesaid may
be made from time to time as desired, and each such
registration shall be noted on the register.
(g) Metris Receivables, Inc. (formerly
Fingerhut Financial Services Receivables, Inc.) shall be
prohibited from transferring any interest in or portion
of the Class D Certificate unless, prior to such Trans-
fer, it shall have delivered to the Trustee an Opinion
of Counsel to the effect that such proposed Transfer
will not adversely affect the Federal, Minnesota or
Delaware income tax characterization of any outstanding
Series of Investor Certificates or the taxability (or
tax characterization) of the Trust under Federal, Minne-
sota or Delaware income tax laws. In no event shall any
interest in or portion of the Class D Certificate be
transferred to FCI. As a condition to transfer of an
interest in or portion of the Class D Certificate the
transferee shall be required to agree not to institute
against, or join any other Person in instituting
against, the Trust any bankruptcy, reorganization, ar-
rangement, insolvency or liquidation proceeding, or
other proceeding under any federal or state bankruptcy
or similar law, for one year and one day after all In-
vestor Certificates are paid in full. The Transferor
shall provide prompt written notice to the Rating Agen-
cies of any such transfer.
<PAGE> 82
(h) No transfer of a Class B Certifi-
cate, Class C Certificate or Class D Certificate will be
permitted to be made to a Benefit Plan unless such Bene-
fit Plan, at its expense, delivers to the Trustee, the
Servicer and the Transferor an opinion of counsel satis-
factory to them to the effect that the purchase or hold-
ing of a Class B Certificate, Class C Certificate or
Class D Certificate by such Benefit Plan will not result
in the assets of the Trust being deemed to be "assets of
the Benefit Plan" and subject to the prohibited transac-
tion provisions of ERISA and the Code and will not sub-
ject the Trustee, the Transferor or the Servicer to any
obligation in addition to those undertaken in the Agree-
ment. Unless such opinion is delivered, each person
acquiring a Class B Certificate, Class C Certificate or
Class D Certificate or the beneficial ownership of a
Class B Certificate, Class C Certificate or Class D
Certificate will be deemed to represent to the Trustee,
the Transferor and the Servicer that it is not (i) an
employee benefit plan (as defined in Section 3(3) of
ERISA) that is subject to the provisions of Title I of
ERISA, (ii) a plan described in Section 4975(e)(1) of
the Code, or (iii) any entity whose underlying assets
include plan assets by reason of a plan's investment in
the entity.
(i) The Class B Certificateholders or
Class C Certificateholders shall comply with their obli-
gations under Section 3.7 of the Agreement with respect
to the tax treatment of the Class B Certificates or
Class C Certificates, except to the extent that a rele-
vant taxing authority has disallowed such treatment.
(j) In accordance with Section 6.2 of
the Agreement, no sale, assignment, participation,
pledge, hypothecation, transfer or other disposition of
a Class C Certificate (or any interest therein) shall be
made unless the Transferor and the Servicer shall have
granted their prior consent thereto, which consent may
not be unreasonably withheld; provided, however, that
for purposes of this sentence, it shall in all cases be
reasonable for the Transferor or the Servicer to with-
hold consent to such proposed sale, assignment, partici-
pation, pledge, hypothecation, transfer or other dispo-
sition of all or any part of a Class C Certificate (or
any interest therein) if the transaction would, if ef-
fected, give rise to any adverse tax consequence, as
determined in the sole and absolute discretion of the
Transferor or the Servicer.
<PAGE> 83
SECTION 11. Ratification of Agreement. (a)
As supplemented by this Series Supplement, the Agreement
is in all respects ratified and confirmed and the Agree-
ment as so supplemented by this Series Supplement shall
be read, taken, and construed as one and the same in-
strument.
(b) For so long as any of the Class B
Certificates or the Class C Certificates are outstand-
ing, each of the Transferor, the Servicer and the Trust-
ee agree to cooperate with each other to provide to any
Class B Certificateholders or Class C Certificatehold-
ers, as applicable, and to any prospective purchaser of
Class B Certificates or Class C Certificates designated
by such a Class B Certificateholder or Class C Certifi-
cateholder upon the request of such Class B Certificate-
holder or Class C Certificateholder or prospective pur-
chaser, any information required to be provided to such
holder or prospective purchaser to satisfy the condition
set forth in Rule 144A(d)(4) under the Securities Act.
SECTION 12. Counterparts. This Series Sup-
plement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an orig-
inal, but all of such counterparts shall together con-
stitute but one and the same instrument.
SECTION 13. GOVERNING LAW. THIS SERIES SUP-
PLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS CON-
FLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 14. Instructions in Writing. All
instructions or other communications given by the
Servicer or any other person to the Trustee pursuant to
this Series Supplement shall be in writing, and, with
respect to the Servicer, may be included in a Daily
Report or Settlement Statement.
SECTION 15. Amendments. Solely with respect
to any amendment pursuant to Section 13.1(b) of the
Agreement and any consent required pursuant thereto from
the Holders of Investor Certificates of Series 1995-1,
this Series Supplement and the Agreement may be amended
from time to time by the Servicer, the Transferor and
the Trustee with the consent of the Holders of Investor
Certificates evidencing Undivided Interests aggregating
not less than 66 2/3% of the Invested Amount of the
Series 1995-1 Certificates and (y) not less than 51% of
each of the Class A Invested Amount, the Class B Invest-
ed Amount and the Class C Invested Amount to the extent
that such classes would be adversely affected, for the
purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this
Series Supplement or the Agreement or of modifying in
any manner the rights of the Certificateholders of any
Class of the Series 1995-1 Certificates then issued and
outstanding; provided, however, that no such amendment
<PAGE> 84
under this Section 15 shall (i) reduce in any manner the
amount of, or delay the timing of, distributions which
are required to be made on any Investor Certificate of
such Class without the consent of all of the related
Investor Certificateholders; (ii) change the definition
of or the manner of calculating the interest of any
Investor Certificate of such Class without the consent
of the related Investor Certificateholders or (iii)
reduce the aforesaid percentage required to consent to
any such amendment, in each case without the consent of
all such Investor Certificateholders.
SECTION 16. Increased Costs. (a) Notwith-
standing any other provision herein, if after the Effec-
tive Date (as defined in the Liquidity Agreement), any
change in applicable law or regulation or in the inter-
pretation or administration thereof by any Governmental
Authority charged with the interpretation or administra-
tion thereof (whether or not having the force of law)
shall change the basis of taxation of payments to any
Class B or Class C Certificateholder that is a commer-
cial bank or controlled by a commercial bank of the
principal of or interest on any Class B or Class C Cer-
tificate (other than changes in respect of taxes imposed
on the overall net income of such Certificateholder by
the jurisdiction in which such Certificateholder has its
principal office or by any political subdivision or
taxing authority therein), or shall impose, modify or
deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the
account of or credit extended by such Certificateholder,
or shall impose on such Certificateholder or the London
interbank market any other condition affecting this
Series Supplement or any Class B or Class C Certificate
owned by such Certificateholder, and the result of any
of the foregoing shall be to increase the cost to such
Certificateholder of holding any Class B or Class C
Certificate or to reduce the amount of any sum received
or receivable by such Certificateholder hereunder
(whether of principal or interest) in respect thereof by
an amount deemed by such Certificateholder to be materi-
al, then the Trustee will pay to such Certificateholder
upon demand such additional amount or amounts as will
compensate such Certificateholder for such additional
costs incurred or reduction suffered. Any Class B or
Class C Certificateholder claiming any additional
amounts payable pursuant to this Section 16 shall use
reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document re-
quested by the Transferor or the Trustee or to change
the jurisdiction of its applicable lending office if the
making of such a filing or change would avoid the need
for or reduce the amount of any additional amount which
may thereafter accrue and would not, in the sole deter-
mination of such Certificateholder, be otherwise disad-
vantageous to such Certificateholder.
<PAGE> 85
(b) If any Class B or Class C Certifi-
cateholder that is a commercial bank or controlled by a
commercial bank shall have determined that the adoption
after the Effective Date (as defined in the Liquidity
Agreement) of any other law, rule, regulation or guide-
line regarding capital adequacy, or any change in any of
the foregoing or in the interpretation or administration
of any of the foregoing by any Governmental Authority,
central bank or comparable agency charged with the in-
terpretation or administration thereof, or compliance by
any such Certificateholder (or any lending office of
such Certificateholder) or any such Certificateholder's
holding company with any request or directive regarding
capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the
rate of return on such Certificateholder's capital or on
the capital of such Certificateholder's holding company,
if any, as a consequence of this Series Supplement or
the Class B or Class C Certificates owned by such Cer-
tificateholder to a level below that which such Certifi-
cateholder or such Certificateholder's holding company
could have achieved but for such adoption, change or
compliance (taking into consideration such
Certificateholder's policies and the policies of such
Certificate-holder's holding company with respect to
such capital adequacy) by an amount deemed by such Cer-
tificateholder to be material, then from time to time
the Trustee shall pay to such Certificateholder such
additional amount or amounts as will compensate such
Certificateholder or such Trustee's holding company for
any such reduction suffered after the date hereof.
(c) A certificate of a Class B or Class
C Certificateholder setting forth such amount or
amounts, along with such Certificateholder's method of
computation of such amounts, as shall be necessary to
compensate such Certificateholder as specified in para-
graph (a) or (b) above, as the case may be, shall be
delivered to the Trustee and shall be conclusive absent
manifest error. The Trustee shall pay each Certificate-
holder the amount shown as due on any such certificate
delivered by it no later than the Distribution Date
immediately succeeding the date of delivery of such
certificate.
<PAGE> 86
(d) Failure on the part of any eligible
Class B or Class C Certificateholder to demand compensa-
tion for any increased costs or reduction in amounts
received or receivable or reduction in return on capital
with respect to any period shall not constitute a waiver
of such Certificateholder's right to demand compensation
with respect to such period or any other period; provid-
ed, however, that no Certificateholder shall be entitled
to compensation for any such increased costs or reduc-
tions unless it shall have submitted a certificate under
paragraph (c) above with respect thereto not more than
90 days after the date that such Certificateholder knows
that such increased costs have been incurred or such
reduction suffered. Notwithstanding any other provision
of this Section 16, no Certificateholder shall demand
compensation for any increased cost or reduction re-
ferred to above if it shall not at the time be the gen-
eral policy of such Certificateholder to demand such
compensation in similar circumstances under comparable
provisions of other credit agreements, and each Certifi-
cateholder shall in good faith endeavor to allocate
increased costs or reductions fairly among all of its
affected commitments and credit extensions (whether or
not it seeks compensation from all affected borrowers).
The protection of this Section 16 shall be available to
each Class B or Class C Certificateholder that is a
commercial bank or controlled by a commercial bank re-
gardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline
or other change or condition which shall have occurred
or been imposed.
(e) The amounts owing by the Trustee
pursuant to this Section 16 shall be payable solely from
amounts available therefor pursuant to subsections
4.9(a)(xvi) and (xvii) of the Agreement.
SECTION 17. Replacement of Certain Investor
Certificateholders. In the event that (i) a Class B or
Class C Certificateholder requests compensation pursuant
to Section 16, (ii) a Holder of Investor Certificates (a
"Non-Consenting Holder") does not consent to an amend-
ment, supplement, waiver or other modification with
respect to this Series Supplement or to the Agreement,
as provided in Section 15 within the time period speci-
fied for delivery of such consent pursuant to the docu-
mentation associated therewith and the amendment, sup-
plement, waiver or other modification is not approved in
accordance with said Section 15, or (iii) an Investor
Certificateholder fails to approve any Extension re-
quested by the Transferor pursuant to Section 6.17 of
<PAGE> 87
the Agreement, the Transferor shall have the right to
replace such Holder with a Person or Persons meeting the
requirements of Section 10, by giving three Business
Days prior written notice to the Trustee and such Hold-
er, specifying the date on which such Holder s Certifi-
cates shall be transferred; provided, however that, (a)
such transfer shall not conflict with any law, rule or
regulation or order of any court or other Governmental
Authority, and (b) in the case of clause (ii) above, all
Non-Consenting Holders with respect to any one proposed
amendment, supplement, waiver or other modification or
Extension must be concurrently replaced in accordance
with this Section 17. In the event of the replacement
of an Investor Certificateholder, such Investor Certifi-
cateholder agrees to assign, without recourse, its
rights and obligations hereunder to a replacement Holder
selected by the Transferor upon payment by the replace-
ment Holder to such Investor Certificateholder in imme-
diately available funds of the principal amount of such
Investor Certificateholder's outstanding Certificates
and any interest accrued and unpaid thereon and all
other amounts owing to such Investor Certificateholder
hereunder and to execute and/or deliver any certifica-
tion or other document required to be delivered pursuant
to Section 10.
SECTION 18. Metris Receivables Note. The
Transferor has received a note from Metris Companies
Inc. in the amount of $33,000,000 (such note, together
with any additional notes of Metris Companies Inc. held
by the Transferor at any time other than a certain de-
mand note in the amount of $10,000,000 issued on Septem-
ber 16, 1996, the "Metris Receivables Note" or "FFSRI
Note"). The Transferor hereby agrees that at no time
shall the principal amount of the Metris Receivables
Note be less than $31,000,000 (the "Metris Receivables
Note Required Amount" or "FFSRI Note Required Amount).
The Metris Receivables Note may not be sold, trans-
ferred, assigned, pledged, hypothecated, participated or
otherwise conveyed or encumbered, nor may the Transferor
grant any security interest in the Metris Receivables
Note.
<PAGE> 88
IN WITNESS WHEREOF, the Transferor, the
Servicer and the Trustee have caused this Amended and
Restated Series 1995-1 Supplement to be duly executed by
their respective officers as of the day and year first
above written.
METRIS RECEIVABLES, INC.
Transferor
By:_______________________
Name:
Title:
DIRECT MERCHANTS CREDIT CARD BANK, N.A.
Servicer
By:_________________________
Name:
Title:
THE BANK OF NEW YORK (DELAWARE)
Trustee
By:_________________________
Name:
Title:
EXHIBIT A-1
[FORM OF VARIABLE FUNDING CERTIFICATE]
THIS CERTIFICATE (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THIS CER-
TIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURI-
TIES LAW OF ANY STATE AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
REGISTERED PURSUANT TO OR EXEMPT FROM REGIS-
TRATION UNDER THE SECURITIES ACT AND ANY OTHER
APPLICABLE SECURITIES LAW. THE TRANSFER OF
THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDI-
TIONS SET FROTH IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN.
<PAGE> 89
EACH PURCHASER REPRESENTS AND WARRANTS
FOR THE BENEFIT OF METRIS RECEIVABLES, INC.
(FORMERLY KNOWN AS FINGERHUT FINANCIAL SERVIC-
ES RECEIVABLES, INC.) THAT, UNLESS SUCH PUR-
CHASER, AT ITS EXPENSE, DELIVERS TO THE TRUST-
EE, THE SERVICER AND THE TRANSFEROR AN OPINION
OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT
THAT THE PURCHASE OR HOLDING OF A CLASS A CER-
TIFICATE BY SUCH PURCHASER WILL NOT RESULT IN
THE ASSETS OF THE TRUST BEING DEEMED TO BE
"ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO
THE PROHIBITED TRANSACTION PROVISIONS OF ERISA
AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE,
THE TRANSFEROR OR THE SERVICER TO ANY OBLIGA-
TION IN ADDITION TO THOSE UNDERTAKEN IN THE
POOLING AND SERVICING AGREEMENT, SUCH PURCHAS-
ER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS
DEFINED IN SECTION 3(3) OF THE EMPLOYEE RE-
TIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) THAT IS SUBJECT TO THE PRO-
VISIONS OF TITLE I OF ERISA, (II) A PLAN DE-
SCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR (III) AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY.
No. ____ Percentage Interest: ___%
METRIS MASTER TRUST
VARIABLE FUNDING TRUST
CERTIFICATE, SERIES 1995-1, CLASS A
Evidencing an undivided interest in a trust,
the corpus of which consists of receivables generated
from time to time in the ordinary course of business
from a portfolio of open end or revolving credit receiv-
ables generated or to be generated by Direct Merchants
Credit Card Bank, National Association (the "Bank" or
the "Servicer") and other assets and interests consti-
tuting the Trust under the Agreement described below.
(Not an interest in or a recourse obligation
of Metris Receivables, Inc., the Bank or any affiliate
of either of them.)
<PAGE> 90
This certifies that _________ (the "Certifi-
cateholder") is the registered owner of a fractional
undivided interest in the Metris Master Trust (the
"Trust") issued pursuant to the Pooling and Servicing
Agreement, dated as of May 26, 1995 (the "Pooling and
Servicing Agreement"; such term to include any amendment
thereto) by and between Metris Receivables, Inc., as
Transferor (the "Transferor"), the Bank, as the
Servicer, and The Bank of New York (Delaware), as Trust-
ee (the "Trustee"), and the Amended and Restated Series
1995-1 Supplement, dated as of September 16, 1996 (the
"Amended and Restated Series 1995-1 Supplement"), among
the Transferor, the Bank, as Servicer and the Trustee
(the Pooling and Servicing Agreement, as supplemented by
the Amended and Restated Series 1995-1 Supplement, is
herein referred to as the "Agreement"). The corpus of
the Trust consists of all of the Transferor's right,
title and interest in, to and under (i) the Trust Prop-
erty (as defined in the Agreement) and (ii) the property
described in Section 3A of the Amended and Restated
Series 1995-1 Supplement and Section 4.4 of the Agree-
ment.
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights, bene-
fits, obligations, proceeds, and duties evidenced hereby
and the rights, duties and obligations of the Trustee.
To the extent not defined herein, the capitalized terms
used herein have the meanings ascribed to them in the
Agreement. This Certificate is entitled the "Metris
Master Trust Variable Funding Trust Certificate, Series
1995-1, Class A" (the "Class A Certificate"), and repre-
sents a fractional undivided interest in the Trust, and
is issued under and is subject to the terms, provisions
and conditions of the Agreement, to which Agreement, as
amended from time to time, the Certificateholder by
virtue of the acceptance hereof assents and by which the
Certificateholder is bound. In the case of any conflict
between terms specified in this Certificate and terms
specified in the Agreement, the terms of the Agreement
shall govern.
<PAGE> 91
The Transferor has structured the Agreement,
the Class A Certificate, the Metris Master Trust Float-
ing Rate Accounts Receivable Trust Certificates, Series
1995-1, Class B (the "Class B Certificates ) and the
Metris Master Trust Accounts Receivable Trust Certifi-
cates, Series 1995-1, Class C (the "Class C Certifi-
cates") with the intention that the Class A Certificate,
the Class B Certificates and the Class C Certificates
will qualify under applicable tax law as indebtedness,
and both the Transferor and each holder of a Class A
Certificate (a "Class A Certificateholder") or any in-
terest therein by acceptance of its Certificate or any
interest therein, agrees to treat the Class A Certifi-
cate for purposes of federal, state and local income or
franchise taxes and any other tax imposed on or measured
by income, as indebtedness.
Except in limited circumstance described in
the third succeeding paragraph no principal will be
payable to the Class A Certificateholder before the
first Business Day in the Amortization Period. No prin-
cipal will be payable to the Class B Certificateholders,
or Class C Certificateholders until all principal pay-
ments have been made to the Class A Certificateholders.
Except in connection with a payment of Class D Daily
Principal, the Class D Certificate will not have the
right to receive payments of principal until the Class A
Invested Amount, the Class B Invested Amount and the
Class C Invested Amount have been paid in full.
Upon issuance, the Class A Certificate repre-
sents the right to receive, on each Business Day, an
amount equal to the lesser of (x) the Available Series
1995-1 Finance Charge Collections for such Business Day
and (y) the sum of (A) the lesser of (I) the sum of (a)
the Total Program Fees, and (b) the product of (i) the
Class A Certificate Rate, (ii) a fraction the numerator
of which is the actual number of days from and including
the next preceding Business Day to but excluding such
Business Day and the denominator of which is 365 or 366,
as the case may be, and (iii) the Class A Outstanding
Principal Amount as of the closed of business on the
preceding Business Day and (II) the product of (X) the
greater of LIBOR as then in effect plus 0.75% per annum
and 0.12% per annum and (Y) a fraction the numerator of
which is the number of days from and including the pre-
ceding Business Day to but excluding such Business Day
and the denominator of which is the actual number of
days in the then current calendar year and (iii) the
Class A Outstanding Principal Balance as of the close of
business on the preceding Business Day plus (B) the
excess, if any, of the amount payable to the Class A
Certificateholders pursuant to clause (A) on each prior
Business Day over the amount which has been paid to the
Class A Certificateholders with respect thereto on each
prior Business Day.
<PAGE> 92
Unless there is any Extension, on the earlier
of April 23, 1999 and the Pay Out Commencement Date,
interest and principal will be distributed to the Class
A Certificateholders on each Business Day prior to the
Series Termination Date. If in accordance with Section
6.17 of the Agreement, the Transferor elects to issue an
Extension Notice and the conditions precedent for Exten-
sion specified therein have been satisfied, no principal
will be payable with respect to the Class A Certificate
until the date specified in such Extension Notice or in
the last of any subsequent Extension Notices. Interest
for any Business Day due but not paid on any Business
Day will be due on the next succeeding Business Day.
On any Business Day during the Revolving Peri-
od, except during a Class A Pay Down Period, the Trans-
feror may specify an amount, not to exceed the Net ABC
Revolving Principal Collections, to be deposited into
the Defeasance Account. Any amounts so deposited, shall
be paid to the Class A Certificateholder in accordance
with Section 9A of the Agreement and upon payment shall
reduce the Class A Invested Amount by an amount equal to
any such payment. In addition the Transferor may speci-
fy, upon the issuance of a new Series pursuant to an
Exchange made at any time during the Revolving Period,
except during a Class A Pay Down Period, that the pro-
ceeds of such issuance be deposited into the Defeasance
Account for payment to the Class A Certificateholder
pursuant to Section 9A of the Agreement. The Class A
Invested Amount will be reduced by an amount equal to
the amount of any such payments made.
In addition, pursuant to Section 6.15 of the
Agreement, the holders of this Certificate may from time
to time be required, prior to the commencement of the
Amortization Period for the Certificates or the Class A
Paydown Period, to purchase Additional Class A Invested
Amounts on the terms and conditions specified therein.
The holder of this Certificate is authorized to record
on the grid attached to its Class A Certificate (or at
such Certificateholder's option, in its internal books
and records) the date and amount of any Additional In-
vested Amount purchased by it, and each repayment there-
of; provided that failure to make any such recordation
on such grid or any error in such grid shall not ad-
versely affect such Certificateholder's rights with
respect to its Class A Invested Amount and its right to
receive interest payments in respect of the Class A
Invested Amount held by such Certificateholder.
<PAGE> 93
"Class A Invested Amount" means, when used
with respect to any Business Day, an amount equal to (a)
the initial principal amount of Class A Certificates
purchased pursuant to any Class A Funding Purchase pur-
suant to Section 4.14(b) of the Agreement, minus (b) the
aggregate amount of principal payments made to Class A
Certificateholders through and including such Business
Day minus (c) the aggregate amount of Class A Investor
Charge-Offs for all prior Distribution Dates, and plus
(d) the sum of the aggregate amount allocated with re-
spect to Class A Investor Charge-Offs and available on
all prior Distribution Dates pursuant to subsection
4.9(a)(viii) of the Agreement and, with respect to such
subsection and pursuant to subsections 4.10(a) and (b)
and Section 4.15 of the Agreement for the purpose of
reinstating amounts reduced pursuant to the foregoing
clause (d) plus (e) the aggregate principal amount of
any Additional Class A Invested Amounts purchased pursu-
ant to Section 6.15 of the Agreement.
Subject to the Agreement, payments of princi-
pal are limited to the unpaid Class A Invested Amount of
the Class A Certificate, which may be less than the
unpaid balance of the Class A Certificate pursuant to
the terms of the Agreement. All principal of and inter-
est on the Class A Certificate is due and payable no
later than May 30, 2003 (the "Series 1995-1 Termination
Date"). After the Series 1995-1 Termination Date nei-
ther the Trust nor the Transferor will have any further
obligation to distribute principal or interest on the
Class A Certificate. In the event that the Class A
Invested Amount is greater than zero on the Series Ter-
mination Date, the Trustee will sell or cause to be
sold, to the extent necessary, an amount of interests in
the Receivables or certain of the Receivables up to 110%
of the Class A Invested Amount, the Class B Invested
Amount, the Class C Invested Amount and the Class D
Invested Amount at the close of business on such date
(but not more than the total amount of Receivables allo-
cable to the Investor Certificates), and shall pay the
proceeds to the Class A Certificateholders pro rata in
final payment of the Class A Certificate, then to the
Class B Certificateholders pro rata in final payment of
<PAGE> 94
the Class B Certificates, then to the Class C Certifi-
cateholders pro rata in final payment of the Class C
Certificates and finally to the Class D Certificatehold-
ers pro rata in final payment of the Class D Certifi-
cate.
Unless the certificate of authentication here-
on has been executed by or on behalf of the Trustee, by
manual signature, this Certificate shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Certificate to be duly executed under its official
seal.
METRIS RECEIVABLES, INC.
By:____________________________
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is the Class A Certificate referred to in
the within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK, as
Authenticating Agent for
the Trustee
By: _______________________
Authorized Signatory
Beginning Ending
Principal Principal
Date Balance Additions Payments Balance
Exhibit A-2
[FORM OF CLASS B INVESTOR CERTIFICATE]
METRIS MASTER TRUST
FLOATING RATE ACCOUNTS RECEIVABLE TRUST
CERTIFICATE, SERIES 1995-1, CLASS B
<PAGE> 95
THIS CERTIFICATE HAS NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAW. THE HOLDER HEREOF,
BY PURCHASING THIS CERTIFICATE, AGREES THAT
THIS CERTIFICATE MAY BE REOFFERED, RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COM-
PLIANCE WITH THE SECURITIES ACT AND OTHER AP-
PLICABLE LAWS AND ONLY PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT TO AN INSTITUTIONAL
INVESTOR THAT THE HOLDER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A ("QIB") PURCHASING FOR
ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE
ACCOUNT OF A QIB, WHOM THE HOLDER HAS IN-
FORMED, IN EACH CASE, THAT THE REOFFER, RE-
SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A, OR TO THE TRANSFER-
OR. EACH CERTIFICATE OWNER BY ACCEPTING A
BENEFICIAL INTEREST IN THIS CERTIFICATE IS
DEEMED TO REPRESENT THAT IT IS A QIB PURCHAS-
ING FOR ITS OWN ACCOUNT OR A QIB PURCHASING
FOR THE ACCOUNT OF ANOTHER QIB.
EACH PURCHASER REPRESENTS AND WARRANTS
FOR THE BENEFIT OF METRIS RECEIVABLES, INC.
(FORMERLY KNOWN AS FINGERHUT FINANCIAL SERVIC-
ES RECEIVABLES, INC.) THAT, UNLESS SUCH PUR-
CHASER, AT ITS EXPENSE, DELIVERS TO THE TRUST-
EE, THE SERVICER AND THE TRANSFEROR AN OPINION
OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT
THAT THE PURCHASE OR HOLDING OF A CLASS B CER-
TIFICATE BY SUCH PURCHASER WILL NOT RESULT IN
THE ASSETS OF THE TRUST BEING DEEMED TO BE
"ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO
THE PROHIBITED TRANSACTION PROVISIONS OF ERISA
AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE,
THE TRANSFEROR OR THE SERVICER TO ANY OBLIGA-
TION IN ADDITION TO THOSE UNDERTAKEN IN THE
POOLING AND SERVICING AGREEMENT, SUCH PURCHAS-
ER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS
DEFINED IN SECTION 3(3) OF THE EMPLOYEE RE-
TIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) THAT IS SUBJECT TO THE PRO-
VISIONS OF TITLE I OF ERISA, (II) A PLAN DE-
SCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR (III) AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY.
<PAGE> 96
No. B- $____________
METRIS MASTER TRUST
FLOATING RATE ACCOUNTS RECEIVABLE TRUST
CERTIFICATE, SERIES 1995-1, CLASS B
Evidencing an undivided interest in a trust,
the corpus of which consists of receivables generated
from time to time in the ordinary course of business
from a portfolio of open end or revolving credit receiv-
ables generated or to be generated by Direct Merchants
Credit Card Bank, National Association (the "Bank" or
the "Servicer") and other assets and interests consti-
tuting the Trust under the Agreement described below.
(Not an interest in or a recourse obligation
of Metris Receivables, Inc., the Bank or any affiliate
of either of them.)
This certifies that ________________________
____________________________________________________
(the "Certificateholder") is the registered owner of a
fractional undivided interest in the Metris Master Trust
(the "Trust") issued pursuant to the Pooling and Servic-
ing Agreement, dated as of May 26, 1995 (the "Pooling
and Servicing Agreement"; such term to include any
amendment thereto) by and between Metris Receivables,
Inc., as Transferor (the "Transferor"), the Bank, as the
Servicer, and The Bank of New York (Delaware), as Trust-
ee (the "Trustee"), and the Amended and Restated Series
1995-1 Supplement, dated as of September 16, 1996 (the
"Amended and Restated Series 1995-1 Supplement"), among
the Transferor, the Bank, as Servicer and the Trustee
(the Pooling and Servicing Agreement, as supplemented by
the Amended and Restated Series 1995-1 Supplement, is
herein referred to as the "Agreement"). The corpus of
the Trust consists of all of the Transferor's right,
title and interest in, to and under (i) the Trust Prop-
erty (as defined in the Agreement) and (ii) the property
described in Section 3A of the Amended and Restated
Series 1995-1 Supplement and Section 4.4 of the Agree-
ment.
<PAGE> 97
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights, bene-
fits, obligations, proceeds, and duties evidenced hereby
and the rights, duties and obligations of the Trustee.
To the extent not defined herein, the capitalized terms
used herein have the meanings ascribed to them in the
Agreement. This Certificate is one of a series of Cer-
tificates entitled "Metris Master Trust Floating Rate
Accounts Receivable Trust Certificates, Series 1995-1,
Class B" (the "Class B Certificates"), each of which
represents a fractional undivided interest in the Trust,
and is issued under and is subject to the terms, provi-
sions and conditions of the Agreement, to which Agree-
ment, as amended from time to time, the Certificatehold-
er by virtue of the acceptance hereof assents and by
which the Certificateholder is bound. In the case of
any conflict between terms specified in this Certificate
and terms specified in the Agreement, the terms of the
Agreement shall govern.
The Transferor has structured the Agreement,
the Class B Certificates, the Metris Master Trust Vari-
able Funding Trust Certificate, Series 1995-1, Class A
(the "Class A Certificate ) and the Metris Master Trust
Accounts Receivable Trust Certificates, Series 1995-1,
Class C (the "Class C Certificates") with the intention
that the Class A Certificate, the Class B Certificates
and the Class C Certificates will qualify under applica-
ble tax law as indebtedness, and both the Transferor and
each holder of a Class B Certificate (a "Class B Certif-
icateholder") or any interest therein by acceptance of
its Certificate or any interest therein, agrees to treat
the Class B Certificate for purposes of federal, state
and local income or franchise taxes and any other tax
imposed on or measured by income, as indebtedness.
No principal will be payable to the Class B
Certificateholders until the Class B Principal Payment
Commencement Date, which is the Distribution Date either
on or following the Distribution Date, on which the
Class A Invested Amount had been paid in full. No prin-
cipal will be payable to the Class B Certificateholders
until all principal payments have been made to the Class
A Certificateholders. No principal payments will be
made to the Class C Certificateholder until the Distri-
bution Date either on or following the Distribution Date
on which the Class B Invested Amount has been paid in
full. Except in connection with a payment of Class D
Daily Principal, the Class D Certificate will not have
the right to receive payments of principal until the
Class A Invested Amount, the Class B Invested Amount and
the Class C Invested Amount have been paid in full.
<PAGE> 98
Each Class B Certificate represents the right
to receive interest at the rate of .625% per annum above
LIBOR (as determined on the related LIBOR Determination
Date, and such rate, as in effect from time to time, the
"Class B Certificate Rate" ) on the 20th day of each
month after the issuance of the Class B Certificates, or
if such day is not a business day, on the next succeed-
ing business day (each, a "Distribution Date"), in an
amount equal to the product of (a) the actual number of
days in the related Interest Accrual Period divided by
360, (b) the Class B Certificate Rate and (c) the Class
B Invested Amount as of the close of business on the
first day of the related Interest Accrual Period.
Interest for any Distribution Date will in-
clude accrued interest at the Class B Certificate Rate
from and including the preceding Distribution Date or,
in the case of the first Distribution Date from and
including the Closing Date, to but excluding such Dis-
tribution Date. Interest for any Distribution Date due
but not paid on any Distribution Date will be due on the
next succeeding Distribution Date together with, to the
extent permitted by applicable law, additional interest
on such amount at the Class B Certificate Rate plus 2%.
"Class B Invested Amount" shall mean, when
used with respect to any Business Day, an amount equal
to (a) $129,612,000, minus (b) the aggregate amount of
principal payments made to Class B Certificateholders
prior to such Business Day, minus (c) the aggregate
amount of Class B Investor Charge-Offs for all prior
Distribution Dates, minus (d) the aggregate amount of
Reallocated Class B Principal Collections for which
neither the Class D Invested Amount nor the Class C
Invested Amount has been reduced for all prior Business
Days, and plus (e) the sum of the aggregate amount allo-
cated and available on all prior Business Days pursuant
to subsection 4.9(a)(xi) of the Agreement and, with
respect to such subsection and pursuant to subsections
4.10(a) and (b) and Section 4.15 of the Agreement, for
the purpose of reinstating amounts reduced pursuant to
the foregoing clauses (c) and (d).
<PAGE> 99
Subject to the Agreement, payments of princi-
pal are limited to the unpaid Class B Invested Amount of
the Class B Certificate, which may be less than the
unpaid balance of the Class B Certificate pursuant to
the terms of the Agreement. All principal of and inter-
est on the Class B Certificate is due and payable no
later than May 30, 2003, unless a different date is set
forth in the Extension Notice (the "Series 1995-1 Termi-
nation Date"). After the Series 1995-1 Termination Date
neither the Trust nor the Transferor will have any fur-
ther obligation to distribute principal or interest on
the Class B Certificate. In the event that the Class B
Invested Amount is greater than zero on the Series 1995-
1 Termination Date, the Trustee will sell or cause to be
sold, to the extent necessary, an amount of interests in
the Receivables or certain of the Receivables up to 110%
of the Class A Invested Amount, the Class B Invested
Amount, the Class C Invested Amount and the Class D
Invested Amount at the close of business on such date
(but not more than the total amount of Receivables allo-
cable to the Investor Certificates), and shall pay the
proceeds to the Class A Certificateholders pro rata in
final payment of the Class A Certificate, then to the
Class B Certificateholders pro rata in final payment of
the Class B Certificates, then to the Class C Certifi-
cateholders pro rata in final payment of the Class C
Certificates and finally to the Class D Certificatehold-
ers pro rata in final payment of the Class D Certifi-
cate.
Unless the certificate of authentication here-
on has been executed by or on behalf of the Trustee, by
manual signature, this Certificate shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Certificate to be duly executed under its official
seal.
METRIS RECEIVABLES, INC.
By:____________________________
Name:
Title:
Dated:
<PAGE> 100
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates
referred to in the within-mentioned Pooling and Servic-
ing Agreement.
THE BANK OF NEW YORK, as
Authenticating Agent for
the Trustee
By: _______________________
Authorized Signatory
Exhibit A-3
[FORM CLASS C INVESTOR CERTIFICATE]
METRIS MASTER TRUST
FLOATING RATE ACCOUNTS RECEIVABLE TRUST
CERTIFICATE, SERIES 1995-1, CLASS C
THIS CERTIFICATE HAS NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAW. THE HOLDER HEREOF,
BY PURCHASING THIS CERTIFICATE, AGREES THAT
THIS CERTIFICATE MAY BE REOFFERED, RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COM-
PLIANCE WITH THE SECURITIES ACT AND OTHER AP-
PLICABLE LAWS AND ONLY PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT TO AN INSTITUTIONAL
INVESTOR THAT THE HOLDER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A ("QIB") PURCHASING FOR
ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE
ACCOUNT OF A QIB, WHOM THE HOLDER HAS IN-
FORMED, IN EACH CASE, THAT THE REOFFER, RE-
SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A, OR TO THE TRANSFER-
OR. EACH CERTIFICATE OWNER BY ACCEPTING A
BENEFICIAL INTEREST IN THIS CERTIFICATE IS
DEEMED TO REPRESENT THAT IT IS A QIB PURCHAS-
ING FOR ITS OWN ACCOUNT OR A QIB PURCHASING
FOR THE ACCOUNT OF ANOTHER QIB.
EACH PURCHASER REPRESENTS AND WARRANTS
FOR THE BENEFIT OF METRIS RECEIVABLES, INC.
(FORMERLY KNOWN AS FINGERHUT FINANCIAL SERVIC-
ES RECEIVABLES, INC.) THAT, UNLESS SUCH PUR-
CHASER, AT ITS EXPENSE, DELIVERS TO THE TRUST-
EE, THE SERVICER AND THE TRANSFEROR AN OPINION
OF COUNSEL SATISFACTORY TO THEM TO THE EFFECT
THAT THE PURCHASE OR HOLDING OF A CLASS C CER-
TIFICATE BY SUCH PURCHASER WILL NOT RESULT IN
THE ASSETS OF THE TRUST BEING DEEMED TO BE
"ASSETS OF THE BENEFIT PLAN" AND SUBJECT TO
THE PROHIBITED TRANSACTION PROVISIONS OF ERISA
AND THE CODE AND WILL NOT SUBJECT THE TRUSTEE,
THE TRANSFEROR OR THE SERVICER TO ANY OBLIGA-
TION IN ADDITION TO THOSE UNDERTAKEN IN THE
POOLING AND SERVICING AGREEMENT, SUCH PURCHAS-
ER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS
DEFINED IN SECTION 3(3) OF THE EMPLOYEE RE-
TIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")) THAT IS SUBJECT TO THE PRO-
VISIONS OF TITLE I OF ERISA, (II) A PLAN DE-
SCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, OR (III) AN
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN
ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY.
<PAGE> 101
NO SALE, ASSIGNMENT, PARTICIPATION,
PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DIS-
POSITION OF A CLASS C CERTIFICATE (OR ANY IN-
TEREST THEREIN) SHALL BE MADE UNLESS THE
TRANSFEROR AND THE SERVICER SHALL HAVE GRANTED
THEIR PRIOR CONSENT THERETO, WHICH CONSENT MAY
NOT BE UNREASONABLY WITHHELD.
No. C- $_____________
METRIS MASTER TRUST
FLOATING RATE ACCOUNTS RECEIVABLE TRUST
CERTIFICATE, SERIES 1995-1, CLASS C
Evidencing an undivided interest in a trust,
the corpus of which consists of receivables generated
from time to time in the ordinary course of business
from a portfolio of open end or revolving credit receiv-
ables generated or to be generated by Direct Merchants
Credit Card Bank, National Association (the "Bank" or
the "Servicer") and other assets and interests consti-
tuting the Trust under the Agreement described below.
(Not an interest in or a recourse obligation
of Metris Receivables, Inc., the Bank or any affiliate
of either of them.)
This certifies that _______________________
________________________________________________________
(the "Certificateholder") is the registered owner of a
fractional undivided interest in the Metris Master Trust
(the "Trust") issued pursuant to the Pooling and Servic-
ing Agreement, dated as of May 26, 1995 (the "Pooling
and Servicing Agreement"; such term to include any
amendment thereto) by and between Metris Receivables,
Inc., as Transferor (the "Transferor"), the Bank, as the
Servicer, and The Bank of New York (Delaware), as Trust-
ee (the "Trustee"), and the Amended and Restated Series
1995-1 Supplement, dated as of September 16, 1996 (the
"Amended and Restated Series 1995-1 Supplement"), among
the Transferor, the Bank, as Servicer and the Trustee
(the Pooling and Servicing Agreement, as supplemented by
the Amended and Restated Series 1995-1 Supplement, is
herein referred to as the "Agreement"). The corpus of
the Trust consists of all of the Transferor's right,
title and interest in, to and under (i) the Trust Prop-
erty (as defined in the Agreement) and (ii) the property
described in Section 3A of the Amended and Restated
Series 1995-1 Supplement and Section 4.4 of the Agree-
ment.
<PAGE> 102
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights, bene-
fits, obligations, proceeds, and duties evidenced hereby
and the rights, duties and obligations of the Trustee.
To the extent not defined herein, the capitalized terms
used herein have the meanings ascribed to them in the
Agreement. This Certificate is one of a series of Cer-
tificates entitled "Metris Master Trust Floating Rate
Accounts Receivable Trust Certificates, Series 1995-1,
Class C" (the "Class C Certificates"), each of which
represents a fractional undivided interest in the Trust,
and is issued under and is subject to the terms, provi-
sions and conditions of the Agreement, to which Agree-
ment, as amended from time to time, the Certificatehold-
er by virtue of the acceptance hereof assents and by
which the Certificateholder is bound. In the case of
any conflict between terms specified in this Certificate
and terms specified in the Agreement, the terms of the
Agreement shall govern.
The Transferor has structured the Agreement,
the Class C Certificates, the Metris Master Trust Vari-
able Funding Trust Certificate, Series 1995-1, Class A
(the "Class A Certificate ) and the Metris Master Trust
Accounts Receivable Trust Certificates, Series 1995-1,
Class B (the "Class B Certificates") with the intention
that the Class A Certificate, the Class B Certificates
and the Class C Certificates will qualify under applica-
ble tax law as indebtedness, and both the Transferor and
each holder of a Class C Certificate (a "Class C Certif-
icateholder") or any interest therein by acceptance of
its Certificate or any interest therein, agrees to treat
the Class C Certificate for purposes of federal, state
and local income or franchise taxes and any other tax
imposed on or measured by income, as indebtedness.
No principal will be payable to the Class C
Certificateholders until the Class C Principal Payment
Commencement Date, which is the Distribution Date either
on or following the Distribution Date, on which the
Class B Invested Amount had been paid in full. No prin-
cipal will be payable to the Class C Certificateholders
until all principal payments have been made to the Class
B Certificateholders. Except in connection with a pay-
ment of Class D Daily Principal, the Class D Certificate
will not have the right to receive payments of principal
until the Class A Invested Amount, the Class B Invested
Amount and the Class C Invested Amount have been paid in
full.
<PAGE> 103
Each Class C Certificate represents the right
to receive interest at the rate of .75% per annum above
LIBOR (as determined on the related LIBOR Determination
Date, and such rate, as in effect from time to time, the
"Class C Certificate Rate" ) on the 20th day of each
month after the issuance of the Class C Certificates, or
if such day is not a business day, on the next succeed-
ing business day (each, a "Distribution Date"), in an
amount equal to the product of (a) the actual number of
days in the related Interest Accrual Period divided by
360, (b) the Class C Certificate Rate and (c) the Class
C Invested Amount as of the close of business on the
first day of the related Interest Accrual Period.
Interest for any Distribution Date will in-
clude accrued interest at the Class C Certificate Rate
from and including the preceding Distribution Date or,
in the case of the first Distribution Date from and
including the Closing Date, to but excluding such Dis-
tribution Date. Interest for any Distribution Date due
but not paid on any Distribution Date will be due on the
next succeeding Distribution Date together with, to the
extent permitted by applicable law, additional interest
on such amount at the Class C Certificate Rate plus 2%.
"Class C Invested Amount" shall mean, when
used with respect to any Business Day, an amount equal
to (a) $70,698,000, minus (b) the aggregate amount of
principal payments made to Class C Certificateholders
prior to such Business Day, minus (c) the aggregate
amount of Class C Investor Charge-Offs for all prior
Distribution Dates, minus (d) the aggregate amount of
Reallocated Class C Principal Collections for which the
Class D Invested Amount has not been reduced for all
prior Business Days and plus (e) the sum of the aggre-
gate amount allocated and available on all prior Busi-
ness Days pursuant to subsection 4.9(a)(xii) of the
Agreement and, with respect to such subsection, pursuant
to subsections 4.10(a) and (b) and Section 4.15 of the
Agreement, for the purpose of reinstating amounts re-
duced pursuant to the foregoing clauses (c) and (d).
<PAGE> 104
Subject to the Agreement, payments of princi-
pal are limited to the unpaid Class C Invested Amount of
the Class C Certificate, which may be less than the
unpaid balance of the Class C Certificate pursuant to
the terms of the Agreement. All principal of and inter-
est on the Class C Certificate is due and payable no
later than May 30, 2003 unless a different date is set
forth in the Extension Notice (the "Series 1995-1 Termi-
nation Date"). After the Series 1995-1 Termination Date
neither the Trust nor the Transferor will have any fur-
ther obligation to distribute principal or interest on
the Class C Certificate. In the event that the Class C
Invested Amount is greater than zero on the Series 1995-
1 Termination Date, the Trustee will sell or cause to be
sold, to the extent necessary, an amount of interests in
the Receivables or certain of the Receivables up to 110%
of the Class A Invested Amount, the Class B Invested
Amount, the Class C Invested Amount and the Class D
Invested Amount at the close of business on such date
(but not more than the total amount of Receivables allo-
cable to the Investor Certificates), and shall pay the
proceeds to the Class A Certificateholders pro rata in
final payment of the Class A Certificate, then to the
Class B Certificateholders pro rata in final payment of
the Class B Certificates, then to the Class C Certifi-
cateholders pro rata in final payment of the Class C
Certificates and finally to the Class D Certificatehold-
ers pro rata in final payment of the Class D Certifi-
cate.
Unless the certificate of authentication here-
on has been executed by or on behalf of the Trustee, by
manual signature, this Certificate shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Certificate to be duly executed under its official
seal.
METRIS RECEIVABLES, INC.
By:_____________________________
Name:
Title:
Dated:
<PAGE> 105
CERTIFICATE OF AUTHENTICATION
This is one of the Class C Certificates
referred to in the within-mentioned Pooling and Servic-
ing Agreement.
THE BANK OF NEW YORK, as
Authenticating Agent for
the Trustee
By: _______________________
Authorized Signatory
Exhibit A-4
[FORM OF CLASS D INVESTOR CERTIFICATE]
METRIS MASTER TRUST
FLOATING RATE ACCOUNTS RECEIVABLE TRUST
CERTIFICATE, SERIES 1995-1, CLASS D
THIS CERTIFICATE WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OF ANY
STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED UNLESS REGISTERED PURSU-
ANT TO OR EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT AND ANY OTHER APPLICABLE SECU-
RITIES LAW. METRIS RECEIVABLES, INC. SHALL BE
PROHIBITED FROM TRANSFERRING ANY INTEREST IN
OR PORTION OF THIS CERTIFICATE UNLESS, PRIOR
TO SUCH TRANSFER, IT SHALL HAVE DELIVERED TO
THE TRUSTEE AN OPINION OF COUNSEL TO THE EF-
FECT THAT SUCH PROPOSED TRANSFER WILL NOT AD-
VERSELY AFFECT THE FEDERAL, MINNESOTA OR DELA-
WARE INCOME TAX CHARACTERIZATION OF ANY OUT-
STANDING SERIES OF INVESTOR CERTIFICATES OR
THE TAXABILITY (OR TAX CHARACTERIZATION) OF
THE TRUST UNDER FEDERAL, MINNESOTA OR DELAWARE
INCOME TAX LAWS. THE TRANSFER OF THIS CERTIF-
ICATE IS SUBJECT TO CERTAIN CONDITIONS SET
FORTH IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
<PAGE> 106
EACH PURCHASER REPRESENTS AND WARRANTS
FOR THE BENEFIT OF METRIS RECEIVABLES, INC.
(FORMERLY KNOWN AS FINGERHUT FINANCIAL SERVIC-
ES RECEIVABLES, INC.) THAT SUCH PURCHASER IS
NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED
IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA")) THAT IS SUBJECT TO THE PROVISIONS
OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN
SECTION 4975(E)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, OR (III) AN ENTITY
WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY
REASON OF A PLAN'S INVESTMENT IN THE ENTITY.
No. ___ $_________
METRIS MASTER TRUST
FLOATING RATE ACCOUNTS RECEIVABLE TRUST
CERTIFICATE, SERIES 1995-1, CLASS D
Evidencing an undivided interest in a trust,
the corpus of which consists of receivables generated
from time to time in the ordinary course of business
from a portfolio of open end or revolving credit receiv-
ables generated or to be generated by Direct Merchants
Credit Card Bank, National Association (the "Bank" or
the "Servicer") and other assets and interests consti-
tuting the Trust under the Agreement described below.
(Not an interest in or a recourse obligation
of Metris Receivables, Inc., the Bank or any affiliate
of either of them.)
This certifies that METRIS RECEIVABLES, INC.
(the "Certificateholder") is the registered owner of a
fractional undivided interest in the Metris Master Trust
(the "Trust") issued pursuant to the Pooling and Servic-
ing Agreement, dated as of May 26, 1995 (the "Pooling
and Servicing Agreement"; such term to include any
amendment or Series Supplement thereto) by and between
Metris Receivables, Inc., as Transferor (the "Transfer-
or"), the Bank, as the Servicer, and The Bank of New
York (Delaware), as Trustee (the "Trustee"), and the
Amended and Restated Series 1995-1 Supplement, dated as
of September 16, 1996 (the "Amended and Restated Series
1995-1 Supplement"), among the Transferor, the Bank, as
Servicer and the Trustee (the Pooling and Servicing
Agreement, as supplemented by the Amended and Restated
Series 1995-1 Supplement, is herein referred to as the
"Agreement"). The corpus of the Trust consists of all
of the Transferor's right, title and interest in, to and
under (i) the Trust Property (as defined in the Agree-
ment) and (ii) the property described in Section 3A of
the Amended and Restated Series 1995-1 Supplement and
Section 4.4 of the Agreement.
<PAGE> 107
This Certificate does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights, bene-
fits, obligations, proceeds, and duties evidenced hereby
and the rights, duties and obligations of the Trustee.
To the extent not defined herein, the capitalized terms
used herein have the meanings ascribed to them in the
Agreement. This Certificate is one of a series of Cer-
tificates entitled "Metris Master Trust Floating Rate
Accounts Receivable Trust Certificates, Series 1995-1,
Class D" (the "Class D Certificate"), each of which
represents a fractional undivided interest in the Trust,
and is issued under and is subject to the terms, provi-
sions and conditions of the Agreement, to which Agree-
ment, as amended from time to time, the Certificatehold-
er by virtue of the acceptance hereof assents and by
which the Certificateholder is bound.
Metris Receivables, Inc. shall be prohibited
from Transferring any interest in or portion of the
Class D Certificate unless, prior to such Transfer, it
shall have delivered to the Trustee an Opinion of Coun-
sel to the effect that such proposed Transfer will not
adversely affect the Federal, Minnesota or Delaware
income tax characterization of any outstanding Series of
Investor Certificate or the taxability (or tax charac-
terization) of the Trust under Federal, Minnesota or
Delaware income tax laws.
Except in connection with a payment of Class D
Daily Principal, no principal will be payable to the
Class D Certificateholders until the Class D Payment
Commencement Date, which is the Distribution Date either
on or following the Distribution Date on which the Class
C Invested Amount had been paid in full. No principal
will be payable to the Class D Certificateholders until
all principal payments have first been made to the Class
A Certificateholders and then on and after the Class B
Principal Payment Commencement Date, after all principal
payments have been made to the Class B Certificatehold-
ers and then on and after the Class C Principal Payment
Commencement Date, after all payments have been made to
the Class C Certificateholders.
Interest will not accrue on the unpaid princi-
pal amount of the Class D Certificate.
"Class D Invested Amount" shall mean, when
used with respect to any Business Day, an amount equal
to (a) upon the initial issuance of the Class D Certifi-
cate the initial amount designated by the Transferor
(which shall not be less than the Stated Class D
Amount), plus (b) the aggregate principal amount of any
Additional Class D Invested Amounts pursuant to Section
6.16 of the Agreement, minus (c) the aggregate amount of
principal payments made to Class D Certificateholders
<PAGE> 108
prior to such Business Day, minus (d) the aggregate
amount of Class D Investor Charge-Offs for all prior
Distribution Dates, minus (e) the aggregate amount of
Reallocated Principal Collections for all prior Business
Days, plus (f) the sum of the aggregate amount allocated
and available on all prior Business Days pursuant to
subsection 4.9(a)(xiii) of the Agreement and, with re-
spect to such subsection, pursuant to subsections
4.10(a) and (b) of the Agreement, for the purpose of
reinstating amounts reduced pursuant to the foregoing
clauses (d) and (e).
Subject to the Agreement, payments of princi-
pal are limited to the unpaid Class D Invested Amount of
the Class D Certificate, which may be less than the
unpaid balance of the Class D Certificate pursuant to
the terms of the Agreement. All principal of and inter-
est on the Class D Certificate is due and payable no
later than May 30, 2003 (the "Series 1995-1 Termination
Date"). After the Series 1995-1 Termination Date nei-
ther the Trust nor the Transferor will have any further
obligation to distribute principal or interest on the
Class C Certificates. In the event that the Class D
Invested Amount is greater than zero on the Series 1995-
1 Termination Date, the Trustee will sell or cause to be
sold, to the extent necessary, an amount of interests in
the Receivables or certain of the Receivables up to 110%
of the Class A Invested Amount, the Class B Invested
Amount, the Class C Invested Amount and the Class D
Invested Amount at the close of business on such date
(but not more than the total amount of Receivables allo-
cable to the Investor Certificates), and shall pay the
proceeds to the Class A Certificateholders pro rata in
final payment of the Class A Certificate, then to the
Class B Certificateholders pro rata in final payment of
the Class B Certificates, then to the Class C Certifi-
cateholders pro rata in final payment of the Class C
Certificates and finally to the Class D Certificatehold-
ers pro rata in final payment of the Class D Certifi-
cate.
<PAGE> 109
Unless the certificate of authentication here-
on has been executed by or on behalf of the Trustee, by
manual signature, this Certificate shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Certificate to be duly executed under its official
seal.
METRIS RECEIVABLES, INC.
By:________________________
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class D Certificate re-
ferred to in the within-mentioned Pooling and Servicing
Agreement.
THE BANK OF NEW YORK, as
Authenticating Agent for
the Trustee
By:________________________
Authorized Signatory
EXHIBIT B
[RESERVED]
EXHIBIT C
[Form of Monthly Certificateholders' Statement]
EXHIBIT D
Form of 144A Exchange Notice and Certification
, 199
Metris Receivables, Inc.
4400 Baker Road
Suite F480
Minnetonka, MN 55343
Attention:
[Trustee]
{Trustee Address]
Ladies and Gentlemen:
This is to notify you as to the transfer of $
of Floating Rate Accounts Receivable Trust
Certificates, Series 1995-1, Class C (the "Class C Cer-
tificates") of Metris Master Trust (the "Company").
<PAGE> 110
The undersigned is the holder of the Certifi-
cates and with this notice hereby deposits with the
Trustee $ principal amount of Class C
Certificates and requests that Class C Certificates in
the same principal amount be issued and executed by the
Company and authenticated by the Trustee and registered
to the purchaser on , 19 , as speci-
fied in the Pooling and Servicing Agreement, as supple-
mented by the Amended and Restated Series 1995-1 Supple-
ment thereto, as follows:
Name: Denominations:
Address:
Taxpayer I.D. No.:
The undersigned represents and warrants that
the undersigned (i) reasonably believes the purchaser is
a "qualified institutional buyer," as defined in Rule
144A under the Securities Act of 1933 (the "Act"), (ii)
such purchaser has acquired the Certificates in a trans-
action effected in accordance with the exemption from
the registration requirements of the Act provided by
Rule 144A and, (iii) if the purchaser has purchased the
Certificates for one or more accounts for which it is
acting as fiduciary or agent, (A) each such account is a
qualified institutional buyer and (B) each such account
is acquiring Notes for its own account or for one or
more institutional accounts for which it is acting as
fiduciary or agent in a minimum amount equivalent to not
less than U.S. $250,000 for each such account.
Very truly yours,
[NAME OF HOLDER OF CERTIFICATE]
By:_____________________________
[Name], [Chief Financial
or other Executive Officer]
Exhibit E
FORM OF EXTENSION NOTICE
FINGERHUT CARD MASTER TRUST, SERIES 1995-1
The undersigned, a duly authorized representa-
tive of Metris Receivables, Inc. (formerly known as
Fingerhut Financial Services Receivables, Inc.), a Dela-
ware corporation (the "Transferor"), as Transferor pur-
suant to the Pooling and Servicing Agreement dated as of
May 26, 1995 (the "Pooling and Servicing Agreement";
such term to include any amendment thereto), by and
between the Transferor, as transferor, Direct Merchants
Credit Card Bank, National Association, as servicer (the
"Servicer"), and The Bank of New York (Delaware), as
trustee (the "Trustee"), as supplemented by the Amended
and Restated Series 1995-1 Supplement, dated September
16, 1996 (the "Amended and Restated Series 1995-1 Sup-
plement"), by and between the Transferor, the Servicer
and the Trustee (the Pooling and Servicing Agreement, as
supplemented by the Amended and Restated Series 1995-1
Supplement, or as the Pooling and Servicing Agreement
may from time to time be amended, supplemented, or modi-
fied, the "Agreement"), does hereby notify the Trustee
(or any successor Trustee) and the Investor Certificate-
holders:
<PAGE> 111
A. Capitalized terms used but not defined in
this Certificate shall have the respective meanings set
forth in the Agreement. References herein to certain
sections and subsections are references to the respec-
tive sections and subsections of the Agreement.
B. The undersigned is a [Vice President] or
more senior officer of the Transferor who is duly autho-
rized to execute and deliver this Certificate on behalf
of the Transferor.
C. This Certificate is being delivered pursu-
ant to Section 6.17(a) of the Agreement.
D. The Transferor is the Transferor under the
Agreement.
E. No Pay Out Event has occurred that has not
been remedied pursuant to the provisions of the Agree-
ment.
F. The Certificate is being delivered to the
Trustee on or before the date specified in subsection
6.17(a) for delivery.
G. NOTIFICATION OF EXTENSION
Pursuant to subsection 6.17(a) and in respect
of [ , ] (the "Current Extension Date"), the
Transferor hereby notifies the Trustee and the Investor
Certificateholders of the Transferor's intention to
extend the Revolving Period in respect of Series 1995-1
on the Current Extension Date pursuant to the provisions
of Section 6.17, until the date set forth below (such
extension, the "Extension").
<PAGE> 112
H. REQUIREMENTS TO COMPLETE EXTENSION
(1) Annexed hereto is an election notice
(an "Election Notice") to be returned by any Investor
Certificateholder electing to approve the Extension. No
Extension shall occur unless Investor Certificateholders
holding at least more than fifty percent of each of the
aggregate principal amount of Class A Certificates,
Class B Certificates, Class C Certificates and Class D
Certificate, respectively, shall return properly execut-
ed Election Notices approving the Extension by the Elec-
tion Date (as defined below). Any Investor Certificate-
holder electing to approve the Extension must deliver a
properly executed Election Notice at the office of the
Trustee, [ ] on or before 3:00 p.m.,
[ ] time, on [ , ] (the "Election
Date"). Any Investor Certificateholder may withdraw any
Election Notice delivered by it to the Trustee by noti-
fying the Trustee in writing at the address set forth in
the previous sentence on or prior to the Election Date.
(2) THE EXTENSION SHALL NOT OCCUR UNTIL
PRIOR SATISFACTION OF CERTAIN CONDITIONS PRECEDENT BY
THE CLOSE OF BUSINESS ON THE ELECTION DATE, INCLUDING
THE APPROVAL OF SUCH EXTENSION BY THE INVESTOR CERTIFI-
CATEHOLDERS HOLDING THE REQUIRED AGGREGATE PRINCIPAL
AMOUNT OF CLASS A CERTIFICATES, CLASS B CERTIFICATES,
CLASS C CERTIFICATES AND Class D Certificate, THAT NO
PAY OUT EVENT SHALL HAVE OCCURRED AND BE CONTINUING, AND
THAT CERTAIN LEGAL OPINIONS AND RATING AGENCY CONFIRMA-
TIONS SHALL HAVE BEEN DELIVERED TO THE TRANSFEROR AND
THE TRUSTEE PURSUANT TO SECTION 6.17(b). THE TRANSFEROR
MAY IN ITS SOLE DISCRETION WITHDRAW THIS EXTENSION NO-
TICE AT ANY TIME ON OR PRIOR TO THE ELECTION DATE BY
DELIVERING NOTICE OF SUCH WITHDRAWAL IN WRITING TO THE
TRUSTEE. IF ANY SUCH NOTICE OF WITHDRAWAL SHALL BE SO
DELIVERED, NO EXTENSION SHALL OCCUR.
I. NEW PROVISIONS TO BECOME EFFECTIVE ON THE
EXTENSION DATE
(1) The new Amortization Period Com-
mencement Date shall be the earlier of (a) [ ,
] or (b) the Pay Out Commencement Date.
(2) The new Extension Date shall be
[ , ].
[(3) The new Scheduled Series 1995-1
Termination Date shall be [ , ].]
(4) The new Class A Expected Payment
Date is ______.
(5) The new Class B Expected Payment
Date is ______.
(6) The new Class C Expected Payment
Date is ______.
[(7) The following are additional provi-
sions that will apply to the Investor Certificates on
and after the Extension Date:
<PAGE> 113
INSERT PROVISIONS]
J. Annexed hereto are the following:
(1) the form of Extension Tax Opinion.
(2) the form of Extension Opinion.
(3) the Election Notice.
IN WITNESS WHEREOF, the undersigned has duly
executed this certificate this [ ] day of
[ , ].
METRIS RECEIVABLES, INC.
By:_________________________
Name:
Title:
EXHIBIT F
FORM OF INVESTOR CERTIFICATEHOLDER ELECTION NOTICE
[INSERT NAME
AND ADDRESS OF TRUSTEE]
Re: Metris Master Trust:
Election Notice to Extend Series 1995-1
Ladies and Gentlemen:
The undersigned hereby elects to approve the
extension of the Revolving Period for Series 1995-1
until the Amortization Period Commencement Date set
forth in the Extension Notice dated [ ,
] (the "Extension Notice") and delivered to the under-
signed pursuant Section 6.17(a) of the Pooling and Ser-
vicing Agreement, dated as of May 26, 1995, including
the Amended and Restated Series 1995-1 Supplement there-
to, dated as of September 16, 1996, each by and among
Metris Receivables, Inc., as transferor, Direct Mer-
chants Credit Card Bank, N.A., as servicer, and
________________________, as trustee (the "Pooling and
Servicing Agreement"; such term to include any amendment
thereto). The undersigned hereby acknowledges that,
commencing on the Current Extension Date (as defined in
the Extension Notice), the terms and provisions of the
Pooling and Servicing Agreement shall be modified as set
forth in the Extension Notice.
<PAGE> 114
IN WITNESS WHEREOF, the undersigned registered
owner(s) has [have] executed this Election Notice as of
the date set forth below.
Dated:
Name(s):_______________________
Address:_______________________
(Please Print)
Signature(s):__________________
TABLE OF CONTENTS
PAGE
SECTION 1. Designation . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Definitions . . . . . . . . . . . . . . . . . . . 1
SECTION 3. Reassignment Terms . . . . . . . . . . . . . . . 31
SECTION 3A. Conveyance of Interest in Interest
Rate Cap; Cap Proceeds Account . . . . . . . . . 31
SECTION 4. Delivery and Payment for the Series 1995-1
Certificates . . . . . . . . . . . . . . . . . . 36
SECTION 5. Form of Delivery of Series 1995-1
Certificates . . . . . . . . . . . . . . . . . . 36
SECTION 6. Article IV of Agreement . . . . . . . . . . . . . 36
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS . . . . 36
Section 4.4 Rights of Certificateholders . . . . 36
Section 4.5 Collections and Allocation; Pay-
ments on Exchangeable Transferor
Certificate . . . . . . . . . . . . 37
Section 4.6 Determination of Interest for the
Series 1995-1 Certificates . . . . . 39
Section 4.6A Determination of the Class A
Interest Adjustment . . . . . . . 41
Section 4.7 Determination of Principal
Amounts . . . . . . . . . . . . . . 42
Section 4.8 Shared Principal Collections . . . . 46
Section 4.9 Application of Funds . . . . . . . . 46
Section 4.10 Coverage of Required Amount for
the Series 1995-1 Certificates . . . 63
Section 4.11 Payment of Certificate Interest . . 63
Section 4.12 Payment of Certificate Principal . . 64
Section 4.13 Investor Charge-Offs . . . . . . . . 65
Section 4.14 Increases in the Invested Amount
During the Investment Period . . . . 67
Section 4.15 Reallocated Principal Collec-
tions for the Series 1995-1
Certificates . . . . . . . . . . . . 68
Section 4.16 Determination of LIBOR . . . . . . . 69
PAGE
Section 4.17 Payment Reserve Account . . . . . . 70
Section 4.18 Establishment of Investor Reserve
Account . . . . . . . . . . . . . . 73
SECTION 7. Article V of the Agreement . . . . . . . . . . . 71
<PAGE> 115
ARTICLE V
DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS . . . . . . . . . 72
Section 5.1 Distributions . . . . . . . . . . . . 72
Section 5.2 Certificateholders' Statement . . . . 73
SECTION 7A. Article VI of the Agreement . . . . . . . . . . 75
ARTICLE VI
THE CERTIFICATES . . . . . . . . . . 76
Section 6.15 Additional Class A Invested
Amounts . . . . . . . . . . . . . . 76
Section 6.16 Additional Class D Invested
Amounts. . . . . . . . . . . . . . . 77
Section 6.17 Extension . . . . . . . . . . . . . 78
SECTION 8. Series 1995-1 Pay Out Events . . . . . . . . . 80
SECTION 8A. Class A Pay Down Period . . . . . . . . . . . . 83
SECTION 9. Series 1995-1 Termination . . . . . . . . . . . 83
SECTION 9A. Class A Pre-Payment . . . . . . . . . . . . . . 83
SECTION 10. Legends; Transfer and Exchange; Restric-
tions on Transfer of Series 1995-1
Certificates; Tax Treatment . . . . . . . . . . 84
SECTION 11. Ratification of Agreement . . . . . . . . . . . 88
SECTION 12. Counterparts . . . . . . . . . . . . . . . . . . 89
SECTION 13. GOVERNING LAW . . . . . . . . . . . . . . . . . 89
SECTION 14. Instructions in Writing . . . . . . . . . . . . 89
SECTION 15. Amendments . . . . . . . . . . . . . . . . . . . 89
SECTION 16. Increased Costs . . . . . . . . . . . . . . . . 90
SECTION 17. Replacement of Certain Investor
Certificateholders . . . . . . . . . . . . . . 92
SECTION 18. Metris Receivables Note . . . . . . . . . . . . 93
<PAGE> 116
EXHIBITS
EXHIBIT A-1 Form of Variable Funding Certificate
EXHIBIT A-2 Form of Class B Investor Certificate
EXHIBIT A-3 Form of Class C Investor Certificate
EXHIBIT A-4 Form of Class D Investor Certificate
EXHIBIT B [RESERVED]
EXHIBIT C Form of Monthly Certificateholders' Statement
EXHIBIT D Form of 144A Exchange Notice and Certification
EXHIBIT E Form of Extension Notice
EXHIBIT F Form of Investor Certificateholder Election Notice
<PAGE> 117
_________________________________________________________
METRIS RECEIVABLES, INC.
Transferor
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION
Servicer
and
THE BANK OF NEW YORK (DELAWARE)
Trustee
on behalf of the Series 1995-1 Certificateholders
AMENDED AND RESTATED SERIES 1995-1 SUPPLEMENT
Dated as of September 16, 1996
to
POOLING AND SERVICING AGREEMENT
Dated as of May 26, 1995
____________________________________
METRIS MASTER TRUST
Variable Funding Trust
Certificate, Series 1995-1, Class A
$129,612,000 Floating Rate Accounts Receivable Trust
Certificates, Series 1995-1, Class B
$70,698,000 Floating Rate Accounts Receivable Trust
Certificates, Series 1995-1, Class C
0% Variable Funding Trust
Certificate, Series 1995-1, Class D
_________________________________________________________
<PAGE> 118
Exhibit 10.a(iv)
AMENDMENT NO. 2, dated as of September 16, 1996
(this "Agreement"), by and among METRIS RECEIVABLES, INC.
(formerly Fingerhut Financial Services Receivables,
Inc.), a corporation organized and existing under the
laws of the State of Delaware, as Transferor, DIRECT
MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION, a
national banking organization organized and existing
under the laws of the United States of America, as
Servicer, and THE BANK OF NEW YORK (DELAWARE), a Delaware
banking corporation organized and existing under the laws
of the State of Delaware, as Trustee, to the POOLING AND
SERVICING AGREEMENT, dated as of May 26, 1995 (as hereto-
fore amended, the "Pooling and Servicing Agreement"), by
and among the Transferor, the Servicer and the Trustee.
W I T N E S S E T H:
WHEREAS, the Transferor, the Servicer and the
Trustee entered into Amendment No. 1 to the Pooling and
Servicing Agreement dated as of June 10, 1996;
WHEREAS, the Transferor, the Servicer and the
Trustee desire to amend the Pooling and Servicing Agree-
ment pursuant to Section 13.1(a) therein in order to
provide for the terms contained herein;
WHEREAS, in connection with a business realign-
ment of FCI's subsidiaries, FCI has assigned to Metris
Companies Inc., a Delaware corporation ("Metris"), all of
its rights arising under the Bank Receivables Purchase
Agreement and the Purchase Agreement and Metris has
assumed all of FCI's obligations thereunder pursuant to
that certain Assignment and Assumption Agreement, dated
as of September 16, 1996, by and among FCI, Metris and
DMCCB, and that certain Assignment and Assumption Agree-
ment, dated as of September 16, 1996, by and among FCI,
Metris and the Transferor, respectively;
NOW, THEREFORE, in consideration of the mutual
agreements herein contained, each party agrees as follows
for the benefit of the other parties and the Certificate-
holders:
Section 1. Definitions. Except as provided
herein, all capitalized terms used in this Agreement but
not defined herein shall have their respective meanings
in the Pooling and Servicing Agreement.
Section 2. Name of Trust. The name of the
Trust shall be "Metris Master Trust."
Section 3. Amendments to Section 1.1. (a)
Section 1.1 of the Pooling and Servicing Agreement shall
be amended by adding the following defined terms in
appropriate alphabetical order:
"Automatic Addition Suspension Date" shall mean the
Business Day specified in Section 2.6(a) hereof.
"Automatic Addition Termination Date" shall mean the
Business Day specified by the Transferor pursuant to
Section 2.6(a) hereof as of which new open end
credit card accounts designated by the Transferor
shall cease to become Additional Accounts.
"Bank Receivables Purchase Agreement Assignment"
shall mean the Assignment and Assumption Agreement
dated as of September 16, 1996 by and among FCI as
assignor, Metris as assignee, and DMCCB.
"Metris" shall mean Metris Companies Inc., a corpo-
ration organized and existing under the laws of the
State of Delaware.
<PAGE> 119
"Metris Receivables" shall mean Metris Receivables,
Inc., a corporation organized and existing under the
laws of the State of Delaware.
"Purchase Agreement Assignment" shall mean the
Assignment and Assumption Agreement dated as of
September 16, 1996 by and among FCI as assignor,
Metris as assignee, and the Transferor.
"Restart Date" shall mean the date specified in the
notice delivered by the Transferor to the Trustee
pursuant to Section 2.6(a) hereof.
(b) Section 1.1 of the Pooling and Servicing
Agreement shall be amended by deleting the definition of
"Transferor" in its entirety and replacing it with the
following:
"Transferor" shall mean Metris Receivables, Inc., a
corporation organized and existing under the laws of
the State of Delaware, and any successor thereto.
(c) Section 1.1 of the Pooling and Servicing
Agreement shall be amended by deleting the definition of
"Bank Receivables Purchase Agreement" in its entirety and
replacing it with the following:
"Bank Receivables Purchase Agreement" shall mean the
amended and restated receivables purchase agreement
dated as of May 26, 1995 between FCI, as buyer of
receivables, and DMCCB, as seller of receivables, as
amended from time to time and as assigned by FCI to
Metris pursuant to the Bank Receivables Purchase
Agreement Assignment, and any other receivables
purchase agreement between Metris, as purchaser of
receivables, and a Credit Card Originator, as seller
of receivables.
(d) Section 1.1 of the Pooling and Servicing
Agreement shall be amended by deleting the definition of
"Purchase Agreement" in its entirety and replacing it
with the following:
"Purchase Agreement" shall mean the purchase agree-
ment dated as of May 26, 1995 between the Transfer-
or, as buyer of receivables, and FCI, as seller of
receivables, as amended from time to time and as
assigned by FCI to Metris pursuant to the Purchase
Agreement Assignment.
Section 4. References to FCI. (a) Except for
the definition of "FCI" in Section 1.1 of the Pooling and
Servicing Agreement and as otherwise provided by Section
3 and by Section 4(b), (c), and (d) hereof, the Pooling
and Servicing Agreement shall be amended by replacing all
references to "FCI" with "Metris."
(b) Section 3.9 of the Pooling and Servicing
Agreement shall be amended by deleting the reference to
"FCI" therein and replacing it with "Metris and, for so
long as FCI owns any common stock of Metris, FCI."
(c) Section 9.2(a) of the Pooling and Servic-
ing Agreement shall be amended by deleting (i) the phrase
"or FCI" therein, and (ii) the following at the end of
the third sentence of Section 9.2(a)(ii):
"; provided, however, that in the event the Insol-
vency Event at issue shall have occurred with re-
spect to FCI, the Trust shall not be reconstituted
unless the Trustee shall have first received an
Opinion of Counsel to the effect that the Trust, as
reconstituted, shall not be subject to Federal or
any Applicable Tax State income tax on its income."
<PAGE> 120
(d) Schedule 1 to the Pooling and Servicing
Agreement entitled "Tax Returns and Payments" shall be
amended by deleting all references to "FCI" therein and
replacing them with "FCI, for so long as FCI owns 80% or
more of the common stock of Metris," and such schedule
may be replaced in its entirety at such time as FCI owns
less than 80% of the common stock of Metris. Schedule 1
to the Pooling and Servicing Agreement shall be further
amended to (i) add to the list of states in the second
sentence thereof the states of Oklahoma, South Dakota and
Utah, (ii) add to the list of states in the third sen-
tence thereof the states of Indiana, New Jersey, Pennsyl-
vania and Virginia and (iii) add the following language
at the end:
In addition, because one of the subsidiaries of
Metris, Direct Merchants Credit Card Bank, National
Association, is a national banking entity (established in
1995) which derives the majority of its income from
Mastercard credit cards, it may be subject to special
financial institution rules in certain states. Such
rules attempt to impute state income tax nexus to a
credit card company if it obtains finance revenue and/or
has credit card receivables generated from customers in
that state. Of the states that have adopted such finan-
cial institution rules, Minnesota is the only state where
Metris and its subsidiaries are currently filing income
or franchise tax returns. States which currently have
rules pursuant to which they may attempt to impose income
tax nexus based upon such credit card activity include:
Arkansas Minnesota
California New Mexico
Hawaii Tennessee
Indiana
Massachusetts
Direct Merchants Credit Card Bank, National Association
has not filed in states other than Minnesota because it
believes the above referenced financial institution rules
to be unconstitutional.
Section 5. Amendment to Section 2.6(a).
Section 2.6(a) of the Pooling and Servicing Agreement
shall be amended to read as follows:
"(a) Unless otherwise specified in any
Supplement, all accounts which meet the definition
of Additional Accounts shall be included as Accounts
from and after the date upon which such Additional
Accounts are created and all Receivables in such
Additional Accounts, whether such Receivables are
then existing or thereafter created, shall be trans-
ferred automatically to the Trust upon purchase by
the Transferor. For all purposes of this Agreement,
all receivables of such Additional Accounts shall be
treated as Receivables upon their creation and shall
be subject to the eligibility criteria specified in
the definitions of "Eligible Receivable" and "Eligi-
ble Account." Notwithstanding the foregoing, the
Transferor may elect at any time, or may be required
pursuant to Section 2.6(f), to suspend the automatic
inclusion in Accounts of new accounts which would
otherwise be Additional Accounts as of any Business
Day (the "Automatic Addition Suspension Date"), or
terminate any such inclusion as of any Business Day
(an "Automatic Addition Termination Date") until a
date (the "Restart Date") to be identified in writ-
ing by the Transferor to the Trustee, the Servicer
and each Rating Agency at least 10 days prior to
such Restart Date. Promptly after an Automatic
Addition Suspension Date or any Automatic Addition
Termination Date, or a Restart Date, the Transferor
and the Trustee agree to execute and the Transferor
agrees to record and file at its own expense an
<PAGE> 121
amendment to the financing statements referred to in
Section 2.1 hereof to specify the accounts then
subject to this Agreement (which specification may
incorporate a list of accounts by reference) and
may, except in connection with any such filing made
after a Restart Date, release any security interest
in any accounts created after the Automatic Addition
Suspension Date or any Automatic Addition Termina-
tion Date."
Section 6. Conditions to Effectiveness. This
Agreement shall become effective upon the satisfaction of
the following conditions:
(i) the Servicer shall have provided an Officer's
Certificate to the Trustee to the effect that this
Agreement will not materially and adversely affect
the interests of the Certificateholders;
(ii) the receipt by the Trustee of an Opinion of
Counsel pursuant to clause (ii) of the second para-
graph of Section 13.1(a) of the Pooling and Servic-
ing Agreement;
(iii) the Servicer shall have provided at least ten
Business Days prior written notice to each Rating
Agency of this Agreement and shall have received
written confirmation from each Rating Agency to the
effect that the rating of any Series or any class of
any Series will not be reduced or withdrawn as a
result of this Agreement; and
(iv) the execution of this Agreement by each of the
parties hereto.
Section 7. Governing Law. THIS AGREEMENT
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES
OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCOR-
DANCE WITH SUCH LAWS.
Section 8. Counterparts. This Agreement may be
executed in two or more counterparts (and by different
parties on separate counterparts), each of which shall be
an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the Transferor, the
Servicer and the Trustee have caused this Agreement to be
duly executed by their respective officers as of the day
and year first above written.
METRIS RECEIVABLES, INC.,
as Transferor
By:
------------------------
Name:
Title:
DIRECT MERCHANTS CREDIT CARD
BANK, NATIONAL ASSOCIATION,
as Servicer
By:
------------------------
Name:
Title:
THE BANK OF NEW YORK (DELAWARE),
as Trustee
By:
------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.b
FINGERHUT COMPANIES, INC.
Buyer
and
DIRECT MERCHANTS CREDIT CARD BANK, N.A.
Seller
BANK RECEIVABLES PURCHASE AGREEMENT
Dated as of April 18, 1995
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . 7
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES . . . . . . . . . . . . . . . . . 8
Section 2.1 Sale . . . . . . . . . . . . . . . . 8
ARTICLE III
CONSIDERATION AND PAYMENT . . . . . . . . . . . . 10
Section 3.1 Purchase Price . . . . . . . . . . . 10
Section 3.2 Payment of Purchase Price . . . . . . 10
Section 3.3 Daily Reports . . . . . . . . . . . . 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 11
Section 4.1 Seller's Representations and
Warranties . . . . . . . . . . . . . 11
Section 4.2 Seller's Representations and
Warranties Regarding Receivables . . 14
Section 4.3 Representations and Warranties
of the Buyer . . . . . . . . . . . . 16
ARTICLE V
COVENANTS OF SELLER AND BUYER . . . . . . . . . . 18
Section 5.1 Seller Covenants . . . . . . . . . . 18
Section 5.2 Addition of Accounts . . . . . . . . 19
Section 5.3 Buyer Covenant Regarding
Sale Treatment . . . . . . . . . . . 20
ARTICLE VI
OPTIONAL REPURCHASE . . . . . . . . . . . . . . . 20
Section 6.1 Breach of Warranty . . . . . . . . . . 20
Section 6.2 Conveyance of Reassigned Receivables 21
ARTICLE VII
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . 21
Section 7.1 Conditions to the Buyer's
Obligations Regarding Receivables . 21
Section 7.2 Conditions Precedent to the
Seller's Obligations . . . . . . . . 22
<PAGE> 2
ARTICLE VIII
TERM AND TERMINATION . . . . . . . . . . . . . . . 23
Section 8.1 Term . . . . . . . . . . . . . . . . 23
Section 8.2 Effect of Termination . . . . . . . . 23
ARTICLE IX
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . 24
Section 9.1 Amendment . . . . . . . . . . . . . . 24
Section 9.2 Governing Law . . . . . . . . . . . . 24
Section 9.3 Notices . . . . . . . . . . . . . . . 24
Section 9.4 Severability of Provisions . . . . . 25
Section 9.5 Further Assurances . . . . . . . . . 25
Section 9.6 No Waiver; Cumulative Remedies . . . 25
Section 9.7 Counterparts . . . . . . . . . . . . 25
Section 9.8 Binding Effect; Third Party
Beneficiaries . . . . . . . . . . . . 25
Section 9.9 Merger and Integration. . . . . . . 25
Section 9.10 Headings . . . . . . . . . . . . . . 26
Section 9.11 Schedules and Exhibits . . . . . . . 26
Section 9.12 Protection of Right, Title
and Interest to Receivables . . . . 26
Exhibit A Form of Daily Report
<PAGE> 3
BANK RECEIVABLES PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of April 18, 1995
(the "Agreement"), by and between FINGERHUT COMPANIES,
INC., a Minnesota corporation ("Fingerhut" or the
"Buyer"), and DIRECT MERCHANTS CREDIT CARD BANK, N.A., a
national banking association ("Direct Merchants" or the
"Seller").
W I T N E S S E T H :
WHEREAS, the Buyer desires to purchase from
time to time certain open-end or revolving credit
receivables (including, without limitation, MasterCard,
Visa and private label credit card receivables) generated
on or before the Closing Date or to be generated after
the Closing Date by the Seller in the normal course of
its business;
WHEREAS, the Seller desires to sell and assign
from time to time such receivables to the Buyer upon the
terms and conditions hereinafter set forth;
WHEREAS, the Buyer is an Affiliate of the
Seller;
NOW, THEREFORE, it is hereby agreed by and
between the Buyer and the Seller as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of
this Agreement, except as otherwise expressly provided
herein or unless the context otherwise requires,
capitalized terms used herein shall have the following
meanings assigned to them:
"Account" shall mean (a) each credit card
account established pursuant to a Contract between the
Seller and any Person, which on the Closing Date is an
Eligible Account or, with respect to accounts sold to the
Buyer after the Closing Date, is an Additional Account
and an Eligible Account. The definition of Account shall
include each Transferred Account but shall not include
any Accounts containing Ineligible Receivables and
repurchased by the Seller pursuant to Article VI hereof.
"Additional Account" shall mean those revolving
<PAGE> 4
credit consumers credit card accounts coming into
existence after the Closing Date which meet the following
criteria:
(a) a consumer revolving credit card account
(or any successor credit card account designations met by
the Seller);
(i) which was in existence and owned by the
Seller on the date on which Receivables generated in such
account are to be first sold to the Buyer;
(ii) which is payable in Dollars; and
(iii) the Receivables in which have not been
charged off prior to the date of their designation for
sale to the Buyer; or
(b) any other consumer revolving credit card
account, Receivables from which the Buyer permits to be
sold to the Buyer.
"Affiliate" means, with respect to a particular
Person, any Person that, directly or indirectly, is in
control of, is controlled by, or is under common control
with, such Person.
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions
in Minneapolis, Minnesota, Salt Lake City, Utah, Tulsa,
Oklahoma or Omaha, Nebraska are authorized or obligated
<PAGE> 5
by law or executive order to be closed.
"Collections" shall mean all payments received
by the Seller in respect of the Eligible Receivables in
the form of cash, checks or any other form of payment in
accordance with the Contract in effect from time to time
on any Eligible Receivables, other than pre-paid
insurance premiums.
"Contract" means an agreement between the
Seller or an Affiliate thereof and another Person for the
extension of revolving credit, including pursuant to a
credit card, in the form of a written contract, invoice,
or revolving credit agreement (but shall not include any
agreement or plan relating to the extension of credit on
a closed-end basis).
"Credit Adjustment" shall have the meaning set
forth in Section 3.2(b) hereof.
"Credit and Collection Policy" means those
credit, collection, customer relations and service
policies and practices in effect on the date hereof
relating to the Contracts and the Receivables as such may
be modified from time to time.
"Date of Processing" shall mean with respect to
any transaction, the date on which such transaction is
settled according to the Seller's computer master file of
revolving credit accounts.
<PAGE> 6
"Defaulted Account" shall mean each Account
with respect to which, in accordance with the Credit and
Collection Policy or the Seller's customary and usual
servicing procedures, the Seller has charged off the
Receivables in such Account as uncollectible; an Account
shall become a Defaulted Account on the day on which such
Receivables are recorded as charged off as uncollectible
on the Seller's computer master file of consumer credit
card revolving accounts. Notwithstanding any other
provision hereof, any Receivables in a Defaulted Account
that are Ineligible Receivables shall be treated as
Ineligible Receivables rather than Receivables in
Defaulted Accounts.
"Eligible Account" shall mean, as of the
Closing Date (or, with respect to Additional Accounts, as
of the date the Receivable arising in such Accounts are
first sold to the Buyer), each Account owned by the
Seller:
(a) which is payable in Dollars;
(b) the Obligor on which has provided, as its
initial billing address, an address located in the United
States or its territories or possessions or a United
States military address;
(c) which has not been identified by the
Seller in its computer master file as stolen or lost;
(d) which is not at the time of sale sold or
pledged to any other party and which does not have
Receivables, which at the time of sale, are sold or
pledged to any other party (provided that Receivables
which were sold or pledged prior to the Closing Date, but
repurchased free of all Liens or where all Liens were
released prior to the sale hereunder, shall not be
disqualified under this clause (d));
(e) which was in existence and serviced at
certain facilities of the Seller or the Receivables of
which the Buyer permits to be sold automatically to the
Buyer;
<PAGE> 7
(f) the Receivables in which the Seller has
not charged off (or required to be charged off) in its
customary and usual manner for charging off Receivables
in such Accounts as of the Closing Date (or, with respect
to Additional Accounts, as of the date the Receivables of
such Accounts are sold to the Purchaser) unless such
Account is subsequently reinstated; and
(g) which is not an Additional Account which
the Buyer and the Seller have elected to exclude from
sale under this Agreement.
"Eligible Receivable" shall mean each
Receivable that satisfies each of the following criteria:
(a) it arises under an Eligible Account, (b) it is not
sold or pledged to any other party, (c) it constitutes an
"account," "chattel paper" or a "general intangible" as
each are defined in Article 9 of the UCC as then in
effect in the Relevant UCC State, (d) it is at the time
of its purchase by the Buyer the legal, valid, and
binding obligation of, or is guaranteed by, a person who
is competent to enter into a contract and incur debt, and
is enforceable against such person in accordance with its
terms, (e) which was created in compliance, in all
material respects, with all Requirements of Law
applicable to the Seller and pursuant to a Contract which
complies, in all material respects, with all Requirements
of Law applicable to the Seller (including, without
limitation, laws,
rules and regulations relating to truth in lending,
usury, fair credit billing, fair credit reporting, equal
credit opportunity and fair debt collection practices),
(f) all material consents, licenses, or authorizations
of, or registrations with, any governmental authority
required to be obtained or given in connection with the
creation of such Receivable or the execution, delivery,
creation, and performance of the related Contract have
been duly obtained or given and are in full force and
effect as of the date of the creation of such Receivables
and (g) immediately prior to giving effect to the sale,
the Seller will have good and marketable title free and
clear of all Liens and security interests arising under
or through the Seller (other than Permitted Liens).
<PAGE> 8
"Finance Charge Receivables" shall mean all
amounts billed from time to time to the Obligors on any
Account in respect of (i) Periodic Finance Charges, (ii)
overlimit fees, (iii) late charges, (iv) returned check
fees, (v) annual membership fees and annual service
charges, if any, (vi) transaction charges, (vii) cash
advance fees and (viii) similar fees and charges,
excluding fees and charges for insurance and insurance
type products, plus Recoveries.
"Governmental Authority" shall mean the United
States of America, any state or other political
subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Ineligible Receivable" shall have the meaning
set forth in Section 6.1 hereof.
"Lien" shall mean any lien, security interest
or other encumbrance.
"Obligor" shall mean a Person obligated to make
payments with respect to a Receivable arising under an
Account.
"Periodic Finance Charges" shall have, with
respect to any Account, the meaning set forth in the
Contract applicable to such Account for finance charges
(due to periodic rate) or any similar term.
"Permitted Lien" shall mean with respect to the
Receivables: Liens which secure the payment of taxes,
assessments and governmental charges or levies, if such
taxes are either (a) not delinquent or (b) being
contested in good faith by appropriate legal or
administrative proceedings and as to which adequate
reserves in accordance with generally accepted accounting
principles shall have been established.
"Person" shall mean any legal person, including
any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated
organization, governmental entity or other entity of
similar nature.
"Principal Receivables" shall mean amounts
<PAGE> 9
shown on the Seller's records as amounts payable by
Obligors with respect to Eligible Receivables on any
Account other than such amounts that are Finance Charge
Receivables or Receivables in Defaulted Accounts and
shall include, without limitation, amounts payable for
purchases of goods or services or cash advances. A
Receivable shall be deemed to have been created at the
end of the day on the Date of Processing of such
Receivable. In calculating the aggregate amount of
Principal Receivables on any day, the amount of Principal
Receivables shall be reduced by the aggregate amount of
credit balances in the Accounts on such day.
"Purchase Price" shall have the meaning set
forth in Section 3.1 hereof.
"Receivable" shall mean, with respect to any
Obligor, all of the indebtedness of such Obligor under an
Account, including the right to receive payment of any
interest or finance charges and other obligations of such
Obligor with respect thereto. Each receivable includes,
without limitation, all rights of the Seller under the
applicable Contract.
"Recoveries" shall mean any amounts received by
the Seller with respect to Defaulted Accounts.
"Relevant UCC State" shall mean each
jurisdiction in which the filing of a UCC financing
statement is necessary to perfect the ownership interest
and security interest of the Buyer pursuant to this
Agreement.
"Requirements of Law" for any Person shall mean
the certificate of incorporation or articles of
association and by-laws or other organizational or
governing documents of such Person, and any material law,
treaty, rule or regulation, or determination of an
arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which
such Person is subject.
"Sale Papers" shall have the meaning set forth
in Section 4.1(c) hereof.
"Secured Obligations" shall have the meaning
set forth in Section 2.1(d) hereof.
"Termination Date" shall have the meaning set
forth in Section 8.1 hereof.
"Transferred Account" shall mean an Account
with respect to which a new credit card account number
has been issued by the Seller under circumstances
<PAGE> 10
resulting from a lost or stolen credit card and not
requiring standard application and credit evaluation
procedures under the Credit and Collection Policy.
"UCC" shall mean the Uniform Commercial Code,
as amended from time to time, as in effect in the
applicable jurisdiction.
Section 1.2 Other Definitional Provisions.
The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement or any Sale
Paper shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; and Section,
Subsection, Schedule and Exhibit references contained in
this Agreement are references to Sections, Subsections,
Schedules and Exhibits in or to this Agreement unless
otherwise specified.
[END OF ARTICLE I]
<PAGE> 11
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES
Section 2.1 Sale. (a) In consideration for
the Purchase Price and upon the terms and subject to the
conditions set forth herein, the Seller does hereby sell,
assign, transfer, set-over, and otherwise convey to the
Buyer, and the Buyer does hereby purchase from the
Seller, on the terms and subject to the conditions
specifically set forth herein, all of the Seller's right,
title and interest in, to and under (i) the Receivables
now existing and hereafter created and arising in
connection with the Accounts and any accounts that meet
the definition of Additional Accounts, including, without
limitation, all accounts, contract rights, general
intangibles, chattel paper and other obligations of any
Obligor with respect to the Receivables, now or hereafter
existing, whether or not arising out of or in connection
with the sale or lease of goods or the rendering of
services, (ii) all monies and investments due or to
become due with respect thereto (including, without
limitation, the right to any payment of interest, Finance
Charge Receivables, fees and other obligations with
respect to any such Receivable), (iii) all proceeds of
such Receivables and (iv) any Recoveries. The foregoing
sale, transfer, assignment, set-over and conveyance does
not constitute and is not intended to result in a
creation or an assumption by the Buyer of any obligation
of the Seller in connection with the Receivables or any
agreement or instrument relating thereto, including,
without limitation, any obligation to any Obligors,
merchant banks, merchant clearance systems, VISA USA,
Inc., MasterCard International Incorporated or insurers.
(b) In connection with the foregoing sale, the
Seller agrees to record and file, at the Buyer's expense,
a financing statement or statements with respect to the
Receivables and the other property described in Section
2.1(a) sold by the Seller hereunder meeting the
requirements of applicable state law in such manner and
in such jurisdictions as are necessary to perfect and
protect the interests of the Buyer created hereby under
the applicable UCC against all creditors of and
purchasers from the Seller, and to deliver a file-stamped
copy of such financing statements or other evidence of
such filings to the Buyer within 10 days after April 18,
1995 (the "Closing Date").
<PAGE> 12
(c) In connection with the sale and conveyance
hereunder, the Seller agrees, at the Buyer's expense, on
or prior to the Closing Date and on each Business Day
thereafter, to indicate or cause to be indicated clearly
and unambiguously in its accounting records that such
Receivables and the other property described in clauses
(i), (ii) and (iii) of Section 2.1(a) have been sold to
the Buyer pursuant to this Agreement as of the Closing
Date or such Business Day as applicable.
(d) It is the express intent of the Seller and
the Buyer that the conveyance of the Receivables by the
Seller to the Buyer pursuant to this Agreement be
construed as a sale of such Receivables by the Seller to
the Buyer. It is, further, not the intention of the
Seller and the Buyer that such conveyance be deemed a
grant of a security interest in the Receivables by the
Seller to the Buyer to secure a debt or other obligation
of the Seller. However, in the event that,
notwithstanding the intent of the parties, the
Receivables are held to continue to be property of the
Seller, then (i) this Agreement also shall be deemed to
be and hereby is a security agreement within the meaning
of the UCC; and (ii) the conveyance by the Seller
provided for in this Agreement shall be deemed to be and
the Seller hereby grants to the Buyer a security interest
in and to all of the Seller's right, title and interest
in (w) all Receivables outstanding on the Closing Date
and thereafter created by the Seller and all rights (but
not the obligations) relating to such Receivables, (x)
with respect to the Receivables, all accounts (as defined
in the applicable UCC) outstanding on the Closing Date
and thereafter created by the Seller, and all rights
(but not the obligations) relating thereto, (y) all
monies due or to become due with respect thereto and (z)
all proceeds of the foregoing to secure (1) the
obligations of the Seller and (2) a loan to the Seller in
the amount of the Purchase Price as set forth in this
Agreement (the "Secured Obligations"). The Seller and
the Buyer shall, to the extent consistent with this
Agreement, take such actions as may be necessary to
ensure that, if this Agreement were deemed to create a
security interest in the Receivables, such security
interest would be deemed to be a perfected security
interest of first priority in favor of the Buyer under
applicable law and will be maintained as such throughout
the term of this Agreement.
[END OF ARTICLE II]
<PAGE> 13
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 Purchase Price. The Purchase
Price for the Receivables and related property conveyed
to the Buyer under this Agreement shall be a dollar
amount equal to, for Receivables sold on any date, the
aggregate amount of all Principal Receivables sold as of
such date.
Section 3.2 Payment of Purchase Price. (a)
The Purchase Price for Receivables shall be paid or
provided for on the Closing Date with respect to the
Receivables existing on the Closing Date and on each
Business Day thereafter on which Receivables are
transferred hereunder, as the case may be, by payment in
immediately available funds.
(b) The Purchase Price shall be adjusted on a
daily basis (the "Credit Adjustment") if the Seller
adjusts downward the amount of any Receivable because of
a rebate, refund, unauthorized charge or billing error to
an Obligor, because such Receivable was created in
respect of merchandise which was refused or returned by
an Obligor, or if the Seller otherwise adjusts downward
the amount of any Receivable without receiving
Collections therefor or without charging off such amount
as uncollectible.
Section 3.3 Daily Reports. On each Business
Day, the Seller shall deliver to the Buyer a Daily Report
(the "Daily Report") showing the aggregate Purchase Price
of Receivables generated, the aggregate amount, if any,
owing to the Buyer pursuant to Section 6.1 hereof and the
aggregate net amount of cash owing for Receivables
generated in each case for the period from and including
the preceding Business Day.
[END OF ARTICLE III]
<PAGE> 14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and
Warranties. The Seller represents and warrants to the
Buyer as of the Closing Date, and as to matters involving
Additional Accounts, as of the date the Receivables of
such Accounts are sold to the Buyer, that:
(a) Organization and Good Standing. The
Seller is a national banking association organized and
validly existing in good standing under the laws of the
United States and has the corporate power and authority
and legal right to own its property and conduct its
business as such properties are presently owned and as
such business is presently conducted and to execute,
deliver and perform its obligations under this Agreement
and each other document or instrument to be delivered by
the Seller hereunder (collectively, the "Sale Papers").
(b) Due Qualification. The Seller is duly
qualified to do business and is in good standing (or is
exempt from such requirements), as a foreign corporation
in any state required in order to conduct business, and
has obtained all necessary licenses and approvals with
respect to the Seller required under applicable law;
provided that no representation or warranty is made with
respect to any qualifications, licenses or approvals
which the Buyer would have to obtain to do business in
any state in which the Buyer seeks to enforce any
Receivable.
(c) Due Authorization. The execution and
delivery of the Sale Papers, and the consummation of the
transactions provided for herein and therein have been
duly authorized by the Seller by all necessary corporate
action on its part.
(d) Binding Obligation. Each of the Sale
Papers, and the consummation of the transactions provided
for therein, constitutes a legal, valid and binding
obligation of the Seller, enforceable in accordance with
its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereinafter in
effect, affecting the enforcement of creditors' rights in
general and as such enforceability may be limited by
general principles of equity (whether considered in a
proceeding at law or in equity).
(e) No Conflicts. The execution and delivery
of the Sale Papers and the performance of the
transactions contemplated thereby, do not (i) contravene
the Seller's charter or by-laws or (ii) violate any
material provision of law applicable to it or require any
filing (except for the filings under the UCC),
registration, consent or approval under, any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having
applicability to the Seller, except for such filings,
registrations, consents or approvals as have already been
obtained and are in full force and effect.
(f) Taxes. The Seller has filed all material
tax returns required to be filed and has paid or made
adequate provision for the payment of all material taxes,
assessments and other governmental charges due from the
Seller or is contesting any such tax, assessment or other
governmental charge in good faith through appropriate
<PAGE> 15
proceedings.
(g) No Violation. The execution and delivery
of the Sale Papers, the performance of the transactions
contemplated by the Sale Papers and the fulfillment of
the terms thereof, will not violate any Requirements of
Law applicable to the Seller, will not violate, result in
any breach of any of the material terms and provisions of
or constitute (with or without notice or lapse of time or
both) a default under any Requirement of Law applicable
to the Seller, or any material indenture, contract,
agreement, mortgage, deed of trust or other material
instrument to which the Seller is a party or by which it
or its properties are bound.
(h) No Proceedings. There are no proceedings
or investigations pending or, to the best knowledge of
the Seller, threatened against the Seller before any
Governmental Authority (i) asserting the invalidity of
the Sale Papers, (ii) seeking to prevent the consummation
of any of the transactions contemplated thereby, (iii)
seeking any determination or ruling that would materially
and adversely affect the performance by the Seller of its
obligations thereunder or (iv) seeking any determination
or ruling that would materially and adversely affect the
validity or enforceability thereof.
(i) All Consents Required. All approvals,
authorizations, consents, orders or other actions of any
Governmental Authority required in connection with the
execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale
Papers and the fulfillment of the terms hereof and
thereof, have been obtained.
(j) Bona Fide Receivables. The Seller has no
knowledge of any fact which should have led it to expect
at the time of the classification of any Receivable as an
Eligible Receivable that such Receivable would not be
paid in full when due, and each Receivable classified as
an Eligible Receivable by the Seller in any document or
report delivered under this Agreement satisfies the
requirements of eligibility contained in the definition
of Eligible Receivable set forth herein.
(k) Place of Business. The principal
executive offices of the Seller are in Salt Lake City,
Utah and the offices where the Seller keeps its records
concerning the Receivables and related Contracts are in
Salt Lake City, Utah, Omaha, Nebraska, Hennepin County,
Minnesota, Tulsa, Oklahoma and St. Cloud, Minnesota.
(l) Use of Proceeds. No proceeds of the sale
of any Receivable hereunder received by the Seller will
be used by the Seller to purchase or carry any margin
stock.
(m) Not an Investment Company. The Seller is
not an "investment company" within the meaning of the
<PAGE> 16
Investment Company Act, or is exempt from all provisions
of such Act.
The representations and warranties set forth in
this Section 4.1 shall survive the sale of the
Receivables to the Buyer. The Seller hereby represents
and warrants to the Buyer, that the representations and
warranties of the Seller set forth in Section 4.1 are
true and correct as of such date. Upon discovery by the
Seller or the Buyer of a material breach of any of the
foregoing representations and warranties, the party
discovering such breach shall give prompt written notice
thereof to the other.
Section 4.2 Seller's Representations and
Warranties Regarding Receivables.
(a) Valid Sale, etc. The Seller (x) hereby
represents and warrants as of the Closing Date, with
respect to the Receivables created on or prior to, and
outstanding on, such date and (y) shall be deemed to
represent and warrant as of the date of the creation and
transfer to the Buyer of any Receivables with respect to
such Receivables, that:
(i) This Agreement constitutes the legal,
valid and binding obligation of the Seller,
enforceable against the Seller in accordance with
its terms, except (A) as such enforceability may be
limited by applicable bankruptcy, receivership,
insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect, affecting
the enforcement of creditors' rights in general, and
(B) as such enforceability may be limited by general
principles of equity (whether considered in a suit
at law or in equity).
(ii) The transfer of Receivables by the
Seller to the Buyer under this Agreement constitutes
a valid sale, transfer, assignment, set-over and
conveyance to the Buyer of all right, title and
interest of the Seller in and to the Receivables,
whether then existing or thereafter created and
arising in connection with the Accounts, and such
Receivables will be held by the Buyer free and clear
of any Lien of any Person claiming through or under
the Seller or any of its Affiliates except for
Permitted Liens. This Agreement constitutes a valid
sale, transfer, assignment, set-over and conveyance
to the Buyer of all right, title and interest of the
Seller in and to the Receivables purported to be
sold hereunder, whether then existing or thereafter
created and the proceeds thereof.
(iii) The Seller is not insolvent and
will not be rendered insolvent upon sale of the
Receivables to the Buyer.
(iv) The Seller is (or, with respect to
Receivables arising after the date hereof, will be)
<PAGE> 17
the legal and beneficial owner of all right, title
and interest in and to each Receivable and each
Receivable has been or will be transferred to the
Buyer free and clear of any Lien other than
Permitted Liens.
(v) All consents, licenses, approvals or
authorizations of or registrations or declarations
with any Governmental Authority required in
connection with the transfer of such Receivables to
the Buyer have been obtained.
(vi) Each Account classified as an
"Eligible Account" by the Seller in any document or
report delivered hereunder will satisfy the
requirements contained in the definition of Eligible
Account as of the date of such document or report
and each Receivable classified as an "Eligible
Receivable" by the Seller in any document or report
delivered hereunder will satisfy the requirements
contained in the definition of Eligible Receivable
as of the time of such document or report.
(vii) Each Receivable then existing has
been conveyed to the Buyer free and clear of any
Lien of any Person claiming through or under the
Seller or any of its Affiliates (other than
Permitted Liens) and in compliance, in all material
respects, with all Requirements of Law applicable to
the Seller.
(b) Daily Representations and Warranties. On
each day on which any new Receivable is created by the
Seller, the Seller shall be deemed to represent and
warrant to the Buyer that (A) each Receivable purchased
by the Seller on such day has been conveyed to the Buyer
in compliance, in all material respects, with all
Requirements of Law applicable to the Seller and free and
clear of any Lien of any Person claiming through or under
the Seller or any of its Affiliates (other than Permitted
Liens) and (B) with respect to each such Receivable, all
consents, licenses, approvals or authorizations of or
registrations or declarations with, any Governmental
Authority required to be obtained, effected or given by
the Seller in connection with the conveyance of such
Receivable to the Buyer have been duly obtained, effected
or given and are in full force and effect.
(c) Notice of Breach. The representations and
warranties set forth in this Section 4.2 shall survive
the sale, transfer and assignment of the respective
Receivables to the Buyer. Upon discovery by the Seller
or the Buyer of a breach of any of the representations
and warranties set forth in this Section 4.2, the party
discovering such breach shall give prompt written notice
thereof to the other. The Seller agrees to cooperate
with the Buyer in attempting to cure any such breach.
Section 4.3 Representations and Warranties of
the Buyer. The Buyer hereby represents and warrants and
<PAGE> 18
agrees with, as of the date hereof and as of the Closing
Date, the Seller and shall be deemed to represent and
warrant as of the date of the creation of any Receivable
sold to the Buyer hereunder that:
(a) Organization and Good Standing. The Buyer
is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware and
has the corporate power and authority and legal right to
own its property and conduct its business as such
properties are presently owned and such business is
presently conducted and to execute, deliver, and perform
its obligations under the Sale Papers.
(b) Due Qualification. The Buyer is duly
qualified to do business and is in good standing (or is
exempt from such requirements) as a foreign corporation
in any state required in order to conduct business and
has obtained all necessary licenses and approvals with
respect to the Buyer required under federal and Minnesota
law.
(c) Due Authorization. The execution and
delivery of the Sale Papers and the consummation of the
transactions provided for in the Sale Papers have been
duly authorized by the Buyer by all necessary corporate
action on its part.
(d) No Conflicts. The execution and delivery
of the Sale Papers and the performance of the
transactions contemplated thereby do not (i) contravene
the Buyer's certificate of incorporation or by-laws or
(ii) violate any material provision of law applicable to
it, or require any filing (except for the filings under
the UCC), registration, consent or approval under, any
law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having
applicability to the Buyer, except for such filings,
registrations, consents or approvals as have already been
obtained and are in full force and effect.
(e) No Violation. The execution and delivery
of the Sale Papers, the performance of the transactions
contemplated by the Sale Papers, and the fulfillment of
the terms of the Sale Papers will not violate any
Requirements of Law applicable to the Buyer, will not
violate, result in any breach of any of the material
terms and provisions of, or constitute (with or without
notice or lapse of time or both) a default under any
Requirement of Law applicable to the Buyer, or any
material indenture, contract, agreement, mortgage, deed
of trust or other material instrument to which the Buyer
is a party or by which it or its properties are bound.
(f) No Proceedings. There are no proceedings
or investigations pending or, to the best knowledge of
the Buyer, threatened against the Buyer, before any
Governmental Authority (i) asserting the invalidity of
the Sale Papers, (ii) seeking to prevent the consummation
of any of the transactions contemplated by the Sale
<PAGE> 19
Papers, (iii) seeking any determination or ruling that
would materially and adversely affect the performance by
the Buyer of its obligations thereunder or (iv) seeking
any determination or ruling that would materially and
adversely affect the validity or enforceability of the
Sale Papers.
(g) All Consents Required. All approvals,
authorizations, consents, orders, or other actions of any
Governmental Authority required in connection with the
execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale
Papers, and the fulfillment of the terms of the Sale
Papers have been obtained.
The representations and warranties set forth in
this Section 4.3 shall survive the sale of the
Receivables to the Buyer. The Buyer hereby represents
and warrants to the Seller that the representations and
warranties of the Buyer set forth in Section 4.3 are true
and correct as of such date. Upon discovery by the Buyer
or the Seller of a breach of any of the foregoing
representations and warranties, the party discovering
such breach shall give prompt written notice to the
other.
[END OF ARTICLE IV]
<PAGE> 20
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. The Seller
hereby covenants that:
(a) Receivables to be Accounts, General
Intangibles or Chattel Paper. The Seller will take no
action to cause any Receivable to be evidenced by any
instrument (as defined in the UCC as in effect in the
Relevant UCC State), except in connection with the
enforcement or collection of a Receivable. Except in
such circumstances, the Seller will take no action to
cause any Receivable to be anything other than an
"account," a "general intangible" or "chattel paper" (as
defined in the UCC as in effect in the Relevant UCC
State).
(b) Security Interests. Except for the
conveyances hereunder, the Seller will not sell, pledge,
assign or transfer to any other Person, or grant, create,
incur, assume or suffer to exist any Lien, on any
Receivable, whether now existing or hereafter created, or
any interest therein; the Seller will immediately notify
the Buyer of the existence of any Lien on any Receivable;
and the Seller shall defend the right, title and interest
of the Buyer in, to and under the Receivables, whether
now existing or hereafter created, against all claims of
third parties claiming through or under the Seller;
provided, however, that nothing in this subsection 5.1(b)
shall prevent or be deemed to prohibit the Seller from
suffering to exist upon any of the Receivables any
Permitted Lien.
(c) Contracts and Credit and Collection
Policies. The Seller shall take all actions reasonably
within its control to comply with and perform its
obligations under the Contracts relating to the Accounts
and the Credit and Collection Policy and all applicable
rules and regulations of MasterCard International
Incorporated except insofar as any failure to comply or
perform would not materially and adversely affect the
rights of the Buyer. The Seller may change the terms and
provisions of the Contracts or the Credit and Collection
Policy in any respect (including, without limitation, the
reduction of the required minimum monthly payment, the
calculation of the amount, or the timing, of chargeoffs
and the Periodic Finance Charges and other fees assessed
thereon) only if such change (i) would not, in the
reasonable belief of the Seller, materially impair the
collectibility of any Receivable and (ii) (A) (if it owns
a comparable segment of receivables) is made applicable
to the comparable segment of the receivables owned by the
Buyer or Seller, if any, which have characteristics the
same as, or substantially similar to, the Receivables
that are the subject of such change and (B) (if it does
not own such a comparable segment of receivables) will
not be made with the intent to materially benefit the
Seller over the Buyer or to materially adversely affect
<PAGE> 21
the Buyer, except as otherwise restricted by an
endorsement, sponsorship, or other agreement between the
Seller and an unrelated third party or by the terms of
the Contracts.
(d) Delivery of Collections. In the event
that the Seller receives Collections, the Seller agrees
to forward to the Buyer or its designee such Collections
as soon as practicable after the receipt thereof, but in
no event later than the second Business Day following the
Date of Processing thereof.
(e) Notice of Liens. The Seller shall notify
the Buyer promptly after becoming aware of any Lien on
any Receivable other than Permitted Liens.
(f) Separate Business. The Seller shall
maintain separate corporate records and books of account
from those of the Buyer. The Seller will not conduct its
business in the name of the Buyer so as not to mislead
others as to the identity of the entity with which those
others are concerned.
Section 5.2 Addition of Accounts. Unless the
Seller specifies to the contrary, all Accounts that meet
the definition of Additional Accounts shall be included
as Accounts from and after the date upon which such
Additional Accounts are created and all Receivables in
such Additional Accounts, whether such Receivables are
then existing or thereafter created, shall be
automatically sold to the Buyer. For the purposes of this
Agreement, all receivables of such Additional Accounts
shall be treated as Receivables upon their creation and
shall be subject to the eligibility criteria specified in
the definitions of "Eligible Receivable" and "Eligible
Account."
Section 5.3 Buyer Covenant Regarding Sale
Treatment. The Buyer agrees to treat this conveyance for
all purposes (including, without limitation, tax and
financial accounting purposes) as a sale on all relevant
books, records, tax returns, financial statements and
other applicable documents.
[END OF ARTICLE V]
<PAGE> 22
ARTICLE VI
OPTIONAL REPURCHASE
Section 6.1 Breach of Warranty. In the event
of a breach with respect to a Receivable of any of the
representations and warranties set forth in Section
4.1(j) or subsections 4.2(a)(iii) through (vii) or
4.2(b), or in the event that a Receivable is not an
Eligible Receivable on the date of its transfer to the
Buyer as a result of the failure to satisfy the
conditions set forth in the definition of Eligible
Receivable, at the sole option of the Buyer and upon
written notice to the Seller, such Receivable shall be
designated an "Ineligible Receivable" and the Seller
shall pay to the Buyer an amount in cash equal to the
purchase price paid for any such Ineligible Receivable by
the Buyer to the Seller. Such payment must be made by
the close of business on the thirtieth Business Day
following the day such Receivable has been designated an
Ineligible Receivable; provided, however, that such
amount may be offset against any amounts due from the
Buyer to the Seller with respect to the Purchase Price
for Receivables sold to the Buyer on such day. The
obligation of the Seller set forth in this Section shall
constitute the sole remedy respecting any breach of the
representations and warranties set forth in the above-
referenced Sections or failure to meet the conditions set
forth in the definition of Eligible Receivable with
respect to such Receivable available to the Buyer.
Section 6.2 Conveyance of Reassigned
Receivables. Upon the request of the Seller, the Buyer
shall execute and deliver to the Seller a reconveyance
substantially in such form and upon such terms as shall
be acceptable to the Seller, pursuant to which the Buyer
evidences the conveyance to the Seller of all of the
Buyer's right, title, and interest in any Receivables
reconveyed to the Seller pursuant to Section 6.1. The
Buyer shall execute such other documents or instruments
of conveyance or take such other actions as the Seller
may reasonably require to effect any repurchase of
Receivables pursuant to this Article VI.
[END OF ARTICLE VI]
<PAGE> 23
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to the Buyer's
Obligations Regarding Receivables. The obligations of
the Buyer to purchase the Receivables on any Business Day
shall be subject to the satisfaction of the following
conditions:
(a) All representations and warranties of the
Seller contained in this Agreement shall be true and
correct on the Closing Date and on the day of creation of
any Receivable created thereafter with the same effect as
though such representations and warranties had been made
on such date;
(b) All information concerning the Receivables
provided to the Buyer shall be true and correct in all
material respects as of the Closing Date, in the case of
Receivables sold to the Buyer on the Closing Date, or the
applicable Date of Processing, in the case of Receivables
created after the Closing Date;
(c) At the Closing Date, the Seller shall have
substantially performed all other obligations required to
be performed by the provisions of this Agreement;
(d) With respect to Receivables sold to the
Buyer on the Closing Date, the Seller shall have filed
the financing statement(s) required to be filed pursuant
to Section 2.1(b); and
(e) All corporate and legal proceedings and
all instruments in connection with the transactions
contemplated by this Agreement shall be satisfactory in
form and substance to the Buyer, and the Buyer shall have
received from the Seller copies of all documents
(including, without limitation, records of corporate
proceedings) relevant to the transactions herein
contemplated as the Buyer may reasonably have requested.
Section 7.2 Conditions Precedent to the
Seller's Obligations. The obligations of the Seller to
sell Receivables on any Business Day shall be subject to
the satisfaction of the following conditions:
(a) All representations and warranties of the
Buyer contained in this Agreement shall be true and
correct with the same effect as though such
representations and warranties had been made on such
date;
(b) Payment or provision for payment of the
Purchase Price in accordance with the provisions of
Section 3.2 hereof shall have been made; and
(c) All corporate and legal proceedings and
all instruments in connection with the transactions
<PAGE> 24
contemplated by this Agreement shall be satisfactory in
form and substance to the Seller, and the Seller shall
have received from the Buyer copies of all documents
(including, without limitation, records of corporate
proceedings) relevant to the transactions herein
contemplated as the Seller may reasonably have requested.
[END OF ARTICLE VII]
<PAGE> 25
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Term. This Agreement shall
commence as of the date of execution and delivery hereof
and shall continue in full force and effect until the
earlier of: (a) such date as may be agreed to in writing
by the Buyer and the Seller, or (b) the occurrence of any
of the following events: the Buyer or the Seller shall
(i) become insolvent, (ii) fail to pay its debts
generally as they become due, (iii) voluntarily seek,
consent to, or acquiesce in the benefit or benefits of
any debtor relief law, (iv) become a party to (or be made
the subject of) any proceeding provided for by any debtor
relief law, other than as a creditor or claimant, and, in
the event such proceeding is involuntary, the petition
instituting same is not dismissed within 60 days after
its filing, or (v) become unable for any reason to
purchase or re-purchase Receivables in accordance with
the provisions of this Agreement or default in its
obligations hereunder, which default continues unremedied
for more than 30 days after written notice is delivered
to the defaulting party by the non-defaulting party (any
such date set forth in clause (a) or (b) hereof being a
"Termination Date"); provided, however, that the
termination of this Agreement pursuant to this Section
8.1 shall not discharge any Person from any obligations
incurred prior to such termination, including, without
limitation, any obligations to make any payments with
respect to Receivables sold prior to such termination.
Section 8.2 Effect of Termination. No
termination or rejection of or failure to assume the
executory obligations of this Agreement in the event of
the receivership of the Seller or bankruptcy of the Buyer
shall be deemed to impair or affect the obligations
pertaining to any executed sale or executed obligations,
including, without limitation, pre-termination breaches
of representations and warranties by the Seller or the
Buyer.
[END OF ARTICLE VIII]
<PAGE> 26
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment. This Agreement and any
other Sale Papers and the rights and obligations of the
parties hereunder may not be changed orally, but only by
an instrument in writing signed by the Buyer and the
Seller. The Seller shall provide prompt written notice
of any such amendment to the Rating Agencies.
Section 9.2 Governing Law. THIS AGREEMENT AND
THE OTHER SALE PAPERS SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF MINNESOTA, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 9.3 Notices. All demands, notices and
communications hereunder shall be in writing and shall be
deemed to have been duly given if personally delivered at
or mailed by registered mail, return receipt requested,
to:
(a) in the case of the Seller, to:
Direct Merchants Credit Card Bank, N.A.
1455 West 2200 South
Salt Lake City, Utah 84119
Attention: Treasurer
(801) 974-4699
(b) in the case of the Buyer, to:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: General Counsel
(612) 932-3100
or, as to each party, at such other address as shall be
designated by such party in a written notice to each
other party.
Section 9.4 Severability of Provisions. If
any one or more of the covenants, agreements, provisions
or terms of the Sale Papers shall for any reason
whatsoever be held invalid, then such covenants,
agreements, provisions, or terms shall be deemed
severable from the remaining covenants, agreements,
provisions, or terms of the Sale Papers and shall in no
way affect the validity or enforceability of the other
provisions of the Sale Papers.
Section 9.5 Further Assurances. The Buyer and
the Seller agree to do and perform, from time to time,
any and all acts and to execute any and all further
instruments required or reasonably requested by the other
party more fully to effect the purposes of the Sale
Papers, including, without limitation, the execution of
<PAGE> 27
any financing statements or continuation statements or
equivalent documents relating to the Receivables for
filing under the provisions of the UCC or other laws of
any applicable jurisdiction.
Section 9.6 No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the
part of the Buyer or the Seller, any right, remedy, power
or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are
cumulative and not exhaustive of any rights, remedies,
powers and privileges provided by law.
Section 9.7 Counterparts. The Sale Papers may
each be executed in two or more counterparts including
telefax transmission thereof (and by different parties on
separate counterparts), each of which shall be an
original, but all of which together shall constitute one
and the same instrument.
Section 9.8 Binding Effect; Third Party
Beneficiaries. The Sale Papers will inure to the benefit
of and be binding upon the parties hereto and their
respective successors and permitted assigns.
Section 9.9 Merger and Integration. Except as
specifically stated otherwise herein, the Sale Papers set
forth the entire understanding of the parties relating to
the subject matter hereof, and all prior understandings,
written or oral, are superseded by the Sale Papers. The
Sale Papers may not be modified, amended, waived or
supplemented except as provided herein.
Section 9.10 Headings. The headings herein
are for purposes of reference only and shall not
otherwise affect the meaning or interpretation of any
provision hereof.
Section 9.11 Schedules and Exhibits. The
schedules and exhibits attached hereto and referred to
herein shall constitute a part of this Agreement and are
incorporated into this Agreement for all purposes.
Section 9.12 Protection of Right, Title and
Interest to Receivables.
(a) The Seller shall cause this Agreement, all
amendments hereto and/or all financing statements and
continuation statements and any other necessary documents
covering the Seller's and the Buyer's right, title and
interest to the Receivables to be promptly recorded,
registered and filed, and at all times to be kept
recorded, registered and filed, all in such manner and in
such places as may be required by law fully to preserve
and protect the right, title and interest of the Buyer
hereunder to the Receivables and proceeds thereof. The
<PAGE> 28
Seller shall deliver to the Buyer file-stamped copies of,
or filing receipts for, any document recorded, registered
or filed as provided above, as soon as available
following such recording, registration or filing. The
Buyer shall cooperate fully with the Seller in connection
with the obligations set forth above and will execute any
and all documents reasonably required to fulfill the
intent of this subsection 9.12(a).
(b) Within 30 days after the Seller makes any
change in its name, identity or corporate structure which
would make any financing statement or continuation
statement filed in accordance with paragraph (a) above
materially misleading within the meaning of Section 9-
402(7) of the UCC as in effect in the Relevant UCC State,
the Seller shall give the Buyer written notice of any
such change and shall file such financing statements or
amendments as may be necessary to continue the perfection
of the Buyer's security interest in the Receivables and
the proceeds thereof.
(c) The Seller will give the Buyer prompt
written notice of any relocation of any office from which
it services Receivables or keeps records concerning the
Receivables or of its principal executive office and
whether, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any
amendment of any previously filed financing or
continuation statement or of any new financing statement
and shall file such financing statements or amendments as
may be necessary to continue the perfection of the
Buyer's security interest in the Receivables and the
proceeds thereof. The Seller will at all times maintain
each office from which it services Receivables and its
principal executive office within the United States of
America.
[END OF ARTICLE IX]
<PAGE> 29
IN WITNESS WHEREOF, the Buyer and the Seller
each have caused this Agreement to be duly executed by
their respective officers as of the day and year first
above written.
DIRECT MERCHANTS CREDIT CARD
BANK, N.A.,
as Seller
By:________________________
Title:
FINGERHUT COMPANIES, INC.,
as Buyer
By:________________________
Title:
EXHIBIT A
FORM OF DAILY REPORT
<PAGE> 30
EXHIBIT 10.B(1)
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), dated as
of September 16, 1996, by and among FINGERHUT COMPANIES, INC., a Minnesota
corporation ("FCI"), METRIS COMPANIES INC., a Delaware corporation ("Metris")
and DIRECT MERCHANTS CREDIT CARD BANK, NATION- AL ASSOCIATION, a national
banking association with its principal offices located in Utah (the "Bank").
W I T N E S S E T H
WHEREAS, FCI and the Bank have entered into that certain Amended and
Restated Bank Receivables Pur- chase Agreement, dated as of May 26, 1995, as
amended (the "Bank Receivables Purchase Agreement") pursuant to which FCI has
agreed to purchase, and the Bank has agreed to sell, from time to time, certain
open-end or revolving credit receivables as described therein;
WHEREAS, in connection with a business realign- ment of FCI's
subsidiaries, effective as of the date of execution of this Agreement (the
"Effective Date"), the Bank will become a direct wholly owned subsidiary of
Metris and Metris will be an indirect wholly owned sub- sidiary of FCI;
WHEREAS, in connection with such business realignment, FCI wishes
to assign to Metris all of its rights arising under the Bank Receivables
Purchase Agree- ment, effective as of the Effective Date, Metris wishes to
accept such assignment and has agreed to assume and perform all of FCI's duties
and obligations under the Bank Receivables Purchase Agreement, and the Bank
con- sents to such assignment and assumption;
NOW, THEREFORE, in consideration of the terms and conditions hereof and
for other good and valuable consideration, the receipt of which is hereby
acknowl- edged, the parties hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have their respective meanings in the Bank
Receivables Pur- chase Agreement.
SECTION 2. Assignment and Assumption. FCI hereby assigns to Metris
all of its rights arising under the Bank Receivables Purchase Agreement,
effective as of the Effective Date, and Metris hereby accepts such as-
signment. FCI hereby delegates to Metris all of its duties and obligations
under the Bank Receivables Pur- chase Agreement and, for the benefit of FCI and
the Bank, Metris hereby assumes and agrees to perform all of FCI's duties and
obligations under the Bank Receivables Pur- chase Agreement. Metris agrees
that it shall be liable to the Bank for all of the obligations of FCI arising
under and in accordance with the Bank Receivables Pur- chase Agreement, whether
arising prior to or after the Effective Date.
<PAGE> 31
SECTION 3. Representations.
(a) FCI and Metris each represents to the other and to the Bank as
follows with respect to itself:
(i) Organization and Good Standing. It is a corporation duly
organized and validly existing in good standing under the laws of its state of
incorporation, and has the corporate power and authority and legal right to own
its property and conduct its business as such properties are presently owned
and such business is presently conducted and to execute, deliver, and perform
its obligations under this Agreement.
(ii) Due Qualification. It is duly qualified to do business and is in
good standing (or is exempt from such requirements) as a foreign corporation in
any state required in order to conduct business and has obtained all necessary
licenses and approvals with re- spect to it required under federal law and the
law of the jurisdiction of its incorporation.
(iii) Due Authorization. The execution and delivery of this Agreement
and the consummation of the transactions contem- plated herein have been duly
authorized by all necessary corporate action on its part.
(iv) No Conflicts/No Violation. The execution and delivery of this
Agreement and the performance of the transactions contem- plated hereby (i) do
not contravene its certif- icate of incorporation or by-laws, (ii) violate any
material provision of law applicable to it, or (iii) result in any breach of
any of the terms and provisions of, or constitute (with or without notice or
lapse of time or both) a default under, any material indenture, con- tract,
agreement, mortgage, deed of trust or other material instrument to which it is
a party or by which it or its properties are bound, and (iv) such action does
not require any filing (except for the UCC filing), regis- tration, consent or
approval under any law, rule, regulation, order, writ, judgment, in- junction,
decree, determination or award pres- ently in effect and applicable to it,
except for such filings, registrations, consents or approvals as have already
been obtained or made and as are in full force and effect.
(v) No Proceedings. There are no proceedings or investigations
pending or, to the best of its knowledge, threatened, against it before any
Governmental Authority (a) as- serting the invalidity of this Agreement, (b)
seeking to prevent the consummation of any of the transactions contemplated
hereby, (c) seek- ing any determination or ruling that would materially and
adversely affect the performance by it of its obligations hereunder, or (d)
seeking any determination or ruling that would materially and adversely affect
the validity or enforceability of this Agreement.
(b) FCI further represents to Metris that (i) the Bank Receivables
Purchase Agreement is in full force and effect as of the Effective Date, (ii)
it has delivered to Metris, on or prior to the Effective Date, all amendments,
modifications or supplements, as the case may be, to the Bank Receivables
Purchase Agreement.
<PAGE> 32
SECTION 4. References to FCI. The parties agree that references in
the Bank Receivables Purchase Agreement to "Fingerhut" or the "Buyer" shall be
deemed to refer, on and after the Effective Date and wherever appropriate in
the context, to Metris.
SECTION 5. Amendments to Bank Receivables Purchase Agreement. The
parties agree that the Bank Receivables Agreement shall be amended as follows:
(i) The word "Purchaser" in the sixth line of paragraph (e) of the
definition of "Eligible Account" in Article I of the Bank Receivables Purchase
Agreement shall be deleted and replaced with "Buyer."
(ii) The definition of "Pooling and Servicing Agreement" in
Article I of the Bank Receivables Purchase Agreement shall be deleted in its
entirety and replaced with the following:
"Pooling and Servicing Agreement" shall mean the Pooling and Servicing
Agreement dated as of May 26, 1995, as amended from to time, by and among
Direct Merchants Credit Card Bank, Na- tional Association, as servicer, Metris
Receiv- ables, Inc., as transferor, and The Bank of New York (Delaware), as
trustee.
SECTION 6. Consent of Bank. The Bank hereby consents to the
assignment herein by FCI to Metris of all of Metris' rights arising under the
Bank Receivables Purchase Agreement and the delegation herein by FCI to, and
the assumption herein by, Metris of all of FCI's duties and obligations under
the Bank Receivables Pur- chase Agreement. The Bank agrees that on and after
the Effective Date, the Bank shall look only to Metris for the performance of
FCI's duties and obligations arising under the Bank Receivables Purchase
Agreement prior to the Effective Date and the Bank hereby releases FCI from any
and all claims the Bank may have against FCI arising under or in connection
with the Bank Receivables Purchase Agreement.
SECTION 7. Conditions Precedent. FCI, Metris and the Bank agree that
the consummation of the transac- tions contemplated by (i) the contribution by
FCI to Metris of the capital stock of the Bank and Metris Re- ceivables shall
have occurred, (ii) the Assignment and Assumption Agreement dated as
of September 16, 1996, among FCI, Metris and Metris Receivables, Inc. (formerly
Fingerhut Financial Services Receivables, Inc.) ("Metris Receivables") and
(iii) Amendment No. 2 dated as of September 16, 1996, among Metris Receivables,
as trans- feror, the Bank, as servicer, and The Bank of New York (Delaware), as
trustee, to the Pooling and Servicing Agreement dated as of May 26, 1995, and
the satisfaction of the conditions precedent to each of the foregoing stated
therein, shall be conditions precedent to the effectiveness of this Agreement.
<PAGE> 33
SECTION 8. Indemnification. FCI hereby agrees to indemnify and hold
harmless Metris from and against any and all liabilities, losses, damages,
claims, ac- tions, and suits, and all costs and expenses relating thereto,
including reasonable legal fees, expenses and costs of investigation
(collectively, "Claims"), which may at any time be imposed upon, incurred by or
asserted against Metris and in any way related to or arising out of the breach
of any of the agreements, representations or warranties made by or on behalf of
FCI in the Purchase Agreement, except that FCI shall not be required to
indemnify Metris for any Claim resulting from (i) Metris' own gross negligence,
bad faith or willful misconduct, (ii) the breach or inaccuracy of a
representation, war- ranty, agreement or covenant of Metris set forth herein or
in the Bank Receivables Purchase Agreement, or (iii) any act of or omission by
any person or entity occurring subsequent to the Effective Date.
SECTION 9. Indemnification Procedure. Not- withstanding the
provisions of Section 8 hereof, FCI shall not be required to indemnify Metris
under such Section with respect to any Claim unless (a) Metris notifies FCI
promptly upon becoming aware of the exis- tence, assertion or likely assertion
of such Claim, and in any event before the failure to so notify FCI adverse- ly
affects the ability of FCI to defend against such Claim, (b) Metris permits FCI
to assume and control the defense of such Claim, and to negotiate and conclude
a settlement of such Claim if FCI elects to do so, and (c) Metris cooperates
with FCI in the defense of such Claim.
SECTION 10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA, WITHOUT
REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which to- gether shall be deemed to be one and the same instrument.
SECTION 12. Amendments. The terms of this Agreement may not be
amended, waived, modified or termi- nated except by written instrument signed
by the parties hereto. No such amendment or waiver shall extend to or affect
any obligation not expressly amended or waived or impair any rights consequent
thereon.
SECTION 13. Notices. All notices and communi- cations under this
Agreement shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or delivered by hand or transmitted by telex or other
communications device capable of transmitting or creating a written record:
<PAGE> 34
(a) if to FCI:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: General Counsel
Telephone: (612) 932-3585
Telecopy: (612) 936-5412
or at such other address as it may have furnished in
writing to Metris and the Bank;
(b) if to Metris:
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: Chief Financial Officer
Telephone: (612) 525-5094
Telecopy: (612) 525-5070
or at such other address as it may have furnished in
writing to FCI and the Bank; and
(c) if to the Bank:
Direct Merchants Credit Card Bank, N.A.
1455 West 2200 South
Salt Lake City, Utah 84119
Attention: Treasurer
Telephone: (801) 974-4699
Telecopy: (801) 974-4630
or at such other address as it may have furnished in
writing to FCI and Metris. Any notice so addressed and
mailed by registered or certified mail shall be deemed to
be given when received and any notice delivered by hand
or transmitted by telecommunications device shall be
deemed to be given when so delivered or transmitted as
applicable. Each party agrees that all notices or other
communications permitted or required to be given to FCI
under the Bank Receivables Purchase Agreement shall be
given to Metris at the address set forth above or at such
other address as the Metris may have furnished in writing
to the appropriate party.
<PAGE> 35
SECTION 14. Successors and Assigns. Neither the obligations of FCI
nor the obligations of Metris hereunder, including any obligations assumed as a
result of this Agreement, shall be assigned to any person with- out the prior
written consent of the other parties here- to. Subject to the preceding
sentence, this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
SECTION 15. Headings. The headings of Sec- tions have been included
herein for convenience only and should not be considered in interpreting this
Agreement.
SECTION 16. Survival of Representations. All representations
contained in this Agreement shall survive the execution and delivery of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
FINGERHUT COMPANIES, INC.
By:________________________
Name:
Title:
METRIS COMPANIES INC.
By:________________________
Name:
Title:
DIRECT MERCHANTS CREDIT CARD
BANK, NATIONAL ASSOCIATION
By:________________________
Name:
Title:
<PAGE> 1
Exhibit 10.c
FINGERHUT FINANCIAL SERVICES RECEIVABLES, INC.
Buyer
and
FINGERHUT COMPANIES, INC.
Seller
PURCHASE AGREEMENT
Dated as of May 26, 1995
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitional Provisions . . . . . . 2
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Sale . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
CONSIDERATION AND PAYMENT . . . . . . . . . . . . . . . 6
Section 3.1 Purchase Price . . . . . . . . . . . . . . 6
Section 3.2 Payment of Purchase Price . . . . . . . . 6
Section 3.3 Daily Reports . . . . . . . . . . . . . . 6
Section 3.4 Capital Contribution . . . . . . . . . . . . 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 7
Section 4.1 Seller's Representations and Warranties . 7
Section 4.2 Seller's Representations and
Warranties Regarding Receivables . . . . 10
Section 4.3 Representations and Warranties of
the Buyer . . . . . . . . . . . . . . . . 12
ARTICLE V
COVENANTS OF SELLER AND BUYER . . . . . . . . . . . . . 15
Section 5.1 Seller Covenants . . . . . . . . . . . . . 15
Section 5.2 Addition of Accounts . . . . . . . . . . . 17
Section 5.3 Buyer Covenant Regarding Sale Treatment . 17
ARTICLE VI
REPURCHASE OBLIGATION . . . . . . . . . . . . . . . . . 18
Section 6.1 Mandatory Repurchase . . . . . . . . . . . 18
Section 6.2 Conveyance of Reassigned
Receivables . . . . . . . . . . . . . . . 19
ARTICLE VII
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . 20
Section 7.1 Conditions to the Buyer's
Obligations Regarding
Receivables . . . . . . . . . . . . . . . 20
Section 7.2 Conditions Precedent to the
Seller's Obligations . . . . . . . . . . 20
ARTICLE VIII
TERM AND TERMINATION . . . . . . . . . . . . . . . . . 22
Section 8.1 Termination . . . . . . . . . . . . . . . 22
ARTICLE IX
MISCELLANEOUS PROVISIONS . . . . . . 23
Section 9.1 Amendment . . . . . . . . . . . . . . . . 23
Section 9.2 Governing Law . . . . . . . . . . . . . . 23
Section 9.3 Notices . . . . . . . . . . . . . . . . . 23
Section 9.4 Severability of Provisions . . . . . . . 24
Section 9.5 Assignment . . . . . . . . . . . . . . . 24
Section 9.6 Further Assurances . . . . . . . . . . . 24
Section 9.7 No Waiver; Cumulative Remedies . . . . . 25
Section 9.8 Counterparts . . . . . . . . . . . . . . 25
Section 9.9 Binding Effect; Third-Party
Beneficiaries . . . . . . . . . . . . . 25
Section 9.10 Merger and Integration. . . . . . . . . 25
Section 9.11 Headings . . . . . . . . . . . . . . . . 25
Section 9.12 Schedules and Exhibits . . . . . . . . . 25
Section 9.13 No Bankruptcy Petition Against
the Buyer . . . . . . . . . . . . . . . 25
Section 9.14 Merger or Consolidation of, or
Assumption of the Obligations
of, the Seller . . . . . . . . . . . . . 26
Section 9.15 Protection of Right, Title and
Interest to Receivables . . . . . . . . 27
Exhibit A Form of Daily Report
<PAGE> 2
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of May 26, 1995
(the "Agreement"), by and between FINGERHUT COMPANIES,
INC., a Minnesota corporation ("Fingerhut" or the
"Seller"), and FINGERHUT FINANCIAL SERVICES RECEIVABLES,
INC., a Delaware corporation ("FFSRI" or the "Buyer").
W I T N E S S E T H :
WHEREAS, the Buyer desires to purchase from
time to time certain open-end or revolving credit
receivables (including, without limitation, MasterCard,
Visa and private label credit card receivables) generated
or acquired on or before the Initial Closing Date or to
be generated or acquired after the Initial Closing Date
by the Seller, the Bank or any Affiliate thereof in the
normal course of its business;
WHEREAS, the Seller desires to sell and assign
from time to time such receivables to the Buyer upon the
terms and conditions hereinafter set forth;
WHEREAS, the Buyer is an Affiliate of the
Seller;
NOW, THEREFORE, it is hereby agreed by and
between the Buyer and the Seller as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of
this Agreement, except as otherwise expressly provided
herein or unless the context otherwise requires,
capitalized terms used herein shall have the following
meanings assigned to them:
"Bank" shall mean Direct Merchants Credit Card
Bank, N.A.
"Credit Adjustment" shall have the meaning set
forth in Section 3.2(b) hereof.
"Involuntary Case" shall have the meaning set
forth in Section 2.1(c) hereof.
"Opinion of Counsel" shall mean a written
opinion of counsel acceptable to the Buyer and the
Seller, which counsel may be an employee of the Seller.
"Pooling and Servicing Agreement" shall mean
the Pooling and Servicing Agreement dated as of May 26,
1995 by and among the Bank, as Servicer, FFSRI, as
Transferor, and the Trustee.
"Purchase Price" shall have the meaning set
forth in Section 3.1 hereof.
"Sale Papers" shall have the meaning set forth
in Section 4.1(a) hereof.
"Secured Obligations" shall have the meaning
set forth in Section 2.1(f) hereof.
<PAGE> 3
Section 1.2 Other Definitional Provisions.
The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement or any Sale
Paper shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; and Section,
Subsection, Schedule and Exhibit references contained in
this Agreement are references to Sections, Subsections,
Schedules and Exhibits in or to this Agreement unless
otherwise specified. All capitalized terms not otherwise
defined herein are defined in the Pooling and Servicing
Agreement. In the event that any term or provision
contained herein shall conflict with or be inconsistent
with any provisions contained in the Pooling and
Servicing Agreement, the terms and provisions contained
herein shall govern with respect to this Agreement.
[END OF ARTICLE I]
<PAGE> 4
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING
OF RECEIVABLES
Section 2.1 Sale. (a) In consideration for
the Purchase Price and upon the terms and subject to the
conditions set forth herein, the Seller does hereby sell,
assign, transfer, set-over, and otherwise convey to the
Buyer, and the Buyer does hereby purchase from the
Seller, on the terms and subject to the conditions
specifically set forth herein, all of the Seller's right,
title and interest in, to and under (i) the Receivables
now existing and hereafter created and arising in
connection with the Accounts and any accounts that meet
the definition of Additional Accounts, including, without
limitation, all accounts, general intangibles, chattel
paper, contract rights and other obligations of any
Obligor with respect to the Receivables, now or hereafter
existing, whether or not arising out of or in connection
with the sale or lease of goods or the rendering of
services, (ii) all monies and investments due or to
become due with respect thereto (including, without
limitation, the right to any Finance Charge Receivables,
including any Recoveries), (iii) all proceeds of such
Receivables and (iv) the Bank Receivables Purchase
Agreement. The foregoing sale, transfer, assignment,
set-over and conveyance does not constitute and is not
intended to result in a creation or an assumption by the
Buyer of any obligation of the Seller in connection with
the Receivables or any agreement or instrument relating
thereto, including, without limitation, any obligation to
any Obligors, merchant banks, merchant clearance systems,
VISA USA, Inc., MasterCard International Incorporated or
insurers.
(b) In connection with the foregoing sale, the
Seller agrees to record and file on or prior to the
Initial Closing Date, at its own expense, a financing
statement or statements with respect to the Receivables
and the other property described in Section 2.1(a) sold
by the Seller hereunder meeting the requirements of
applicable state law in such manner and in such
jurisdictions as are necessary to perfect and protect the
interests of the Buyer created hereby under the
applicable UCC against all creditors of and purchasers
from the Seller, and to deliver a file-stamped copy of
such financing statements or other evidence of such
filings to the Buyer within 10 days after the Initial
Closing Date.
(c) The Buyer shall not purchase Receivables
hereunder if the Seller shall become an involuntary party
to (or be made the subject of) any bankruptcy proceeding
or any other insolvency, readjustment of debt,
marshalling of assets and liabilities or similar
proceedings of or relating to the Seller or relating to
all or substantially all of its property (an "Involuntary
Case") upon receipt by the Seller at its head corporate
office of notice of such Involuntary Case.
(d) The Buyer shall not purchase Receivables
hereunder if the Seller shall admit in writing its
inability to pay its debts as they are due, or the Seller
shall commence a voluntary case under the federal
bankruptcy laws, as now or hereafter in effect, or any
present or future federal or state bankruptcy, insolvency
or similar law, or the Seller shall consent to the
appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Seller or of any
substantial part of its property or the Seller shall make
an assignment for the benefit of creditors or the Seller
shall fail generally to pay its debts as such debts
become due or the Seller shall take corporate action in
furtherance of any of the foregoing.
(e) In connection with the sale and conveyance
hereunder, the Seller agrees, at its own expense, on or
prior to the Initial Closing Date and on each Business
Day thereafter, to indicate or cause to be indicated
clearly and unambiguously in its accounting records and
with respect to any Receivables purchased by the Seller
from the Bank to cause the Bank to indicate clearly and
unambiguously in the Bank's accounting records that such
Receivables and the other property described in clauses
(i), (ii), (iii) and (iv) of Section 2.1(a) have been
sold to the Buyer pursuant to this Agreement as of the
Initial Closing Date or such Business Day as applicable.
<PAGE> 5
(f) It is the express intent of the Seller and
the Buyer that the conveyance of the Receivables by the
Seller to the Buyer pursuant to this Agreement be
construed as a sale of such Receivables by the Seller to
the Buyer. It is, further, not the intention of the
Seller and the Buyer that such conveyance be deemed a
grant of a security interest in the Receivables by the
Seller to the Buyer to secure a debt or other obligation
of the Seller. However, in the event that,
notwithstanding the intent of the parties, the
Receivables are held to continue to be property of the
Seller, then (i) this Agreement also shall be deemed to
be and hereby is a security agreement within the meaning
of the UCC; and (ii) the conveyance by the Seller
provided for in this Agreement shall be deemed to be and
the Seller hereby grants to the Buyer a security interest
in and to all of the Seller's right, title and interest
in (w) the Receivables then existing and thereafter
created and arising in connection with the Accounts that
meet the definition of Additional Accounts, including,
without limitation, all accounts, general intangibles,
chattel paper, contract rights and other obligations of
any Obligor with respect to the Receivables, then or
thereafter existing, (x) all monies and investments due
or to become due with respect thereto (including, without
limitation, the right to any Finance Charge Receivables,
including any Recoveries), (y) all proceeds of such
Receivables and (z) the Bank Receivables Purchase
Agreement to secure (1) the obligations of the Seller and
(2) a loan to the Seller in the amount of the Purchase
Price as set forth in this Agreement (the "Secured
Obligations"). The Seller and the Buyer shall, to the
extent consistent with this Agreement, take such actions
as may be necessary to ensure that, if this Agreement
were deemed to create a security interest in the
Receivables, such security interest would be deemed to be
a perfected security interest of first priority in favor
of the Buyer under applicable law and will be maintained
as such throughout the term of this Agreement. The
Seller and the Buyer may rely upon an Opinion of Counsel
addressed to them as to what is required to provide the
Buyer with such security interest; and any such Opinion
of Counsel shall permit the Trustee, on behalf of the
Certificateholders, the Certificateholders (in the case
of any Series issued in a placement exempt from the
registration requirements of the Securities Act) and the
Rating Agencies to rely on it.
[END OF ARTICLE II]
<PAGE> 6
ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 Purchase Price. The Purchase
Price for the Receivables and related property conveyed
to the Buyer under this Agreement shall be a dollar
amount equal to, for Receivables sold on any date, the
aggregate amount of all Principal Receivables sold as of
such date.
Section 3.2 Payment of Purchase Price.
(a) The Purchase Price for Receivables shall be paid or
provided for on the Initial Closing Date with respect to
the Receivables existing on the Initial Closing Date and
on each Business Day thereafter on which Receivables are
transferred hereunder, as the case may be, by payment in
immediately available funds. To the extent that the
total Purchase Price for Receivables is not paid in full
by the Buyer on the Initial Closing Date or on each
Business Day on which Receivables are purchased hereunder
in cash, the Seller shall be deemed to have contributed
Receivables in an aggregate principal amount equal to
such shortfall to the Buyer.
(b) The Purchase Price shall be adjusted on a
daily basis (the "Credit Adjustment") with respect to any
Receivable adjusted as provided in subsection 3.8 of the
Pooling and Servicing Agreement in an amount equal to the
amount of such Credit Adjustment specified in subsection
3.8 of the Pooling and Servicing Agreement. If the Buyer
is required thereunder to deposit amounts into the Excess
Funding Account, the Seller shall pay the amount so
adjusted to the Buyer.
Section 3.3 Daily Reports. On each Business
Day, the Seller shall deliver to the Buyer a Daily Report
(the "Daily Report") showing the aggregate Purchase Price
of Receivables generated, the aggregate amount, if any,
owing to the Buyer pursuant to Section 6.1 hereof and the
aggregate net amount of cash owing for Receivables
generated in each case for the period from and including
the preceding Business Day.
Section 3.4 Capital Contribution. The Seller
has contributed cash in exchange for 100 shares of common
stock of the Buyer, which 100 shares represent all of the
outstanding capital stock of the Buyer. In addition, in
connection with the sale of Receivables to the Buyer on
the Initial Closing Date, Principal Receivables equal to
$______________ shall be deemed paid for by the Buyer
with cash and such cash shall be retained by the Buyer
and will be considered to have been contributed to the
Buyer.
[END OF ARTICLE III]
<PAGE> 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Seller's Representations and
Warranties. The Seller represents and warrants to the
Buyer as of the Initial Closing Date, and shall be deemed
to represent and warrant as of the date of any Supplement
and the related Closing Date, that:
(a) Organization and Good Standing. The
Seller is a corporation duly organized and validly
existing in good standing under the laws of the State of
Minnesota and has the corporate power and authority and
legal right to own its property and conduct its business
as such properties are presently owned and as such
business is presently conducted and to execute, deliver
and perform its obligations under this Agreement and each
other document or instrument to be delivered by the
Seller hereunder (collectively, the "Sale Papers").
(b) Due Qualification. The Seller is duly
qualified to do business and is in good standing (or is
exempt from such requirements), as a foreign corporation
in any state required in order to conduct business, and
has obtained all necessary licenses and approvals with
respect to the Seller required under applicable law;
provided that no representation or warranty is made with
respect to any qualifications, licenses or approvals
which the Buyer would have to obtain to do business in
any state in which the Buyer seeks to enforce any
Receivable.
(c) Due Authorization. The execution and
delivery of the Sale Papers, and the consummation of the
transactions provided for herein and therein have been
duly authorized by the Seller by all necessary corporate
action on its part.
(d) Binding Obligation. Each of the Sale
Papers, and the consummation of the transactions provided
for therein, constitutes a legal, valid and binding
obligation of the Seller, enforceable in accordance with
its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereinafter in
effect, affecting the enforcement of creditors' rights in
general and as such enforceability may be limited by
general principles of equity (whether considered in a
proceeding at law or in equity).
(e) No Conflicts. The execution and delivery
of the Sale Papers and the performance of the
transactions contemplated thereby, do not (i) contravene
the Seller's charter or by-laws or (ii) violate any
material provision of law applicable to it or require any
filing (except for the filings under the UCC),
registration, consent or approval under, any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having
applicability to the Seller, except for such filings,
registrations, consents or approvals as have already been
obtained and are in full force and effect.
(f) Taxes. The Seller has filed all material
tax returns required to be filed and has paid or made
adequate provision for the payment of all material taxes,
assessments and other governmental charges due from the
Seller or is contesting any such tax, assessment or other
governmental charge in good faith through appropriate
proceedings.
(g) No Violation. The execution and delivery
of the Sale Papers, the performance of the transactions
contemplated by the Sale Papers and the fulfillment of
the terms thereof, will not violate any Requirements of
Law applicable to the Seller, will not violate, result in
any breach of any of the material terms and provisions of
or constitute (with or without notice or lapse of time or
both) a default under any Requirement of Law applicable
to the Seller, or any material indenture, contract,
agreement, mortgage, deed of trust or other material
instrument to which the Seller is a party or by which it
or its properties are bound.
(h) No Proceedings. There are no proceedings
or investigations pending or, to the best knowledge of
the Seller, threatened against the Seller before any
Governmental Authority (i) asserting the invalidity of
the Sale Papers, (ii) seeking to prevent the consummation
of any of the transactions contemplated thereby, (iii)
seeking any determination or ruling that would materially
and adversely affect the performance by the Seller of its
obligations thereunder or (iv) seeking any determination
or ruling that would materially and adversely affect the
validity or enforceability thereof.
(i) All Consents Required. All approvals,
authorizations, consents, orders or other actions of any
Governmental Authority required in connection with the
execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale
Papers and the fulfillment of the terms hereof and
thereof, have been obtained.
<PAGE> 8
(j) Bona Fide Receivables. The Seller has no
knowledge of any fact which should have led it to expect
at the time of the classification of any Receivable as an
Eligible Receivable that such Receivable would not be
paid in full when due, and each Receivable classified as
an Eligible Receivable by the Seller in any document or
report delivered under this Agreement satisfies the
requirements of eligibility contained in the definition
of Eligible Receivable set forth in the Pooling and
Servicing Agreement.
(k) Place of Business. The principal
executive offices of the Seller are in Minnetonka,
Minnesota and the offices where the Seller keeps its
records concerning the Receivables and related Accounts
are in Salt Lake City, Utah, Omaha, Nebraska, Hennepin
County, Minnesota, Tulsa, Oklahoma and St. Cloud,
Minnesota.
(l) Use of Proceeds. No proceeds of the sale
of any Receivable hereunder received by the Seller will
be used by the Seller to purchase or carry any margin
stock.
(m) Pay Out Event. As of the Initial Closing
Date, no Pay Out Event and no condition that with the
giving of notice and/or the passage of time would
constitute a Pay Out Event, has occurred and is
continuing.
(n) Not an Investment Company. The Seller is
not an "investment company" within the meaning of the
Investment Company Act, or is exempt from all provisions
of such Act.
The representations and warranties set forth in
this Section 4.1 shall survive the sale of the
Receivables to the Buyer. The Seller hereby represents
and warrants to the Buyer, that the representations and
warranties of the Seller set forth in this Section 4.1
are true and correct as of such date. Upon discovery by
the Seller or the Buyer of a material breach of any of
the foregoing representations and warranties, the party
discovering such breach shall give prompt written notice
thereof to the other.
Section 4.2 Seller's Representations and
Warranties Regarding Receivables.
(a) Valid Sale, etc. The Seller (x) hereby
represents and warrants as of the Initial Closing Date,
with respect to the Receivables created on or prior to,
and outstanding on, such date and (y) shall be deemed to
represent and warrant as of the date of the creation or
acquisition and transfer to the Buyer of any Receivables
with respect to such Receivables, that:
(i) Each of this Agreement and the Bank
Receivables Purchase Agreement constitutes the
legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with
its terms, except (A) as such enforceability may be
limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now
or hereafter in effect, affecting the enforcement of
creditors' rights in general, and (B) as such
enforceability may be limited by general principles
of equity (whether considered in a suit at law or in
equity).
(ii) The transfer of Receivables by the
Seller to the Buyer under this Agreement constitutes
a valid sale, transfer, assignment, set-over and
conveyance to the Buyer of all right, title and
interest of the Seller in and to the Receivables,
whether then existing or thereafter created and
arising in connection with the Accounts, and such
Receivables will be held by the Buyer free and clear
of any Lien of any Person claiming through or under
the Seller or any of its Affiliates except for
Permitted Liens. This Agreement constitutes a valid
sale, transfer, assignment, set-over and conveyance
to the Buyer of all right, title and interest of the
Seller in and to the Receivables purported to be
sold hereunder, whether then existing or thereafter
created and the proceeds thereof.
(iii) The Seller is not insolvent and
will not be rendered insolvent upon sale of the
Receivables to the Buyer.
(iv) The Seller is (or, with respect to
Receivables arising after the date hereof, will be)
the legal and beneficial owner of all right, title
and interest in and to each Receivable and each
Receivable has been or will be transferred to the
Buyer free and clear of any Lien other than
Permitted Liens.
<PAGE> 9
(v) All consents, licenses, approvals or
authorizations of or registrations or declarations
with any Governmental Authority required in
connection with the transfer of such Receivables to
the Buyer have been obtained.
(vi) Each Account classified as an
"Eligible Account" by the Seller in any document or
report delivered hereunder will satisfy the
requirements contained in the definition of Eligible
Account as of the date of such document or report
and each Receivable classified as an "Eligible
Receivable" by the Seller in any document or report
delivered hereunder will satisfy the requirements
contained in the definition of Eligible Receivable
as of the time of such document or report.
(vii) Each Receivable then existing has
been conveyed to the Buyer free and clear of any
Lien of any Person claiming through or under the
Seller or any of its Affiliates (other than
Permitted Liens) and in compliance, in all material
respects, with all Requirements of Law applicable to
the Seller.
(b) Daily Representations and Warranties. On
each day on which any new Receivable is created or
acquired by the Seller, the Seller shall be deemed to
represent and warrant to the Buyer that (A) each
Receivable purchased by the Buyer on such day has been
conveyed to the Buyer in compliance, in all material
respects, with all Requirements of Law applicable to the
Seller and free and clear of any Lien of any Person
claiming through or under the Seller or any of its
Affiliates (other than Permitted Liens) and (B) with
respect to each such Receivable, all consents, licenses,
approvals or authorizations of or registrations or
declarations with, any Governmental Authority required to
be obtained, effected or given by the Seller in
connection with the conveyance of such Receivable to the
Buyer have been duly obtained, effected or given and are
in full force and effect.
(c) Notice of Breach. The representations and
warranties set forth in this Section 4.2 shall survive
the sale, transfer and assignment of the respective
Receivables to the Buyer. Upon discovery by the Seller
or the Buyer of a breach of any of the representations
and warranties set forth in this Section 4.2, the party
discovering such breach shall give prompt written notice
thereof to the other. The Seller agrees to cooperate
with the Buyer in attempting to cure any such breach.
Section 4.3 Representations and Warranties of
the Buyer. The Buyer hereby represents and warrants and
agrees with, as of the date hereof and as of the Initial
Closing Date, the Seller and shall be deemed to represent
and warrant as of the date of the creation of any
Receivable sold to the Buyer hereunder that:
(a) Organization and Good Standing. The Buyer
is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware and
has the corporate power and authority and legal right to
own its property and conduct its business as such
properties are presently owned and such business is
presently conducted and to execute, deliver, and perform
its obligations under the Sale Papers.
(b) Due Qualification. The Buyer is duly
qualified to do business and is in good standing (or is
exempt from such requirements) as a foreign corporation
in any state required in order to conduct business and
has obtained all necessary licenses and approvals with
respect to the Buyer required under federal and Delaware
law.
(c) Due Authorization. The execution and
delivery of the Sale Papers and the consummation of the
transactions provided for in the Sale Papers have been
duly authorized by the Buyer by all necessary corporate
action on its part.
(d) No Conflicts. The execution and delivery
of the Sale Papers and the performance of the
transactions contemplated thereby do not (i) contravene
the Buyer's certificate of incorporation or by-laws or
(ii) violate any material provision of law applicable to
it, or require any filing (except for the filings under
the UCC), registration, consent or approval under, any
law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having
applicability to the Buyer, except for such filings,
registrations, consents or approvals as have already been
obtained and are in full force and effect.
(e) No Violation. The execution and delivery
of the Sale Papers, the performance of the transactions
contemplated by the Sale Papers, and the fulfillment of
the terms of the Sale Papers will not violate any
Requirements of Law applicable to the Buyer, will not
violate, result in any breach of any of the material
terms and provisions of, or constitute (with or without
notice or lapse of time or both) a default under any
Requirement of Law applicable to the Buyer, or any
material indenture, contract, agreement, mortgage, deed
of trust or other material instrument to which the Buyer
is a party or by which it or its properties are bound.
<PAGE> 10
(f) No Proceedings. There are no proceedings
or investigations pending or, to the best knowledge of
the Buyer, threatened against the Buyer, before any
Governmental Authority (i) asserting the invalidity of
the Sale Papers, (ii) seeking to prevent the consummation
of any of the transactions contemplated by the Sale
Papers, (iii) seeking any determination or ruling that
would materially and adversely affect the performance by
the Buyer of its obligations thereunder or (iv) seeking
any determination or ruling that would materially and
adversely affect the validity or enforceability of the
Sale Papers.
(g) All Consents Required. All approvals,
authorizations, consents, orders, or other actions of any
Governmental Authority required in connection with the
execution and delivery of the Sale Papers, the
performance of the transactions contemplated by the Sale
Papers, and the fulfillment of the terms of the Sale
Papers have been obtained.
(h) Solvency. The Buyer is not insolvent and
will not be rendered insolvent upon the purchase of the
Receivables.
The representations and warranties set forth in
this Section 4.3 shall survive the sale of the
Receivables to the Buyer. The Buyer hereby represents
and warrants to the Seller that the representations and
warranties of the Buyer set forth in Section 4.3 are true
and correct as of such date. Upon discovery by the Buyer
or the Seller of a breach of any of the foregoing
representations and warranties, the party discovering
such breach shall give prompt written notice to the
other.
[END OF ARTICLE IV]
ARTICLE V
COVENANTS OF SELLER AND BUYER
Section 5.1 Seller Covenants. The Seller
hereby covenants that:
(a) Receivables to be Accounts, General
Intangibles or Chattel Paper. The Seller will take no
action to cause any Receivable to be evidenced by any
instrument (as defined in the UCC as in effect in the
Relevant UCC State), except in connection with the
enforcement or collection of a Receivable. Except in
such circumstances, the Seller will take no action to
cause any Receivable to be anything other than an
"account," a "general intangible" or "chattel paper" (as
defined in the UCC as in effect in the Relevant UCC
State).
(b) Security Interests. Except for the
conveyances hereunder, the Seller will not sell, pledge,
assign or transfer to any other Person, or grant, create,
incur, assume or suffer to exist any Lien, on any
Receivable, whether now existing or hereafter created, or
any interest therein; the Seller will immediately notify
the Buyer of the existence of any Lien on any Receivable;
and the Seller shall defend the right, title and interest
of the Buyer in, to and under the Receivables, whether
now existing or hereafter created, against all claims of
third parties claiming through or under the Seller;
provided, however, that nothing in this subsection 5.1(b)
shall prevent or be deemed to prohibit the Seller from
suffering to exist upon any of the Receivables any
Permitted Lien.
<PAGE> 11
(c) Periodic Finance Charges and Other Fees.
Except as otherwise required by any Requirement of Law,
or as is deemed by the Seller in its sole discretion to
be necessary in order to maintain its credit card
business on a competitive basis, it shall not at any time
reduce the annual percentage rates of the Periodic
Finance Charges assessed on the Receivables or other fees
charged on any of the Accounts if, as a result of any
such reduction, either (i) the Seller's reasonable
expectation is that such reduction will cause a Pay Out
Event to occur or (ii) such reduction is not also applied
to any comparable segment of consumer revolving credit
card accounts owned by the Seller that have
characteristics the same as, or substantially similar to,
such Accounts.
(d) Credit and Collection Policy and
Contracts. The Seller shall comply with and perform its
obligations under the Contracts relating to the Accounts
and the Credit and Collection Policy except insofar as
any failure so to comply or perform would not materially
and adversely affect the rights of the Trust or the
Certificateholders hereunder or under the Certificates.
Subject to compliance with all Requirements of Law, the
Seller may change the terms and provisions of the
Contracts or the Credit and Collection Policy with
respect to any of the Accounts in any respect (including
the calculation of the amount, or the timing, of charge-
offs and the Periodic Finance Charges and other fees to
be assessed thereon) only if in the reasonable judgment
of the Credit Card Originator (i) (if it owns a
comparable segment of receivables) such change is made
applicable to any comparable segment of the consumer
revolving credit card accounts owned by such Credit Card
Originator which have characteristics the same as, or
substantially similar to, such Accounts or (ii) (if it
does not own a comparable segment of receivables) such
change will not be made with the intent to materially
benefit the Credit Card Originator over the buyer or to
materially adversely affect the buyer, except as
otherwise restricted by an endorsement, sponsorship, or
other agreement between the Credit Card Originator and an
unrelated third party or by the terms of the Contracts.
The Seller further covenants that it will not
enter into any amendments to this Agreement that would
cause a Ratings Event to occur.
(e) Delivery of Collections. In the event
that the Seller receives Collections, the Seller agrees
to deposit such Collections into the Collection Account
as soon as practicable after the receipt thereof, but in
no event later than the second Business Day following the
Date of Processing thereof.
(f) Conveyance of Receivables. Except as
provided in Section 9.5, the Seller covenants and agrees
that it will not convey, assign, exchange or otherwise
transfer any Receivable, to any Person other than the
Buyer prior to the termination of this Agreement pursuant
to Article VIII; provided, however, that the Seller shall
not be prohibited hereby from conveying, assigning,
exchanging or otherwise transferring a Receivable in
connection with a transaction in which the Seller and its
successor agree to comply with provisions substantially
similar to those of Section 9.14.
(g) Notice of Liens. The Seller shall notify
the Buyer promptly after becoming aware of any Lien on
any Receivable other than Permitted Liens.
(h) Separate Business. The Seller will not
permit its assets to be commingled with those of the
Buyer and shall maintain separate corporate records and
books of account from those of the Buyer. The Seller
will not conduct its business in the name of the Buyer
and will cause the Buyer to conduct its business solely
in its own name so as not to mislead others as to the
identity of the entity with which those others are
concerned. The Seller will provide for its own operating
expenses and liabilities from its own funds. The Seller
will not hold itself out, or permit itself to be held
out, as having agreed to pay, or as generally being
liable for, the debts of the Buyer, except that the
organizational expenses of the Buyer may be paid by the
Seller and that the Seller will contribute to the
Transferor on the Initial Closing Date one or more demand
notes. The Seller shall cause the Buyer not to hold
itself out, or permit itself to be held out, as having
agreed to pay, or as being liable for, the debts of the
Seller. The Seller will maintain an arm's length
relationship with the Buyer with respect to any
transactions between the Seller, on the one hand, and the
Buyer, on the other.
Section 5.2 Addition of Accounts. Unless the
Seller specifies to the contrary, all Accounts that meet
the definition of Additional Accounts shall be included
as Accounts from and after the date upon which such
Additional Accounts are created or acquired and all
Receivables in such Additional Accounts, whether such
Receivables are then existing or thereafter created or
acquired, shall be automatically sold to the Buyer. For
the purposes of this Agreement, all receivables of such
Additional Accounts shall be treated as Receivables upon
their creation or acquisition and shall be subject to the
eligibility criteria specified in the definitions of
"Eligible Receivable" and "Eligible Account."
Section 5.3 Buyer Covenant Regarding Sale
Treatment. The Buyer agrees to treat this conveyance for
all purposes (including, without limitation, tax and
financial accounting purposes) as a sale on all relevant
books, records, tax returns, financial statements and
other applicable documents.
[END OF ARTICLE V]
<PAGE> 12
ARTICLE VI
REPURCHASE OBLIGATION
Section 6.1 Mandatory Repurchase.
(a) Breach of Warranty. In the event of a
breach with respect to a Receivable of any of the
representations and warranties set forth in Section
4.1(j) or subsections 4.2(a)(iii) through (vii) or
4.2(b), or in the event that a Receivable is not an
Eligible Receivable on the date of its transfer to the
Buyer as a result of the failure to satisfy the
conditions set forth in the definition of Eligible
Receivable, such Receivable shall be designated an
"Ineligible Receivable" and the Seller shall pay to the
Buyer an amount in cash equal to the purchase price paid
for any such Ineligible Receivable by the Buyer to the
Seller. Such payment must be made by the close of
business on the next succeeding Business Day following
the day such Receivable has been designated an Ineligible
Receivable; provided, however, that such amount may be
offset against any amounts due from the Buyer to the
Seller with respect to the Purchase Price for Receivables
sold to the Buyer on such day. The obligation of the
Seller set forth in this Section shall constitute the
sole remedy respecting any breach of the representations
and warranties set forth in the above-referenced Sections
or failure to meet the conditions set forth in the
definition of Eligible Receivable with respect to such
Receivable available to the Buyer.
(b) Reassignment of the Sold Assets. In the
event of a breach of any of the representations and
warranties set forth in Section 4.1(a), (b), and (c) and
4.2(a)(i) and (ii), the Buyer by notice given in writing
to the Seller may direct the Seller to accept
reassignment of the Receivables at the amount specified
below within 60 days of such notice (or within such
longer period as may be specified in such notice), and
the Seller shall be obligated to accept reassignment of
the Receivables within such applicable period on the
terms and conditions set forth below; provided, however,
that no such reassignment shall be required to be made
if, at any time during such applicable period, the Seller
delivers to the Buyer an Officer's Certificate stating
that the representations and warranties contained in
Section 4.1(a), (b), and (c) and 4.2(a)(i) and (ii) shall
then be true and correct in all material respects as if
made on such day. The Seller shall pay to the Buyer on
the day of such reassignment an amount equal to the
aggregate Invested Amount plus accrued and unpaid
interest on the Investor Certificates. On the day on
which such amount has been paid, each Receivable shall be
sold and reassigned to the Seller, and the Buyer shall
execute and deliver such instruments of sale and
assignment, in each case without recourse, representation
or warranty, as shall be reasonably requested by the
Seller to vest in the Seller, or its designee or
assignee, all right, title and interest of the Buyer in
and to each Receivable. The obligation of the Seller to
purchase each Receivable pursuant to this Section shall
constitute the sole remedy available to the Buyer for a
breach of the representations and warranties contained in
Section 4.1(a), (b), and (c) and 4.2(a)(i) and (ii).
Section 6.2 Conveyance of Reassigned
Receivables. Upon the request of the Seller, the Buyer
shall execute and deliver to the Seller a reconveyance
substantially in such form and upon such terms as shall
be acceptable to the Seller, pursuant to which the Buyer
evidences the conveyance to the Seller of all of the
Buyer's right, title, and interest in any Receivables
reconveyed to the Seller pursuant to Section 6.1(b). The
Buyer shall (and shall cause the Trustee to) execute such
other documents or instruments of conveyance or take such
other actions as the Seller may reasonably require to
effect any repurchase of Receivables pursuant to this
Article VI.
[END OF ARTICLE VI]
<PAGE> 13
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to the Buyer's
Obligations Regarding Receivables. The obligations of
the Buyer to purchase the Receivables on any Business Day
shall be subject to the satisfaction of the following
conditions:
(a) All representations and warranties of the
Seller contained in this Agreement shall be true and
correct on the Initial Closing Date and on the day of
creation of any Receivable created thereafter with the
same effect as though such representations and warranties
had been made on such date;
(b) All information concerning the Receivables
provided to the Buyer shall be true and correct in all
material respects as of the Initial Closing Date, in the
case of Receivables sold to the Buyer on the Initial
Closing Date, or the applicable Date of Processing, in
the case of Receivables created after the Initial Closing
Date;
(c) At the Initial Closing Date, the Seller
shall have substantially performed all other obligations
required to be performed by the provisions of this
Agreement;
(d) With respect to Receivables sold to the
Buyer on the Initial Closing Date, the Seller shall have
filed the financing statement(s) required to be filed
pursuant to Section 2.1(b); and
(e) All corporate and legal proceedings and
all instruments in connection with the transactions
contemplated by this Agreement shall be satisfactory in
form and substance to the Buyer, and the Buyer shall have
received from the Seller copies of all documents
(including, without limitation, records of corporate
proceedings) relevant to the transactions herein
contemplated as the Buyer may reasonably have requested.
Section 7.2 Conditions Precedent to the
Seller's Obligations. The obligations of the Seller to
sell Receivables on any Business Day shall be subject to
the satisfaction of the following conditions:
(a) All representations and warranties of the
Buyer contained in this Agreement shall be true and
correct with the same effect as though such
representations and warranties had been made on such
date;
(b) Payment or provision for payment of the
Purchase Price in accordance with the provisions of
Section 3.2 hereof shall have been made; and
(c) All corporate and legal proceedings and
all instruments in connection with the transactions
contemplated by this Agreement shall be satisfactory in
form and substance to the Seller, and the Seller shall
have received from the Buyer copies of all documents
(including, without limitation, records of corporate
proceedings) relevant to the transactions herein
contemplated as the Seller may reasonably have requested.
[END OF ARTICLE VII]
<PAGE> 14
ARTICLE VIII
TERM AND TERMINATION
Section 8.1 Termination. Upon the termination
of the Trust pursuant to Section 12.1 of the Pooling and
Servicing Agreement and the surrender of the Exchangeable
Transferor Certificate, the Buyer shall return to the
Seller (without recourse, representation or warranty) all
right, title and interest of the Buyer in the
Receivables, whether then existing or thereafter created,
all moneys due or to become due with respect thereto, and
all proceeds thereof except for amounts held by the
Trustee pursuant to subsection 12.3(b) of the Pooling and
Servicing Agreement. The Buyer shall execute and deliver
such instruments of transfer and assignment, in each case
without recourse, as shall be reasonably requested by the
Seller to vest in the Seller all right, title and
interest which the Buyer had in the Receivables.
[END OF ARTICLE VIII]
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Amendment. This Agreement and any
other Sale Papers and the rights and obligations of the
parties hereunder may not be changed orally, but only by
an instrument in writing signed by the Buyer and the
Seller. The Seller shall provide prompt written notice
of any such amendment to the Rating Agencies.
Section 9.2 Governing Law. THIS AGREEMENT AND
THE OTHER SALE PAPERS SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE
TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 9.3 Notices. All demands, notices and
communications hereunder shall be in writing and shall be
deemed to have been duly given if personally delivered at
or mailed by registered mail, return receipt requested,
to:
(a) in the case of the Buyer, to:
Fingerhut Financial Services Receivables, Inc.
4400 Baker Road, Suite F470
Minnetonka, Minnesota 55343
Attention: Treasurer
(612) 936-____
<PAGE> 15
(b) in the case of the Seller, to:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: Treasurer
(612) 936-5016
or, as to each party, at such other address as shall be
designated by such party in a written notice to each
other party.
Section 9.4 Severability of Provisions. If
any one or more of the covenants, agreements, provisions
or terms of the Sale Papers shall for any reason
whatsoever be held invalid, then such covenants,
agreements, provisions, or terms shall be deemed
severable from the remaining covenants, agreements,
provisions, or terms of the Sale Papers and shall in no
way affect the validity or enforceability of the other
provisions of the Sale Papers.
Section 9.5 Assignment. Notwithstanding
anything to the contrary contained herein, this Agreement
may not be assigned by the Buyer or the Seller except as
contemplated by this Section 9.5 and the Pooling and
Servicing Agreement; provided, however, that
simultaneously with the execution and delivery of this
Agreement, the Buyer shall assign all of its right, title
and interest herein to the Trustee for the benefit of the
Investor Certificateholders of all Series as provided in
Section 2.1 of the Pooling and Servicing Agreement, to
which the Seller hereby expressly consents; provided,
further, that except for the foregoing assignment, no
such assignment shall occur unless the Buyer shall have
received confirmation from the Rating Agencies that such
assignment shall not cause a reduction or withdrawal of
the rating of any Series of Certificates. The Seller
agrees to perform its obligations hereunder for the
benefit of the Trust and that the Trustee may enforce the
provisions of this Agreement, exercise the rights of the
Buyer and enforce the obligations of the Seller hereunder
without the consent of the Buyer.
Section 9.6 Further Assurances. The Buyer and
the Seller agree to do and perform, from time to time,
any and all acts and to execute any and all further
instruments required or reasonably requested by the other
party more fully to effect the purposes of the Sale
Papers, including, without limitation, the execution of
any financing statements or continuation statements or
equivalent documents relating to the Receivables for
filing under the provisions of the UCC or other laws of
any applicable jurisdiction.
Section 9.7 No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the
part of the Buyer or the Seller, any right, remedy, power
or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are
cumulative and not exhaustive of any rights, remedies,
powers and privileges provided by law.
Section 9.8 Counterparts. The Sale Papers may
each be executed in two or more counterparts including
telefax transmission thereof (and by different parties on
separate counterparts), each of which shall be an
original, but all of which together shall constitute one
and the same instrument.
Section 9.9 Binding Effect; Third-Party
Beneficiaries. The Sale Papers will inure to the benefit
of and be binding upon the parties hereto and their
respective successors and permitted assigns.
Section 9.10 Merger and Integration. Except
as specifically stated otherwise herein, the Sale Papers
set forth the entire understanding of the parties
relating to the subject matter hereof, and all prior
understandings, written or oral, are superseded by the
Sale Papers. The Sale Papers may not be modified,
amended, waived or supplemented except as provided
herein.
Section 9.11 Headings. The headings herein
are for purposes of reference only and shall not
otherwise affect the meaning or interpretation of any
provision hereof.
Section 9.12 Schedules and Exhibits. The
schedules and exhibits attached hereto and referred to
herein shall constitute a part of this Agreement and are
incorporated into this Agreement for all purposes.
<PAGE> 16
Section 9.13 No Bankruptcy Petition Against
the Buyer. The Seller hereby covenants and agrees that,
prior to the date which is one year and one day after the
payment in full of all Invested Amounts, it will not
institute against or join any other Person in instituting
against the Buyer any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or
other similar proceeding under the laws of the United
States or any state of the United States.
Section 9.14 Merger or Consolidation of, or
Assumption of the Obligations of, the Seller. The Seller
shall not consolidate with or merge into any other
corporation or convey or transfer its properties and
assets substantially as an entirety to any Person,
unless:
(i) the corporation formed by such
consolidation or into which the Seller is merged or
the Person which acquires by conveyance or transfer
the properties and assets of the Seller
substantially as an entirety shall be a corporation
organized and existing under the laws of the United
States of America or any State or the District of
Columbia and, if the Seller is not the surviving
entity, shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the
Buyer in form satisfactory to the Buyer, the
performance of every covenant and obligation of the
Seller hereunder (to the extent that any right,
covenant or obligation of the Seller, as applicable
hereunder, is inapplicable to the successor entity,
such successor entity shall be subject to such
covenant or obligation, or benefit from such right,
as would apply, to the extent practicable, to such
successor entity); and
(ii) the Seller shall have delivered to
the Buyer an Officer's Certificate that such
consolidation, merger, conveyance or transfer and
such supplemental agreement comply with this Section
9.14 and that all conditions precedent herein
provided for relating to such transaction have been
complied with and an Opinion of Counsel that such
supplemental agreement is legal, valid and binding
with respect to the successor entity and that the
entity surviving such consolidation, conveyance or
transfer is organized and existing under the laws of
the United States of America or any State or the
District of Columbia. The Rating Agencies shall
receive prompt written notice of such merger or
consolidation of the Seller.
Section 9.15 Protection of Right, Title and
Interest to Receivables.
(a) The Seller shall cause this Agreement, all
amendments hereto and/or all financing statements and
continuation statements and any other necessary documents
covering the Seller's and the Buyer's right, title and
interest to the Receivables to be promptly recorded,
registered and filed, and at all times to be kept
recorded, registered and filed, all in such manner and in
such places as may be required by law fully to preserve
and protect the right, title and interest of the Buyer
hereunder to the Receivables and proceeds thereof. The
Seller shall deliver to the Buyer file-stamped copies of,
or filing receipts for, any document recorded, registered
or filed as provided above, as soon as available
following such recording, registration or filing. The
Buyer shall cooperate fully with the Seller in connection
with the obligations set forth above and will execute any
and all documents reasonably required to fulfill the
intent of this subsection 9.15(a).
<PAGE> 17
(b) Within 30 days after the Seller makes any
change in its name, identity or corporate structure which
would make any financing statement or continuation
statement filed in accordance with paragraph (a) above
materially misleading within the meaning of Section 9-
402(7) of the UCC as in effect in the Relevant UCC State,
the Seller shall give the Buyer written notice of any
such change and shall file such financing statements or
amendments as may be necessary to continue the perfection
of the Buyer's security interest in the Receivables and
the proceeds thereof.
(c) The Seller will give the Buyer prompt
written notice of any relocation of any office from which
it services Receivables or keeps records concerning the
Receivables or of its principal executive office and
whether, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any
amendment of any previously filed financing or
continuation statement or of any new financing statement
and shall file such financing statements or amendments as
may be necessary to continue the perfection of the
Buyer's security interest in the Receivables and the
proceeds thereof. The Seller will at all times maintain
each office from which it services Receivables and its
principal executive office within the United States of
America.
[END OF ARTICLE IX]
IN WITNESS WHEREOF, the Buyer and the Seller
each have caused this Agreement to be duly executed by
their respective officers as of the day and year first
above written.
FINGERHUT FINANCIAL SERVICES
RECEIVABLES, INC.,
as Buyer
By:________________________
Title:
FINGERHUT COMPANIES, INC.,
as Seller,
By:________________________
Title:
EXHIBIT A
FORM OF DAILY REPORT
<PAGE> 18
Exhibit 10.c(i)
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT (this
"Agreement"), dated as of September 16, 1996, by and
among FINGERHUT COMPANIES, INC., a Minnesota corporation
("FCI"), METRIS COMPANIES INC. a Delaware corporation
("Metris") and METRIS RECEIVABLES, INC. (formerly
Fingerhut Financial Services Receivables, Inc.), a Dela-
ware corporation ("Metris Receivables").
W I T N E S S E T H
WHEREAS, FCI and Metris Receivables have en-
tered into that certain Purchase Agreement, dated as of
May 26, 1995, as amended (the "Purchase Agreement")
pursuant to which Metris Receivables has agreed to pur-
chase, and FCI has agreed to sell, from time to time,
certain open-end or revolving credit receivables as
described therein;
WHEREAS, in connection with a business realign-
ment of FCI's subsidiaries, effective as of the date of
execution of this Agreement (the "Effective Date"),
Metris Receivables will become a direct wholly owned
subsidiary of Metris and Metris will be an indirect
wholly owned subsidiary of FCI;
WHEREAS, in connection with such business
realignment, FCI wishes to assign to Metris all of its
rights arising under the Purchase Agreement, effective as
of the Effective Date, Metris wishes to accept such
assignment and has agreed to assume and perform all of
FCI's duties and obligations under the Purchase Agree-
ment, and Metris Receivables consents to such assignment
and assumption;
NOW, THEREFORE, in consideration of the terms
and conditions hereof and for other good and valuable
consideration, the receipt of which is hereby acknowl-
edged, the parties hereby agree as follows:
SECTION 1. Definitions. Capitalized terms
used herein and not otherwise defined herein shall have
their respective meanings in the Purchase Agreement.
SECTION 2. Assignment and Assumption.
(a) FCI hereby assigns to Metris all of its
rights arising under the Purchase Agreement, effective as
of the Effective Date, and Metris hereby accepts such
assignment. FCI hereby delegates to Metris all of its
duties and obligations under the Purchase Agreement and,
for the benefit of FCI and Metris Receivables, Metris
hereby assumes and agrees to perform all of FCI's duties
and obligations under the Purchase Agreement. Metris
agrees that it shall be liable to Metris Receivables for
all of the obligations of FCI arising under and in accor-
dance with the Purchase Agreement, whether arising prior
to or after the Effective Date.
(b) In connection with such assignment and
assumption, Metris hereby confirms the conveyance of
property set forth in Sections 2.1(a) and 2.1(f) of the
Purchase Agreement and in consideration for the Purchase
Price and upon the terms and subject to the conditions
set forth in the Purchase Agreement and this Agreement,
Metris does hereby sell, assign, transfer, set-over, and
otherwise convey to Metris Receivables, and Metris Re-
ceivables does hereby purchase from Metris, on the terms
and subject to the conditions specifically set forth in
the Purchase Agreement and this Agreement, all of Metris'
right, title and interest in, to and under (i) the Re-
ceivables now existing and hereafter created and arising
in connection with the Accounts and any accounts that
meet the definition of Additional Accounts, including,
without limitation, all accounts, general intangibles,
chattel paper, contract rights and other obligations of
any Obligor with respect to the Receivables, now or
hereafter existing, whether or not arising out of or in
connection with the sale or lease of goods or the render-
ing of services, (ii) all monies and investments due or
to become due with respect thereto (including, without
limitation, the right to any Finance Charge Receivables,
including any Recoveries), (iii) all proceeds of such
Receivables and (iv) the Bank Receivables Purchase Agree-
ment. The foregoing sale, transfer, assignment, set-over
and conveyance does not constitute and is not intended to
result in a creation or an assumption by Metris Receiv-
ables of any obligation of Metris in connection with the
Receivables or any agreement or instrument relating
thereto, including, without limitation, any obligation to
any Obligors, merchant banks, merchant clearance systems,
VISA USA, Inc., MasterCard International Incorporated or
insurers.
<PAGE> 19
(c) In connection with the foregoing sale,
Metris agrees to record and file within five (5) business
after the Effective Date, at its own expense, a financing
statement or statements with respect to the Receivables
and the other property described in Section 2(b) of this
Agreement sold by Metris hereunder meeting the require-
ments of applicable state law in such manner and in such
jurisdictions as are necessary to perfect and protect the
interests of Metris Receivables created hereby under the
applicable UCC against all creditors of and purchasers
from Metris, and to deliver a file-stamped copy of such
financing statements or other evidence of such filings to
Metris Receivables within ten (10) days after the Effec-
tive Date.
(d) In connection with the sale and conveyance
hereunder, Metris agrees, at its own expense, within five
(5) Business Days after the Effective Date and on each
Business Day thereafter, to indicate or cause to be
indicated clearly and unambiguously in its accounting
records and with respect to any Receivables purchased by
Metris from the Bank to cause the Bank to indicate clear-
ly and unambiguously in the Bank's accounting records
that such Receivables and the other property described
above have been sold to Metris Receivables pursuant to
the Purchase Agreement and this Agreement as of the
Effective Date or such Business Day as applicable.
(e) It is the express intent of Metris and
Metris Receivables that the conveyance of the Receivables
by Metris to Metris Receivables pursuant to the Purchase
Agreement and this Agreement be construed as a sale of
such Receivables by Metris to Metris Receivables. It is,
further, not the intention of Metris and Metris Receiv-
ables that such conveyance be deemed a grant of a securi-
ty interest in the Receivables by Metris to Metris Re-
ceivables to secure a debt or other obligation of Metris.
However, in the event that, notwithstanding the intent of
the parties, the Receivables are held to continue to be
property of Metris, then (i) the Purchase Agreement
together with this Agreement also shall be deemed to be
and hereby is a security agreement within the meaning of
the UCC; and (ii) the conveyance by Metris provided for
in the Purchase Agreement and this Agreement shall be
deemed to be and Metris hereby grants to Metris Receiv-
ables a security interest in and to all of Metris's
right, title and interest in (w) the Receivables then
existing and thereafter created and arising in connection
with the Accounts that meet the definition of Additional
Accounts, including, without limitation, all accounts,
general intangibles, chattel paper, contract rights and
other obligations of any Obligor with respect to the
Receivables, then or thereafter existing, (x) all monies
and investments due or to become due with respect thereto
(including, without limitation, the right to any Finance
Charge Receivables, including any Recoveries), (y) all
proceeds of such Receivables and (z) the Bank Receivables
Purchase Agreement to secure (1) the obligations of
Metris and (2) a loan to Metris in the amount of the
Purchase Price as set forth in the Purchase Agreement and
this Agreement (the "Secured Obligations"). Metris and
Metris Receivables shall, to the extent consistent with
the Purchase Agreement and this Agreement, take such
actions as may be necessary to ensure that, if the Pur-
chase Agreement together with this Agreement were deemed
to create a security interest in the Receivables, such
security interest would be deemed to be a perfected
security interest of first priority in favor of Metris
Receivables under applicable law and will be maintained
as such throughout the term of the Purchase Agreement and
this Agreement. Metris and Metris Receivables may rely
upon an Opinion of Counsel addressed to them as to what
is required to provide Metris Receivables with such
security interest; and any such Opinion of Counsel shall
permit the Trustee, on behalf of the Certificateholders,
the Certificateholders (in the case of any Series issued
in a placement exempt from the registration requirements
of the Securities Act) and the Rating Agencies to rely on
it.
SECTION 3. Representations.
(a) FCI and Metris each represents to the
other and to Metris Receivables as follows with respect
to itself:
(i) Organization and Good
Standing. It is a corporation duly organized
and validly existing in good standing under the
laws of the state of its incorporation, and has
the corporate power and authority and legal
right to own its property and conduct its busi-
ness as such properties are presently owned and
such business is presently conducted and to
execute, deliver, and perform its obligations
under this Agreement.
<PAGE> 20
(ii) Due Qualification. It is
duly qualified to do business and is in good
standing (or is exempt from such requirements)
as a foreign corporation in any state required
in order to conduct business and has obtained
all necessary licenses and approvals with re-
spect to it required under federal law and the
law of the jurisdiction of its incorporation.
(iii) Due Authorization. The
execution and delivery of this Agreement and
the consummation of the transactions contem-
plated herein have been duly authorized by all
necessary corporate action on its part.
(iv) No Conflicts/No Violation.
The execution and delivery of this Agreement
and the performance of the transactions contem-
plated hereby (i) do not contravene its certif-
icate of incorporation or by-laws, (ii) violate
any material provision of law applicable to it,
or (iii) result in any breach of any of the
terms and provisions of, or constitute (with or
without notice or lapse of time or both) a
default under, any material indenture, con-
tract, agreement, mortgage, deed of trust or
other material instrument to which it is a
party or by which it or its properties are
bound, and (iv) such action does not require
any filing (except for the UCC filings), regis-
tration, consent or approval under any law,
rule, regulation, order, writ, judgment, in-
junction, decree, determination or award pres-
ently in effect and applicable to it, except
for such filings, registrations, consents or
approvals as have already been obtained or made
and as are in full force and effect.
(v) No Proceedings. There are
no proceedings or investigations pending or, to
the best of its knowledge, threatened, against
it before any Governmental Authority (a) as-
serting the invalidity of this Agreement, (b)
seeking to prevent the consummation of any of
the transactions contemplated hereby, (c) seek-
ing any determination or ruling that would
materially and adversely affect the performance
by it of its obligations hereunder, or (d)
seeking any determination or ruling that would
materially and adversely affect the validity or
enforceability of this Agreement.
(b) FCI further represents to Metris that
(i) the Purchase Agreement is in full force and effect as
of the Effective Date, (ii) it has delivered to Metris,
on or prior to the Effective Date, all amendments, modifications
or supplements, as the case may be, to the
Purchase Agreement.
SECTION 4. References to FCI. The parties
agree that references in the Purchase Agreement to
"Fingerhut" or the "Seller" shall be deemed to refer, on
and after the Effective Date and wherever appropriate in
the context, to Metris.
<PAGE> 21
SECTION 5. Amendments to Purchase Agreement.
The parties agree that the Purchase Agreement shall be
amended as follows:
(i) The definition of "Pooling
and Servicing Agreement" in Article I of the
Purchase Agreement shall be deleted in its
entirety and replaced with the following:
"Pooling and Servicing Agreement" shall mean
the Pooling and Servicing Agreement dated as of
May 26, 1995, as amended from to time, by and
among Direct Merchants Credit Card Bank, Na-
tional Association, as Servicer, Metris Receiv-
ables, as Transferor, and the Trustee.
(ii) There shall be added in
appropriate alphabetical order to Article I of
the Purchase Agreement the following defined
term:
"Receivable" shall mean all of the indebtedness
of any Obligor under an Account, including the
right to receive payment of any interest or
finance charges and other obligations of such
Obligors with respect thereto. Each Receivable
includes, without limitation, all rights of the
Seller under the applicable Contract.
(iii) The reference to "Minneso-
ta" in Section 4.1(a) of the Purchase Agreement
shall be replaced with "Delaware."
(iv) Section 4.1(f) of the Pur-
chase Agreement shall be amended to add at the
beginning of the sentence contained therein the
phrase "Except as specified on Schedule 1 here-
to" and the Purchase Agreement shall be further
amended to add "as Schedule 1 thereto", after
the signature page thereof, "Schedule 1 as
attached hereto".
(v) The reference to
"Minnetonka, Minnesota" in Section 4.1(k) of
the Purchase Agreement shall be replaced with
"St. Louis Park, Minnesota."
SECTION 6. Consent of Metris Receivables.
Metris Receivables hereby consents to the assignment
herein by FCI to Metris of all of Metris' rights arising
under the Purchase Agreement and the delegation herein by
FCI to, and the assumption herein by, Metris of all of
FCI's duties and obligations under the Purchase Agree-
ment. Metris Receivables agrees that on and after the
Effective Date, Metris Receivables shall look only to
Metris for the performance of FCI's duties and obliga-
tions arising under the Purchase Agreement prior to the
Effective Date and Metris Receivables hereby releases FCI
from any and all claims Metris Receivables may have
against FCI arising under or in connection with the
Purchase Agreement.
SECTION 7. Conditions Precedent. FCI, Metris
and Metris Receivables agree that (i) the contribution by
FCI to Metris of the capital stock of the Bank and Metris
Receivables shall have occurred, (ii) the Assignment and
Assumption Agreement dated as of September 16, 1996,
among FCI, Metris and the Bank shall have been executed
by all parties thereto and be in full force and effect,
and (iii) Amendment No. 2 dated as of September 16, 1996,
among Metris Receivables as Transferor, the Bank as
Servicer and The Bank of New York (Delaware) as Trustee,
to the Pooling and Servicing Agreement dated as of May
26, 1995, and the conditions precedent to each of the
foregoing, shall be conditions precedent to the effec-
tiveness of this Agreement.
SECTION 8. Indemnification. FCI hereby agrees
to indemnify and hold harmless Metris from and against
any and all liabilities, losses, damages, claims, ac-
tions, and suits, and all costs and expenses relating
thereto, including reasonable legal fees, expenses and
costs of investigation (collectively, "Claims"), which
may at any time be imposed upon, incurred by or asserted
against Metris and in any way related to or arising out
of the breach of any of the agreements, representations
or warranties made by or on behalf of FCI in the Purchase
Agreement, except that FCI shall not be required to
indemnify Metris for any Claim resulting from (i) Metris'
own gross negligence, bad faith or willful misconduct,
(ii) the breach or inaccuracy of a representation, war-
ranty, agreement or covenant of Metris set forth herein
or in the Purchase Agreement, or (iii) any act of or
omission by any person or entity occurring subsequent to
the Effective Date.
<PAGE> 22
SECTION 9. Indemnification Procedure. Not-
withstanding the provisions of Section 8 hereof, FCI
shall not be required to indemnify Metris under such
Section with respect to any Claim unless (a) Metris
notifies FCI promptly upon becoming aware of the exis-
tence, assertion or likely assertion of such Claim, and
in any event before the failure to so notify FCI adverse-
ly affects the ability of FCI to defend against such
Claim, (b) Metris permits FCI to assume and control the
defense of such Claim, and to negotiate and conclude a
settlement of such Claim if FCI elects to do so, and (c)
Metris cooperates with FCI in the defense of such Claim.
SECTION 10. GOVERNING LAW. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAWS PROVISIONS, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED
IN ACCORDANCE WITH SUCH LAWS.
SECTION 11. Counterparts. This Agreement may
be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which to-
gether shall be deemed to be one and the same instrument.
SECTION 12. Amendments. The terms of this
Agreement may not be amended, waived, modified or termi-
nated except by written instrument signed by the parties
hereto. No such amendment or waiver shall extend to or
affect any obligation not expressly amended or waived or
impair any rights consequent thereon.
SECTION 13. Notices. All notices and communi-
cations under this Agreement shall be in writing and
shall be mailed by registered or certified mail, postage
prepaid, or delivered by hand or transmitted by telex or
other communications device capable of transmitting or
creating a written record:
(a) if to FCI:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: General Counsel
Telephone: (612) 932-3585
Telecopy: (612) 936-5412
or at such other address as it may have furnished in
writing to Metris and Metris Receivables;
(b) if to Metris:
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: Chief Financial Officer
Telephone: (612) 525-5094
Telecopy: (612) 525-5070
or at such other address as it may have furnished in
writing to FCI and Metris Receivables; and
(c) if to Metris Receivables:
Metris Receivables, Inc.
4400 Baker Road, Suite F470
Minnetonka, Minnesota 55343
Attention: Treasurer
Telephone: (612) 963-5016
Telecopy: (612) 932-3302
or at such other address as it may have furnished in
writing to FCI and Metris. Any notice so addressed and
mailed by registered or certified mail shall be deemed to
be given when received and any notice delivered by hand
or transmitted by telecommunications device shall be
deemed to be given when so delivered or transmitted as
applicable. Each party agrees that all notices or other
communications permitted or required to be given to FCI
under the Purchase Agreement shall be given to Metris at
the address set forth above or at such other address as
the Metris may have furnished in writing to the appropri-
ate party.
<PAGE> 23
SECTION 14. Successors and Assigns. Neither
the obligations of FCI nor the obligations of Metris
hereunder, including any obligations assumed as a result
of this Agreement, shall be assigned to any person with-
out the prior written consent of the other parties here-
to. Subject to the preceding sentence, this Agreement
shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
SECTION 15. Headings. The headings of Sec-
tions have been included herein for convenience only and
should not be considered in interpreting this Agreement.
SECTION 16. Survival of Representations. All
representations contained in this Agreement shall survive
the execution and delivery of this Agreement.
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be duly executed as of the day
and year first above written.
FINGERHUT COMPANIES, INC.
By:________________________
Name:
Title:
METRIS COMPANIES INC.
By:________________________
Name:
Title:
METRIS RECEIVABLES, INC.
By:________________________
Name:
Title:
<PAGE> 24
SCHEDULE 1
TAX RETURNS AND PAYMENTS
Metris and its subsidiaries have filed all applicable
federal, state and material local tax returns and have
paid or caused to be paid all associated taxes due and
payable on such returns or on any assessments received by
them; except that because one of Metris's subsidiaries,
Direct Merchants Credit Card Bank, National Association,
is a national banking entity (established in 1995) which
derives the majority of its income from Mastercard credit
cards, it may be subject to special financial institution
rules in certain states. Such rules attempt to impute
state income tax nexus to a credit card company it ob-
tains finance revenue and/or has credit card receivables
generated from customers in that state. Of the states
that have adopted such financial institution rules,
Minnesota is the only state where Metris and its subsid-
iaries are currently filing income or franchise tax
returns. States which currently have rules pursuant to
which they may attempt to impose income tax nexus based
upon such credit card activity include:
Arkansas Minnesota
California New Mexico
Hawaii Tennessee
Indiana West Virginia
Massachusetts
Direct Merchants Credit Card Bank, National Association
has not filed in states other than Minnesota because it
believes the above referenced financial institution rules
to be unconstitutional.
<PAGE> 1
Exhibit 10.j
TRANSFER AGREEMENT dated as
of [ ], 1996, is entered into by and
between Fingerhut Companies, Inc.
("Fingerhut"), a Minnesota corporation, and
Metris Companies Inc. ("Metris"), a Delaware
corporation and, as of the date hereof, a
wholly-owned subsidiary of Fingerhut.
R E C I T A L S
WHEREAS Fingerhut has in the past and is currently
engaged in the business of providing credit-based products,
extended service plans, and a variety of fee-based products
(collectively, the "Financial Services Business").
WHEREAS the Fingerhut board of directors has
determined that it is in the best interests of Fingerhut and
its stockholders to transfer the Financial Services Business
to Metris on the terms and conditions set forth herein (the
"Transfer").
WHEREAS Fingerhut currently owns, indirectly
through a subsidiary, 100% of the Metris Common Stock.
NOW, THEREFORE, in consideration of the premises
and the mutual promises contained herein and other good and
valuable consideration, the receipt and sufficiency whereof
is hereby acknowledged by the Parties, the Parties agree as
follows:
ARTICLE I
The Transfer
SECTION 1.01. Conditions Precedent to
Effectiveness of the Agreement. Neither the Transfer nor
the related transactions set forth in this Agreement and in
the Transaction Documents shall become effective unless the
following conditions have been satisfied or waived by
Fingerhut on or before the Effective Date:
(a) The Parties shall have executed all of the
Transaction Documents;
(b) No preliminary or permanent injunction or
other order, decree, or ruling issued by a court of
competent jurisdiction or by a government regulatory or
administrative agency or commission, and no statute,
rule, regulation or executive order promulgated or
enacted by any governmental authority shall be in
effect preventing the Transfer; and
(c) Fingerhut or one of its subsidiaries shall be
the sole owner of 100% of the outstanding stock of
Metris.
The satisfaction of the foregoing conditions shall
not create any obligation on the part of Fingerhut to
Metris, or to any other person, to effect the Transfer or in
any way limit Fingerhut's power of termination set forth in
Section 18.08 or alter the consequences of any such
termination from those specified in such Section. Fingerhut
may waive any of the foregoing conditions in whole or in
part, by the execution of a Satisfaction Certificate by its
Chairman, its Chief Financial Officer, or by any person
designated by either of them to act on their behalf with
respect to such waiver certifying specifically which
conditions, if any, in whole or in part, are waived by
Fingerhut.
<PAGE> 2
SECTION 1.02. Actions to Take Place Before the
Closing. The Transfer and the transactions described in
this Agreement shall be closed (the "Closing") at the time
designated for closing of the Credit Facility, as defined
herein, and shall occur at the place designated by the
Fingerhut board of directors or any officer of Fingerhut
designated by the Fingerhut board of directors for such
purpose. Before the Closing, the transactions set forth in
this Section 1.02 shall be effected by the Parties.
(a) Fingerhut will effect the transfer of the
Transferred Companies required by Section 2.02(a);
(b) Fingerhut and Metris shall take all actions
required with respect to employee benefits, expenses
and liabilities by Article V of this Agreement;
(c) Fingerhut shall cooperate in Metris's securing
external financing as required by Article III; and
(d) Fingerhut and Metris shall perform a closing
of their respective general ledgers as required in
Section 14.01.
SECTION 1.03. Actions to Take Place at the
Closing. At the Closing, the Parties shall execute the
following actions in the order indicated by their appearance
in this Section 1.03. Each action shall be conditional upon
the execution of the prior action, except where expressly
stated otherwise.
(a) Certification of Conditions Precedent. An
authorized officer of Fingerhut designated by the
Fingerhut board of directors shall, if each of the
conditions set forth in Section 1.01 has been satisfied
or is being waived by Fingerhut, execute a certificate
(the "Satisfaction Certificate"), for the benefit of
the lenders under the Credit Facility, certifying the
satisfaction or waiver by Fingerhut of the conditions
set forth in Section 1.01.;
(b) Payment of Inter-Company Debts. Metris shall
make the payment required by Section 4.01.
(c) Fingerhut Capital Contribution. Fingerhut
shall make the capital contribution to Metris set forth
in Section 4.02.
SECTION 1.04. Cooperation. Fingerhut and Metris
agree to cooperate with each other, both before and after
the Effective Date, to enable the Parties to implement the
Transfer, including but not limited to performing the
obligations undertaken by Fingerhut and Metris under this
Agreement. Such cooperation will include but is not limited
to preparing and submitting required financial reports after
the Effective Date that may relate to periods either before
or after the Effective Date and executing such documents and
doing such other acts or things as may be necessary to carry
out the intent of this Agreement.
ARTICLE II
Transfer of Assets and Assumption of Liabilities
SECTION 2.01. Other Provisions. The provisions
of this Article II shall not govern the transfer of Assets
or the assumption of Liabilities governed by more specific
agreements, including but not limited to the Transaction
Documents, or by other provisions of this Agreement.
<PAGE> 3
SECTION 2.02. Transfer of Specified Assets.
(a) Transfer of the Transferred Companies to Metris.
Fingerhut shall deliver to Metris certificates representing
all of the stock of Metris Direct, Inc., Metris Receivables,
Inc., Direct Merchants Credit Card Bank, National
Association and DMCCB Inc. (collectively, the "Transferred
Companies"), duly endorsed for transfer to Metris or
accompanied by duly executed stock powers in favor of
Metris.
(b) Other Specified Assets. Each member of the
Fingerhut Group named as a Transferor with respect to any
Transferred Asset listed in Schedule I hereby grants,
conveys, transfers, and assigns all its right, title, and
interest, effective as of the Effective Date and subject to
the contingencies set forth in this Agreement, in and to
each Transferred Asset listed in Schedule I to the entity
listed as Transferee of such Transferred Asset in
Schedule I. The entity listed as Transferee of such
Transferred Asset in Schedule I hereby accepts such
transfer.
SECTION 2.03 Agreements with Respect to the
Transfer of Assets. (a) Agreements of Transferors. With
respect to each Transferred Asset transferred by one Party
(the "Transferor") to the other Party (the "Transferee"),
the Transferor:
(i) assigns to the Transferee all its rights,
claims, and causes of action against third parties
related to such Transferred Asset, including any
express or implied warranties with respect to such
Transferred Asset; and
(ii) agrees to execute and deliver to the
Transferee such other instruments, bills of sale,
assignments, conveyances, title registrations, or other
documents as may be necessary to effectuate the
transfer or to confirm the fact of such transfer to
third parties or to the public on the public records;
(b) Agreements of Transferees. With respect to
each Transferred Asset transferred, the Transferee agrees:
(i) that Article II of the Uniform Commercial
Code, as in effect in the governing jurisdiction, shall
not apply to the transfer of the Transferred Asset and
waives any rights thereunder, except those rights not
waiveable thereunder;
(ii) in any event, to accept such Transferred
Asset "as is";
(iii) that no representations or warranties have
been made by the Transferor as to title to, or the
physical condition, merchantability, or fitness for a
particular purpose of, such Transferred Asset;
(iv) to be bound by all covenants, terms,
conditions, and provisions pertaining to such
Transferred Asset; and
(v) to pay any costs, fees, or other expenses
related to the transfer of such Transferred Asset.
SECTION 2.04. Assumption of Liabilities.
(a) Balance Sheet Liabilities. Metris and Fingerhut hereby
agree to assume each and every liability with respect to the
Transferred Companies allocated to their respective balance
sheets pursuant to Article XIV.
(b) Liabilities to Which Transferred Assets are
Subject. The Transferee of each Transferred Asset hereby
agrees to assume each and every liability booked for
financial accounting purposes on or before the Effective
Date to which such Transferred Asset is subject.
<PAGE> 4
SECTION 2.05. Equitable Transfer and Assumption
at the Effective Date. In the event that the legal transfer
of all such Transferred Assets or the assumption of all such
Liabilities is not accomplished by the Effective Date,
Fingerhut and Metris agree as between the Transferor and the
Transferee that the Transferee shall have de facto control
and equitable ownership of the entities, operations, and
Transferred Assets, and shall equitably assume all
Liabilities intended to be transferred to or assumed
pursuant to this Article II. If any such uncompleted steps
financially affect either Fingerhut or Metris, the Parties
agree to equitably resolve any such financial impact.
SECTION 2.06. Valuation and Payment. Unless
otherwise provided for in this Agreement or agreed to by the
Parties, Transferred Assets and Liabilities transferred or
assumed pursuant to this Article II shall be transferred on
the Parties' respective financial statements at net book
value.
ARTICLE III
External Financing of Metris
SECTION 3.01. Credit Facility. In connection
with Metris's plans to enter into a revolving credit
agreement or similar bank financing in the amount of
$300,000,000 (the "Credit Facility") Fingerhut shall use its
best reasonable efforts to assist Metris in establishing the
Credit Facility by:
(a) making available information necessary for the
lenders under the Credit Facility to perform due
diligence with respect to Fingerhut and the Transferred
Companies;
(b) causing the Metris board of directors to adopt
such resolutions and authorize the execution of such
agreements, certificates, and other documents
reasonably necessary to authorize the Credit Facility;
and
(c) providing any guarantees of transactional
costs with respect to the completion of the Credit
Facility as may be necessary to secure the services of
counsel, agents, and other usual and customary
services.
ARTICLE IV
Intercompany Debt and Capital Contribution
At the Closing, subject to the conditions set
forth in Article I, Fingerhut and Metris shall execute such
agreements, certificates, and other documents as may be
necessary to effect the transactions described in this
Article IV in the order in which such transactions are set
forth in this Article IV.
SECTION 4.01. Payment of Intercompany Debt.
Metris shall pay to Fingerhut an amount equal to the
Intercompany Debt.
SECTION 4.02. Fingerhut Capital Contribution.
Fingerhut, as the sole shareholder of Metris, shall
contribute to the capital of Metris an amount equal to
$[ ].
<PAGE> 5
ARTICLE V
Employee Benefits, Expenses, and Liabilities
SECTION 5.01. Allocation of Employee Salaries,
Expenses, and Liabilities. Metris Employees who are on the
payroll of Fingerhut Corporation shall remain Fingerhut
Employees until the Employee Transfer Date. Metris will pay
Fingerhut all employee salaries, expenses, and liabilities
accrued for such Metris Employees after the Effective Date
and until the Employee Transfer Date.
SECTION 5.02. Employee Benefit Plans. Metris
Employees will remain participants in certain of Fingerhut's
employee benefit plans through December 31, 1996. Metris
will pay the cost related to such participation. Fingerhut
and Metris will work together to determine the appropriate
course of action to take with respect to Metris employee
benefit plans for periods after January 1, 1997.
SECTION 5.03. Stock Options; Restricted Stock.
All outstanding restricted stock awards in the form of
Fingerhut Common Stock and stock option grants of Metris
Group Employees to purchase Fingerhut Common Stock under the
Fingerhut Stock Option Plans shall remain in full force and
effect so long as Metris remains a subsidiary of Fingerhut.
SECTION 5.04. Fingerhut ESPP. [To come]
SECTION 5.05 Fingerhut Retirement Plans. [To
come]
SECTION 5.06. Short and Long-Term Disability.
(a) Short-Term Disability. [Any employee of Metris
entitled to, or receiving, benefits under Fingerhut's
short-term disability program prior to the Effective Date,
shall continue to be covered under such program after the
Effective Date.]
(b) Long-Term Disability. (i) Post-Transfer
Disabilities.
ARTICLE VI
Representations and Warranties
SECTION 6.01. Representations and Warranties of
Fingerhut. Fingerhut represents, warrants, and covenants
that:
(a) Corporate Power; Authority; Enforceable
Obligation. Fingerhut has the requisite corporate
power and authority to execute this Agreement and the
Transaction Documents and to consummate the
transactions contemplated hereby and thereby.
Fingerhut has taken or will take, as appropriate, all
necessary corporate actions to approve all actions
required on its part to implement the Transfer,
including but not limited to (i) the approval by its
board of directors of the terms of this Agreement,
(ii) the performance of its obligations under this
Agreement, and (iii) the making of all registrations
and filings and the undertaking of any other actions,
whether before or after the Effective Date. This
Agreement has been duly executed and delivered by
Fingerhut and constitutes, and each Transaction
Document will be duly executed and delivered by
Fingerhut at or prior to the Closing and when so
executed and delivered will constitute, a legal, valid
and binding obligation of Fingerhut enforceable in
accordance with its terms.
<PAGE> 6
(b) Pending Litigation. Except as otherwise
provided in this Agreement, there is no lawsuit, action
or proceeding pending, or, to Fingerhut's knowledge,
threatened, against Fingerhut relating to the
Transferred Companies which is reasonably likely to be
adversely determined and which if adversely determined
would have a material adverse effect on the business or
financial condition of the Transferred Companies.
Fingerhut is not in default under any material
judgment, order, injunction, rule, or decree of any
governmental entity or arbitrator relating to the
Transferred Companies.
SECTION 6.02. Representations and Warranties of
Metris. Metris represents, warrants, and covenants that:
(a) Corporate Existence. Metris is a
corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite
corporate power and authority to carry on its business
as now being conducted.
(b) Corporate Power; Authority; Enforceable
Obligation. Metris has the requisite corporate power
and authority to execute this Agreement and the
Transaction Documents and to consummate the
transactions contemplated hereby and thereby. Metris
has taken or will take, as appropriate, all necessary
corporate actions to approve all actions required on
its part to implement the Transfer, including but not
limited to (i) the approval by its board of directors
of the terms of this Agreement, (ii) the performance of
its obligations under this Agreement, and (iii) the
making of all registrations and filings and the
undertaking of any other actions, whether before or
after the Effective Date. This Agreement has been duly
executed and delivered by Metris and constitutes, and
each Transaction Document will be duly executed and
delivered by Metris at or prior to the Closing and when
so executed and delivered will constitute, a legal,
valid and binding obligation of Metris enforceable in
accordance with its terms.
ARTICLE VII
Related Agreements
On or prior to the date of the Closing, Fingerhut
and Metris shall enter into, or cause their respective
subsidiaries to enter into, as appropriate, a Database
Access Agreement, a Data Sharing Agreement, an Extended
Service Plan Agreement, a Co-Brand Credit Card Agreement, an
Administrative Services Agreement, a Tax Sharing Agreement,
and a Registration Rights Agreement, each in substantially
the form included in Exhibit A hereto.
<PAGE> 7
ARTICLE VIII
Insurance
SECTION 8.01. Casualty Insurance. All policies
of liability, fire, workers' compensation and other forms of
insurance insuring the products, properties, assets and
operations of Metris will continue to be maintained by
Fingerhut and shall continue in full force and effect until
such date as Fingerhut and Metris agree that Metris will
obtain its own insurance coverage. Metris will pay its
allocated cost of the insurance premiums as provided in [the
Administrative Services Agreement.]
SECTION 8.02. Liability Insurance. With respect
to public and products liability insurance plans, Metris
shall be liable for payment of all claims and expenses
arising out of incidents related to the business or
operations of Metris, known or unknown, reported or
unreported. Any reserves or similar credit under the
insured programs of public and products liability relating
to the business or operations of Metris for periods ending
on or prior to the Effective Date shall be owned by and be a
Transferred Asset of Metris. Such reserve or credit shall
be included as Transferred Assets or Liabilities of Metris
as described in Article II and any variance (charge or
credit) to the reserves shall be Metris's responsibility.
SECTION 8.03. Worker's Compensation Claims. With
respect to insured or self-insured workers' compensation
plans, Metris shall be liable for payment of benefits and
expenses arising out of claims, known or unknown, reported
or unreported, with respect to persons that were employees
of any member of the Metris Group at the time the acts or
omission giving rise to the claim occurred. Any reserves or
similar credits under the insured or self-insured programs
of workers' compensation relating to periods ending on or
prior to the Effective Date shall be owned by and be a
Transferred Asset of Metris. Such reserves or credits shall
be included as Transferred Assets or Liabilities of Metris
as described in Article II, and any variance (charge or
credit) to the reserves shall be Metris's responsibility.
[SECTION 8.04. Auto Liability Insurance. With
respect to automobile liability insurance plans, Metris
shall be liable for payment of claims and expenses arising
out of incidents related to the business or operations of
Metris, known or unknown, reported or unreported. Any
reserves or similar credit under the insured program of
automobile liability relating to periods ending on or prior
to the Effective Date shall be Metris's responsibility and a
Transferred Asset thereof.]
SECTION 8.05. Risk of Loss on Certain Assets.
The Transferee of any Transferred Assets deemed transferred
pursuant to Section 2.02 or 2.05 shall assume the risk of
loss with respect to such assets as of the Effective Date
and shall insure against such losses in a manner consistent
with insurance coverage with respect to assets actually
transferred.
ARTICLE IX
Deleted
<PAGE> 8
ARTICLE X
Books, Records, and Access to Information
SECTION 10.01. Fingerhut Required To Deliver
Certain Business Records. Fingerhut shall arrange for the
transportation at its cost of existing corporate records in
its possession relating to the Financial Services Business
included within the affiliated group of which Metris is the
parent corporation, including original corporate minute
books, stock ledgers and certificates, and corporate seals
of each corporation included in the affiliated group of
Metris and all active agreements, deeds to real property,
active litigation files and filings with foreign
governments, if any, to the Metris address set forth in
Section 18.05 hereof.
SECTION 10.02. Mutual Obligation To Disclose
Other Business Information at the Request of the Other
Party. (a) Obligation To Disclose Certain Information.
From and after the Effective Date, each of the Parties (the
"Disclosing Party") shall provide to the other Party (the
"Receiving Party") and its authorized accountants, counsel,
and other designated representatives reasonable access to
all records, books, contracts, instruments, data, and other
information relating to the Receiving Party and reasonably
needed by the Receiving Party to comply with any legal
reporting requirement, to administer its employee benefit
plans, to prepare its financial statements, or to conduct
litigation not involving Fingerhut as a party (collectively,
"Disclosed Information"). The Disclosing Party need not
gather information not in the Disclosing Party's possession
(or in the possession of any persons or firms possessing
information as the Disclosing Party's agent).
(b) Manner of Disclosure. The Disclosing Party
may fulfill its obligation to disclose information (a) by
delivering to the Receiving Party original records embodying
the Disclosed Information, (b) by delivering to the
Receiving Party copies of the original records, or (c) by
providing to employees or agents of the Receiving Party
access, during normal business hours, to original records
for the purpose of copying such records.
(c) Confidentiality of Disclosed Information.
Each party agrees to keep confidential, and to use its best
efforts to cause its respective agents and representatives
to keep confidential, the Confidential Information (as
defined below) of the other party and all copies thereof,
extracts therefrom and analyses or other materials based
thereon, except that each party shall be permitted to
disclose Confidential Information (i) with the prior written
consent of the other party, (ii) to such of its respective
officers, directors, employees, agents, affiliates and
representatives as need to know such Confidential
Information, (iii) to the extent required by applicable
laws, regulations, subpoena or similar legal process
including but not limited to securities and banking laws and
regulations, (iv) to the extent reasonably necessary, in the
opinion of counsel, in connection with any suit, action or
proceeding to enforce its rights under this agreement, or
(v) to the extent such Confidential Information (x) becomes
publicly available other than as a result of a breach of
this Section 10.02(c) or (y) becomes lawfully available to
the party on a nonconfidential basis from a source other
than the other party; provided, however, that with respect
to clauses (iii) and (iv) above, the party shall notify the
other party of the need for such disclosure as promptly as
practicable and shall cooperate with the other party in
taking all reasonable measures to assure confidential
treatment of such Confidential Information. Each party
agrees not to use, and to use its best efforts to cause its
respective agents and representatives not to use, the
Confidential Information for any purpose other than as
expressly permitted hereunder. This Section 10.02(c) shall
remain operative and in full force and effect regardless of
the expiration and term of this Agreement.
<PAGE> 9
For the purposes of this Section 10.02(c),
"Confidential Information" shall mean (i) all trade secrets,
data, computer programs and other confidential business
information learned in the course of performance by either
party of its obligations hereunder, and (ii) any other
information that is disclosed to one party by the other
under or in contemplation of this Agreement regardless of
whether identified as confidential; provided, however, that
any of the foregoing that were available to a party on a
nonconfidential basis prior to its disclosure thereto by the
other party shall not be Confidential Information.
(d) Costs of Disclosure. The Disclosing Party
may require the Receiving Party to pay the cost of shipping
or duplicating its records for the purpose of disclosing
information to the Receiving Party. Each Party, as a
Receiving Party, shall bear the costs of transporting and
compensating its own agents and employees for the purpose of
gathering Disclosed Information. Each party, as a
Disclosing Party, shall bear the costs of compensating its
own agents and employees in fulfilling its obligation to
disclose Disclosed Information.
(e) Destruction of Records. (i) Records Other
than Certain Tax Records. Neither party, as a Disclosing
Party, may destroy any records that would reasonably be
required to enable it to fulfill its obligation to disclose
information hereunder until 24 months after the Effective
Date unless:
(A) it offers to deliver such records to the
Receiving Party in a writing describing the records in
sufficient detail to inform the Receiving Party of
their contents; and
(B) the Receiving Party either declines to accept
the records or fails to respond within 90 days.
(ii) Records Governed by Tax Sharing Agreement.
This Section 10.02(e) shall not apply to the destruction of
records to the extent such records are governed by
provisions contained in the Tax Sharing Agreement.
SECTION 10.03. Witness Availability. At all
times from and after the Effective Date, each Party will use
its reasonable best efforts to make available to the other,
upon written request, its officers, directors, employees and
agents as witnesses in connection with any legal,
administrative, or other proceedings in which the requesting
party may from time to time be involved to the extent that
the testimony of such officer, director, employee, or agent
may reasonably be required due to their personal knowledge
of the facts relating to the subject matter of the
proceeding.
SECTION 10.04. Out-Of-Pocket Costs. Except as
provided in Section 10.02 above, a Party providing
information or witnesses to the other hereunder shall be
entitled to receive from the recipient, upon the
presentation of invoices therefor, payments for such amounts
relating to supplies, disbursements, salaries or wages, and
such other costs and out-of-pocket expenses, as may be
incurred in providing such information or witnesses.
Invoices shall be due and payable within thirty (30) days of
receipt.
<PAGE> 10
ARTICLE XI
Contingent Liabilities
The Parties agree that the amount of Contingent
Liabilities resulting from an Action filed or asserted in
writing within four years of the Effective Date shall be
allocated between Fingerhut and Metris in accordance with
this Article XI unless specifically allocated pursuant to
some other provision of this Agreement or an Agreement
attached hereto as an Exhibit. For purposes of this
Article XI any Action asserted against an Indemnified Person
of either Party shall be treated as an action asserted
against such Party.
SECTION 11.01. Defense of Actions. The Parties
will cooperate and consult with each other in connection
with the defense of any Action in which Fingerhut and Metris
are, or potentially may be, involved (even if not Named
Parties in the Action), including but not limited to Actions
that might result in Contingent Liabilities.
If both Fingerhut and Metris are Named Parties in
an Action, they shall agree on the responsibility for both
the defense of the Action and the costs of the defense until
such time as the costs become subject to allocation as a
Contingent Liability pursuant to this Article XI. The
agreement shall take into account, and if reasonably
predictable shall follow, the manner in which any Contingent
Liability resulting from the Action would be allocated under
this Article XI.
Each Party shall bear its own internal costs,
including the salaries of in-house legal counsel, incurred
in connection with the defense of any Action until such time
as such costs become subject to allocation pursuant to this
Article XI.
SECTION 11.02. Allocation of Contingent
Liabilities. (a) Judgments and Settlement to which
Allocation Applies. The allocation rules set forth in
Section 11.02(b) shall apply to all Contingent Liabilities
arising out of a Judgment or a settlement to which both
Parties consent unless allocation of such liability is
provided for in the Tax Sharing Agreement or elsewhere in
this Agreement. If either Party enters into a settlement
without the consent of the other Party, the resulting
Contingent Liability shall be borne entirely by such Party.
(b) Allocation Rules. Contingent Liabilities
subject to allocation hereunder shall be allocated between
the Parties in accordance with the following rules:
(i) SEC Rule. If the Contingent Liability is
based upon or arises out of any violation or alleged
violation of any state or federal securities law or any
duties or obligations under any other statute or common
law with respect to any information contained in or
omitted from the Form S-1 Registration Statement for
the initial public offering of Metris, or any other
Metris disclosure document including but not limited to
reports on Form 10 (collectively, the "Disclosure
Documents"), the Contingent Liability shall be
allocated entirely to Metris unless the Contingent
Liability arises from a misstatement or omission in one
of the sections of the Disclosure Documents listed in
Schedule III of this Agreement, in which case the
Contingent Liability shall be allocated solely to
Fingerhut. If the foregoing allocation rule is held
not to be enforceable in a final judgment by a court of
competent jurisdiction as against public policy or
unavailable for any reason, then the Contingent
Liability shall be allocated to each Party based on the
relative fault of each Party in connection with the
statements or omissions that resulted in the Contingent
Liability, assigning fault entirely to the Party
supplying the information in cases arising from a
misstatement of information in the Disclosure
Documents.
<PAGE> 11
(ii) Employee Rule. If the Contingent Liability
arose from an employment-related claim made by an
employee or a former employee of either Fingerhut or
Metris, the Contingent Liability shall be allocated
entirely to the Party that directly employed such
employee at the time the events giving rise to the
claim occurred.
(iii) Fingerhut Companies Rule. Otherwise, if
the Contingent Liability arose solely out of the Acts
or Omissions of an employee of Fingerhut and no
employee of Metris received a substantial Benefit from
such Acts or Omissions, the Contingent Liability shall
be allocated solely to Fingerhut.
(iv) Metris Rule. Otherwise, if the Contingent
Liability arose solely out of the Acts or Omissions of
an employee of Metris and no employee of Fingerhut
received a substantial Benefit from such Acts or
Omissions, the Contingent Liability shall be allocated
solely to Metris.
(v) Joint Rule. Otherwise, if either (1) the
Contingent Liability arose out of the Acts or Omissions
of employees of both Fingerhut and Metris or (2) the
Contingent Liability arose out of the Acts or Omissions
of an employee of one Party and a member of the other
Party received a substantial Benefit from such Acts or
Omissions, the Parties shall use their best efforts to
agree on an equitable means of allocating the
Contingent Liability that reasonably reflects both the
nature of each Party's Acts or Omissions and the
Benefit received by each Party. If the Parties are
unable to agree on an allocation, either Party may
submit the dispute to arbitration pursuant to
Article XVI.
(vi) Named Party Rule. If none of the foregoing
rules apply and an employee of only one Party is a
Named Party in the Action giving rise to the Contingent
Liability, the Contingent Liability shall be allocated
solely to that Party.
(c) Costs to be Allocated. The costs of a
Contingent Liability subject to allocation under this
Article XI shall include the amount of any Judgment, the
costs of defending the related Action (including court
costs, attorneys' fees, the reasonable cost of in-house
counsel, experts' fees, and all other external expenses),
and the amount of any interest or penalties with respect to
any such Judgment.
SECTION 11.03. Notice of Actions. (a) Actions
Known as of the Date of this Agreement. Attached as
Schedule IV hereto is a list a Actions, known to the Parties
as of the date of this Agreement, that the Parties
reasonably believe would be allocable under the provisions
of this Article XI, a brief statement of the nature of the
Action, the amount claimed as damages against the Named
Parties by the person bringing the Action, and the
applicable allocation rule under Section 11.02(b).
(b) Notice of Future Actions. The Named Party in
an Action in which an adverse Judgment is reasonably likely
to result in a Contingent Liability allocable under this
Article XI shall notify the other Party of the Action within
90 days after the service of process on, or other written
notice of the Action to, the Named Party. The Notice shall
include at least the following information:
<PAGE> 12
(i) the caption of the Action, including the
jurisdiction, court, docket number, and other
identifying information;
(ii) the names of the parties to the Action if not
obvious from the caption;
(iii) a brief statement of the claim alleged;
(iv) the amount of liability alleged, if known;
and
(v) the allocation rule of Section 11.02(b)
believed by the Named Party to be applicable.
(c) Failure of Notice. Failure to provide the
notice in the manner or in the time required by this
Section 11.03(b) shall not relieve a Party of its
obligations under this Article XI unless such Party
demonstrates by a preponderance of the evidence that it was
substantially prejudiced by such failure.
(d) Rule Named in Notice Not Binding. The
designation provided in Schedule IV or in any notice
pursuant to Section 11.03(b) of the applicable allocation
rule of Section 11.02(b) is for informational purposes only
and shall not be binding on either Party.
SECTION 11.04. Obligation to Pay Allocated Costs.
(a) Payments Between the Parties. Each Party (the
"Indemnifying Party") agrees to pay to the other Party (the
"Indemnified Party") and each Indemnified Person of the
Indemnified Party the full amount of any costs allocated to
the Indemnifying Party pursuant to this Article XI on
demand, any time after the allocation of costs becomes
final.
(b) Payment Obligation Excess of Insurance.
Notwithstanding anything to the contrary in this Agreement
or in the Agreements attached hereto, the agreement of the
Parties to indemnify, defend, and hold harmless the other
Party or its Indemnified Persons against Contingent
Liabilities from and after the Effective Date:
(i) is supplemental to and in excess of any valid
and collectible insurance covering the Contingent
Liabilities, including without limitation policies of
insurance listed in Schedule V or any renewals or
extensions thereof (the "Insurance Coverage") or any
agreements or obligations of either Party to indemnify,
defend, or hold harmless the Indemnified Persons of
either Party pursuant to their respective articles of
incorporation, bylaws, resolution, or other agreement
(the "Corporate Indemnification");
(ii) is not to be used as a source of contribution
to or as a substitute for the Insurance Coverage or as
a basis for recoupment by the insurers of payment of
the Contingent Liabilities made pursuant to the
Insurance Coverage; and
(iii) shall become operative, and payments shall
be required to be made by the Parties thereunder, only
if and to the extent that the Contingent Liabilities
have not been fully paid from the Insurance Coverage or
the Corporate Indemnification.
<PAGE> 13
ARTICLE XII
Mutual Release of Pre-Transfer Liability
SECTION 12.01. Release of Claims Between the
Parties. Each of Fingerhut and Metris, their successors and
assigns, remise, release, and forever discharge the other,
and all persons who at any time before the Effective Date
have been their shareholders, directors, officers, agents,
or employees, together with each such person's heirs,
executors, administrators, and assigns, from any and all
claims, debts, demands, actions, causes of action, or suits
whatsoever, both at law and in equity (collectively
"Claims") arising from any events on or before the Effective
Date, including the Transfer and all transactions and
actions taken in connection with the Transfer except for:
(i) any Claim with respect to a Liability or any
Contingent Liability expressly transferred, assigned,
or allocated in accordance with this Agreement or any
of the Transaction Documents;
(ii) any Claim resulting from any agreement
between the Parties not terminated pursuant to this
Agreement; and
(iii) any Claim for unpaid amounts owed with
respect to the sale, lease, construction, or receipt of
goods, property, or services obtained or used by it in
the ordinary course of business.
SECTION 12.02. Limitation of Liability for
Inaccurate Information. Neither Party shall be liable to
the other Party for any claim or cause of action arising out
of or based on the inaccuracy of any information provided to
the other Party pursuant to this Agreement if such
information is an estimate, projection, or forecast, or is
based on an estimate, projection or forecast in the absence
of the willful misstatement of such information by the Party
providing such information.
ARTICLE XIII
Banking and Other Arrangements
The responsibility for bank accounts used by
Metris and its Affiliates shall be transferred from
Fingerhut to Metris as of or immediately prior to the
Effective Date. Normal procedures will be followed for
receipts and disbursements funding prior to the Effective
Date.
ARTICLE XIV
Closing of Books and Post-Separation True-Ups
SECTION 14.01. Closing of Metris General Ledger.
Financial statements of Metris, which shall be comprised of
the consolidated accounting ledgers of Metris and its
subsidiaries and divisions as of the Effective Date, will be
prepared jointly by Metris and Fingerhut in accordance with
generally accepted accounting principles, applied in a
manner consistent with the practice of Fingerhut for prior
periods. The general ledger of Metris as of the Effective
Date shall take into account the effect of the repayment of
the Intercompany Debt and the contributions to capital
provided for in Article IV and the transfer of assets and
assumption of liabilities pursuant to Articles II and V on a
basis satisfactory to Fingerhut.
<PAGE> 14
SECTION 14.02. True-Up Adjustments. The Parties
acknowledge and agree that the preparation of separate
financial statements for Metris will necessarily require the
Parties to estimate certain items of income, loss, assets,
and liabilities. The Parties agree that they will cooperate
after the Effective Date to true-up such estimates to take
into account actual experience or information learned after
the Effective Date. The Parties also agree to cooperate in
the correction of the financial reporting of any
transactions found by the Parties, after the Effective Date,
to have been erroneously reported in the preparation of
separate financial statements of Metris.
Any adjustment after the Effective Date made to
reflect the true-up of liabilities between the Parties,
either to correct an estimate or an error made as of the
Effective Date, shall be settled by the Parties in
accordance with this Section 14.02.
(a) Insurance Reserves. With respect to the
true-up of estimated reserves for insurance claims and
expenses for which Metris retains responsibility pursuant to
Article VIII, any excess of claims or expenses over the
amount reserved therefor on the Effective Date shall be paid
at the end of each calendar quarter by Metris to Fingerhut
in cash.
(b) Medical Plan Claims Incurred but not
Reported. [With respect to claims incurred but not reported
under the Fingerhut Medical Plan, any excess of claims or
expenses over the amount reserved therefor on the Effective
Date shall be paid at the end of each calendar month by
Metris to Fingerhut in cash; any excess of such reserves
over cumulative claims at the end of the 24th whole calendar
month following the Effective Date shall be treated by
Fingerhut as an adjustment to the amount contributed to the
capital of Metris pursuant to Section 4.02.]
(c) Other Liabilities. With respect to all other
liabilities required to be adjusted after the Effective
Date, any liability of Metris in excess of the amount
estimated or assumed shall be paid to Fingerhut in cash, and
any liability of Metris less than the amount estimated or
assumed shall be treated as a decrease in the amount
contributed to the capital of Metris pursuant to
Section 4.02 until such capital contribution amounts shall
have been reduced to zero by prior adjustments made pursuant
to this Section 14.02. Thereafter such true-ups shall be
settled by a cash payment from Fingerhut to Metris.
ARTICLE XV
Indemnification
SECTION 15.01. Indemnification by Fingerhut.
Fingerhut shall indemnify Metris, its affiliates and their
respective officers, directors, employees, stockholders,
agents and representatives against, and agrees to hold them
harmless from, any loss, liability, claim, damage or expense
(including reasonable legal fees and expenses) ("Losses"),
as incurred (payable promptly upon written request), for or
on account of or arising from or in connection with or
otherwise with respect to (i) any breach of any
representation or warranty of Fingerhut contained in this
Agreement, and (ii) any breach of any covenant of Fingerhut
contained in this Agreement.
SECTION 15.02. Indemnification by Metris.
Metris shall indemnify Fingerhut, its affiliates and their
respective officers, directors, employees, stockholders,
agents and representatives against, and agrees to hold them
harmless from, any Loss, as incurred (payable promptly upon
written request), for or on account of or arising from or in
connection with or otherwise with respect to (i) any breach
of any representation or warranty of Metris contained in
this Agreement, (ii) any breach of any covenant of Metris
contained in this Agreement.
<PAGE> 15
ARTICLE XVI
Intentionally left blank.
ARTICLE XVII
Definitions
SECTION 17.01. Defined Terms. The following
terms have the meanings set forth herein for purposes of
this Agreement and all Exhibits to the Agreement unless the
context indicates otherwise.
"Action" means any litigation or other judicial,
regulatory, or administrative proceeding.
"Acts or Omissions" means significant active and
direct participation by a person in the conduct that
resulted in a Contingent Liability but does not include the
mere approval, disapproval, or rejection of profit plans,
business plans, or other corporate plans.
"Administrative Services Agreement" means the
Administrative Services Agreement between Metris, Direct
Merchants Credit Card Bank, National Association, and
Fingerhut Corporation in substantially the form included in
Exhibit A.
"Affiliate" means, with respect to any person, any
entity that, directly or indirectly, controls, is controlled
by, or is under common control with, such person.
"Agreement" means this Transfer Agreement.
"Benefit" means a significant, identifiable
financial benefit (not including dividends paid by Metris to
Fingerhut) that directly flows to a person from the Acts or
Omissions that resulted in a Contingent Liability.
"Claims" is defined in Section 12.01.
"Closing" is defined in Section 1.02.
"Co-Brand Credit Card Agreement" means the
Co-Brand Credit Card Agreement among Metris, Direct
Merchants Credit Card Bank, National Association, and
Fingerhut Corporation in substantially the form included in
Exhibit A.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time.
"Confidential Information" is defined in
Section 10.02(c).
"Contingent Liability" means a liability, to the
extent not covered by insurance, of either Fingerhut or
Metris that was not booked for financial accounting purposes
on or before the Effective Date that is attributable to
(i) an Act or Omission that occurred before the
Effective Date;
(ii) a condition that existed before the Effective
Date; or
(iii) an Act or Omission that occurred after the
Effective Date but was attributable to the Transfer.
"Corporate Indemnification" is defined in
Section 11.04(b)(i).
"Credit Facility" is defined in Section 3.01.
"Database Access Agreement" means the Database
Access Agreement between Metris and Fingerhut Corporation in
substantially the form included in Exhibit A.
<PAGE> 16
"Data Sharing Agreement" means the Data Sharing
Agreement between Metris and Fingerhut Corporation in
substantially the form included in Exhibit A.
"Disclosed Information" is defined in
Section 10.02(a).
"Disclosing Party" is defined in Section 10.02(a).
"Disclosure Documents" is defined in
Section 11.02(b)(i).
"Effective Date" means [ ], 1996.
"Employee Transfer Date" means January 1, 1997.
"Extended Service Plan Agreement" means the
Extended Service Plan Agreement between Metris and Fingerhut
in substantially the form included in Exhibit A.
"Financial Services Business" is defined in the
first recital.
"Fingerhut" is defined in the preamble.
"Fingerhut Common Stock" means the common stock,
par value $.01 per share.
"Fingerhut Employees" means [ ].
"Fingerhut ESPP" means [ ].
"Fingerhut Group" means Fingerhut and its
controlled subsidiaries, controlled partnerships, and other
controlled business entities, excluding such entities that
are members of the Metris Group.
"Fingerhut Group Employees" means those persons
employed by any member of Fingerhut immediately after the
Effective Date and, in addition, with respect to benefit
plans in which directors may participate, any persons who is
a director of any member of the Fingerhut Group immediately
after the Effective Date.
"Fingerhut Pension Plan" is defined in
Section 5.06.
"Fingerhut Stock Options Plans" means the
Fingerhut Companies, Inc. Stock Option Plan, the Fingerhut
Companies, Inc. Performance Enhancement Investment Plan, and
the Fingerhut Companies, Inc. 1995 Long-Term Incentive and
Stock Option Plan
"Indemnified Party" is defined in
Section 11.04(a).
"Indemnified Person" means, with respect to any
person, such person's officer's, directors, shareholders,
employees, or agents, past or present, or others, however
designated, that perform or performed a similar function
with respect to such person.
"Indemnifying Party" is defined in
Section 11.04(a).
"Insurance Coverage" is defined in
Section 11.04(b)(i).
"Intercompany Debt" means the total principal
amount of intercompany debt owed by Metris to Fingerhut, as
a result of Metris's borrowings through Fingerhut's
intercompany financing arrangements as of the time
immediately before the effectiveness of any of the
transactions set forth in Article IV.
<PAGE> 17
"IRS" is defined in Section 5.05(c).
"Judgment" shall mean any determination of
liability entered by a court or a regulatory or
administrative body in any contested Action. A stipulated
judgment or order of dismissal (or equivalent) by which a
court approves a settlement of an Action entered into by
only one of the Parties is not a Judgment.
"Liabilities" means liabilities, other than
Contingent Liabilities, that have been booked for financial
accounting purposes on or before the Effective Date and that
are to be assumed by one Party from another Party under this
Agreement.
"Losses" is defined in Section 15.01.
"Named Party" means, with respect to any Action,
the person or persons named as defendants in such Action.
"Metris" is defined in the preamble.
"Metris Common Stock" means the common stock par
value $0.01 of Metris, and such stock as adjusted pursuant
to this Agreement.
"Metris Employees" means (i) those persons
employed by any member of Metris immediately after the
Effective Date and (ii) with respect to benefit plans in
which directors may participate, any person who is a
director of any member of Metris immediately after the
Effective Date.
"Metris Group" means Metris and, as of the
Effective Date:
(i) its controlled subsidiaries, controlled
partnerships, and [ ] business entities;
(ii) those entities transferred to any member of
the Metris [ ] to this Agreement; and
(iii) those non-public corporations, partnerships,
and other business entities in which Metris owns a
non-controlling interest but with respect to which
Metris is entitled to exercise voting rights.
Metris agrees, with respect to entities described
in clause (iii), to exercise its voting rights to the
maximum extent possible to cause such entities to abide by
the intent and provisions of this Agreement.
"Metris Group Employees" means [ ].
"Parties" means (i) Fingerhut and its successors
and (ii) Metris and its successors.
"Registration Rights Agreement" means the
Registration Rights Agreement between Metris and Fingerhut
in substantially the form included in Exhibit A.
"Receiving Party" is defined in Section 10.02(a).
"Satisfaction Certificate" is defined in
Section 1.03(a).
"SEC" means the Securities and Exchange
Commission.
"Tax Sharing Agreement" is defined in Article VI.
"Transaction Documents" means the Database Access
Agreement, the Data Sharing Agreement, the Extended Service
Plan Agreement, the Co-Brand Credit Card Agreement, the
Registration Rights Agreement, the Administrative Services
Agreement and the Tax Sharing Agreement.
<PAGE> 18
"Transfer" is defined in the second recital.
"Transferee" and "Transferor" are defined in
Section 2.03(a).
"Transferred Assets" mean the properties, claims,
and rights, whether real or personal, tangible or
intangible, that are to be assigned to Metris by Fingerhut
or by Metris to Fingerhut pursuant to this Agreement in
connection with the Transfer.
"Transferred Business Taxable Period" means [ ].
"Transferred Companies" is defined in
Section 2.02(a).
"Transferred Company Taxable Period" means [ ].
ARTICLE XVIII
Other Provisions
SECTION 18.01. Expenses. Except as otherwise
provided in this Agreement or agreed to by the Parties, each
Party shall bear its own expenses in connection with the
Transfer, and the Parties shall agree on an equitable
allocation of costs where any item of expense is not clearly
allocable to one Party or the other.
SECTION 18.02. Entire Agreement. This Agreement
represents the entire agreement among the Parties, and no
prior representations or agreements, whether written or
oral, shall be binding on any Party unless incorporated into
this Agreement or agreed to by such Party in a writing
signed by such Party on or after the date of this Agreement.
SECTION 18.03. Survival of Representations. The
representations and warranties contained in this Agreement
and in any document delivered in connection herewith shall
survive the Closing Date solely for purposes of Article XV
and shall terminate at the close of business one year
following the Closing Date.
SECTION 18.04. Governing Law. The validity,
interpretation, and enforcement of this Agreement shall be
governed by the laws of the State of Minnesota, other than
the choice of law provisions thereof.
SECTION 18.05. Notices. Any notice, demand,
claim or other communication under this Agreement shall be
in writing and shall be deemed to have been given:
(a) upon the delivery or mailing thereof, as the
case may be, if delivered personally or sent by
registered or certified mail, return receipt requested,
postage prepaid;
(b) on the date on which delivery thereof is
guaranteed by the carrier if delivered by a national
courier guaranteeing delivery within a fixed number of
days of sending;
(c) five days after the mailing thereof if mailed
postage paid by any other method; or
(d) on the date on which facsimile transmission
thereof is confirmed "OK" by the receiving machine if
transmitted by facsimile machine and confirmed by
delivery by one of the prior methods
but, in each case, only if addressed to the Parties in the
following manner at the following addresses or facsimile
numbers ("FAX") (or at such other address or other number as
a Party may specify by notice to the other):
<PAGE> 19
If to Fingerhut: If to Metris:
Fingerhut Companies, Inc. Metris Companies Inc.
4400 Baker Road Interchange Building
Minnesota, MN 55343 600 South Highway 169,
Suite 800
St. Louis Park, MN 55426
Attn: General Counsel Attn: General
Counsel
FAX: (612) 936-5412 FAX: [ ]
Any notice to Fingerhut shall be deemed notice to Affiliates
and Subsidiaries, all members of Fingerhut, and any notice
to Metris shall be deemed notice to all Affiliates and
Subsidiaries.
SECTION 18.06. Priority of Agreements. If there
is a conflict between any provision of this Agreement and a
similar provision in any of the agreements attached as
exhibits hereto, the provisions of the attached agreements
shall control unless specifically provided otherwise in this
Agreement or in the attached agreement.
SECTION 18.07. Amendment. This Agreement may not
be amended except by a writing executed by the Parties.
SECTION 18.08. Termination. This Agreement may
be terminated and the Transfer abandoned at any time before
delivery of the Satisfaction Certificate pursuant to
Section 1.03(a) by and in the sole discretion of the
Fingerhut board of directors without the approval of Metris
or any other person. In the event of such termination, no
Party shall have any liability of any kind to any other
Party on account of such termination.
SECTION 18.09. No Third-Party Beneficiaries.
Except for the provisions of Article XI with respect to
indemnification of Indemnified Persons, this Agreement is
solely for the benefit of the Parties hereto and should not
be construed to confer upon third parties (including any
employees of either Fingerhut or Metris or any Affiliate or
Subsidiary thereof) any remedy, claim, reimbursement, claim
of action, or other right in addition to those existing
without reference to this Agreement.
SECTION 18.10. Titles and Headings. Titles and
headings to sections herein are for convenience of reference
only and are not intended to be a part of or affect the
meaning of this Agreement.
SECTION 18.11. Publicity. Neither Fingerhut nor
Metris shall refer to the post-Transfer plans or business
activities of each other in publicity releases, or in each
similar external communications, without first securing the
prior written approval of each other. After the Transfer,
neither Fingerhut nor Metris shall express or imply each
other's sponsorship or endorsement of a particular position
or view in any external communication without first securing
the prior written approval of each other.
SECTION 18.12. Assignability. No Party shall
assign its rights or delegate its duties under this
Agreement without the written consent of the other Party.
Any attempted assignment or delegation in contravention of
this provision shall be void.
SECTION 18.13. Partial Invalidity. Any provision
of this Agreement that is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining provisions
of this Agreement or affecting the validity or
enforceability of any of the provisions of this Agreement in
any other jurisdiction. If any provision of this Agreement
is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
<PAGE> 20
SECTION 18.14. Force Majeure. No Party shall be
deemed in default or breach of this Agreement to the extent
that any delay or failure in the performance of its
obligations under this Agreement results from any cause
beyond its reasonable control and without its fault or
negligence, such as acts of God, acts of civil or military
authority, embargoes, epidemics, war, riots, insurrections,
fires, explosions, earthquakes, floods, unusually severe
weather conditions, or labor problems. In the event of any
such excused delay, the time for performance shall be
extended for a period equal to the time lost by reason of
the delay.
IN WITNESS WHEREOF, the Parties hereto have
executed and delivered this Agreement as of the date first
above written.
Fingerhut Companies, Inc.,
by
Name:
Title:
Metris Companies Inc.,
by
Name:
Title:
<PAGE> 1
Exhibit 10.l
EXTENDED SERVICE PLAN AGREEMENT
This Agreement (the "Agreement"), made and entered into
this __ day of October, 1996, by and between Fingerhut
Corporation and Infochoice USA, Inc. (collectively
"Fingerhut"), and Metris Direct, Inc. ("Metris").
WHEREAS, Fingerhut shall make available to purchasers
of its Merchandise (as defined herein), an Extended Service
Agreement (as defined below), providing coverage for defects
in materials and workmanship and for mechanical or
electrical failure of the Merchandise; and
WHEREAS, Metris shall coordinate and manage all of the
marketing activities for Fingerhut's sales of extended
warranties or service plans to purchasers of its
Merchandise.
WHEREAS, Metris shall also, either for itself or
through a third party underwriter, insure and service the
contractual obligations of the Extended Service Agreements
sold by Fingerhut; and
NOW THEREFORE, in consideration of the mutual promises
contained herein, the parties hereby agree as follows:
DEFINITIONS
The following terms, as used in this Agreement shall
have the following meanings whether used in the singular or
plural:
"Customer" shall mean a customer of Fingerhut who purchases
Merchandise for personal, family and household purposes
within the U.S. and its territories, where applicable.
"Extended Service Agreement" shall mean a repair or
replacement service agreement between Customer (as defined
herein) and the applicable service plan underwriter sold by
Fingerhut, and managed by Metris, covering mechanical or
electrical failure of Merchandise and defects in materials
and workmanship.
"Marketing Management Fee" shall mean the amount of the Net
Price, as noted in Exhibit A to this Agreement, which
Fingerhut is required to pay Metris for coordinating and
managing the marketing programs for each Extended Service
Agreement sold under this Agreement.
"Merchandise" shall mean any new goods (as identified in
Exhibit B) sold by Fingerhut which are sold to a Customer
during the term of this Agreement.
"Merchandise Warranty" shall mean the warranty of the
manufacturer with respect to the Merchandise.
"Net Price" shall mean the amount Fingerhut is required to
pay Metris for each Extended Service Agreement sold under
this Agreement.
"Sales Price" shall mean the retail sales cash price at
which Fingerhut sells each Service Agreement.
"Underwriting and Servicing Fee" shall mean the amount of
Net Price, as noted in Exhibit B to this Agreement, which
Fingerhut is required to pay Metris for performing, either
for itself or through a third party underwriter and
servicer, the contractual obligations of the Extended
Service Agreements sold by Fingerhut.
<PAGE> 2
ARTICLE 1. PROGRAM
Section 1.1. Service.
During the term of this Agreement, including any
renewals, Fingerhut shall sell the Extended Service
Agreement to any or all of its Customers who purchase
Merchandise eligible for extended service beyond the
Merchandise Warranty in accordance with this Agreement.
Section 1.2. Exclusivity.
During the term of this Agreement, Fingerhut shall
not make available to any Customer, any other agreement
providing for extended service which is competitive,
similar, or an alternative to the Extended Service Agreement
marketed and offered by Metris. Notwithstanding the
foregoing, in the event Metris notifies Fingerhut in writing
of its inability to provide an Extended Service Agreement on
Merchandise, Fingerhut may provide directly or contract with
a third party service provider to provide such Extended
Service Agreement.
Section 1.3. Coverage Under the Extended Service
Agreement.
Coverage for parts and labor for each component
protected by the Extended Service Agreement shall begin on
the date following expiration of the parts or labor
Merchandise Warranty applicable to each Merchandise
component indicated in the Merchandise Warranty. Coverage
will continue for the period shown in Exhibit B for each
product.
Section 1.4. Service Coverage.
Metris shall be responsible for the fulfillment of
the contractual obligations to the Customer either for
itself or through a third party underwriter, under each
Extended Service Agreement from the date sold to a Customer
by Fingerhut, provided however, that the Merchandise to be
covered under the Extended Service Agreement was received by
the Customer in an undamaged state. Metris shall become
contractually liable directly to the Customer and Metris
will pay the full amount of any claim provided that such
claim is within the terms of coverage of the Extended
Service Agreement. If Merchandise covered under the
Extended Service Agreement is to be replaced, Fingerhut
agrees to provide Customer with such replacement product.
In such case, Metris shall reimburse Fingerhut for the cost
of such product at Fingerhut's standard cost plus 20% to
cover shipping and handling. Additionally, if Fingerhut
repairs any Merchandise covered under the Extended Service
Agreement, Metris shall reimburse Fingerhut for the cost of
such repair. All such reimbursements shall be netted
against any remittances required by Fingerhut on a monthly
basis provided detail supporting such reimbursement has been
previously provided to and approved by Metris. Fingerhut
and Metris shall, in good faith mutually agree on the retail
sales cash price of the Extended Service Agreement. Metris
shall only be obligated to fulfill such obligations in
states that it is legally authorized to do so.
Section 1.5. Remittances Required by Fingerhut.
(a) Fingerhut shall have the right to offer
(either directly or through third parties) the Customer
financing for the Customer's warranty purchase using any
credit offer Fingerhut or its Customers may choose, however,
Metris shall have no collection risk with respect to any
Extended Service Agreement financed through a Fingerhut
offer.
<PAGE> 3
(b) Daily, Fingerhut shall send Metris via system
data transfer the names, addresses and other information
necessary for fulfillment of all Customers who purchased
Extended Service Agreements. Within ten (10) days after the
close of each Fingerhut accounting month, Fingerhut shall
remit the sales report and other information for that month
to Metris for each such Extended Service Agreement sold for
all cancellations, which will provide the net amount due to
Metris. Metris shall send Fingerhut an invoice which shall
be for the Marketing Management Fee and Underwriting and
Servicing Fee for all Extended Service Agreements sold as
set forth in Exhibit A, attached hereto and incorporated
herein by reference, for the number of Extended Service
Agreements sold in that month related to merchandise that
has been shipped, less cancellations or returns of such
Extended Service Agreements in that month. Terms shall be
30 days from the last day of the accounting month in which
the Service Agreements were sold or cancelled.
Section 1.6. Merchandise Covered.
The list of Merchandise in Exhibit B, attached
hereto and incorporated herein by reference shall constitute
the eligible goods for which an Extended Service Agreement
may be sold. The list may be amended by mutual written
agreement of the parties. Any Merchandise, other than
jewelry and furniture, which does not have any Merchandise
Warranty whatsoever, shall not be eligible goods for which
an Extended Service Agreement may be sold.
Section 1.7. Records/Audits.
Both parties shall maintain records related to the
Extended Service Agreements sold under this Agreement. The
parties shall each allow its auditors or other designees to
audit performance under this Agreement. Such audits shall
be subject to reasonable notice and conducted during normal
business hours.
Section 1.8. Solicitation.
Unless Metris and Fingerhut agree to use
Fingerhut's direct mail solicitation or telemarketing media,
Metris shall develop media sources for direct mail
solicitations or telemarketing. If Metris does use
Fingerhut's direct mail solicitation and telemarketing
media, Metris shall reimburse Fingerhut for the cost of such
catalog or other mail space that it directly utilizes and
the variable cost of telemarketing sources, plus a
reasonable allocation of fixed overhead, at a combined rate
per hour of telemarketing time used, all as mutually agreed
to at the beginning of each calendar year during this
Agreement by the parties to this Agreement. Metris and
Fingerhut agree to cooperate in good faith and use best
efforts to develop direct mail solicitations, and
telemarketing programs which meet all regulatory guidelines
and requirements and are designed to provide the most cost
effective use of customer service time.
Section 1.9. Ownership of Customer Names.
Metris agrees that Fingerhut has and shall have
exclusive ownership of all of its Customer names,
information, marketing methods and business practices
(collectively "Customer Names"). Metris shall not use or
provide to any other firm or entity, any names or
information developed in the course of this Extended Service
Agreement Program or furnished to Metris by Fingerhut, for
any purpose whatsoever except as contemplated herein.
Metris will hold all customer names and information as
confidential information and will provide appropriate
security measures to protect such information from
unauthorized use.
<PAGE> 4
Section 1.10. Program Literature.
Neither Fingerhut, nor anyone on its behalf, shall
in any document or advertising describe the coverage offered
under the Extended Service Agreement in terms other than
those used in the Extended Service Agreement itself or as
otherwise approved by Metris. Metris shall notify Fingerhut
in writing of its objections to any such advertising within
ten (10) business days of receipt of the advertising from
Fingerhut. However, Fingerhut shall allow its name to be
used in any advertising as long as such use is approved in a
timely basis by Fingerhut and does not imply that Fingerhut
has any contractual obligation under the Extended Service
Agreement.
ARTICLE 2. INDEMNIFICATION
Section 2.1. Obligations.
(a) By Metris. Metris shall be liable to and
shall defend, indemnify and hold harmless Fingerhut and its
Affiliates, and its respective officers, directors,
employees and permitted assigns from and against any and all
Losses (as hereinafter defined) incurred by reason of or
related to Metris' breach of its obligations hereunder.
(b) By Fingerhut. Fingerhut shall be liable to
and shall defend, indemnify and hold harmless Metris and its
Affiliates, and its respective officers, directors,
employees and permitted assigns from and against any and all
Losses (as hereinafter defined) incurred by reason of or
related to Fingerhut's breach of any of its obligations
hereunder.
(c) "Losses" Defined. For purposes of this
Section 2.1., the term "Losses" shall mean any liability,
damages, costs, losses and expenses, including attorneys'
fees, disbursements and court costs, reasonably incurred by
Metris or Fingerhut in connection with any threatened,
pending or adjudicated claim, demand, action, suit or
proceeding (whether civil, criminal, administrative or
investigative by an unaffiliated third party) without regard
to whether or not such Losses would be deemed material under
this Agreement.
Section 2.2. Procedures.
(a) Notice of Claims. The Parties agree that in
case any claim is made, or any suit or action is commenced
which, if not corrected, may give rise to a right of
indemnification for a Party hereunder ("Indemnified Party")
from the other Party ("Indemnifying Party"), the Indemnified
Party will give notice to the Indemnifying Party as promptly
as practicable after the receipt by the Indemnified Party of
such notice or knowledge of such claim, suit, or action. On
a best efforts basis, notice to the Indemnifying Party shall
be given no later than fifteen days after receipt by the
Indemnified Party in the event a suit or action has
commenced or thirty days under all other circumstances;
provided, however, that the failure to give prompt notice
shall not relieve an Indemnifying Party of its obligation to
indemnify except to the extent the Indemnifying Party is
materially prejudiced by such failure. The Indemnified
Party shall make available to the Indemnifying Party and its
counsel and accountants at reasonable times and for
reasonable periods, during normal business hours, all books
and records of the Indemnified Party relating to any such
possible claim for indemnification, and each Party will
render to the other such assistance as it may reasonably
require of the other in order to ensure prompt and adequate
defense of any suit, claim or proceeding based upon a
statement of facts which may give rise to a right of
indemnification hereunder.
<PAGE> 5
(b) Selection of Counsel. The Indemnifying Party
shall have the right to defend, compromise and settle any
suit, claim or proceeding in the name of the Indemnified
Party to the extent that the Indemnifying Party may be
liable to the Indemnified Party under Section 2.1. above in
connection therewith; provided, however, that the
Indemnifying Party shall not compromise or settle a suit,
claim or proceeding unless it assumes the obligation to
indemnify for all Losses relating thereto. The Indemnifying
Party shall notify the Indemnified Party within ten days of
having been notified pursuant to Section 2.2.(a) of this
Agreement if the Indemnifying Party elects to assume the
defense of any such claim, suit or action and employ counsel
in a reasonable exercise of its discretion. The Indemnified
Party shall have the right to employ its own counsel if the
Indemnifying Party so elects to assume such defense, but the
fees and expenses of such counsel shall be at the
Indemnified Party's expense, unless the Indemnifying Party
shall not have employed counsel to take charge of the
defense thereof.
(c) Settlement of Claims. The Indemnified Party
may at any time notify the Indemnifying Party of its
intention to settle or compromise any claim, suit or action
against the Indemnified Party in respect of which
indemnification payments may be sought from the Indemnifying
Party hereunder, but shall not settle or compromise any
matter for which indemnification may be sought without the
consent of the Indemnifying Party. Any settlement or
compromise of any claim, suit or action in accordance with
the preceding sentence, or any final judgment or decree
entered on or in any claim, suit or action which the
Indemnifying Party did not assume the defense of in
accordance herewith, shall be deemed to have been consented
to by, and shall be binding upon, the Indemnifying Party as
fully as if the Indemnifying Party had assumed the defense
thereof and a final judgment or decree had been entered in
such suit or action, or with regard to such claim, by a
court of competent jurisdiction for the amount of such
settlement, compromise, judgment or decree.
(d) Subrogation. The Indemnified Party shall be
subrogated to any claims or rights of the Indemnifying Party
as against any other persons with respect to any amount paid
by the Indemnifying Party under this Article 2. The
Indemnified Party shall cooperate with the Indemnifying
Party, at the Indemnifying Party's expense, in the assertion
by the Indemnifying Party of any such claim against such
other persons.
(e) Indemnification Payments. Amounts owing
under this Article 2 shall be paid promptly upon written
demand for indemnification containing in reasonable detail
the facts giving rise to such liability; provided, however,
that if the Indemnifying Party notifies the Indemnified
Party within thirty (30) days of receipt of such demand that
it disputes its obligation to indemnify and the Parties are
not otherwise able to reach agreement, the controversy shall
be settled by final order entered by a court of competent
jurisdiction.
Section 2.3. Survival of Indemnification.
The provisions of this Article 2 shall expressly
survive any termination of this Agreement under Article 4
below or otherwise for a period of ten (10) years.
<PAGE> 6
ARTICLE 3. CONFIDENTIALITY
Section 3.1. Confidential Information.
Confidential Information will be kept in
confidence by such other party, including its subsidiaries,
affiliates, officers, directors, employees, agents,
consultants and contractors, in accordance with its policies
for maintaining the confidence of its own information of
similar content. The term "Confidential Information" shall
mean and include: (i) all trade secrets and other
confidential business information learned in the course of
performance by any party of its obligations hereunder, and
(ii) any information or data which is disclosed by a party
to the other party under or in contemplation of this
Agreement.
Notwithstanding the foregoing, the term
Confidential Information shall not include information
which: (i) is already known to such other party when
received, (ii) thereafter becomes generally obtainable by a
party other than as a result of an unauthorized disclosure
by the party taking advantage of this clause, or (iii) is
required by law, regulation or court order to be disclosed
by such party, provided that in the case of this clause,
prior notice of such disclosure has been given to the party
which furnished such information, when legally permissible,
and that such other party which is required to make the
disclosure uses its best efforts to provide sufficient
notice to permit the party which furnished such information
to take legal action to prevent the disclosure or (iv) is
reasonably necessary in the opinion of counsel, to be
disclosed in the context of a legal proceeding or regulatory
investigation, provided that prior notice shall be given by
the party which furnished the information.
ARTICLE 4. TERM AND TERMINATION
Section 4.1. Term and Termination.
This Agreement shall take effect upon the date
first written above, and shall remain in effect for seven
(7) years ("Initial Term"). Thereafter, this Agreement will
automatically renew for one term of three (3) years
("Renewal Term") unless either Party provides written notice
to the other, not less than twelve (12) months prior to the
end of the Initial Term or Renewal Term, of its intent to
terminate this Agreement. Either Party may terminate this
Agreement reserving all other remedies and rights hereunder
in whole or in part and otherwise available at law or in
equity, upon the occurrence of an Event of Default, as
defined herein. Upon the occurrence of an Event of Default,
the non-defaulting Party may terminate this Agreement by
giving notice of its intent to terminate. Such written
notice shall describe the Event of Default.
Fingerhut shall also have the right to terminate
this Agreement by written notice to Metris upon the
occurrence of a Change of Control (as defined below) with
respect to Metris. A "Change in Control" shall be deemed to
have occurred if (a) any person or group (within the meaning
of Rule 13d-5 of the Securities Exchange Act of 1934 as in
effect on the date hereof) other than Fingerhut shall own
directly or indirectly, beneficially or of record, shares
representing more than 25% of the aggregate ordinary voting
power represented by the issued and outstanding capital
stock of Metris; (b) a majority of the seats (other than
vacant seats) on the Board of Directors of Metris shall at
any time be occupied by persons who were neither (1)
nominated by Fingerhut, or by the Board of Directors of
Metris, nor (2) appointed by directors so nominated; or (3)
any person or group other than Fingerhut shall otherwise
directly or indirectly have the power to exercise a
controlling influence over the management or policies of
Metris.
<PAGE> 7
Section 4.2 Event of Default.
An "Event of Default" shall be deemed to have
occurred upon the occurrence of any of the following:
(a) A material breach of a representation,
agreement, covenant or other obligation of any of the
parties to this Agreement (any such breach is herein
referred to as a "Material Breach"); provided, however, that
no Event of Default shall be deemed to have occurred unless
and until a non-breaching party provides the breaching party
with written notice of such Material Breach, describing in
reasonable detail the nature of such Material Breach, and
(i) the breaching party shall have had an opportunity to
cure such Material Breach (which is capable of being cured)
within sixty (60) days after such notice (unless such
Material Breach is with respect to a monetary matter, the
cure of which requires only the payment of a specified
amount of money pursuant to the terms of this Agreement, in
which case the breaching party shall have an opportunity to
cure within five (5) business days after such notice), (ii)
the breaching party does not cure such Material Breach
within the applicable time period, or, if such Material
Breach, other than a Material Breach relating to a monetary
matter, cannot reasonably be cured within sixty days, but is
curable, the breaching party does not; (x) undertake to cure
such Material Breach within such sixty day period and (y)
after such sixty day period, diligently and continuously use
all reasonable efforts to cure, and (iii) the notifying
party thereafter declares an Event of Default. In respect
of clause (ii) of this Section 4.2, such extended cure
period shall continue so long as the parties hereto
reasonably agree that the actions being taken by the
breaching party are reasonably expected to cure such
Material Breach.
(b) If, at any time within twelve (12) months
following the expiration of any cure period provided in
Section 4.2 above, there shall occur a Material Breach (the
"Second Material Breach") and such Second Material Breach is
of the same nature as the Material Breach (the "First
Material Breach") by the breaching party that gave rise to
such cure period, then an Event of Default shall be deemed
to have occurred upon the delivery of notice of such Second
Material Breach to the breaching party by the notifying
party referred to in Section 4.2 and upon such notifying
party declaring an Event of Default.
(c) If there shall occur a "Bankruptcy," as
hereinafter defined, of either Party, the non-Bankruptcy
party may declare an Event of Default. For purposes of this
Agreement, the term "Bankruptcy" shall mean: (i) the entry
of a decree or order for relief by a court of competent
jurisdiction in any involuntary case under any bankruptcy,
insolvency or similar law now or hereafter in effect and
such decree or order shall not be vacated, set aside or
stayed within ninety (90) days after its entry, (ii) the
entry of a decree or order appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or
similar agent for any substantial part of the assets or
property of such party and such decree or order shall not be
vacated, set aside or stayed within ninety (90) days after
its entry, (iii) the ordering of the winding up or
liquidation of the affairs of a party and such order shall
not be vacated, set aside or stayed within one hundred
twenty (120) days after its entry, (iv) the filing of a
petition in any such involuntary bankruptcy case, which
petition remains undismissed for a period of ninety (90)
days or which is not dismissed or suspended pursuant to
Section 305 of Title 11 of the United States Code (or any
corresponding provision of any future United States
Bankruptcy law), (v) the commencement of a voluntary case
under any bankruptcy, insolvency or similar law now or
hereafter in effect, (vi) the consent to the entry of an
order for relief in an involuntary case under any such law
or to the appointment of or taking possession of any
substantial part of the assets or property by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or
similar agent, or (vii) the making of any general assignment
for the benefit of creditors.
<PAGE> 8
ARTICLE 5. MISCELLANEOUS
Section 5.1. Notices.
Any notice given in accordance with the provisions
of this Agreement must be in writing and sent by registered
or certified mail return receipt requested to the respective
addresses of the parties shown at the beginning of this
Agreement. Notices shall be sent to Metris and to
Fingerhut, shall be addressed as follows:
If to Metris:
Metris Direct, Inc.
Interchange Building
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: Chief Executive Officer
If to Fingerhut:
Fingerhut Corporation
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: Senior Vice President
With a copy to the General Counsel
Section 5.2. Applicable Law.
This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the
internal laws of the State of Minnesota without giving
effect to the principles or conflicts of laws thereof.
Section 5.3. Severability.
If any provision of this Agreement or portion
thereof is held invalid, illegal, void or unenforceable by
reason of any rule of law, administrative or judicial
provision or public policy, such provision shall be
ineffective only to the extent invalid, illegal, void or
unenforceable, and the remainder of such provision and all
other provisions of this Agreement shall nevertheless remain
in full force and effect.
Section 5.4. No Partnership or Joint Venture.
This Agreement does not create a partnership or
joint venture between the Parties, and neither Party to this
Agreement shall have any authority whatsoever to bind the
other Party to any obligation.
Section 5.5. No Third Party Beneficiaries.
Nothing in this Agreement, express or implied, is
intended or shall be construed to confer upon any person or
entity, other than the Parties and their respective
successors and assigns permitted by this Agreement, any
right, remedy or claim under or by reason of this Agreement.
Section 5.6. Captions: Counterparts.
The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the
construction or interpretation of any provision of this
Agreement. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of
which together shall constitute one and the same instrument.
<PAGE> 9
Section 5.7. Amendments and Waivers.
Neither the waiver by any party hereto of a breach
of or a default under any of the provisions of this
Agreement, nor the failure of any party hereto, on one or
more occasions, to enforce any of the provisions of this
Agreement or to exercise any right, remedy or privilege
hereunder shall thereafter be construed as a waiver of any
such provisions, rights, remedies or privileges hereunder.
Any of the terms, covenants, representations, warranties, or
conditions hereof may be waived only by a written instrument
executed by the party waiving compliance. This Agreement
may only be amended or modified by a subsequent written
agreement by and among the parties hereto.
Section 5.8. Assignment.
No party to this Agreement shall have the right to
assign or otherwise transfer its rights or obligations under
this Agreement, except with the prior written consent of the
other; notwithstanding, either party may assign or otherwise
transfer its rights or obligations under this Agreement to a
subsidiary or affiliate (in the case of Fingerhut only a
subsidiary or affiliate that sells merchandise to Fingerhut
Customers) upon notice to the other. Regardless of the
party to whom an assignment is made pursuant to this
Section 5.8., the assignee shall, as a condition to such
assignment, by written undertaking satisfactory to the
other, represent and warrant that the assignment was made in
accordance with all applicable laws and regulations and
assume and agree to be bound by the terms, provisions and
conditions of this Agreement to the same extent as the
assignor; provided, however, that no such assignment shall
relieve the assignor of its obligations (which shall be
primary and which may be discharged in whole or in part by
the assignee) under this Agreement, to the extent
applicable. Any unauthorized assignment and any assignment
made in contravention of this Section 5.8. shall be null and
void.
Section 5.9 Governing Law.
This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the
internal laws of the State of Minnesota without giving
effect to the principles or conflicts of laws thereof.
Section 5.10 Execution In Counterparts.
To facilitate execution, this Agreement may be
executed in as many counterparts as may be required; and it
shall not be necessary that the signatures of, or on behalf
of, each party, or that the signatures of all Persons
required to bind any party, appear on each counterpart; but
it shall be sufficient that the signature of, or on behalf
of, each party, or that the signatures of the Persons
required to bind any party, appear on one or more of the
counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in
making proof of this Agreement to produce or account for
more than the number of counterparts containing the
respective signatures of, or on behalf of all of the parties
hereto.
Section 5.11 No Agency.
This Agreement shall not be deemed expressly or by
implication to create an agency, employee, or servant
relationship between or among any of the parties hereto, or
any affiliates of the parties hereto for any purpose
whatsoever.
<PAGE> 10
Section 5.12 Force Majeure.
No party shall be liable for any failure of or
delay in the performance of this Agreement for the period
that such failure or delay is due to acts of God, public
enemy, war, strikes or labor disputes, or any other cause
beyond the parties' reasonable control; it being understood
that lack of financial resources is not to be deemed a cause
beyond a party's control. Each party shall notify the other
parties promptly of the occurrence of any such cause and
carry out this Agreement as promptly as practicable after
such cause is terminated; provided, however, that the
existence of any such cause shall not extend the term of
this Agreement.
Section 5.13 Amendment and Modification.
This Agreement may only be amended or modified by
a subsequent written agreement by and among the parties
hereto.
IN WITNESS WHEREOF, the duly authorized
representatives of the parties have executed this Agreement
as of the day and year first above written.
FINGERHUT CORPORATION METRIS DIRECT , INC.
By: By:
Title: Title:
INFOCHOICE USA, INC.
By:
Title:
<PAGE> 11
EXHIBIT A
Upon Metris' receipt from Fingerhut of the electronic
data transmission or hard copy information necessary for
fulfillment of all Customers who purchased Service
Agreements, Metris will issue and mail an Extended Service
Agreement to the Customer. The Service Agreements will be
mailed to each Customer within ten (10) business days of
receipt of the fulfillment information.
Metris will calculate a percentage of the extended
service plan's retail sales cash price deducted from such
price in determining the amount payable by Fingerhut to
Metris for servicing the obligations under such plan. Such
percentage has been determined based on the marketing method
or advertising media used to solicit the sale and based on
the effort expended by Fingerhut in soliciting the sale
using certain of its advertising or offering media versus
other media conducted by Metris with little input or effort
conducted by Fingerhut or its representatives. Such
percentage schedule shall initially be as found below, based
on each sales method as further defined below:
On-Page (Any extended service
plan sale or order received by
Fingerhut at the same time as
the product order without the
inbound telemarketing XX%
representative offering the
warranty separately as an
addition to a customer's order.)
Add-On (An inbound or
outbound telemarketing
call made at or within
10 days of the
original product order
during which the
Fingerhut XX%
telemarketing
representative
specifically solicits
the customer for the
purchase of an
extended service plan
in addition to their
merchandise order.)
Stand-Alone (A telemarketing
call made by a Metris
telemarketing representative or
its agent offering a warranty X%
product greater than 10 days
after product purchase and/or
within 30 days of the
manufacturer's warranty
expiration.)
Renewal (An offer
conducted by Metris to XX%
renew warranty
coverage of the
original term of the
warranty.)
Any offers or methods of further offering extended
service plans developed subsequent to the execution of this
contract which do not meet any of the definitions noted
above shall be conducted under an amended percentage
schedule to be mutually agreed to by the parties based on
the marketing method or advertising media used to solicit
the sale and also determined based on the effort expended by
Fingerhut in soliciting the sale using certain of its
advertising or offering methods versus other methods
conducted by Metris with little input or effort conducted by
Fingerhut or its representatives as noted above.
<PAGE> 12
Metris shall pay to Fingerhut the amount of the Net
Price plus XX% on any Merchandise returned by a Customer to
Fingerhut within the relevant Merchandise Warranty period
and for which Fingerhut has given full refund of the Sales
Price to the Customer. Any such payment by Metris will be
made by Fingerhut deducting the amount of the Net Price in
question from the next premium payment(s) to be made in
accordance with the remittance provisions herein. Fingerhut
will provide Metris details in writing of any such refund.
In the event a Customer cancels a Service Agreement after
the Merchandise Warranty expires, Metris shall calculate and
reimburse Fingerhut for a pro rata portion of the Net Price
less any claims incurred by such Customer and paid by
Metris. The pro-rata portion shall be computed by dividing
the Net Price by the term of the Extended Service Agreement
period, and then multiplying that monthly rate times the
number of months until expiration. In no event shall the
amount reimbursed exceed the Net Price of the Customer
contract.
If a Customer fails to make any installment purchase
payment for a Service Agreement during the Merchandise
Warranty period and Fingerhut notices Metris, Metris shall
cancel the Service Agreement and pay back to Fingerhut the
amount of the Net Price paid to Metris. If cancelled after
expiration of the Merchandise Warranty, Metris shall pay
Fingerhut a pro-rata refund of the Net Price paid less any
claims. In no event shall Fingerhut be responsible for
claims in excess of the Net Price of the contract.
Metris shall reimburse Fingerhut for the advertising
cost it expended in directly offering extended service plans
through its own advertising media for the reasons previously
mentioned above. Such advertising cost reimbursements shall
be determined and calculated based on an advertising cost
standard developed specifically for Metris' warranty product
offers within each advertising media used. The method and
details of such calculation, including the basis for cost
reimbursement, (i.e., orders received within each media or a
flat charge per catalog shipped or telephone call made or
received) shall be provided to Metris representatives in
writing for their review and approval within a reasonable
time prior to the establishment of such a charge or
reimbursement. Additionally, such standard shall be
adjusted periodically, in conjunction with Fingerhut's
normal adjustment of all of its advertising cost standards,
based on actual cost data and experience with the
advertising for warranty products within the Fingerhut
media. This reimbursement will be calculated and determined
monthly and may be deducted from the monthly retail sales
remittance noted above.
Merchandise product returns, including the related
extended service plan, or cancellation of the extended
service plan only may be accepted by Fingerhut under its
normal return policy terms and conditions. If Fingerhut
provides such customer with a full refund of the sales
price, including the warranty sale, then Fingerhut may
deduct from its next monthly payment to Metris, the full
warranty retail sales price previously remitted or to be
remitted to Metris, less the applicable commission on such
warranty sale received or to be received by Fingerhut.
(Fingerhut shall provide monthly details of such refund to
Metris in writing). However, if a product and/or its
related extended service plan is accepted after the
expiration of the manufacturer's warranty period, and
therefore the extended service plan coverage has commenced,
then Metris shall calculate and allow deduction for only a
pro-rata portion of the retail sales price, less any claims
incurred by such customer during such extended service plan
coverage period. The pro-rata portion of the retail sales
price shall be computed by dividing the retail sales price
by the total monthly term of the extended service plan, and
then multiplying that monthly rate times the number of
months until expiration. In no even shall Fingerhut be
responsible for claims in excess of the Net Price of the
contract.
<PAGE> 13
Schedule 1
MERCHANDISE/PRICING RECOMMENDATIONS
1) First Purchase Prices
2) 5 Year Step-Up Appliance Prices
3) Renewal Prices
4) Incentive Package
Calendar year basis - Calculation to revert to 0 volume
January 1 of each year.
Limitations
All service agreements are inclusive of the manufacturer's
warranty and begin on date of purchase.
Commercial use is excluded.
Only those products with a manufacturer's warranty of at
least 90 days' parts and labor are eligible for extended
service.
Products with a 2 year manufacturer's labor and parts
warranty are not eligible for a 2 year service agreement and
products with a 3 year manufacturer's labor and parts
warranty are not eligible for a 3 year service agreement.
Quality Furniture Care
Service Plan provides stain coverage for upholstered
furniture; lifting, peeling, cracking of solid wood,
veneered or laminated furniture; structural defects to
frames; warpage, breakage, or bending of metal components on
recliners and sleeper mechanisms, glass coverage on tables,
wall units and cabinets; foam resiliency to cushions and
mattresses.
Term of coverage - 2 years from date of purchase.
Product Categories
Quality Jewelry Care
Service plan provides labor and materials necessary to
maintain the jewelry purchased for 2 years from date of
purchase, and if the item cannot be repaired it will be
replaced. Benefits include ring resizing, stone tightening,
prong retipping, polishing; chain and bracelet soldering,
earring and clasp repair.
Product Categories
<PAGE> 14
EXHIBIT B
[To be completed]
<PAGE> 1
Exhibit 10.l
EXTENDED SERVICE PLAN AGREEMENT
This Agreement (the "Agreement"), made and entered into
this __ day of October, 1996, by and between Fingerhut
Corporation and Infochoice USA, Inc. (collectively
"Fingerhut"), and Metris Direct, Inc. ("Metris").
WHEREAS, Fingerhut shall make available to purchasers
of its Merchandise (as defined herein), an Extended Service
Agreement (as defined below), providing coverage for defects
in materials and workmanship and for mechanical or
electrical failure of the Merchandise; and
WHEREAS, Metris shall coordinate and manage all of the
marketing activities for Fingerhut's sales of extended
warranties or service plans to purchasers of its
Merchandise.
WHEREAS, Metris shall also, either for itself or
through a third party underwriter, insure and service the
contractual obligations of the Extended Service Agreements
sold by Fingerhut; and
NOW THEREFORE, in consideration of the mutual promises
contained herein, the parties hereby agree as follows:
DEFINITIONS
The following terms, as used in this Agreement shall
have the following meanings whether used in the singular or
plural:
"Customer" shall mean a customer of Fingerhut who purchases
Merchandise for personal, family and household purposes
within the U.S. and its territories, where applicable.
"Extended Service Agreement" shall mean a repair or
replacement service agreement between Customer (as defined
herein) and the applicable service plan underwriter sold by
Fingerhut, and managed by Metris, covering mechanical or
electrical failure of Merchandise and defects in materials
and workmanship.
"Marketing Management Fee" shall mean the amount of the Net
Price, as noted in Exhibit A to this Agreement, which
Fingerhut is required to pay Metris for coordinating and
managing the marketing programs for each Extended Service
Agreement sold under this Agreement.
"Merchandise" shall mean any new goods (as identified in
Exhibit B) sold by Fingerhut which are sold to a Customer
during the term of this Agreement.
"Merchandise Warranty" shall mean the warranty of the
manufacturer with respect to the Merchandise.
"Net Price" shall mean the amount Fingerhut is required to
pay Metris for each Extended Service Agreement sold under
this Agreement.
"Sales Price" shall mean the retail sales cash price at
which Fingerhut sells each Service Agreement.
"Underwriting and Servicing Fee" shall mean the amount of
Net Price, as noted in Exhibit B to this Agreement, which
Fingerhut is required to pay Metris for performing, either
for itself or through a third party underwriter and
servicer, the contractual obligations of the Extended
Service Agreements sold by Fingerhut.
<PAGE> 2
ARTICLE 1. PROGRAM
Section 1.1. Service.
During the term of this Agreement, including any
renewals, Fingerhut shall sell the Extended Service
Agreement to any or all of its Customers who purchase
Merchandise eligible for extended service beyond the
Merchandise Warranty in accordance with this Agreement.
Section 1.2. Exclusivity.
During the term of this Agreement, Fingerhut shall
not make available to any Customer, any other agreement
providing for extended service which is competitive,
similar, or an alternative to the Extended Service Agreement
marketed and offered by Metris. Notwithstanding the
foregoing, in the event Metris notifies Fingerhut in writing
of its inability to provide an Extended Service Agreement on
Merchandise, Fingerhut may provide directly or contract with
a third party service provider to provide such Extended
Service Agreement.
Section 1.3. Coverage Under the Extended Service
Agreement.
Coverage for parts and labor for each component
protected by the Extended Service Agreement shall begin on
the date following expiration of the parts or labor
Merchandise Warranty applicable to each Merchandise
component indicated in the Merchandise Warranty. Coverage
will continue for the period shown in Exhibit B for each
product.
Section 1.4. Service Coverage.
Metris shall be responsible for the fulfillment of
the contractual obligations to the Customer either for
itself or through a third party underwriter, under each
Extended Service Agreement from the date sold to a Customer
by Fingerhut, provided however, that the Merchandise to be
covered under the Extended Service Agreement was received by
the Customer in an undamaged state. Metris shall become
contractually liable directly to the Customer and Metris
will pay the full amount of any claim provided that such
claim is within the terms of coverage of the Extended
Service Agreement. If Merchandise covered under the
Extended Service Agreement is to be replaced, Fingerhut
agrees to provide Customer with such replacement product.
In such case, Metris shall reimburse Fingerhut for the cost
of such product at Fingerhut's standard cost plus 20% to
cover shipping and handling. Additionally, if Fingerhut
repairs any Merchandise covered under the Extended Service
Agreement, Metris shall reimburse Fingerhut for the cost of
such repair. All such reimbursements shall be netted
against any remittances required by Fingerhut on a monthly
basis provided detail supporting such reimbursement has been
previously provided to and approved by Metris. Fingerhut
and Metris shall, in good faith mutually agree on the retail
sales cash price of the Extended Service Agreement. Metris
shall only be obligated to fulfill such obligations in
states that it is legally authorized to do so.
Section 1.5. Remittances Required by Fingerhut.
(a) Fingerhut shall have the right to offer
(either directly or through third parties) the Customer
financing for the Customer's warranty purchase using any
credit offer Fingerhut or its Customers may choose, however,
Metris shall have no collection risk with respect to any
Extended Service Agreement financed through a Fingerhut
offer.
<PAGE> 3
(b) Daily, Fingerhut shall send Metris via system
data transfer the names, addresses and other information
necessary for fulfillment of all Customers who purchased
Extended Service Agreements. Within ten (10) days after the
close of each Fingerhut accounting month, Fingerhut shall
remit the sales report and other information for that month
to Metris for each such Extended Service Agreement sold for
all cancellations, which will provide the net amount due to
Metris. Metris shall send Fingerhut an invoice which shall
be for the Marketing Management Fee and Underwriting and
Servicing Fee for all Extended Service Agreements sold as
set forth in Exhibit A, attached hereto and incorporated
herein by reference, for the number of Extended Service
Agreements sold in that month related to merchandise that
has been shipped, less cancellations or returns of such
Extended Service Agreements in that month. Terms shall be
30 days from the last day of the accounting month in which
the Service Agreements were sold or cancelled.
Section 1.6. Merchandise Covered.
The list of Merchandise in Exhibit B, attached
hereto and incorporated herein by reference shall constitute
the eligible goods for which an Extended Service Agreement
may be sold. The list may be amended by mutual written
agreement of the parties. Any Merchandise, other than
jewelry and furniture, which does not have any Merchandise
Warranty whatsoever, shall not be eligible goods for which
an Extended Service Agreement may be sold.
Section 1.7. Records/Audits.
Both parties shall maintain records related to the
Extended Service Agreements sold under this Agreement. The
parties shall each allow its auditors or other designees to
audit performance under this Agreement. Such audits shall
be subject to reasonable notice and conducted during normal
business hours.
Section 1.8. Solicitation.
Unless Metris and Fingerhut agree to use
Fingerhut's direct mail solicitation or telemarketing media,
Metris shall develop media sources for direct mail
solicitations or telemarketing. If Metris does use
Fingerhut's direct mail solicitation and telemarketing
media, Metris shall reimburse Fingerhut for the cost of such
catalog or other mail space that it directly utilizes and
the variable cost of telemarketing sources, plus a
reasonable allocation of fixed overhead, at a combined rate
per hour of telemarketing time used, all as mutually agreed
to at the beginning of each calendar year during this
Agreement by the parties to this Agreement. Metris and
Fingerhut agree to cooperate in good faith and use best
efforts to develop direct mail solicitations, and
telemarketing programs which meet all regulatory guidelines
and requirements and are designed to provide the most cost
effective use of customer service time.
Section 1.9. Ownership of Customer Names.
Metris agrees that Fingerhut has and shall have
exclusive ownership of all of its Customer names,
information, marketing methods and business practices
(collectively "Customer Names"). Metris shall not use or
provide to any other firm or entity, any names or
information developed in the course of this Extended Service
Agreement Program or furnished to Metris by Fingerhut, for
any purpose whatsoever except as contemplated herein.
Metris will hold all customer names and information as
confidential information and will provide appropriate
security measures to protect such information from
unauthorized use.
<PAGE> 4
Section 1.10. Program Literature.
Neither Fingerhut, nor anyone on its behalf, shall
in any document or advertising describe the coverage offered
under the Extended Service Agreement in terms other than
those used in the Extended Service Agreement itself or as
otherwise approved by Metris. Metris shall notify Fingerhut
in writing of its objections to any such advertising within
ten (10) business days of receipt of the advertising from
Fingerhut. However, Fingerhut shall allow its name to be
used in any advertising as long as such use is approved in a
timely basis by Fingerhut and does not imply that Fingerhut
has any contractual obligation under the Extended Service
Agreement.
ARTICLE 2. INDEMNIFICATION
Section 2.1. Obligations.
(a) By Metris. Metris shall be liable to and
shall defend, indemnify and hold harmless Fingerhut and its
Affiliates, and its respective officers, directors,
employees and permitted assigns from and against any and all
Losses (as hereinafter defined) incurred by reason of or
related to Metris' breach of its obligations hereunder.
(b) By Fingerhut. Fingerhut shall be liable to
and shall defend, indemnify and hold harmless Metris and its
Affiliates, and its respective officers, directors,
employees and permitted assigns from and against any and all
Losses (as hereinafter defined) incurred by reason of or
related to Fingerhut's breach of any of its obligations
hereunder.
(c) "Losses" Defined. For purposes of this
Section 2.1., the term "Losses" shall mean any liability,
damages, costs, losses and expenses, including attorneys'
fees, disbursements and court costs, reasonably incurred by
Metris or Fingerhut in connection with any threatened,
pending or adjudicated claim, demand, action, suit or
proceeding (whether civil, criminal, administrative or
investigative by an unaffiliated third party) without regard
to whether or not such Losses would be deemed material under
this Agreement.
Section 2.2. Procedures.
(a) Notice of Claims. The Parties agree that in
case any claim is made, or any suit or action is commenced
which, if not corrected, may give rise to a right of
indemnification for a Party hereunder ("Indemnified Party")
from the other Party ("Indemnifying Party"), the Indemnified
Party will give notice to the Indemnifying Party as promptly
as practicable after the receipt by the Indemnified Party of
such notice or knowledge of such claim, suit, or action. On
a best efforts basis, notice to the Indemnifying Party shall
be given no later than fifteen days after receipt by the
Indemnified Party in the event a suit or action has
commenced or thirty days under all other circumstances;
provided, however, that the failure to give prompt notice
shall not relieve an Indemnifying Party of its obligation to
indemnify except to the extent the Indemnifying Party is
materially prejudiced by such failure. The Indemnified
Party shall make available to the Indemnifying Party and its
counsel and accountants at reasonable times and for
reasonable periods, during normal business hours, all books
and records of the Indemnified Party relating to any such
possible claim for indemnification, and each Party will
render to the other such assistance as it may reasonably
require of the other in order to ensure prompt and adequate
defense of any suit, claim or proceeding based upon a
statement of facts which may give rise to a right of
indemnification hereunder.
<PAGE> 5
(b) Selection of Counsel. The Indemnifying Party
shall have the right to defend, compromise and settle any
suit, claim or proceeding in the name of the Indemnified
Party to the extent that the Indemnifying Party may be
liable to the Indemnified Party under Section 2.1. above in
connection therewith; provided, however, that the
Indemnifying Party shall not compromise or settle a suit,
claim or proceeding unless it assumes the obligation to
indemnify for all Losses relating thereto. The Indemnifying
Party shall notify the Indemnified Party within ten days of
having been notified pursuant to Section 2.2.(a) of this
Agreement if the Indemnifying Party elects to assume the
defense of any such claim, suit or action and employ counsel
in a reasonable exercise of its discretion. The Indemnified
Party shall have the right to employ its own counsel if the
Indemnifying Party so elects to assume such defense, but the
fees and expenses of such counsel shall be at the
Indemnified Party's expense, unless the Indemnifying Party
shall not have employed counsel to take charge of the
defense thereof.
(c) Settlement of Claims. The Indemnified Party
may at any time notify the Indemnifying Party of its
intention to settle or compromise any claim, suit or action
against the Indemnified Party in respect of which
indemnification payments may be sought from the Indemnifying
Party hereunder, but shall not settle or compromise any
matter for which indemnification may be sought without the
consent of the Indemnifying Party. Any settlement or
compromise of any claim, suit or action in accordance with
the preceding sentence, or any final judgment or decree
entered on or in any claim, suit or action which the
Indemnifying Party did not assume the defense of in
accordance herewith, shall be deemed to have been consented
to by, and shall be binding upon, the Indemnifying Party as
fully as if the Indemnifying Party had assumed the defense
thereof and a final judgment or decree had been entered in
such suit or action, or with regard to such claim, by a
court of competent jurisdiction for the amount of such
settlement, compromise, judgment or decree.
(d) Subrogation. The Indemnified Party shall be
subrogated to any claims or rights of the Indemnifying Party
as against any other persons with respect to any amount paid
by the Indemnifying Party under this Article 2. The
Indemnified Party shall cooperate with the Indemnifying
Party, at the Indemnifying Party's expense, in the assertion
by the Indemnifying Party of any such claim against such
other persons.
(e) Indemnification Payments. Amounts owing
under this Article 2 shall be paid promptly upon written
demand for indemnification containing in reasonable detail
the facts giving rise to such liability; provided, however,
that if the Indemnifying Party notifies the Indemnified
Party within thirty (30) days of receipt of such demand that
it disputes its obligation to indemnify and the Parties are
not otherwise able to reach agreement, the controversy shall
be settled by final order entered by a court of competent
jurisdiction.
Section 2.3. Survival of Indemnification.
The provisions of this Article 2 shall expressly
survive any termination of this Agreement under Article 4
below or otherwise for a period of ten (10) years.
<PAGE> 6
ARTICLE 3. CONFIDENTIALITY
Section 3.1. Confidential Information.
Confidential Information will be kept in
confidence by such other party, including its subsidiaries,
affiliates, officers, directors, employees, agents,
consultants and contractors, in accordance with its policies
for maintaining the confidence of its own information of
similar content. The term "Confidential Information" shall
mean and include: (i) all trade secrets and other
confidential business information learned in the course of
performance by any party of its obligations hereunder, and
(ii) any information or data which is disclosed by a party
to the other party under or in contemplation of this
Agreement.
Notwithstanding the foregoing, the term
Confidential Information shall not include information
which: (i) is already known to such other party when
received, (ii) thereafter becomes generally obtainable by a
party other than as a result of an unauthorized disclosure
by the party taking advantage of this clause, or (iii) is
required by law, regulation or court order to be disclosed
by such party, provided that in the case of this clause,
prior notice of such disclosure has been given to the party
which furnished such information, when legally permissible,
and that such other party which is required to make the
disclosure uses its best efforts to provide sufficient
notice to permit the party which furnished such information
to take legal action to prevent the disclosure or (iv) is
reasonably necessary in the opinion of counsel, to be
disclosed in the context of a legal proceeding or regulatory
investigation, provided that prior notice shall be given by
the party which furnished the information.
ARTICLE 4. TERM AND TERMINATION
Section 4.1. Term and Termination.
This Agreement shall take effect upon the date
first written above, and shall remain in effect for seven
(7) years ("Initial Term"). Thereafter, this Agreement will
automatically renew for one term of three (3) years
("Renewal Term") unless either Party provides written notice
to the other, not less than twelve (12) months prior to the
end of the Initial Term or Renewal Term, of its intent to
terminate this Agreement. Either Party may terminate this
Agreement reserving all other remedies and rights hereunder
in whole or in part and otherwise available at law or in
equity, upon the occurrence of an Event of Default, as
defined herein. Upon the occurrence of an Event of Default,
the non-defaulting Party may terminate this Agreement by
giving notice of its intent to terminate. Such written
notice shall describe the Event of Default.
Fingerhut shall also have the right to terminate
this Agreement by written notice to Metris upon the
occurrence of a Change of Control (as defined below) with
respect to Metris. A "Change in Control" shall be deemed to
have occurred if (a) any person or group (within the meaning
of Rule 13d-5 of the Securities Exchange Act of 1934 as in
effect on the date hereof) other than Fingerhut shall own
directly or indirectly, beneficially or of record, shares
representing more than 25% of the aggregate ordinary voting
power represented by the issued and outstanding capital
stock of Metris; (b) a majority of the seats (other than
vacant seats) on the Board of Directors of Metris shall at
any time be occupied by persons who were neither (1)
nominated by Fingerhut, or by the Board of Directors of
Metris, nor (2) appointed by directors so nominated; or (3)
any person or group other than Fingerhut shall otherwise
directly or indirectly have the power to exercise a
controlling influence over the management or policies of
Metris.
<PAGE> 7
Section 4.2 Event of Default.
An "Event of Default" shall be deemed to have
occurred upon the occurrence of any of the following:
(a) A material breach of a representation,
agreement, covenant or other obligation of any of the
parties to this Agreement (any such breach is herein
referred to as a "Material Breach"); provided, however, that
no Event of Default shall be deemed to have occurred unless
and until a non-breaching party provides the breaching party
with written notice of such Material Breach, describing in
reasonable detail the nature of such Material Breach, and
(i) the breaching party shall have had an opportunity to
cure such Material Breach (which is capable of being cured)
within sixty (60) days after such notice (unless such
Material Breach is with respect to a monetary matter, the
cure of which requires only the payment of a specified
amount of money pursuant to the terms of this Agreement, in
which case the breaching party shall have an opportunity to
cure within five (5) business days after such notice), (ii)
the breaching party does not cure such Material Breach
within the applicable time period, or, if such Material
Breach, other than a Material Breach relating to a monetary
matter, cannot reasonably be cured within sixty days, but is
curable, the breaching party does not; (x) undertake to cure
such Material Breach within such sixty day period and (y)
after such sixty day period, diligently and continuously use
all reasonable efforts to cure, and (iii) the notifying
party thereafter declares an Event of Default. In respect
of clause (ii) of this Section 4.2, such extended cure
period shall continue so long as the parties hereto
reasonably agree that the actions being taken by the
breaching party are reasonably expected to cure such
Material Breach.
(b) If, at any time within twelve (12) months
following the expiration of any cure period provided in
Section 4.2 above, there shall occur a Material Breach (the
"Second Material Breach") and such Second Material Breach is
of the same nature as the Material Breach (the "First
Material Breach") by the breaching party that gave rise to
such cure period, then an Event of Default shall be deemed
to have occurred upon the delivery of notice of such Second
Material Breach to the breaching party by the notifying
party referred to in Section 4.2 and upon such notifying
party declaring an Event of Default.
(c) If there shall occur a "Bankruptcy," as
hereinafter defined, of either Party, the non-Bankruptcy
party may declare an Event of Default. For purposes of this
Agreement, the term "Bankruptcy" shall mean: (i) the entry
of a decree or order for relief by a court of competent
jurisdiction in any involuntary case under any bankruptcy,
insolvency or similar law now or hereafter in effect and
such decree or order shall not be vacated, set aside or
stayed within ninety (90) days after its entry, (ii) the
entry of a decree or order appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or
similar agent for any substantial part of the assets or
property of such party and such decree or order shall not be
vacated, set aside or stayed within ninety (90) days after
its entry, (iii) the ordering of the winding up or
liquidation of the affairs of a party and such order shall
not be vacated, set aside or stayed within one hundred
twenty (120) days after its entry, (iv) the filing of a
petition in any such involuntary bankruptcy case, which
petition remains undismissed for a period of ninety (90)
days or which is not dismissed or suspended pursuant to
Section 305 of Title 11 of the United States Code (or any
corresponding provision of any future United States
Bankruptcy law), (v) the commencement of a voluntary case
under any bankruptcy, insolvency or similar law now or
hereafter in effect, (vi) the consent to the entry of an
order for relief in an involuntary case under any such law
or to the appointment of or taking possession of any
substantial part of the assets or property by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or
similar agent, or (vii) the making of any general assignment
for the benefit of creditors.
<PAGE> 8
ARTICLE 5. MISCELLANEOUS
Section 5.1. Notices.
Any notice given in accordance with the provisions
of this Agreement must be in writing and sent by registered
or certified mail return receipt requested to the respective
addresses of the parties shown at the beginning of this
Agreement. Notices shall be sent to Metris and to
Fingerhut, shall be addressed as follows:
If to Metris:
Metris Direct, Inc.
Interchange Building
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: Chief Executive Officer
If to Fingerhut:
Fingerhut Corporation
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: Senior Vice President
With a copy to the General Counsel
Section 5.2. Applicable Law.
This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the
internal laws of the State of Minnesota without giving
effect to the principles or conflicts of laws thereof.
Section 5.3. Severability.
If any provision of this Agreement or portion
thereof is held invalid, illegal, void or unenforceable by
reason of any rule of law, administrative or judicial
provision or public policy, such provision shall be
ineffective only to the extent invalid, illegal, void or
unenforceable, and the remainder of such provision and all
other provisions of this Agreement shall nevertheless remain
in full force and effect.
Section 5.4. No Partnership or Joint Venture.
This Agreement does not create a partnership or
joint venture between the Parties, and neither Party to this
Agreement shall have any authority whatsoever to bind the
other Party to any obligation.
Section 5.5. No Third Party Beneficiaries.
Nothing in this Agreement, express or implied, is
intended or shall be construed to confer upon any person or
entity, other than the Parties and their respective
successors and assigns permitted by this Agreement, any
right, remedy or claim under or by reason of this Agreement.
Section 5.6. Captions: Counterparts.
The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the
construction or interpretation of any provision of this
Agreement. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of
which together shall constitute one and the same instrument.
<PAGE> 9
Section 5.7. Amendments and Waivers.
Neither the waiver by any party hereto of a breach
of or a default under any of the provisions of this
Agreement, nor the failure of any party hereto, on one or
more occasions, to enforce any of the provisions of this
Agreement or to exercise any right, remedy or privilege
hereunder shall thereafter be construed as a waiver of any
such provisions, rights, remedies or privileges hereunder.
Any of the terms, covenants, representations, warranties, or
conditions hereof may be waived only by a written instrument
executed by the party waiving compliance. This Agreement
may only be amended or modified by a subsequent written
agreement by and among the parties hereto.
Section 5.8. Assignment.
No party to this Agreement shall have the right to
assign or otherwise transfer its rights or obligations under
this Agreement, except with the prior written consent of the
other; notwithstanding, either party may assign or otherwise
transfer its rights or obligations under this Agreement to a
subsidiary or affiliate (in the case of Fingerhut only a
subsidiary or affiliate that sells merchandise to Fingerhut
Customers) upon notice to the other. Regardless of the
party to whom an assignment is made pursuant to this
Section 5.8., the assignee shall, as a condition to such
assignment, by written undertaking satisfactory to the
other, represent and warrant that the assignment was made in
accordance with all applicable laws and regulations and
assume and agree to be bound by the terms, provisions and
conditions of this Agreement to the same extent as the
assignor; provided, however, that no such assignment shall
relieve the assignor of its obligations (which shall be
primary and which may be discharged in whole or in part by
the assignee) under this Agreement, to the extent
applicable. Any unauthorized assignment and any assignment
made in contravention of this Section 5.8. shall be null and
void.
Section 5.9 Governing Law.
This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the
internal laws of the State of Minnesota without giving
effect to the principles or conflicts of laws thereof.
Section 5.10 Execution In Counterparts.
To facilitate execution, this Agreement may be
executed in as many counterparts as may be required; and it
shall not be necessary that the signatures of, or on behalf
of, each party, or that the signatures of all Persons
required to bind any party, appear on each counterpart; but
it shall be sufficient that the signature of, or on behalf
of, each party, or that the signatures of the Persons
required to bind any party, appear on one or more of the
counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in
making proof of this Agreement to produce or account for
more than the number of counterparts containing the
respective signatures of, or on behalf of all of the parties
hereto.
Section 5.11 No Agency.
This Agreement shall not be deemed expressly or by
implication to create an agency, employee, or servant
relationship between or among any of the parties hereto, or
any affiliates of the parties hereto for any purpose
whatsoever.
<PAGE> 10
Section 5.12 Force Majeure.
No party shall be liable for any failure of or
delay in the performance of this Agreement for the period
that such failure or delay is due to acts of God, public
enemy, war, strikes or labor disputes, or any other cause
beyond the parties' reasonable control; it being understood
that lack of financial resources is not to be deemed a cause
beyond a party's control. Each party shall notify the other
parties promptly of the occurrence of any such cause and
carry out this Agreement as promptly as practicable after
such cause is terminated; provided, however, that the
existence of any such cause shall not extend the term of
this Agreement.
Section 5.13 Amendment and Modification.
This Agreement may only be amended or modified by
a subsequent written agreement by and among the parties
hereto.
IN WITNESS WHEREOF, the duly authorized
representatives of the parties have executed this Agreement
as of the day and year first above written.
FINGERHUT CORPORATION METRIS DIRECT , INC.
By: By:
Title: Title:
INFOCHOICE USA, INC.
By:
Title:
<PAGE> 11
EXHIBIT A
Upon Metris' receipt from Fingerhut of the electronic
data transmission or hard copy information necessary for
fulfillment of all Customers who purchased Service
Agreements, Metris will issue and mail an Extended Service
Agreement to the Customer. The Service Agreements will be
mailed to each Customer within ten (10) business days of
receipt of the fulfillment information.
Metris will calculate a percentage of the extended
service plan's retail sales cash price deducted from such
price in determining the amount payable by Fingerhut to
Metris for servicing the obligations under such plan. Such
percentage has been determined based on the marketing method
or advertising media used to solicit the sale and based on
the effort expended by Fingerhut in soliciting the sale
using certain of its advertising or offering media versus
other media conducted by Metris with little input or effort
conducted by Fingerhut or its representatives. Such
percentage schedule shall initially be as found below, based
on each sales method as further defined below:
On-Page (Any extended service
plan sale or order received by
Fingerhut at the same time as
the product order without the
inbound telemarketing XX%
representative offering the
warranty separately as an
addition to a customer's order.)
Add-On (An inbound or
outbound telemarketing
call made at or within
10 days of the
original product order
during which the
Fingerhut XX%
telemarketing
representative
specifically solicits
the customer for the
purchase of an
extended service plan
in addition to their
merchandise order.)
Stand-Alone (A telemarketing
call made by a Metris
telemarketing representative or
its agent offering a warranty X%
product greater than 10 days
after product purchase and/or
within 30 days of the
manufacturer's warranty
expiration.)
Renewal (An offer
conducted by Metris to XX%
renew warranty
coverage of the
original term of the
warranty.)
Any offers or methods of further offering extended
service plans developed subsequent to the execution of this
contract which do not meet any of the definitions noted
above shall be conducted under an amended percentage
schedule to be mutually agreed to by the parties based on
the marketing method or advertising media used to solicit
the sale and also determined based on the effort expended by
Fingerhut in soliciting the sale using certain of its
advertising or offering methods versus other methods
conducted by Metris with little input or effort conducted by
Fingerhut or its representatives as noted above.
<PAGE> 12
Metris shall pay to Fingerhut the amount of the Net
Price plus XX% on any Merchandise returned by a Customer to
Fingerhut within the relevant Merchandise Warranty period
and for which Fingerhut has given full refund of the Sales
Price to the Customer. Any such payment by Metris will be
made by Fingerhut deducting the amount of the Net Price in
question from the next premium payment(s) to be made in
accordance with the remittance provisions herein. Fingerhut
will provide Metris details in writing of any such refund.
In the event a Customer cancels a Service Agreement after
the Merchandise Warranty expires, Metris shall calculate and
reimburse Fingerhut for a pro rata portion of the Net Price
less any claims incurred by such Customer and paid by
Metris. The pro-rata portion shall be computed by dividing
the Net Price by the term of the Extended Service Agreement
period, and then multiplying that monthly rate times the
number of months until expiration. In no event shall the
amount reimbursed exceed the Net Price of the Customer
contract.
If a Customer fails to make any installment purchase
payment for a Service Agreement during the Merchandise
Warranty period and Fingerhut notices Metris, Metris shall
cancel the Service Agreement and pay back to Fingerhut the
amount of the Net Price paid to Metris. If cancelled after
expiration of the Merchandise Warranty, Metris shall pay
Fingerhut a pro-rata refund of the Net Price paid less any
claims. In no event shall Fingerhut be responsible for
claims in excess of the Net Price of the contract.
Metris shall reimburse Fingerhut for the advertising
cost it expended in directly offering extended service plans
through its own advertising media for the reasons previously
mentioned above. Such advertising cost reimbursements shall
be determined and calculated based on an advertising cost
standard developed specifically for Metris' warranty product
offers within each advertising media used. The method and
details of such calculation, including the basis for cost
reimbursement, (i.e., orders received within each media or a
flat charge per catalog shipped or telephone call made or
received) shall be provided to Metris representatives in
writing for their review and approval within a reasonable
time prior to the establishment of such a charge or
reimbursement. Additionally, such standard shall be
adjusted periodically, in conjunction with Fingerhut's
normal adjustment of all of its advertising cost standards,
based on actual cost data and experience with the
advertising for warranty products within the Fingerhut
media. This reimbursement will be calculated and determined
monthly and may be deducted from the monthly retail sales
remittance noted above.
Merchandise product returns, including the related
extended service plan, or cancellation of the extended
service plan only may be accepted by Fingerhut under its
normal return policy terms and conditions. If Fingerhut
provides such customer with a full refund of the sales
price, including the warranty sale, then Fingerhut may
deduct from its next monthly payment to Metris, the full
warranty retail sales price previously remitted or to be
remitted to Metris, less the applicable commission on such
warranty sale received or to be received by Fingerhut.
(Fingerhut shall provide monthly details of such refund to
Metris in writing). However, if a product and/or its
related extended service plan is accepted after the
expiration of the manufacturer's warranty period, and
therefore the extended service plan coverage has commenced,
then Metris shall calculate and allow deduction for only a
pro-rata portion of the retail sales price, less any claims
incurred by such customer during such extended service plan
coverage period. The pro-rata portion of the retail sales
price shall be computed by dividing the retail sales price
by the total monthly term of the extended service plan, and
then multiplying that monthly rate times the number of
months until expiration. In no even shall Fingerhut be
responsible for claims in excess of the Net Price of the
contract.
<PAGE> 13
Schedule 1
MERCHANDISE/PRICING RECOMMENDATIONS
1) First Purchase Prices
2) 5 Year Step-Up Appliance Prices
3) Renewal Prices
4) Incentive Package
Calendar year basis - Calculation to revert to 0 volume
January 1 of each year.
Limitations
All service agreements are inclusive of the manufacturer's
warranty and begin on date of purchase.
Commercial use is excluded.
Only those products with a manufacturer's warranty of at
least 90 days' parts and labor are eligible for extended
service.
Products with a 2 year manufacturer's labor and parts
warranty are not eligible for a 2 year service agreement and
products with a 3 year manufacturer's labor and parts
warranty are not eligible for a 3 year service agreement.
Quality Furniture Care
Service Plan provides stain coverage for upholstered
furniture; lifting, peeling, cracking of solid wood,
veneered or laminated furniture; structural defects to
frames; warpage, breakage, or bending of metal components on
recliners and sleeper mechanisms, glass coverage on tables,
wall units and cabinets; foam resiliency to cushions and
mattresses.
Term of coverage - 2 years from date of purchase.
Product Categories
Quality Jewelry Care
Service plan provides labor and materials necessary to
maintain the jewelry purchased for 2 years from date of
purchase, and if the item cannot be repaired it will be
replaced. Benefits include ring resizing, stone tightening,
prong retipping, polishing; chain and bracelet soldering,
earring and clasp repair.
Product Categories
<PAGE> 14
EXHIBIT B
[To be completed]
<PAGE> 1
Exhibit 10.m
DATABASE ACCESS AGREEMENT
THIS AGREEMENT is made as of this ___ day of October, 1996,
by and between Metris Companies Inc. ("Metris"), a corporation
duly organized under the laws of the State of Delaware, with
offices at 600 South Highway 169, Suite 1800, St. Louis Park,
Minnesota 55426 and Fingerhut Corporation ("Fingerhut"), a
corporation duly organized under the laws of the State of
Minnesota with offices at 4400 Baker Road, Minnetonka, Minnesota
55343.
WITNESSETH:
WHEREAS, Fingerhut (itself or through subsidiaries or
affiliates) owns a customer database and maintains such database
on its systems; and
WHEREAS, Metris is in the business of providing financial
service products and services; and
WHEREAS, Fingerhut desires to license to Metris exclusive
access to its customer database to market financial service
products (as defined herein);
NOW, THEREFORE in consideration of the mutual promises set
forth and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged by the parties, the
parties agree as follows:
I. LICENSE USAGE
Section 1.1 Grant of License. During the term of this
Agreement, including renewals, and subject to the terms and
conditions hereof, Fingerhut hereby grants to Metris and its
subsidiaries the exclusive license to use the customer lists,
models and other information related thereto described in
Exhibit A attached hereto and incorporated herein by reference
(hereinafter the "Customer Database") for the sole purpose of
marketing financial service products identified in Exhibit B
attached hereto and incorporated herein by reference ("Financial
Service Products") of Metris, its subsidiaries and unaffiliated
third parties. Such license includes the right to access the
computer systems which maintain the Customer Database; the right
to perform file selection, segmentation and modeling of the
Customer Database; the right to develop marketing lists using the
Customer Database or segments thereof for use on behalf of itself,
subsidiaries, and unaffiliated third parties; the right to append
third party demographic data for aggregate analysis and other
rights which the parties may mutually agree to in writing from
time to time. Such license does not include the right to access a
consumer name and credit report (as defined under applicable laws
and regulations) to determine such consumer's eligibility for
credit or insurance. Fingerhut reserves for itself, its
affiliates and subsidiaries, and its licensees, the right to use
the Customer Database, including the right to license the use of
the Customer Database to unaffiliated third parties; except in no
event shall Fingerhut for itself, its affiliates and subsidiaries
or its licensed third parties have the right to use the Customer
Database to offer Financial Service Products. Fingerhut and
Metris confirm that Fingerhut may continue to license use of the
Customer Database (specifically the Fingerhut Customer file) to
the unaffiliated third parties for the services identified in
Exhibit D, attached hereto and incorporated herein by reference,
on the terms and conditions as set forth in such Exhibit D.
<PAGE> 2
Section 1.2 Delivery of Information. At Metris' request,
Fingerhut will provide or provide access to, on a timely basis in
accordance with Fingerhut's standard internal practices, the
Customer Database or any subset thereof, in a format as the
parties may, in good faith, agree from time to time. Fingerhut
and Metris will cooperate in good faith to ensure that Metris'
written production and solicitation deadlines are met. Throughout
the term of this Agreement, Fingerhut shall update the Customer
Database with all additions, deletions and other amendments to the
Customer Database ("Updates") made or developed by Fingerhut in
the ordinary course of its business, including, without
limitation, the addition of the name and other information related
thereto of all persons which may, from time to time, come within
the definition of the Customer Database set forth in Exhibit A,
and such Updates shall thereafter become part of the Customer
Database for purposes of this Agreement.
During the term of this Agreement, Fingerhut agrees to
maintain a backup, archival or disaster recovery copy ("Back-up
Copy") of the Customer Database. Metris shall have the right to
access such Back-up Copy in the event of (i) Fingerhut's
Bankruptcy (as defined herein), (ii) failure of Fingerhut's main
computer system, and (iii) the expiration of the cure period as
defined in Section 5.1 following an Event of Default by Fingerhut.
Section 1.3 Limits of Disclosure. Nothing in this
Agreement shall require Fingerhut to disclose to Metris (i)
confidential information received by Fingerhut from third parties,
including without limitation, customer lists from third party
sources, which confidential information Fingerhut is precluded by
written agreement from disclosing to others, or (ii) information
which Fingerhut, in its reasonable interpretation, is precluded
from disclosing under any applicable law, regulation or other
industry practices related to consumer privacy.
Section 1.4 Ownership of Behavioral Models. Fingerhut
agrees that any behavioral models or similar credit scoring
algorithms which are developed by Metris or developed by Fingerhut
expressly for or on behalf of Metris from the Customer Database
("Behavioral Models") shall be owned, unencumbered, by Metris;
Fingerhut, further agrees, that Metris has the sole right to use
of such Behavioral Models for Financial Service Products during
the term of this Agreement, including any renewals, and Metris
retains sole ownership of such Behavioral Models upon termination
of this Agreement.
<PAGE> 3
II. COMPENSATION
Section 2.1 Compensation. Metris agrees to pay Fingerhut
(in immediately available funds) in accordance with the terms and
conditions set forth in Exhibit C, attached hereto and
incorporated herein by reference. Payment of the Database License
Fee shall be made by the fifteenth of the first month within each
calendar year during the Initial Term or subsequent Renewal Term.
Payment of the Solicitation Fee and the Suppress File Fee shall be
made not later than the thirtieth business day of each month
following the end of a calendar quarter for all amounts due and
owing for the immediately preceding calendar quarter. Fingerhut
and Metris agree that upon mutual written consent, Exhibit C may
be amended from time to time.
III. OWNERSHIP AND REPRESENTATIONS AND WARRANTIES
Section 3.1 Ownership of Information. Fingerhut
represents and warrants that (i) it is the owner of the entire
right, title and interest to and in the Customer Database, subject
to any licenses that have previously been granted, (ii) it is
under no legal impediment that would prevent its entering into
this Agreement or granting to Metris the licenses described
herein, (iii) the licenses granted hereby and Metris' use of the
Customer Database as described herein, will not infringe upon the
rights of any third party or violate any existing license,
agreement, arrangement or understanding of Fingerhut or any
subsidiary or affiliate of Fingerhut with any third party, (iv) it
has no knowledge of any infringement of the rights granted to
Metris pursuant to Section 1.1 above, and (v) it has not granted
any rights to any third party that conflict with the rights
granted to Metris pursuant to Section 1.1 above (except those
identified in Exhibit D).
Section 3.2 No Sale or Assignment. Except as otherwise
provided herein, nothing in this Agreement shall be construed as a
sale, assignment or other complete transfer of any title to, or
ownership of the Customer Database, including any and all trade
secrets, copyrights and proprietary rights and interests in and to
the Customer Database. Fingerhut shall retain all right, title
and interest in and to all trade secrets, copyrights and other
proprietary rights and interests in and to the Customer Database,
subject only to the license granted under this Agreement.
Section 3.3 Metris Authority. Metris hereby represents
and warrants, as of the date of this Agreement, as follows:
(a) Metris is a duly organized corporation, validly
existing, and in good standing under the laws of the
State of Delaware. Prior to its use of the Customer
Database, Metris will be duly qualified or licensed to
do business necessary and will be in good standing in
each jurisdiction in which its business or the exercise
of its rights, powers or authority under this Agreement
renders such qualification necessary.
(b) Metris has the requisite corporate power and authority
to enter into, and to carry out its obligations under
this Agreement.
(c) The execution and delivery Metris of this Agreement and
the consummation by Metris of the transactions
contemplated hereby have been duly authorized prior to
the date of this Agreement by all necessary corporate
action on its part.
<PAGE> 4
(d) This Agreement has been duly executed and delivered by
Metris and constitutes a valid and binding obligation of
Metris enforceable against Metris in accordance with its
terms.
(e) Metris is not subject to, or obligated under any
provision of (i) its articles of incorporation, (ii) any
agreement, arrangement or understanding, (iii) any
license, franchise or permit, or (iv) any law,
regulation, order, judgment or decree that would be
breached or violated, or in respect of which a right of
termination or acceleration or any encumbrance on any of
its assets would be created by the execution, delivery
and performance of this Agreement by Metris, or the
consummation by Metris of the transactions contemplated
by this Agreement.
(f) No authorization, consent or approval of, waiver or
exemption by, or filing or registration with any public
body, court, third party or authority is necessary on
the part of Metris for the consummation by Metris of the
transactions contemplated by this Agreement.
Section 3.4 Fingerhut Authority. Fingerhut hereby
represents and warrants, as of the date of this Agreement, as
follows:
(a) Fingerhut is a corporation duly organized, validly
existing, and in good standing under the laws of the
State of Minnesota, and is duly qualified or licensed to
do business and is in good standing in each jurisdiction
in which its business or the exercise of its rights,
powers or authority under this Agreement renders such
qualification necessary.
(b) Fingerhut has the requisite corporate power and
authority to enter into, and to carryout its obligations
under this Agreement.
(c) The execution and delivery by Fingerhut of this
Agreement and the consummation by Fingerhut of the
transactions contemplated hereby have been duly
authorized prior to the date of this Agreement by all
necessary corporate action on its part.
<PAGE> 5
(d) This Agreement has been duly executed and delivered by
Fingerhut and constitutes a valid and binding obligation
of Fingerhut enforceable against Fingerhut in accordance
with its terms.
(e) Fingerhut is not subject to, or obligated under any
provision of (i) its articles of incorporation or
bylaws, (ii) any agreement, arrangement or
understanding, (iii) any license, franchise or permit,
or (iv) any law, regulation, order, judgment or decree
that would be breached or violated, or in respect of
which a right of termination or acceleration or any
encumbrance on any of its assets would be created by the
execution, delivery and performance of this Agreement by
Fingerhut, or the consummation by Fingerhut of the
transactions contemplated by this Agreement.
(f) No authorization, consent or approval of, waiver or
exemption by, or filing or registration with any public
body, court, third party or authority is necessary on
the part of Fingerhut for the consummation by Fingerhut
of the transactions contemplated by this Agreement.
IV. CONFIDENTIALITY
Section 4.1 Confidentiality of Customer Database. All
Customer Database disclosed hereunder is confidential and
proprietary to Fingerhut. Metris, its subsidiaries, affiliates,
officers, directors, employees, agents, consultants and
contractors shall not use any of the Customer Database and the
Behavioral Models for any purpose other than as expressly
permitted hereunder. Metris shall not disclose or provide any of
such Customer Database and the Behavioral Models to any third
party, except as provided in Sections 1.1, 4.2 and 4.3 below, and
shall take all reasonable measures to limit any such disclosure by
its affiliates, subsidiaries, officers, directors, employees,
agents, contractors or consultants to a need to know basis during
the term of this Agreement. Metris agrees it will not provide
Customer Database and Behavioral Models that are proprietary to
Fingerhut to a third party without a written agreement that
prohibits, among other things, such third party from using or
disclosing the information hereunder except as permitted pursuant
to this Agreement.
Section 4.2 Other Confidential Information. This
Agreement and the transactions contemplated hereby will be kept in
confidence by such other party, including its subsidiaries,
affiliates, in accordance with its policies for maintaining the
confidence of its own information of similar content. The term
"Confidential Information" shall mean and include (i) the Customer
Database, (ii) all trade secrets and other confidential business
information learned in the course of performance by either party
of its obligations hereunder, and (iii) any information or data
which is disclosed by a party to the other party under or in
contemplation of this Agreement.
<PAGE> 6
Notwithstanding the foregoing, the term
Confidential Information shall not include information which (i)
is already known to such other party when received, (ii)
thereafter becomes generally obtainable by a party other than as a
result of an unauthorized disclosure by the party taking advantage
of this clause, or (iii) is required by law, regulation or court
order to be disclosed by such party, provided that in the case of
this clause prior notice of such disclosure has been given to the
party which furnished such information, when legally permissible,
and that such other party which is required to make the disclosure
uses its best efforts to provide sufficient notice to permit the
party which furnished such information to take legal action to
prevent the disclosure.
Section 4.3 Required or Requested Information. If Metris
is required to disclose any information contained in the Customer
Database to any regulatory or governmental agency, department or
other regulatory entity or court of law, Metris may not disclose
such information without the prior written approval of Fingerhut,
and gives all available information and assistance to enable
Fingerhut to take the measures (consistent with requirements of
applicable laws and regulations) that, in its sole discretion, it
deems appropriate or necessary to protect the Customer Database
from disclosure. Sections 4.1 and 4.2 shall survive any
termination of this Agreement for five (5) years.
Metris or Fingerhut shall not be obligated to
disclose to the other any information which is required by
applicable law to be kept confidential or is otherwise prohibited
from disclosure by applicable federal or state laws and
regulations or would cause either party, in its reasonable
interpretation, to be deemed a credit reporting agency as defined
under applicable state or federal law.
V. EVENT'S OF DEFAULT AND REMEDIES
Section 5.1 Event of Default. An "Event of Default" shall
be deemed to occur upon the occurrence of any of the following:
(a) A material breach of a representation, agreement,
covenant or other obligation of any of the parties to
this Agreement (any such breach is herein referred to as
a "Material Breach"); provided, however, that no Event
of Default shall be deemed to have occurred unless and
until a non-breaching party provides the breaching party
with written notice of such Material Breach, describing
in reasonable detail the nature of such Material Breach,
and (i) the breaching party shall have had an
opportunity to cure such Material Breach (which is
capable of being cured) within sixty (60) days after
such notice (unless such Material Breach is with respect
to a monetary matter, the cure of which requires only
the payment of a specified amount of money pursuant to
the terms of this Agreement, in which case the breaching
party shall have an opportunity to cure within five (5)
business days after such notice), (ii) the breaching
party does not cure such Material Breach within the
applicable time period, or, if such Material Breach,
other than a Material Breach relating to a monetary
<PAGE> 7
matter, cannot reasonably be cured within sixty days,
but is curable, the breaching party does not; (x)
undertake to cure such Material Breach within such sixty
day period and (y) after such sixty day period,
diligently and continuously use all reasonable efforts
to cure, and (iii) the notifying party thereafter
declares an Event of Default. In respect of clause (ii)
of this Section 5.1(a), such extended cure period shall
continue so long as the parties hereto reasonably agree
that the actions being taken by the breaching party are
reasonably expected to cure such Material Breach.
(b) If, at any time within twelve (12) months following the
expiration of any cure period provided in Section 5.1(a)
above, there shall occur a Material Breach (the "Second
Material Breach") and such Second Material Breach is of
the same nature as the Material Breach (the "First
Material Breach") by the breaching party that gave rise
to such cure period, then an Event of Default shall be
deemed to have occurred upon the delivery of notice of
such Second Material Breach to the breaching party by
the notifying party referred to in Section 5.1(a) and
upon such notifying party declaring an Event of Default.
(c) If there shall occur a "Bankruptcy," as hereinafter
defined, of either Party, the non-Bankruptcy party may
declare an Event of Default. For purposes of this
Agreement, the term "Bankruptcy" shall mean (i) the
entry of a decree or order for relief by a court of
competent jurisdiction in any involuntary case under any
bankruptcy, insolvency or similar law now or hereafter
in effect and such decree or order shall not be vacated,
set aside or stayed within ninety (90) days after its
entry, (ii) the entry of a decree or order appointing a
receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar agent for any substantial part
of the assets or property of such party and such decree
or order shall not be vacated, set aside or stayed
within ninety (90) days after its entry, (iii) the
ordering of the winding up or liquidation of the affairs
of a party and such order shall not be vacated, set
aside or stayed within one hundred twenty (120) days
after its entry, (iv) the filing of a petition in any
such involuntary bankruptcy case, which petition remains
undismissed for a period of ninety (90) days or which is
not dismissed or suspended pursuant to Section 305 of
Title 11 of the United States Code (or any corresponding
provision of any future United States Bankruptcy law),
(v) the commencement of a voluntary case under any
bankruptcy, insolvency or similar law now or hereafter
in effect, (vi) the consent to the entry of an order for
relief in an involuntary case under any such law or to
the appointment of or taking possession of any
substantial part of the assets or property by a
receiver, liquidator, assignee, trustee, custodian,
sequestrator or similar agent, or (vii) the making of
any general assignment for the benefit of creditors.
<PAGE> 8
Section 5.2 Remedies. Each of the parties hereto shall be
liable to the other for damages arising out of or in connection
with any breach of this Agreement, subject to the duty of the non-
breaching party to take all reasonable actions in order to
mitigate such damages. The parties agree that in no event shall
any party to this Agreement be liable to the other for punitive,
indirect, special or consequential damages arising out of a breach
of this Agreement. It is understood and agreed to by the parties
that monetary damages may not be a sufficient remedy for breach
with respect to their respective obligations under this Agreement.
Accordingly, the non-breaching party shall, to the extent
permitted by law or equity, be entitled to seek specific
performance and injunctive or other equitable relief as a remedy
for any breach of, or Event of Default under this Agreement. The
parties agree to, and hereby waive any requirement for the
securing or posting of any bond in connection with such remedy.
The remedies described in this Section 5.2 shall not be deemed to
be the exclusive remedies for any breach of, or Event of Default,
under this Agreement, but shall be in addition to all other
remedies available to the parties at law or equity, subject to the
limitations with respect to damages set forth above in this
Section 5.2.
VI. INDEMNIFICATION
Section 6.1 Indemnification by Fingerhut. Fingerhut shall
indemnify, hold harmless and defend Metris, its officers,
directors, partners, employees, agent or permitted assigns of
Metris from and against any and all losses, claims, damages,
liabilities, whether joint or several, expenses (including legal
fees and expenses), judgments, fines and other amounts paid in
settlement, incurred or suffered by any such person(s) in
connection with any threatened, pending or completed claim,
demand, action, suit or proceeding (whether civil, criminal,
administrative or investigative, and whether formal or informal)
by an unaffiliated third party arising out of or in connection
with any breach or alleged breach of this Agreement by Fingerhut;
including without limitation any claim or allegation that (i) any
Customer Database provided to Metris constitutes an infringement
of any copyright, (ii) the Customer Database provided to Metris
contains, embodies or incorporates any trade secret or proprietary
information of any third party. In the event the Customer
Database is held to infringe and its use is enjoined, the sole
obligation of Fingerhut (and the exclusive remedy of Metris) shall
be as provided pursuant to Sections 6.1 and 6.3.
<PAGE> 9
Section 6.2 Indemnification by Metris. Metris shall
indemnify, hold harmless and defend Fingerhut, and each person
that is a stockholder, officer, director, partner, employee or
agent of Fingerhut, from and against any and all losses, claims,
damages, liabilities, whether joint or several, expenses
(including legal fees and expenses), judgments, fines and other
amounts paid in settlement incurred or suffered by any such
person(s) in connection with any threatened, pending or completed
claim, demand, action, suit or proceeding (whether civil,
criminal, administrative or investigative, and whether formal or
informal) by an unaffiliated third party arising out of or in
connection with any breach or alleged breach of this Agreement by
Metris.
Section 6.3 Rights Upon Indemnification. The rights of
the parties hereto to be indemnified pursuant to this Agreement
shall be governed by the following:
(a) Within a reasonable time (not to exceed 30 days from
receipt) after receipt by an indemnified party of notice
of any claim or the commencement of any action which may
result in a claim for indemnification pursuant to
Sections 6.1 or 6.2, an indemnified party will notify in
writing the indemnifying party thereof within a
reasonable time thereafter; the omission to so notify
any indemnifying party will relieve it of any liability
for indemnification thereunder as to the particular item
for which indemnification may then be sought (except to
the extent that the failure to give notice shall not
have been prejudicial to such indemnifying party), but
not from any other liability which it may have to any
indemnified party.
(b) An indemnified party shall have the right (i) to employ
separate counsel chosen by it in any action as to which
indemnification may be sought under any provision of
this Agreement and to participate in the defense
thereof, or (ii) to the extent that it may wish, jointly
with any other indemnified party, to assume the defense
of any such action with counsel reasonably satisfactory
to the indemnifying party, but the fees and expenses of
such counsel shall be at the expense of such indemnified
party unless; (x) the indemnifying party has agreed in
writing to pay such fees and expenses, (y) the
indemnifying party has failed to employ counsel and
assume the defense thereof without reservation and
employ counsel within a reasonable period of time after
being given the notice required above, and as a
consequence thereof, the indemnified party is required
to employ separate counsel to protect its rights, or (z)
the named parties to any such action (including any
impleaded parties) include both such indemnified party
and the indemnifying party and such indemnified party
shall have been advised by its counsel that
representation of such indemnified party and the
indemnifying party by the same counsel would be
inappropriate under applicable standards of professional
conduct (whether or not such representation by the same
<PAGE> 10
counsel has been proposed) due to actual or potential
conflict of interest between them. It is understood,
however, that the indemnifying party shall, in
connection with any one such action or separate but
substantially similar or related actions in the same
jurisdiction, arising out of the same general
allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate
counsel (in addition to any local counsel) at any time
for all such indemnified parties having actual or
potential differing interests with the indemnifying
party.
(c) The indemnifying party shall not be liable for any
settlement of any such action effected without its
written consent, which consent shall not be unreasonably
withheld, but if settled with such written consent, or
if there be a final judgment against any indemnified
party in any such action, the indemnifying party agrees
to indemnify and hold harmless any indemnified parties
to the extent provided above from and against any loss,
claim, damage, liability or expense by reason of such
settlement or judgment.
(d) The indemnification obligations set forth in Sections
6.1, 6.2 and 6.3 shall survive the termination this
Agreement.
VII. TERM AND TERMINATION
Section 7.1 Term and Termination. This Agreement shall
take effect upon the date first written above, and shall remain in
effect for seven (7) years ("Initial Term"). Thereafter, this
Agreement will automatically renew for one term of three (3) years
("Renewal Term") unless either Party provides written notice to
the other, not less than twelve (12) months prior to the end of
the Initial Term or Renewal Term, of its intent to terminate this
Agreement. Either Party may terminate this Agreement reserving
all other remedies and rights hereunder in whole or in part and
otherwise available in law or equity, upon the occurrence of an
Event of Default, as defined herein. Upon the occurrence of an
Event of Default, the non-defaulting Party may terminate this
Agreement by giving notice of its intent to terminate. Such
written notice shall describe the Event of Default. Fingerhut
shall have the right to terminate this Agreement by written notice
to Metris upon the occurrence of a Change of Control (as defined
below) with respect to Metris. A "Change in Control" shall be
deemed to have occurred if (a) any person or group (within the
meaning or Rule 13d-5 of the Securities Exchange Act of 1934 as in
effect on the date hereof) other than Fingerhut shall own directly
or indirectly, beneficially or of record, shares representing more
than 25% of the aggregate ordinary voting power represented by the
issued and outstanding capital stock of Metris; (b) a majority of
the seats (other than vacant seats) on the board of directors of
Metris shall at any time be occupied by persons who were neither
(i) nominated by Fingerhut, or by the board of directors of
Metris, nor (ii) appointed by directors so nominated; or (c) any
person or group other than Fingerhut shall otherwise directly or
indirectly have the power to exercise a controlling influence over
the management or policies of Metris.
<PAGE> 11
VIII. MISCELLANEOUS PROVISIONS
Section 8.1 Additional Actions and Documents. Each of the
parties hereto agrees to take or cause to be taken such further
actions, to execute, acknowledge, deliver and file or cause to be
executed, acknowledged, delivered and filed such further documents
and instruments, and to use all reasonable efforts to obtain such
consents, as may be necessary or as may be reasonably requested in
order to fully effectuate the purposes, terms and conditions of
this Agreement.
Section 8.2 Notice. All notices, demands, requests or
other communications which may be or are required to be given
pursuant to this Agreement shall be in writing and shall be
personally delivered, mailed by first class, registered or
certified mail, postage prepaid, or sent by electronic or
facsimile transmission, addressed as follows:
(a) If to Metris:
Metris Companies Inc.
Interchange Building
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: Chief Executive Officer
(b) If to Fingerhut:
Fingerhut Corporation
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: Senior Vice President
With a copy to the General Counsel
Each party may designate by notice in writing a new address
to which any notice, demand, request or communication may
thereafter be so given, served or sent. Each notice, demand,
request or communication which shall be delivered, mailed or
transmitted in the manner described above shall be deemed
sufficiently given, served, sent or received for all purposes at
such time as it is delivered to the addressee or at such time as
delivery is refused by the addressee upon presentation.
<PAGE> 12
Section 8.3 Severability. Whenever possible, each
provision of this Agreement shall be interpreted in such a manner
as to be effective and valid under applicable law, but if one or
more of the provisions of this Agreement is subsequently declared
invalid or unenforceable, such invalidity or unenforceability
shall not in any way affect the validity or enforceability of the
remaining provisions of this Agreement (unless those provisions
which are invalidated or unenforceable are clearly material and
inseparable from such other provisions). In the event of such
declaration of invalidity or unenforceability, this Agreement, as
so modified, shall be applied and construed so as to reflect
substantially the intent of the parties and achieve the same
economic effect as originally intended by the terms hereof. In
the event that the scope of any provision to this Agreement is
deemed unenforceable by a court of competent jurisdiction, the
parties agree to the reduction of the scope of such provision as
such court shall deem reasonably necessary to make such provision
enforceable under the circumstances.
Section 8.4 Survival. It is the express intention and
agreement of the parties hereto that all covenants, agreements,
statements, representations, warranties and indemnities made in
this Agreement shall survive the execution and delivery of this
Agreement.
Section 8.5 Waivers. Neither the waiver by any party
hereto of a breach of or a default under any of the provisions of
this Agreement, nor the failure of any party hereto, on one or
more occasions, to enforce any of the provisions of this Agreement
or to exercise any right, remedy or privilege hereunder shall
thereafter be construed as a waiver of any such provisions,
rights, remedies or privileges hereunder. Any of the terms,
covenants, representations, warranties, or conditions hereof may
be waived only by a written instrument executed by the party
waiving compliance.
Section 8.6 Exercise of Rights. No failure or delay on
the part of any party hereto in exercising any right, power or
privilege hereunder and no course of dealing among the parties
hereto shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The rights and remedies
herein expressly provided are cumulative and not exclusive of any
other rights or remedies which any party hereto would otherwise
have at law or in equity or otherwise.
Section 8.7 Binding Effect. Subject to any provisions
hereof restricting assignment, this Agreement shall be binding
upon and shall inure to the benefit of the parties and their
respective successors and permitted assigns.
Section 8.8 Entire Agreement. This Agreement contains the
entire agreement among the parties hereto with respect to the
matters contained herein, and supersedes all prior oral or written
agreements, commitments or understandings with respect to the
matters provided for herein.
Section 8.9 Pronouns. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identity of the Person may
require.
Section 8.10 Headings. Section headings contained in this
Agreement are inserted for convenience of reference only, shall
not be deemed to be a part of this Agreement for any purpose, and
shall not in any way define or affect the meaning, construction or
scope of any of the provisions hereof.
<PAGE> 13
Section 8.11 Governing Law. This Agreement, the rights and
obligations of the parties hereto, and any claims or disputes
relating thereto, shall be governed by and construed in accordance
with the internal laws of the State of Minnesota without giving
effect to the principles of conflicts of laws thereof.
Section 8.12 Execution In Counterparts. To facilitate
execution, this Agreement may be executed in as many counterparts
as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures
of all Persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or
on behalf of, each party, or that the signatures of the Persons
required to bind any party, appear on one or more of the
counterparts. All counterparts shall collectively constitute a
single agreement. It shall not be necessary in making proof of
this Agreement to produce or account for more than the number of
counterparts containing the respective signatures of, or on behalf
of all of the parties hereto.
Section 8.13 Assignment. No party to this Agreement shall
have the right to assign or otherwise transfer its rights or
obligations under this Agreement, except with the prior written
consent of the other; notwithstanding, either party may assign or
otherwise transfer its rights or obligations under this Agreement
to a subsidiary or affiliate upon notice to the other. Regardless
of the party to whom an assignment is made pursuant to this
Section 8.13, the assignee shall, as a condition to such
assignment, by written undertaking satisfactory to the other,
represent and warrant that the assignment was made in accordance
with all applicable laws and regulations and assume and agree to
be bound by the terms, provisions and conditions of this Agreement
to the same extent as the assignor; provided, however, that no
such assignment shall relieve the assignor of its obligations
(which shall be primary and which may be discharged in whole or in
part by the assignee) under this Agreement, to the extent
applicable. Any unauthorized assignment and any assignment made
in contravention of this Section 8.13 shall be null and void.
Section 8.14 No Agency. This Agreement shall not be deemed
expressly or by implication to create an agency, employee, or
servant relationship between or among any of the parties hereto,
or any affiliates of the parties hereto for any purpose
whatsoever.
Section 8.15 Force Majeure. No party shall be liable for
any failure of or delay in the performance of this Agreement for
the period that such failure or delay is due to acts of God,
public enemy, war, strikes or labor disputes, or any other cause
beyond the parties' reasonable control; it being understood that
lack of financial resources is not to be deemed a cause beyond a
party's control. Each party shall notify the other parties
promptly of the occurrence of any such cause and carry out this
Agreement as promptly as practicable after such cause is
terminated; provided, however, that the existence of any such
cause shall not extend the term of this Agreement.
Section 8.16 Time. Time is to be considered of the essence
for the purposes of this Agreement.
<PAGE> 14
Section 8.17 Amendment and Modification. This Agreement
may only be amended or modified by a subsequent written agreement
by and among the parties hereto.
Section 8.18 Adherence To Applicable Law. In connection
with the performance of their respective obligations and the
exercise of their respective rights hereunder, each of the parties
hereto agrees, on behalf of itself and its subsidiaries or
affiliates, to comply in all material respects with all applicable
state, federal and local laws and regulations.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the date first set forth above.
FINGERHUT CORPORATION
By:
Its:
METRIS COMPANIES INC.
By:
Its:
EXHIBIT A
CUSTOMER DATABASE
Customer Database includes information solely of Fingerhut's which
relates to its transactions or experiences with all of its
customers (including all past and current customers [name,
address, telephone and account numbers] as well as prospective
customers). The Customer Database does not include any
information of third parties which Fingerhut does not have by
contract or otherwise the right to provide to Metris. The
Customer Database also includes but is not limited to, as updated
from time to time, the following:
[Confidential]
EXHIBIT B
<PAGE> 15
FINANCIAL SERVICE PRODUCTS
Insurance Products* Brokerage Services (real
estate, financial, insurance)
Warranty or Extended Service Auto Lending/Leasing
Plans
Tax Preparation Services Equity Loans, Mortgages
Deposit Products Bank Credit Cards
Investment Services Secured Bank Cards
(Annuities, Mutual Funds, Prepaid Cards
CDs)
Car Buying Services Smart Cards
Debit Cards
Consumer Loans (other than Co Branded Cards, Credit Card
closed end installment or Registration
revolving credit loans to Private label cards (that are
Fingerhut customers for the in competition with the
exclusive Fingerhut private label card)
purchase of merchandise) Auto Clubs
Credit Enhancement Products
Affinity Bank Credit Cards
Travel Services
Student Loans Mobile Home Financing
Mail Grams
Travelers Checks, Money Orders
*except for any Insurance products offered within the closed-end
installment loan coupon book or credit insurance which is directly
tied to a revolving credit balance owed directly to Fingerhut or
its wholly owned subsidiaries or the wholly owned subsidiaries of
its parent.
EXHIBIT C
COMPENSATION
Metris shall pay Fingerhut a non-refundable Database License Fee
as set forth below:
1996 $XXXXXX
1997 $XXXXXX
1998 $XXXXXX
1999 $XXXXXX
2000 $XXXXXX
2001 $XXXXXX
2002 $XXXXXX
In addition to the Database License Fee, Metris shall pay
Fingerhut a Solicitation Fee and Suppress File Fee as set forth
below:
Solicitation $X.XX per consumer name mailed from the Customer
Fee: Database solely for solicitation by Metris on
behalf of unaffiliated third parties to sell
Financial Services Products as set forth in
Exhibit B.
Suppress File $.XX for each consumer name obtained from a third
Fee: party that is matched to the Fingerhut suppress
file solely for purposes of elimination from a
solicitation.
EXHIBIT D
Mailer
[Names Deleted]
Fingerhut and Metris agree that Fingerhut may continue to license
the use of the Customer Database to the above identified companies
until December 31, 1996. Thereafter, Fingerhut shall either (a)
assign its contract with such company to Metris or (b) terminate
its agreement with such company effective January 1, 1997.
From the effective date of this Agreement until December 31, 1996,
Fingerhut agrees to pay to Metris XX% of revenues it receives from
the above named companies to license use of the Customer Database.
<PAGE> 1
Exhibit 10.n
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ( the
"Agreement") is made and entered into as of the ___ day of
October, 1996 by and among Fingerhut Companies, Inc., a
Minnesota corporation, ("FCI"), Direct Merchants Credit Card
Bank, National Association ("Direct Merchants Bank"), a
national banking association, and Metris Companies Inc.
("Metris"), a Delaware corporation.
WHEREAS, FCI has performed and following the initial
public offering of Metris will continue to perform (or cause
to be performed) certain Services (as defined herein) on
behalf of Direct Merchants Bank, Metris and their
subsidiaries; and
WHEREAS, Direct Merchants Bank and Metris, desire to
use the Services of FCI;
NOW THEREFORE, in consideration of the mutual promises
and agreements set forth herein, the parties hereby agree as
follows:
I. SERVICES
Section 1.1 Services. During the term of this
Agreement, FCI agrees to perform the services (herein
"Services") set forth in Exhibits 1 through 8 (including any
schedules to such Exhibits) attached hereto and incorporated
herein by reference. Exhibit 9, attached hereto and
incorporated herein by reference, reflects Services which
Metris has agreed to perform for FCI. Each Exhibit shall be
subject to the terms as identified in the Exhibit. In the
event any Exhibit is terminated, the Agreement shall remain
in effect unless otherwise terminated as provided herein.
The Exhibits may be amended from time to time as the parties
may mutually agree as evidenced by an amendment signed by
the President, and/or Chief Financial Officer of each party.
The most recent of each Exhibit shall supersede all earlier
dated Exhibits. In the event of any conflict between the
terms of this Agreement and any Exhibit, the terms of this
Agreement shall govern. For purposes of this Agreement,
Services and resources provided by FCI shall include
services rendered and resources provided by any of its
subsidiaries or affiliates other than Metris and Direct
Merchants Bank.
<PAGE> 2
Section 1.2 Performance of Services.
(a) FCI shall perform the Services with the same
degree of care, skill and prudence customarily exercised for
its own operations. In the event FCI changes the degree of
care, skill and prudence customarily exercised for its own
operations, the Services performed hereunder may be modified
by FCI to meet its revised internal performance standards
for the Services hereunder. It is understood and agreed
that the Services will be substantially identical in nature
and quality to the Services performed by FCI during the
years prior to the execution of this Agreement, except as
required by Metris becoming a public company.
(b) Each party acknowledges that the Services will be
provided only with respect to the business (including joint
ventures and partnerships) of the party receiving such
Services and its subsidiaries as such businesses exist as of
the execution of this Agreement or as otherwise mutually
agreed by the parties. Services will not be requested for
the benefit of any entity other than Direct Merchants Bank,
Metris and their respective subsidiaries. Each party agrees
that it will use the Services only in accordance with all
applicable federal, state and local laws, regulations and
tariffs, and in accordance with reasonable conditions,
rules, regulations and specifications which are or may be
set forth in any manuals, materials, documents or
instructions of the party providing the Services. The
parties hereto each reserve the right to take all actions,
including the termination of any Services, in order to
assure that the Services are provided in accordance with any
applicable laws, regulations and tariffs.
(c) Any input or information needed by either party to
perform the Services pursuant to the provisions of this
Agreement shall be provided by the other party or its
subsidiaries, as the case may be, in a manner consistent
with the practices employed by the parties during the year
prior to the execution of this Agreement. Should the
failure to provide such input or information render the
performance of the Services impossible or unreasonably
difficult, the party providing the Services may, upon
reasonable notice to the other parties hereto, refuse to
provide such Services.
<PAGE> 3
Section 1.3 Compensation. FCI shall be compensated
for the Services rendered under this Agreement and Services
rendered prior to this Agreement as determined and as set
forth in the Exhibits hereto. Metris shall be responsible
for payments owed to FCI hereunder. In the event Metris
incurs an Event of Default and after FCI has exercised its
remedies pursuant to Section 4.2, Direct Merchants Bank and
any other subsidiary of Metris shall be responsible for
payment to FCI for Services it received hereunder. Payments
shall be made by the thirtieth (30th) of the month following
the month in which such Services are performed either by
check or wire transfer. If there are additional Services,
and to the extent charges are to be agreed upon in the
future in accordance with any Exhibit, the charges will be
determined as follows:
(i) Charges for Services performed by a third party
shall be equal to the incremental costs charged by such
third party to perform those Services as agreed to by the
parties. With respect to all other Services not to be
provided by a third party, the parties hereto will negotiate
in good faith, fees to be charged on a monthly basis. Fees
for Services not provided by third parties shall be based on
the estimated costs of providing such Services, which shall
include a reasonable allocation of direct and indirect
overhead costs (including, without limitation, employee
salaries, benefits and other costs) expected to be incurred
in connection therewith.
(ii) If any additional Services provided by FCI and as
set forth in the Exhibits attached hereto, or if the scope
or nature of Services provided at any time under this
Agreement change materially, the parties hereto will
negotiate in good faith new fees based on the estimated cost
of providing such additional or revised Services. Fees for
Services not provided by third parties shall be based on the
estimated costs of providing such Services, which shall
include a reasonable allocation of direct and indirect
overhead costs (including, without limitation, employee
salaries, benefits and other costs) expected to be incurred
in connection therewith.
<PAGE> 4
II. CONFIDENTIALITY
Section 2.1 Confidentiality of Information. All
Confidential Information (as hereinafter defined) disclosed
by any of the parties to any other party hereunder is
confidential and proprietary to such disclosing party. Each
party, its affiliates, and officers, directors, employees,
agents, consultants and contractors shall not use any of the
Confidential Information for any purpose other than as
expressly permitted hereunder. Confidential Information
furnished by any of the parties to any other in connection
with this Agreement (or previously disclosed prior to
execution of this Agreement) and the transactions
contemplated hereby will be kept in confidence by such other
party, including its affiliates or subsidiaries, in
accordance with its policies for maintaining the confidence
of its own information of similar content. The term
Confidential Information shall mean and include: (i) all
trade secrets and other confidential business information
learned in the course of performance by any party of its
obligations hereunder, (ii) any information, data, software
or computer programs which are disclosed by any party to the
other party under or in contemplation of this Agreement.
Confidential Information may be either the property of the
disclosing party or information provided to the disclosing
party by a corporate affiliate of the disclosing party or by
a third party. Notwithstanding the foregoing, the term
"Confidential Information" shall not include information
which: (i) is already known to such other party when
received (except for information previously disclosed which
the parties have identified as Confidential Information and
subject to the confidentiality requirements of this
Agreement), (ii) thereafter becomes generally obtainable by
a party other than as a result of an unauthorized disclosure
by the party taking advantage of this clause, (iii) is
required by law, regulation or court order to be disclosed
by such party, provided that in the case of this clause,
prior notice of such disclosure has been given to the party
which furnished such information, when legally permissible,
and that such other party which is required to make the
disclosure uses its best efforts to provide sufficient
notice to permit the party which furnished such information
to take legal action to prevent the disclosure or (iv) is
reasonably necessary, in the opinion of counsel, to be
disclosed in the context of a legal proceeding or regulatory
investigation provided that prior notice shall be given to
the party which furnished the information. This Section 2.1
shall survive any termination of this Agreement for five (5)
years.
<PAGE> 5
III. CONFLICT RESOLUTION
Section 3.1 Conflict Resolution. Any dispute,
controversy or claim relating to this Agreement (a
"Dispute") shall initially be referred to the executive
management of each of the parties to the Dispute. In the
event executive management cannot come to an agreement on a
particular Dispute, then the matter shall be submitted to
the respective Chief Executive Officers and General Counsel
("Designated Officers") of the parties to the Dispute. The
Designated Officers of each party then shall investigate and
evaluate the dispute. The parties agree to cooperate in
this process by exchanging relevant information unless such
information is privileged. The Designated Officers or their
respective designees shall meet as appropriate to, in good
faith, resolve the dispute.
IV. EVENTS OF DEFAULT AND REMEDIES
Section 4.1 Event of Default. An "Event of Default"
shall be deemed to occur upon the earliest to occur of the
following:
(a) A material breach of a material representation,
agreement or other obligation of any of the parties to this
Agreement (any such breach is herein referred to as a
"Material Breach"); provided, however, that no Event of
Default shall be deemed to have occurred unless and until:
(i) a non-breaching party provides the breaching party with
written notice of such Material Breach, describing in
reasonable detail the nature of such Material Breach, (ii)
the breaching party shall have had an opportunity to cure
such Material Breach within sixty (60) days after such
notice, (unless such Material Breach is with respect to a
monetary matter, the cure of which requires only the payment
of a specified amount of money pursuant to the terms of this
Agreement, in which case the breaching party shall have had
an opportunity to cure within ten (10) business days after
such notice); (iii) the breaching party does not cure such
Material Breach within the applicable time period, or, if
such Material Breach, other than a Material Breach relating
to a monetary matter, cannot reasonably be cured within such
period, but is curable, the breaching party does not (x)
<PAGE> 6
undertake to cure such Material Breach within such sixty
(60) day period and (y) after such sixty (60) day cure
period, diligently and continuously use all reasonable
efforts to cure, and (iv) the notifying party thereafter
declares an Event of Default. In respect of clause (iii),
(x), (y) of this Section 4.1(a), such extended cure period
shall continue so long as the parties hereto reasonably
agree that the actions being taken by the breaching party
are reasonably expected to cure such Material Breach.
(b) If, at any time within twelve (12) months
following the expiration of any cure period provided in
Section 4.1(a) above, there shall occur a Material Breach
(the "Second Material Breach") and such Second Material
Breach is of the same nature as the Material Breach (the
"First Material Breach") by the breaching party that gave
rise to such cure period, then an Event of Default shall be
deemed to have occurred upon the delivery of notice of such
Second Material Breach to the breaching party by the
notifying party referred to in paragraph (a) of this Section
4.1 and upon such notifying party declaring an Event of
Default.
(c) If there shall occur a "Bankruptcy," as
hereinafter defined, of any party, any non-bankruptcy party
may declare an Event of Default. For purposes of this
Agreement, the term "Bankruptcy" shall mean (i) the entry of
a decree or order for relief by a court of competent
jurisdiction in any involuntary case under any bankruptcy,
insolvency or similar law now or hereafter in effect, and
such decree or order shall not be vacated, set aside or
stayed within ninety (90) days after its entry, (ii) the
entry of a decree or order appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or
similar agent for any substantial part of the assets or
property and such decree or order shall not be vacated, set
aside or stayed within ninety (90) days after its entry,
(iii) the ordering of the winding up or liquidation of the
affairs of a party and such order shall not be vacated, set
aside or stayed within one hundred twenty (120) days after
its entry, (iv) the filing of a petition in any such
involuntary bankruptcy case, which petition remains
undismissed for a period of ninety (90) days or which is not
dismissed or suspended pursuant to Section 305 of Title 11
of the United States Code (or any corresponding provision of
any future United States Bankruptcy law), (v) the
commencement of a voluntary case under any bankruptcy,
insolvency or similar law now or hereafter in effect, (vi)
the consent to the entry of an order for relief in an
<PAGE> 7
involuntary case under any such law or to the appointment of
or taking possession of any substantial part of the assets
or property by a receiver, liquidator, assignee, trustee,
custodian, sequestrator or similar agent, or (vii) the
making of any general assignment for the benefit of
creditors
Section 4.2 Remedies. Each of the parties hereto
shall be liable to the other parties for damages arising out
of or in connection with any breach of this Agreement
including any breach by their respective subsidiaries
(except to the extent that Direct Merchants Bank and Metris
are subsidiaries of FCI) to the extent permitted by law,
subject to the duty of the non-breaching parties to take all
reasonable actions in order to mitigate such damages. The
parties agree that in no event shall any party to this
Agreement be liable to the other parties for punitive,
indirect, special or consequential damages arising out of a
breach of this Agreement. It is understood and agreed that
monetary damages may not be a sufficient remedy for any
Event of Default. Accordingly, the non-breaching parties
shall, to the extent permitted by law or equity, be entitled
to specific performance and injunctive or other equitable
relief as a remedy for any breach of, or Event of Default
under this Agreement. The remedies described in this
Section 4.2 shall not be deemed to be the exclusive remedies
for any breach of, or Event of Default under this Agreement,
but shall be in addition to all other remedies available to
the parties at law or in equity, subject to the limitations
with respect to damages set forth above in this Section 4.2.
V. INDEMNIFICATION
Section 5.1 Indemnification Obligations
(a) By Direct Merchants Bank. Direct Merchants Bank
shall be liable to and shall defend, indemnify and hold
harmless, Metris, FCI and their affiliates, and their
respective officers, directors, employees and permitted
assigns, from and against any and all Losses (as hereinafter
defined) incurred by any of them by reason of or related to
Direct Merchants Bank's failure to perform its obligations
hereunder.
(b) By FCI. FCI shall be liable to and shall defend,
indemnify and hold harmless, Direct Merchants Bank, Metris
and their affiliates, and their respective officers,
directors, employees and permitted assigns, from and against
any and all Losses (as hereinafter defined) incurred by
reason of or related to FCI's failure to perform its
obligations hereunder.
<PAGE> 8
(c) By Metris. Metris shall be liable to and shall
defend, indemnify and hold harmless, Direct Merchants Bank,
FCI and their affiliates, and their respective officers,
directors, employees and permitted assigns from and against
any and all Losses (as hereinafter defined) incurred by any
of them by reason of or related to Ff.'s failure to perform
its obligations hereunder.
(d) "Losses" Defined. For purposes of this Section
5.1, the term "Losses" shall mean any losses, liability,
claims, damages, costs, and expenses, including attorney's
fees, disbursements and court costs, reasonably incurred by
an indemnified party, judgments, fines and other amounts
paid in settlement, incurred or suffered by an indemnified
party in connection with any threatened, pending or
adjudicated claim, demand, action, suit or proceeding
(whether civil, criminal, administrative or investigative,
by an unaffiliated third party arising out of or in
connection with any breach or alleged breach of this
Agreement) without regard to whether or not such Losses
would be deemed material under this Agreement.
Section 5.2 Procedures
(a) Notice of Claims. The parties agree that in case
any claim is made, or any suit or action is commenced which,
if not corrected, may give rise to a right of
indemnification by a party hereunder ("Indemnified Party")
from one of the other parties ("Indemnifying Party"), the
Indemnified Party will give notice to the Indemnifying party
as promptly as practicable after the receipt by the
Indemnified party of such notice or knowledge of such claim,
suit, or action. On a best efforts basis, notice to the
Indemnifying Party shall be given no later than fifteen days
after receipt by the Indemnified Party in the event a suit
or action has commenced or thirty days under all other
circumstances; provided, however, that the failure to give
prompt notice shall not relieve an Indemnifying Party of its
obligation to indemnify except to the extent that the
Indemnifying Party is materially prejudiced by such failure.
The Indemnified Party shall make available to the
Indemnifying Party and its counsel and accountants at
reasonable times and for reasonable periods, during normal
business hours, all books and records of the Indemnified
Party relating to any such possible claim for
indemnification, and each party will render to the other
such assistance as it may reasonably require of the other in
order to ensure prompt and adequate defense of any suit,
claim or proceeding based upon a statement of facts which
may give rise to a right of indemnification hereunder.
<PAGE> 9
(b) Selection of Counsel. The Indemnifying Party
shall have the right to defend, compromise and settle any
suit, claim or proceeding in the name of the Indemnified
Party to the extent that the Indemnifying Party may be
liable to the Indemnified Party under Section 5.1 above in
connection therewith; provided, however, that the
Indemnifying Party shall not compromise or settle a suit,
claim or proceeding unless it assumes the obligation to
indemnify for all Losses related thereto. In the event two
of the parties to this Agreement must indemnify the third,
the parties agree the two Indemnifying Parties must agree to
select one to be the Indemnifying Party to the third
Indemnified Party and the third Indemnified Party shall look
to one party to this Agreement for indemnification. The
Indemnifying Party shall notify the Indemnified Party within
ten days of having been notified pursuant to Section 5.2(a)
of this Agreement if the Indemnifying Party elects to assume
the defense of any such claim, suit or action and employ
counsel in a reasonable exercise of its discretion. The
Indemnified Party shall have the right to employ its own
counsel to participate in such defense, compromise or
settlement, but the fees and expenses of such counsel shall
be at the Indemnified Party's expense, unless the
Indemnifying Party shall not have employed counsel to take
charge of the defense thereof.
(c) Settlement of Claims. The Indemnified Party may
at any time notify the Indemnifying Party of its intention
to settle or compromise any claim, suit or action against
the Indemnified Party in respect of which indemnification
payments may be sought from the Indemnifying Party
hereunder, but shall not settle or compromise any matter for
which indemnification may be sought without the consent of
the Indemnifying Party. Any settlement or compromise of any
claim, suit or action in accordance with the preceding
sentence, or any final judgment or decree entered on or in
any claim, suit or action which the Indemnifying Party did
not assume the defense of in accordance herewith, shall be
deemed to have been consented to by, and shall be binding
upon, the Indemnifying Party as fully as if the Indemnifying
Party had assumed the defense thereof and a final judgment
or decree had been entered in such suit or action, or with
regard to such claim, by a court of competent jurisdiction
for the amount of such settlement, compromise, judgment or
decree.
<PAGE> 10
(d) Subrogation. The Indemnifying Party shall be
subrogated to any claims or rights of the Indemnified Party
as against any other persons with respect to any amount paid
by the Indemnifying Party under this Section 5. The
Indemnified Party shall cooperate with the Indemnifying
Party, at the Indemnifying Party's expense, in the assertion
by the Indemnifying Party of any such claim against such
other persons.
(e) Indemnification Payments. Amounts owing under
this Section 5 shall be paid promptly upon written demand
for indemnification containing in reasonable detail the
facts giving rise to such liability; provided, however, if
the Indemnifying Party notifies the Indemnified Party within
thirty (30) days of receipt of such demand that it disputes
its obligation to indemnify and the Parties are not
otherwise able to reach agreement, the controversy shall be
settled by final order entered by a court of competent
jurisdiction.
Section 5.3 Survival of Indemnification. The
provisions of this Section 5 shall expressly survive any
termination of this Agreement or otherwise for a period of
five (5) years.
VI. TERM AND TERMINATION
Section 6.1 Term and Termination. This Agreement
shall take effect upon the date first written above, and
shall remain until December 31, 1998 ("Initial Term").
Thereafter, this Agreement will automatically renew for an
additional term of one (1) year ("Renewal Term") unless each
party provides written notice to the other parties to this
Agreement of not less than six (6) months prior to the end
of the Initial Term or Renewal Term of its intent to
terminate this Agreement. Any party may terminate this
Agreement reserving all other remedies and rights hereunder
in whole or in part and otherwise available in law or in
equity, upon the following conditions:
(a) the occurrence of an Event of Default. Upon the
occurrence of an Event of Default, a non-defaulting party
may terminate this Agreement by giving no less than 30 days
prior written notice of its intent to terminate to each of
the other parties to this Agreement which notice shall
describe the Event of Default;
(b) at any time upon mutual agreement of the parties
upon 90 days' prior written notice;
<PAGE> 11
(c) any party may terminate any Exhibit upon mutual
agreement of the parties during any Initial Term or Renewal
Term without terminating this Agreement; or
(d) FCI shall have the right to terminate this
Agreement by written notice to Metris and Direct Merchants
Bank upon the occurrence of a Change of Control (as defined
below) with respect to Metris. A "Change in Control" shall
be deemed to have occurred if (i) any person or group
(within the meaning of Rule 13d-5 of the Securities Exchange
Act of 1934 as in effect on the date hereof) other than FCI
shall own directly or indirectly, beneficially or of record,
shares representing more than 25% of the aggregate ordinary
voting power represented by the issued and outstanding
capital stock of Metris; (ii) a majority of the seats (other
than vacant seats) on the Board of Directors of Metris shall
at any time be occupied by persons who were neither (1)
nominated by FCI or by the Board of Directors of Metris, nor
(2) appointed by directors so nominated; or (iii) any person
or group other than FCI shall otherwise directly or
indirectly have the power to exercise a controlling
influence over the management or policies of Metris.
VII. MISCELLANEOUS
Section 7.1 Additional Actions and Documents. Each
of the parties hereto agrees to take or cause to be taken
such further actions, to execute, acknowledge, deliver and
file or cause to be executed, acknowledged, delivered and
filed such further documents and instruments, and to use all
reasonable efforts to obtain such consents, as may be
necessary or as may be reasonably requested in order to
fully effectuate the purposes, terms and conditions of this
Agreement.
Section 7.2 Notice. All notices, demands, requests
or other communications which may be or are required to be
given pursuant to this Agreement shall be in writing and
shall be personally delivered, mailed by first class,
registered or certified mail postage prepaid, or sent by
electronic or facsimile transmission, addressed as follows:
<PAGE> 12
(a) If to Metris:
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: President
(b) If to FCI:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: General Counsel
(c) If to Direct Merchants Bank:
Direct Merchants Credit Card Bank, National
Association
1455 West 2200 South, Suite 300
Salt Lake City, Utah 84119
Attention: President
Each party may designate by notice in writing a new
address to which any notice, demand, request or
communication may thereafter be so given, served or sent.
Each notice, demand, request or communication which shall be
delivered, mailed or transmitted in the manner described
above shall be deemed sufficiently given, served, sent or
received for all purposes at such time as it is delivered to
the addressee or at such time as delivery is refused by the
addressee upon presentation.
Section 7.3 Severability. Whenever possible, each
provision of this Agreement shall be interpreted in such a
manner as to be effective and valid under applicable law,
but if one or more of the provisions of this Agreement is
subsequently declared invalid or unenforceable, such
invalidity or unenforceability shall not in any way affect
the validity or enforceability of the remaining provisions
of this Agreement (unless those provisions which are
invalidated or unenforceable are clearly material and
inseparable from such other provisions). In the event of
such declaration of invalidity or unenforceability, this
Agreement, as so modified, shall be applied and construed so
as to reflect substantially the intent of the parties and
achieve the same economic effect as originally intended by
the terms hereof. In the event that the scope of any
provision to this Agreement is deemed unenforceable by a
court of competent jurisdiction, the parties agree to the
reduction of the scope of such provision as such court shall
deem reasonably necessary to make such provision enforceable
under the circumstances.
<PAGE> 13
Section 7.4 Survival. It is the express intention
and agreement of the parties hereto that all covenants,
agreements, statements, representations, warranties and
indemnities made in this Agreement shall survive the
execution and delivery of this Agreement.
Section 7.5 Waivers. Neither the waiver by any
party hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure of any party
hereto, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right,
remedy or privilege hereunder shall thereafter be construed
as a waiver of any such provisions. The provisions, rights,
remedies, warranties and conditions of this Agreement may be
waived only by a written instrument executed by the party
warning compliance.
Section 7.6 Audit Rights. Each party agrees that
all records relating to this Agreement at all times shall be
subject to inspection and review by each party's internal
auditors or its designees and the examiners of any
regulatory agency, having jurisdiction over each party to
this Agreement. If any party to this Agreement receives any
requests or demands under authority of law (subpoenas, so
called discovery means, or audit demands of any taxing
authority) for access to information of any other party, the
party receiving such request or demand but shall immediately
inform the party from whom such information is requested of
such request or demand but shall not grant access to such
information without FCI's, Metris' and/or Direct Merchant
Bank's permission. By entering into this Agreement, FCI
agrees that the appropriate bank regulatory agency will have
the authority and responsibility to do all things required
or contemplated by applicable banking laws or regulations
provided to the other regulatory agencies relating to
services performed by contract or otherwise for a bank or
bank holding company. FCI further agrees to reasonably
cooperate with and provide any reasonable information to the
appropriate bank regulatory agency.
Section 7.7 Binding Effect. Subject to any
provisions hereof restricting assignment, this Agreement
shall be binding upon and shall inure to the benefit of the
parties and their respective successors and permitted
assigns.
<PAGE> 14
Section 7.8 Pronouns. All pronouns and any
variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the
identity of the person may require.
Section 7.9 Headings. Section headings contained in
this Agreement are inserted for convenience of reference
only, shall not be deemed to be a part of this Agreement for
any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions
hereof.
Section 7.10 Governing Law. This Agreement, the
rights and obligations of the parties hereto, and any claims
or disputes relating thereto, shall be governed by and
construed in accordance with the internal laws of the State
of Minnesota without giving effect to the principles of
conflicts of laws thereof.
Section 7.11 Execution In Counterparts. To
facilitate execution, this Agreement may be executed in as
many counterparts as may be required; and it shall not be
necessary that the signatures of, or on behalf of, each
party, or that the signatures of all persons required to
bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each
party, or that the signatures of the persons required to
bind any party, appear on one or more of the counterparts.
All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of
this Agreement to produce or account for more than the
number of counterparts containing the respective signatures
of, or on behalf of all of the parties hereto.
Section 7.12 Assignment. No party to this Agreement
shall have the right to assign or otherwise transfer its
rights or obligations under this Agreement, except with the
prior written consent of the other parties hereto;
notwithstanding, any party may assign or otherwise transfer
its rights or obligations under this Agreement to a
successor in interest, subsidiary or affiliate upon notice
to the other parties. Regardless of the party to whom an
assignment is made pursuant to this Section 7.13, the
assignee shall, as a condition to such assignment, by
written undertaking satisfactory to the other parties,
represent and warrant that that assignment was made in
accordance with all applicable laws and regulations and
assume and agree to be bound by the terms, provisions and
conditions of this Agreement to the same extent as the
assignor; provided, however, that no such assignment shall
<PAGE> 15
relieve the assignor of its obligations (which shall be
primary and which may be discharged in whole or in part by
the assignee) under this Agreement, to the extent
applicable. Any unauthorized assignment and any assignment
made in contravention of this Section 7.12 shall be null and
void.
Section 7.13 No Agency. This Agreement shall not be
deemed expressly or by implication to create an agency,
employee, or servant relationship between or among any of
the parties hereto, or any affiliates of the parties hereto
for any purpose whatsoever.
Section 7.14 Force Majeure. No party shall be liable
for any failure of or delay in the performance of this
Agreement for the period that such failure or delay is due
to acts of God, public enemy, war, strikes or labor
disputes, or any other cause beyond the parties' reasonable
control; it being understood that lack of financial
resources is not to be deemed a cause beyond a party's
control. Each party shall notify the other parties promptly
of the occurrence of any such cause and carry out this
Agreement as promptly as practicable after such cause is
terminated; provided, however, that the existence of any
such cause shall not extend the term of this Agreement.
Section 7.15 Time. Time is to be considered of the
essence for the purposes of this Agreement.
Section 7.16 Amendment and Modification. This
Agreement or any Exhibits may only be amended or modified by
a subsequent written agreement by and among the parties
hereto.
Section 7.17 Adherence To Applicable Law. In
connection with the performance of their respective
obligations and the exercise of their respective rights
hereunder, each of the parties hereto agrees, on behalf of
itself, and its subsidiaries or affiliates (except to the
extent that Direct Merchants Bank and Metris are affiliates
of FCI), to comply in all material respects with all
applicable state, federal and local laws and regulations.
Section 7.18 Entire Agreement. This Agreement and
the Exhibits represent the entire undertaking of the parties
hereto with respect to the subject matter hereof. This
Agreement and the Exhibits supersede all prior agreements
and all contemporaneous agreements not required or
contemplated hereby, whether oral or written, and all
representations, warranties, undertakings, and
understandings by and between the parties with respect to
the subject matter hereof.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the date and year first written above;
notwithstanding the date of execution, this Agreement shall
be effective on [January 1, 1991.]
FINGERHUT COMPANIES, INC.
By
Title
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION
By
Title
METRIS COMPANIES INC.
By
Title
EXHIBIT 1
Treasury Services
FCI agrees that it has or will on behalf of Direct Merchants
Bank and/or Metris (including subsidiaries) as the case may
be:
1. Use its best reasonable efforts to arrange and will
administer all financing arrangements, including the
securitization of assets, any corporate financing and
execution of any leases.
2. Arrange and Administer all interest rate and similar
hedging transactions, and the leasing or sale leaseback
of any real or personal property, including the
execution of any leases.
3. Provide cash management administration and banking
advisory services.
<PAGE> 17
Duration:
Effective through December 31, 1996.
Compensation:
1. Incremental third party expenses, and
2. A Pro rata share of department expenses as agreed to by
the parties for each of the calendar years ended as
reflected below:
EXHIBIT 2
General Accounting and Administrative Services
1. Tax Services
FCI agrees that it has or will on behalf of Direct
Merchants Bank and/or Metris (including subsidiaries) as the
case may be:
1. Prepare all Federal tax filings, including any
extensions thereof, and any payroll tax filings
for Metris, or its predecessor, and its
subsidiaries and affiliates, including Metris
Financial Services Receivables, Inc. ("MFSRI") and
Direct Merchants Bank. Prepare and file any and
all estimated tax installments required hereunder
pursuant to the Tax Sharing Agreement dated
__________.
.
2. Prepare any and all state tax filings, any
extensions thereof, and any other non-federal tax
filings, including any payroll tax filings, for
Metris, or its predecessor and subsidiaries and
affiliates, and for the states of Minnesota, Utah
and Oklahoma. Any tax filings for other states
where it is determined that Metris or its
predecessor and its subsidiaries and affiliates
have income tax nexus shall require an amendment
to this Exhibit. Prepare and file any and all
estimated tax installments required hereunder
pursuant to the Tax Sharing Agreement dated
_________.
<PAGE> 18
3. Assist in the analysis of any and all
securitization, interest rate hedging and other
financing arrangements and any and all other
transactions or arrangements which may have tax
ramifications for the purpose of determining the
proper tax treatment for such transactions or
arrangements;
4. Assist in the analysis of any and all employee
compensation issues from a tax perspective
5. Assist with any tax planning and research for
Metris, or its predecessor, and their subsidiaries
or affiliates; and
6. Be the sole and exclusive agent and representative
of Metris, or its predecessor, and subsidiaries
and affiliates, in any matters relating to the tax
filings noted above, and subject to examination by
representatives of the Internal Revenue Service or
any similar state agency pursuant to the Tax
Sharing Agreement dated __________.
Duration:
Effective through December 31, 1997.
2. Insurance Services/Risk Management
FCI agrees that it has or will:
Use its best reasonable efforts to arrange and will
administer all existing insurance arrangements,
including: Workman's Compensation Insurance, Property
and Casualty Insurance, excess liability insurance,
Employee Blanket Bond Insurance, Director and Officer
liability insurance and any other types of insurance
reasonably required by Metris, or its predecessor, and
its subsidiaries and affiliates, including Direct
Merchants Bank. FCI may, subject to notification of
Metris, fulfill its obligation with respect to any of
the identified coverages by arranging for Metris and
its subsidiaries and affiliates to be included under
FCI's policies.
Duration:
Effective through December 31, 1997
<PAGE> 19
3. General Accounting Services
FCI agrees that it has or will:
1. Provide the assistance of its Chief Financial
Officer, Corporate Controller and other accounting
staff in the preparation of the financial
statements and other financial information of
Metris for internal and external business needs,
or its predecessor, and its subsidiaries and
affiliates including Direct Merchants Bank. Such
FCI personnel will also assist such parties by
providing financial advice and guidance, where
necessary, in the conduct of their business,
including financial advice provided in the
negotiation of any contractual arrangements and
other financial transactions;
2. Provide Metris, or its predecessor, and its
subsidiaries and affiliates, including Direct
Merchants Bank with access and use of FCI's
general ledger system for the recording and
analyzing of such entities financial transactions;
3. Provide accounts payable and other disbursement
services for Metris, or its predecessor, and its
subsidiaries and affiliates, including Direct
Merchants Bank; and
4. Provide payroll and other employee compensation
accounting services for Metris, or its
predecessor, and its subsidiaries and affiliates,
including Direct Merchants Bank
Compensation:
1. Incremental third party expenses; and
2. A pro rata share of expenses as agreed to by the
parties for each of the calendar years ended as reflected
below:
* To be negotiated in good faith subsequent to the execution
of this agreement.
<PAGE> 20
EXHIBIT 3
Human Resource Services
FCI agrees that it has or that it will on behalf of Direct
Merchants Bank and/or Metris (including subsidiaries) as the
case may be:
1. Use its best reasonable efforts to arrange and will
administer all human resource activities, including the
development and administration of all policies and
procedures for the determination of all Metris, or its
predecessor and its subsidiaries and affiliates,
including Direct Merchants Bank employee compensation
and benefits including the development and
administration of all related benefit plans which such
employees may now, have been or hereafter may be
participants in.
2. Assist in the review and determination of all hiring
and termination decisions of employees of Metris, or
its predecessor, and Direct Merchants Bank, and its
subsidiaries, including the development of policies and
procedures therefor; and including assistance in
interviewing, placing adds and hiring search firms for
new employees
3. Assist in the counseling process for employees,
including all job performance reviews, and maintain all
personnel records, including those required by the laws,
rules and regulations of the states or the Federal
Government.
Duration:
Effective through December 31, 1997.
Compensation:
1. Incremental third party expenses; and
2. A pro-rata share of department expenses as agreed to by
the parties for each of the calendar years ended as
reflected below:
*To be negotiated in good faith subsequent to the execution
of this agreement.
<PAGE> 21
EXHIBIT 4
Legal Services
FCI agrees that it has or that it will on behalf of Direct
Merchants Bank and/or Metris (including subsidiaries) as the
case may be, provide legal services, including the retention
and management of outside counsel:
1. Assist in the preparation and review of all contractual
obligations of Metris, Direct Merchants Bank and their
subsidiaries.
2. Assist in the assessment of the applicability and
subsequent compliance of the laws, rules and
regulations of the various authorities which have
jurisdiction over Metris, Direct Merchants Bank and
their subsidiaries.
3. Review and recommend changes to the legal structure and
organization of the business of Metris. Direct
Merchants Bank and their subsidiaries.
4. Provide counsel on all other business issues as
appropriate
5. Assist in the preparation and review of all required
filings with the SEC, OCC, FDIC, the Federal Reserve
and any other applicable authority having jurisdiction
over Metris, Direct Merchants Bank and their
subsidiaries.
6. Any matter which any party deems to create a conflict
or possible conflict with any other party shall be
handled by separate independent counsel on behalf of
each party. FCI's legal department shall only
represent FCI in any such matter, even if the conflict
or potential conflict is between FFS and Direct
Merchants Bank.
Duration:
Effective date through December 31, 1997.
Compensation:
1. Incremental third party expenses, and;
2. A pro-rata share of department expenses as agreed to by
the parties in this agreement for each of the calendar
years ended as reflected below:
* To be negotiated in good faith subsequent to the execution
of this agreement.
<PAGE> 22
EXHIBIT 5
Internal Audit
FCI agrees that it has or it will on behalf of Direct
Merchants Bank and/or Metris (including subsidiaries) as the
case may be:
1. Conduct periodic audits and reviews of the operations
and the level of compliance with both Metris, or its
predecessor, Direct Merchants Bank and their
subsidiaries' policies and procedures and the rules and
regulations of the various authorities having
jurisdiction over them; Assess the adequacy of the
internal control structure of both Metris, Direct
Merchants Bank and their subsidiaries and provide
written reports summarizing the conclusions from such
audits and reviews, including recommendations for
improvement in the areas audited or reviewed.
Duration:
Effective date through December 31, 1997.
Compensation:
1. Incremental third party expenses, and;
2. A pro-rata share of department expenses as agreed to by
the parties to this agreement for each of the calendar
years ended as reflected below:
* To be negotiated in good faith subsequent to the execution
of this agreement.
<PAGE> 23
EXHIBIT 6
Marketing Analysis
FCI agrees that it has or that it will on behalf of Direct
Merchants Bank and/or Metris (including subsidiaries) as the
case may be:
1. Provide the equivalent of up to one full time analyst
in the marketing analysis department to assist with
access, review, selection and segmentation of the
Customer Database as allowed for under separate
agreements between FCI and/or its subsidiaries, and
Metris and/or its subsidiaries, including Direct
Merchants Bank. Also, assist Metris and Direct
Merchants Bank and their subsidiaries, in conducting
marketing research, including present customer and
potential customer surveys and competitive analysis,
among other similar projects.
Duration:
Effective through December 31, 1996.
Compensation:
1. Incremental third party expenses, and;
2. A pro-rata share of department expenses as agreed to by
the parties to this agreement for each of the calendar
years ended as reflected below:
<PAGE> 24
EXHIBIT 7
Executive Time & Space/Property Allocations
FCI agrees that it has or it will on behalf of Direct
Merchants Bank and/or Metris (including subsidiaries) as the
case may be:
1. Provide executive time and leadership in the
development of the businesses of Metris, or its
predecessor, Direct Merchants Bank and their subsidiaries.
2. Review and conclude on all business deals, contracts
and transactions of Metris, or its predecessor, Direct
Merchants Bank or their subsidiaries which would
normally require such level of review and approval.
Provide any other assistance normally required of
executive talent where necessary.
3. Provide adequate space and fixed assets necessary for
the conduct of the business of Metris or its
predecessor, Direct Merchants Bank and their
subsidiaries, including mainframe computer and
peripherals access and use.
Duration:
Effective through December 31, 1995
Compensation:
1. Incremental third party expenses, including leases in
Tulsa, Oklahoma, and Salt Lake City, Utah, but excluding
the lease at the Interchange Tower in St. Louis Park,
Minnesota or at the Seagate Building in Minnetonka,
Minnesota.
2. A pro-rata portion of executive time and space, other
than that noted in 1 above, and a pro-rata portion of
the depreciation and amortization expense of fixed
assets utilized by Metris, Direct Merchants Bank, and
their subsidiaries, other than that which Metris
already owns or has contracted for itself directly,
including mainframe computer and peripherals usage as
agreed to by the parties to this agreement for each of
the calendar years ended as noted below:
<PAGE> 25
EXHIBIT 8
Information Systems Services
FCI agrees that it has or that it will on behalf of Direct
Merchants Bank and/or Metris (including subsidiaries) as the
case may be:
I Provide certain "Systems", which shall mean certain
data processing hardware and software that Metris
and/or Direct Merchants Bank do not own because they do
not have the processing needs to justify ownership of
such hardware or software, or where such hardware and
software is proprietary to FCI, but such hardware and
software is integral to the ongoing business operations
of Metris and its subsidiaries and affiliates,
including Direct Merchants Bank. Such hardware and
software shall include but not be limited to mainframe
computers, certain data and voice communication
hardware and software, certain telephone lines, certain
telecommunications equipment. and certain local and
wide area networking services, software and equipment.
2. Provide certain "System Resources", which shall mean
certain skilled employees or independent contractors of
FCI who are programmers, system analysts, data
processing and data communications technical support
staff who support the Systems. Such System Resources
shall not include those personnel who are employees or
independent contractors of Metris, and its subsidiaries
and affiliates, including Direct Merchants Bank, and
shall primarily be those personnel whose functions
Metris or its subsidiaries and affiliates cannot
justify a full-time need for. Metris and FCI may
mutually agree to transfer System Resources to the cost
center of Metris.
3. During the service periods noted below, provide the
System Resources and maintain the Systems, in
accordance with the Service Level Agreement attached
hereto and incorporated herein by reference as Schedule
I to Exhibit 8, in connection with the services to be
provided to Metris in the operation of its businesses.
4. Ensure that the operations, hardware configurations,
software and other facilities and procedures relating
to access to, operation and use of the Systems
Resources and Systems made available by FCI shall,
throughout the term of this agreement, be consistent
with the Operating System and Procedures attached
hereto and incorporated herein by reference as Schedule
2 to Exhibit 8, as in effect immediately prior to the
date hereof, except as described in any "Change Control
Procedures" which shall be agreed to in writing by the
signatories to this Agreement prior to any such Change
Control Procedures taking place.
<PAGE> 26
5. Upon notification from Metris of non-application
processing errors, and as reasonably practicable to do
so after discovery thereof by Metris, use its
reasonable best efforts to correct any non-application
processing errors with respect to the System.
6. FCI agrees to maintain Metris' and Direct Merchant
Bank's customer data ("Customer Data") on its computers
(i.e. data processing equipment and software), and to
maintain (including update) Metris and Direct Merchant
Bank Customer Data with the same degree of care it uses
to maintain its customer database information. FCI
will segregate Metris and Direct Merchant Bank Customer
Data from customer database information and will
maintain procedures that FCI, in its sole discretion,
does not become a credit reporting agency as defined
under the Fair Credit Reporting Act and its
implementing regulations.
7. Maintain Metris', and its subsidiaries and affiliates,
including Direct Merchants Bank, customer data
(hereinafter "Metris Customer Data") on its computers
(i.e. data processing equipment and software), and to
maintain (including updates) such Metris Customer Data
with the same degree of care it uses to maintain
customer data. Subject to the confidentiality
requirements of Section 2.1 in the Agreement, FCI
agrees that it has and it will continue to segregate
Metris Customer Data from its customer data and will
maintain procedures such that FCI does not become a
credit reporting agency as defined under the Fair
Credit Reporting Act and its implementing regulations.
Metris' use and its unlimited exclusive access to the
Metris Customer Data shall include file selection,
segmentation, response modeling, storage, updating, and
maintenance of Metris Customer Data.
Additionally, FCI agrees that has or that it will
provide, on a timely basis, the requested Metris
Customer Data via magnetic tape or such other forms as
the parties may from time to time agree. FCI also will
continue to provide the requested data on a timely
basis to ensure Metris' production and solicitation
deadlines are met, Throughout the term of this
Agreement, FCI will also update the Metris Customer
Data with all additions, deletions, and other
amendments ("Updates") made or developed by Metris in
the ordinary course of its business, including without
<PAGE> 27
limitation, the addition of name and other information
related thereto of all persons on the Metris Customer
Database, and such Updates shall thereafter become part
of the Metris Customer Database for purposes of this
Exhibit to this Agreement.
FCI also agrees that it has or that it will maintain a
backup, archival or disaster recovery copy ("Back-up
Copy") of the Metris Customer Data. Metris shall have
the right to access such Back-Up Copy in the event of
(1) FCI's or Fingerhut Corporation's Bankruptcy (as
defined within Section 4.1 (c) of the Agreement), (ii)
FCI's main computer system is unable to process its
files, and (iii) upon expiration of this Agreement
without renewal.
8. Maintain for the benefit of Metris an adequate supply
of tape cartridges, desk spaces and general computer
supplies or the operation of the business contracted
for herein.
9. Maintain hours of operation for the Systems Resources
and the Systems performed and provided by FCI hereunder
on a basis consistent with the practice of FCI for the
periods prior to the execution of this Agreement,
except as otherwise provided in the Service Level
Agreement, as provided in Schedule I to this Exhibit.
If such hours of operations are interrupted for any
reasons whatsoever, Metris shall be notified as soon as
reasonably possible.
10. If for any reason, including without limitation, system
failures, power failures, interruption of data
communication lines or otherwise (but excluding periods
of "down time" scheduled in advance for any purpose
consistent with the practice of FCI prior to the
execution of this Agreement, i.e. systems maintenance
or systems modifications), FCI shall not be able to
provide Metris the Systems Resources and the Systems
during the hours of operation (in each case, a "System
Failure"), (i) notify Metris as soon as reasonably
possible thereafter of each such System Failure, (ii)
use its reasonable best efforts to correct each such
System Failure, and (iii) keep Metris informed on a
reasonably frequent basis during each such System
Failure as to the status thereof. As a result of such
System Failure, and subject to the provisions of item
#15 below and except in the case that any such System
Failure results from or arises out of FCI's gross
<PAGE> 28
negligence or willful misconduct, FCI shall not be
liable to Metris for any damages (direct or indirect,
consequential or otherwise), losses or other
liabilities arising from or caused by any System
Failure or any failure by FCI to provide any notice
required to be provided hereby, except for an
appropriate credit, as agreed upon by the parties to
this Exhibit 8, in an amount equal to the full amount
of the Systems Resources and Systems which were not
provided or performed due to such System Failure.
Subject also to the provisions of item #15 below, in
the event any System Failure continues for more than 24
consecutive hours, in addition to Metris' right to
receive a credit as noted above, Metris shall have the
right to obtain the provision and/or performance of the
System Resources and Systems from a third party
provider,
11. Exercise and provide back-up procedures and systems
consistent with the practice of FCI prior to the
execution of this Agreement in its provision of the
Systems Resources and Systems in the event
circumstances beyond the control of FCI prevent FCI
from being able to provide the Systems Resources and
Systems as provided for hereunder. FCI further agrees
that it will continue to use the same level of care,
consistent with the practice of FCI for the periods
prior to the execution of this Agreement, to minimize
the likelihood of all damages, losses of data, delays
and errors resulting from uncontrollable events; and
should such damages, losses of data, delays or errors
occur, that FCI will use its reasonable best efforts,
consistent with the practice of FCI for the periods
prior to the execution of this Agreement, to mitigate
the effects of such occurrence.
12. As a supplement to the confidentiality provisions of
Article 11 within the Agreement, define as
"Confidential Information", (i) all of Metris' Customer
Data and other information or data and all software and
computer programs to be provided (or to which access is
granted) by Metris to Fingerhut and to be processed or
used in connection with the provision and performance
of the System Resources and Systems for Metris, and all
data and all software and computer programs supplied by
Metris which shall have been processed or used by FCI
in connection with its provision and performance of the
System Resources and Systems for Metris and all data
and other information resulting therefrom and (ii) any
other customer data, customer lists, customer identity
and other information or data owned by Metris or any of
its affiliates, direct or indirect subsidiaries or any
of its customers, or any software or computer programs
or other proprietary information owned by Metris or any
of its affiliates, direct or indirect subsidiaries or
its customers, provided to FCI (or to which FCI may
have access) as a result of the arrangements provided
for herein or otherwise.
<PAGE> 29
13. Ensure that such Confidential Information provided (or
to which access is granted) by Metris to FCI under this
Agreement and this Exhibit to such Agreement, is
stored, processed and transmitted by FCI in confidence
in accordance with FCI's standard security policies and
procedures, and in such manner that use thereof and
access thereto is limited to the use and access
necessitated by the provision and performance of the
System Resources and Systems as contemplated by this
Agreement in accordance with FCI's standard security
policies and procedures. Specifically, consistent with
FCI's standard security policies and procedures, FCI
agrees that access to such Confidential Information
shall be limited to FCI's employees, agents and
consultants whose duties reasonably justify the need
for such access to such Confidential Information to
perform their assigned duties for FCI in connection
with the provision and performance of the System
Resources and Systems. FCI also agrees that it shall
continue to use its reasonable best efforts, in
accordance with its standard security policies and
procedures, to assure that any Confidential Information
provided by Metris to FCI or to which FCI, or any of
its employees, agents or consultants, or any other
party which obtains has or gains access to such
Confidential Information through FCI, shall be used and
processed solely for the purpose of providing and
performing the System Resources and Systems in
accordance with this Exhibit to this Agreement.
Anything herein to the contrary notwithstanding, FCI
shall not, and shall cause each of its employees,
agents and consultants not to, access or use any data
and/or software purchased from a third party for any
purpose whatsoever.
Take such precautions and observe such procedures to
protect the security of the Confidential Information.
Such precautions and procedures shall include, without
limitation, the restriction of physical and electronic
access to the Confidential Information to those persons
identified in Article 11 of this Agreement as
authorized to have access thereto, in all cases at
least to the extent that FCI protects its own
confidential and proprietary information and data. In
addition, consistent with FCI's standard security
policies and procedures, take such precautions to
protect the Confidential Information against
unauthorized access by persons who pursuant to the
terms of this Exhibit and the Agreement, or otherwise,
are not authorized to access the Confidential
Information, including without limitation, taking
reasonable precautions against unauthorized access over
phone lines, data networks or other communications
means.
<PAGE> 30
Should any employee, agent or consultant, or any other
party that obtains access to the Confidential
Information through FCI or within the scope of their
employment with FCI, improperly access, use, transfer,
distribute or disclose (or otherwise provide
unauthorized access to) such Confidential Information,
FCI agrees that it has or that it will, notify Metris,
as soon as reasonably practicable after learning of (or
having reasonable reason to suspect) any such conduct,
and, at its own expense for its legal fees and other
expenses, cooperate with Metris (and, as appropriate,
any third party whose data or other proprietary
information may have been comprised) to assist Metris
or such third party to enjoin and otherwise redress
such conduct, and discourage any repetitions by the
offending individual, entity or others similarly
situated, and will take such further steps as Metris
(or such third party) shall reasonably request
(including complaints to law enforcement authorities).
In the event that civil litigation is desired by Metris
(or such third party), and subject further to the
indemnification provisions of Article V of the
Agreement, Metris (or such third party) shall have
supervision and control and, in defense of any
counterclaim, the parties shall, to the extent it is
mutually beneficial, cooperate in preparing such
defense and consider a joint defense, and generally,
shall conduct and defend any litigation in such manner
as to preserve the attorney client and work-product
privileges and maintain the Confidential Information in
confidence, such as through entry of appropriate
protective orders.
14. Cause each of its employees, agents and consultants to
use due care to protect all Confidential Information
provided (or to which access is granted) by Metris to
FCI under this Agreement. If any Confidential
Information is lost or damaged by FCI, or lost, damaged
or stolen by any of its employees, agents or
consultants while such Confidential Information is in
FCI's possession, then, except as provided below, as
Metris' sole remedy, FCI shall, without cost to Metris,
regenerate, to the extent reasonably practicable, the
lost, destroyed or stolen Confidential Information from
copies of such Confidential Information maintained by
FCI, which copies shall be created and maintained by
FCI at the sole cost of Metris in accordance with
procedures reasonably requested by Metris. For
purposes of this item #13, "due care" shall mean care,
not less than that level of care exercised by FCI in
protection of its own confidential and proprietary
information and data. Nothing in this item #13 shall
be deemed to release FCI from any liability to Metris
or from any other liabilities arising from or caused by
any gross negligence or willful misconduct by FCI. The
foregoing notwithstanding, FCI agrees that, to the
extent any loss, damage or theft referred to in this
item #13 is or may be the basis for a claim by FCI or
any of its affiliates under any insurance policy
maintained by FCI or any of its affiliates, then FCI
shall pursue such claim and shall assign the proceeds
(or portion thereof as agreed to by the parties) with
respect to any such loss, damage or theft to Metris.
<PAGE> 31
15. Make available to Metris during normal business hours
and as necessary by situation, the personnel, services
and resources to assist Metris in developing its own
capabilities to provide and perform the System
Resources and Systems, or a portion thereof, until the
earlier of (i) the date Metris has actually developed
such capabilities, which date shall be the date set
forth in a termination notice with respect to this
Exhibit as provided under Article VI, Section 6.1(c),
in the Agreement, or (ii) the Agreement termination
date under Article VI of the Agreement.
16. Use its reasonable best efforts in cooperating with
Metris to obtain any consents, waivers or licenses on
the most favorable terms and conditions as practicable
which are necessary, or which may become necessary, to
enable FCI to provide the Systems Resources and Systems
during the term of this Agreement.
Duration.
Effective date through December 31, 1996.
Compensation:
A Systems and Systems Resource user fee, broken out between
those costs which would be capitalizable for software
development projects and those costs which would not be
capitalizable, all as in accordance with generally accepted
accounting principles, is as reflected for the Service
Periods below:
<PAGE> 32
SCHEDULE 1
SERVICE LEVEL AGREEMENT
1. Service Level Review and Change Procedure
A review of this Service Level Agreement may be called
for by any participant at any time. Consistent with
past practice, the Information Systems Department of
FCI (hereinafter the "Service Supplier") shall
reasonably cooperate with Metris, including its
subsidiaries and affiliates (hereinafter "Metris"), to
address additional Systems or Systems Resources needs
and the particular requirements of Metris, including
particular job requirements.
A formal review will also be held after the first six
months of this agreement.
2. Statement of Intent
This document defines the service level agreement
between FCI and Metris.
The scope of this agreement covers the level of service
provided by FCI Data Center. The primary areas of
service levels and responsibility are:
*Hours of Operation
*Tape Drive Availability
*Initiator Availability
*Printer Availability
*Wide Area Network (WAN) Support
*Notification Procedures
- Local Area Network (LAN) Support
- Project Support
- PC Support
The intent is to set up Metris in as "standalone" a
manner as possible with the ability to control the
prioritization of its work load. Although Metris will
still occasionally request one-time deviations to
address business necessities, the objective it to
create a self-managing environment with mutually-
accepted expectations.
<PAGE> 33
3. Participant's Signatories
Ronald N. Zebeck Thomas J. Bozlinski
Chief Executive Officer Senior Vice
President,
Metris Companies Inc. Information Services
Fingerhut Companies, Inc.
4. Service Details
Metris test jobs that do not utilize cartridge/tape
drives will use class 3.
All Metris production jobs will be submitted under
class H, whether they come from the scheduling package
(CA7) or are submitted by other means.
The class H jobs will be the same performance class as
F.
A JES priority level (9-15) will be established for
each type of job submitted by the owner. Metris will
vary the job priorities as necessary in order to best
manage its workload. Metris will also designate who
will be authorized to modify job priority levels.
FCI will insure that all shipping instructions received
by 5:00 p.m. Monday through Saturday will be processed
and the packages shipped by 5:45 p.m. that same day,
subject to practical limitations relating to excess
volume, consistent with past practice. Shipping
instructions received after 5:00 p.m. will be processed
ASAP. but there will not be a 5:45 p.m. shipping
guarantee.
In addition to normal work hours, the Marketing Control
area will be staffed on Saturday afternoons year-round
for tape copying of files received on Saturday
mornings.
Wide Area Network (WAN) support will be provided from
FCI to Metris. The WAN will be error-free and
available 99% of the time measured on a monthly basis,
or FCI will actively work with Metris to achieve this
objective.
<PAGE> 34
Local Area Network (LAN) support will be provided from
FCI to Metris. The LAN will be error-free and
available 99% of the time measured on a monthly basis,
or FCI will actively work with Metris to achieve this
objective.
5. Service Communications
Service level drops and/or job cancellations will
result in direct notification to Metris.
A. In the event of system degradation, FCI and the
Metris Customers will share on a prorated basis
the remaining system resources.
B. Individual job cancellations will be addressed as
follows:
Weekday Business Hours: 8 a.m. - 5 p.m. (Monday
through Friday)
Call to office phones in the following priority:
Will provide individuals to contact
Non-Business Hours:
Will provide pager numbers
<PAGE> 35
EXHIBIT 9
Credit Insurance Management Services
Metris agrees that it has or that it will on behalf of
Direct Merchants Bank and/or Metris (including subsidiaries)
as the case may be:
1. Provide FCI with the personnel and other resources to
manage the insurance products offered within the closed-
end installment coupon book, including credit insurance
offers therein. Manage the relationship with the third
party insurance provider and coordinate resolution of
legal and regulatory issues.
2. Budget, forecast and project insurance premiums and
related expenses, including claims and other
fulfillment costs, on a daily basis. Report on
insurance and provide other reports to management on
the experience of the program.
3. Coordinate all marketing activities for such insurance
product offers including any modifications to such
offers. Review, modify and approve all insurance
literature and coordinate any tests with customer
service, credit marketing and operations.
4. Manage the continuing development and maintenance of
the insurance database. Monitor and modify individual
state rate and product tables as necessary. Also,
monitor the coupon master file.
5. Manage the insurance customer service functions.
6. Assist in Fingerhut's transition to a proprietary open-
end revolving charge product, particularly with respect
to the development of credit insurance offers for such
product.
7. Transition the above functions to FCI personnel in late
1996, but no later than January 1, 1997.
Metris agrees to perform the above services in accordance
with the Performance of Services in Section 1.2 and other
terms and conditions of the Agreement.
Duration:
Effective through December 31, 1996.
Compensation:
1. Incremental third party expenses, and
2. A pro-rate share of Metris' insurance and warranty
department's expenses as agreed to by the parties for
each of the calendar years ended as reflected below:
<PAGE> 1
Exhibit 10.o
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT dated as of October ___,
1996, is made and entered into by Fingerhut Companies, Inc.,
a Minnesota corporation ("FCI") and Metris Companies Inc., a
Delaware corporation ("Metris"), and the Metris Affiliates.
RECITALS
WHEREAS, FCI is the common parent corporation of an
affiliated group of corporations within the meaning of
Section 1504(a) of the Internal Revenue Code of 1986, as
amended (the "CODE") and of combined groups as defined under
similar laws of other jurisdictions ("FCI GROUP"), and
Metris and the Metris Affiliates are members of such groups;
and
WHEREAS, the groups of which FCI is the common parent
and Metris and the Metris Affiliates are members, file or
intend to file Consolidated Returns and Combined Returns;
and
WHEREAS, FCI and Metris desire to provide for the
allocation of liabilities, procedures to be followed, and
other matters with respect to certain taxes for taxable
periods beginning after December 31, 1993.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual
covenants and promises contained herein, and other good and
valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS
1.1. "AUDIT" includes any audit, assessment of Taxes,
other examination by any Tax Authority, proceeding, or
appeal of such proceeding relating to Taxes, whether
administrative or judicial.
1.2. "COMBINED GROUP" means a group of corporations or
other entities that files a Combined Return.
1.3. "COMBINED RETURN" means any Tax Return with
respect to Non-Federal Taxes filed on a consolidated,
combined (including nexus combination, worldwide
combination, domestic combination, line of business
combination or any other form of combination) or unitary
basis wherein one or more members of the Metris Group join
in the filing of a Tax Return with FCI or a FCI subsidiary
that is not also a member of the Metris Group.
1.4. "CONSOLIDATED GROUP" means the affiliated group of
corporations within the meaning of Section 1504(a) of the
Code of which FCI is the common parent and which includes
the Metris Group.
<PAGE> 2
1.5. "CONSOLIDATED RETURN" means any Tax Return with
respect to Federal Income Taxes filed by FCI and its
subsidiaries pursuant to Section 1501 of the Code.
1.6. "DECONSOLIDATION" means any event pursuant to
which the FCI or the Metris Group cease to be includible in
the Consolidated Group or the Combined Group.
1.7. "DECONSOLIDATION DATE" means the close of business
on the day on which a Deconsolidation occurs. Unless
otherwise required by the relevant Tax Authority or a court
of competent jurisdiction, FCI and Metris, for itself and
the Metris Group, agree to file all Tax Returns, and to take
all other actions, relating to Federal Income Taxes or Non-
Federal Combined Taxes in a manner consistent with the
position that Metris and the Metris Group are includible in
the Consolidated Group and the Combined Group for all days
from December 31, 1993 through and including a
Deconsolidation Date.
1.8. "ESTIMATED TAX INSTALLMENT DATE" means the
installment due dates prescribed in Section 6655(c) of the
Code (presently April 15, June 15, September 15 and December
15).
1.9. "FCI GROUP" means FCI and its affiliates other
than the Metris Group.
1.10. "FEDERAL INCOME TAXES" means any tax imposed
under Subtitle A of the Code (including the taxes imposed by
Sections 11, 55, 59A and 1201(a) of the Code), including any
interest, additions to tax, or penalties applicable thereto,
and any other income based United States federal taxes which
are hereinafter imposed upon corporations.
1.11. "FINAL DETERMINATION" means (a) the final
resolution of any tax (or other matter) for a taxable
period, including any related interest or penalties, that,
under applicable law, is not subject to further appeal,
review or modification through proceedings or otherwise,
including (1) the expiration of a statute of limitations
(giving effect to any extension, waiver or mitigation
thereof) or a period for the filing of claims for refunds,
amended returns, appeals from adverse determinations, or
recovering any refund (including by offset), (2) a decision,
judgment, decree, or other order by a court of competent
jurisdiction, which has become final and unappealable, (3) a
closing agreement or an accepted offer in compromise under
Section 7121 or 7122 of the Code, or comparable agreements
under laws of other jurisdictions, (4) execution of an
Internal Revenue Service Form 870 or 870AD, or by a
comparable form under the laws of other jurisdictions
(excluding, however, any such form that reserves (whether by
its terms or by operation of law) the right of the taxpayer
to file a claim for refund and/or the right of the Tax
Authority to assert a further deficiency), or (5) any
allowance of a refund or credit, but only after the
expiration of all periods during which such refund or credit
may be recovered (including by way of offset) or (b) the
payment of tax by any member of the Consolidated Group or
Combined Group with respect to any item disallowed or
adjusted by a Tax Authority provided that FCI determines
that no action should be taken to recoup such payment.
1.12. "METRIS AFFILIATE" means any corporation or
other entity directly or indirectly owned or controlled by
Metris (including direct or indirect subsidiaries of
Fingerhut Companies, Inc. and including the extended service
plan business of Fingerhut Corporation), as of the date of
execution of this Agreement, which is includible in the
Metris Group. Such corporations or other entities shall
specifically, without limitation, include DMCCB Inc.; Direct
Merchants Credit Card Bank, National Association; Fingerhut
Financial Services Receivables, Inc.; and the extended
service plan business of Fingerhut Corporation.
<PAGE> 3
1.13. "METRIS GROUP" means the affiliated group of
corporations as defined in Section 1504(a) of the Code, or
similar group of entities as defined under similar laws of
other jurisdictions, including Metris and the Metris
affiliates, of which Metris is deemed to be the common
parent, and any corporation or other entity which may have
been, may be or may become a member of such group from time
to time.
1.14. "METRIS GROUP COMBINED TAX LIABILITY" means,
with respect to any taxable year, the Metris Group's
liability for Non-Federal Combined Taxes as determined under
Section 2.3 of this Agreement.
1.15. "METRIS GROUP FEDERAL INCOME TAX LIABILITY"
means, with respect to any taxable year, the Metris Group's
liability for Federal Income Taxes as determined under
Section 2.2 of this Agreement.
1.16. "NON-FEDERAL COMBINED TAXES" means any Non-
Federal Domestic Taxes with respect to which a Combined
Return is filed.
1.17. "NON-FEDERAL SEPARATE TAXES" means any Non-
Federal Domestic Taxes that are not Non-Federal Combined
Taxes.
1.18. "NON-FEDERAL DOMESTIC TAXES" includes all
domestic state and local taxes, charges, fees, levies,
imposts, duties, or other assessments of a similar nature,
including, without limitation, income, alternative or add-on
minimum, gross receipts, excise, employment, sales, use,
transfer, license, payroll, franchise, severance, stamp,
occupation, windfall profits, withholding, Social Security,
unemployment, disability, ad valorem, estimated, highway
use, commercial rent, capital stock, paid up capital,
recording, registration, property, real property gains,
value added, business license, custom duties, or other tax
or governmental fee of any kind whatsoever, imposed or
required to be withheld by any domestic Tax Authority
(excluding any federal governmental agency of the United
States), including any interest, additions to tax, or
penalties applicable thereto.
1.19. "POST-DECONSOLIDATION PERIOD" means a taxable
period beginning after the Deconsolidation Date.
1.20. "PRE-DECONSOLIDATION PERIOD" means a taxable
period ending on or prior to the Deconsolidation Date.
1.21. "PRO FORMA METRIS GROUP COMBINED RETURN"
means a pro forma Metris Combined Return or other schedule
prepared pursuant to Section 2.3 of this Agreement.
1.22. "PRO FORMA METRIS GROUP CONSOLIDATED RETURN"
means a pro forma Consolidated Return prepared pursuant to
Section 2.2 of this Agreement.
1.23. "REDETERMINATION AMOUNT" means, with respect
to any taxable year, the amount determined under Section 3.7
of this Agreement.
1.24. "SPECIAL TAX ATTRIBUTES" means any net
operating loss, net capital loss, investment tax credit,
charitable deduction or any other deduction, credit or tax
attribute which could reduce taxes (including without
limitation deductions and credits related to alternative
minimum taxes).
1.25. "STRADDLE PERIOD" means a taxable period
beginning on or prior to and ending after the
Deconsolidation Date.
<PAGE> 4
1.26. "TAX AUTHORITY" includes the Internal Revenue
Service and any state, local, or other governmental
authority responsible for the administration of any Taxes.
1.27. "TAXES" means Federal Income Taxes and Non-
Federal Taxes.
1.28. "TAX RETURN" means any return, declaration,
statement, report, schedule, certificate, form, information
return or any other document (and any related or supporting
information) including an amended tax return required to be
supplied to, or filed with, a Tax Authority with respect to
Taxes.
SECTION 2. TAX SHARING
2.1. METRIS LIABILITY FOR FEDERAL INCOME TAXES AND NON-
FEDERAL COMBINED TAXES. With respect to each taxable year,
Metris shall pay to FCI (or FCI shall pay to Metris) in
accordance with the procedures set forth in Section 3, an
amount equal to the sum of the Metris Group Federal Income
Tax Liability (or refund) and the Metris Group Combined Tax
Liability (or refund) for such taxable year.
2.2. METRIS GROUP FEDERAL INCOME TAX LIABILITY.
(a) IN GENERAL. With respect to any taxable
year, the Metris Group Federal Income Tax Liability shall be
the sum, for such taxable year, of (1) the Metris Group's
liability for Federal Income Taxes as determined on the Pro
Forma Metris Group Consolidated Return, and (2) any
interest, penalties and other additions applicable to such
taxes.
(b) PRO FORMA FEDERAL RETURN. With respect to
each taxable year, FCI shall prepare or cause to be prepared
a pro forma consolidated federal income tax return or other
comparable schedules for the Metris Group ("Pro Forma Metris
Group Consolidated Return") as if (except as provided in
Section 2.2(c)) the Metris Group was not, nor ever was a
part of the Consolidated Group, but rather was a separate
affiliated group of corporations, consisting of Metris and
the Metris affiliates of which Metris was the common parent
filing a consolidated federal income tax return pursuant to
Section 1501 of the Code.
(c) OPERATING RULES. The Pro Forma Metris Group
Consolidated Return shall be prepared:
(1) reflecting the elections, methods of
accounting, and positions with respect to specific items to
be made or used in the Consolidated Return;
(2) giving effect to any deduction or credit
for any Metris Special Tax Attribute as determined on the
Pro Forma Metris Group Consolidated Return. In addition,
Metris shall measure the benefit of any deduction or credit
for any Metris Special Tax Attributes for which a tax
benefit is actually received in a Consolidated Return, but
for this purpose, if the Metris Group and the FCI Group
contribute like Special Tax Attributes to a Consolidated
Return (not necessarily in the same taxable year) which are
partially or fully limited under the Code, the Metris Group
shall only receive benefit for such like Special Tax
Attributes to the extent that the Special Tax Attributes for
which a tax benefit is actually received in a Consolidated
Return exceed such like Special Tax Attributes contributed
by the FCI Group;
(3) applying the top marginal income tax
rate used in the Consolidated Return;
<PAGE> 5
(4) reflecting transactions with members of
the Consolidated Group that are not also members of the
Metris Group as if such transactions were not with members
of the same Consolidated Group. Metris personnel would be
responsible for identifying all such transactions in each
taxable year, and providing such information to FCI for
review and approval within sixty (60) days of year end, in
order to assist FCI in preparing the Pro Forma Metris Group
Consolidated Return; and
(5) reflecting deductions for Non-Federal
Combined Taxes estimated as provided for in Section 2.3 of
this agreement.
2.3 METRIS GROUP COMBINED TAX LIABILITY
(a) IN GENERAL. With respect to any taxable
year, the Metris Group Combined Tax Liability shall be the
sum, for such taxable year, of (1) the Metris Group's
liability for Non-Federal Combined Taxes as determined on
the Pro Forma Metris Group Combined Return and (2) any
interest, penalties and other additions to such taxes.
(b) PRO FORMA COMBINED RETURN. Each taxable
year, FCI shall prepare or cause to be prepared a pro forma
combined tax return or other schedule for the Metris Group
("Pro Forma Metris Group Combined Return") determined as if
the Metris Group was not and never was part of the Combined
Group, but rather was a separate group of which Metris was
the common parent filing a combined tax return.
(c) OPERATING RULES. The Pro Forma Metris Group
Combined Return shall be prepared by reference to:
(1) the Metris Group's taxable income or
loss from Line 28 (or other similar line representing
taxable income before net operating loss deduction and
special deductions) of the Pro Forma Metris Group
Consolidated Return, adjusted to take into account (i) those
members of the Metris Group which are included in the
Combined Return, (ii) Metris Group Special Tax Attributes;
and (iii) material adjustments necessary to reflect the laws
of the applicable jurisdiction;
(2) apportionment factors determined by
taking into account only those members of the Metris Group
which are included in the Combined Return;
(3) the highest applicable tax rate without
regard to any graduated rates; and
(4) the fact that if a Metris Group Special
Tax Attribute cannot be fully utilized in the Pro Forma
Metris Group Combined Return, the Metris Group will only be
able to realize a benefit from such Special Tax Attribute to
the extent it is allowed to utilize such Special Tax
Attribute when carried forward or carried back to a Pro
Forma Metris Group Combined Return in future or prior years.
SECTION 3. PAYMENT OF TAXES AND TAX SHARING AMOUNTS
3.1 FEDERAL INCOME TAXES. FCI shall pay timely to the
Internal Revenue Service all Federal Income Taxes, if any,
of the Consolidated Group (including the Metris Group) due
and payable for all Pre-Deconsolidation Periods.
3.2. NON-FEDERAL COMBINED TAXES. FCI shall pay timely
to the appropriate Tax Authorities all Non-Federal Combined
Taxes, if any, of the Combined Group (including the Metris
Group) due and payable for all Pre-Deconsolidation Periods
and Straddle Periods.
3.3. NON-FEDERAL SEPARATE TAXES. Metris shall pay
timely to the appropriate Tax Authorities all Non-Federal
Separate Taxes, if any, of the Metris Group due and payable
for all Pre-Deconsolidation Periods and Straddle Periods.
3.4. OTHER FEDERAL TAXES. The parties shall each pay
timely to the appropriate governmental authorities all of
their respective other federal taxes (excluding Federal
Income Taxes for Pre-Deconsolidation Periods, which are
governed by Section 3.1 of this Agreement), if any, due and
payable for all Pre-Deconsolidation Periods, Straddle
Periods, and Post-Deconsolidation Periods.
<PAGE> 6
3.5. TAX SHARING INSTALLMENT PAYMENTS.
(a) FEDERAL INCOME TAXES. Not later than five
(5) business days after each Estimated Tax Installment Date
with respect to any Pre-Deconsolidation Period or Straddle
Period, FCI shall determine under Section 6655 of the Code
the estimated amount of the related installment of the
Metris Group Federal Income Tax Liability and shall notify
Metris of such amount in writing. Metris shall review such
calculation and shall then pay to FCI, not later than ten
(10) business days after such Estimated Tax Installment
Date, the amount thus determined. In addition, the
provisions of this Section 3.5(a) shall apply to any federal
income tax payment made with the filing of the extension of
the Consolidated Return.
(b) NON-FEDERAL COMBINED TAXES. Not later than
May 1 of the year subsequent to each taxable year with
respect to any Pre-Deconsolidation Period or Straddle
Period, FCI shall deliver to Metris, in writing, an estimate
of the Metris Group Combined Tax Liability for such taxable
year determined by using the apportionment factors
applicable to such taxable year. Metris shall review such
calculation and shall then pay to FCI, not later than ten
(10) business days after receipt of such estimate, the
amount thus determined.
3.6. TAX SHARING TRUE UP PAYMENTS.
(a) FEDERAL INCOME TAXES. Not later than ninety
(90) business days after the Consolidated Return is filed
with respect to any Pre-Deconsolidation Period or Straddle
Period, FCI shall deliver to Metris a Pro Forma Metris Group
Consolidated Return or other comparable schedules reflecting
the Metris Group Federal Income Tax Liability. Not later
than ten (10) business days after the date such pro forma or
other schedules are delivered, Metris shall review such
return or other comparable schedules and shall pay to FCI,
or FCI shall pay to Metris, as appropriate, an amount equal
to the difference, if any, between the Metris Group Federal
Income Tax Liability for such taxable year, as adjusted, and
the aggregate amount paid by Metris with respect to such
taxable year under Section 3.5(a) of this Agreement.
(b) NON-FEDERAL COMBINED TAXES. Not later than
December 15 following each taxable year with respect to any
Pre-Deconsolidation Period or Straddle Period, FCI shall
deliver to Metris a Pro Forma Metris Group Combined Return
or other comparable schedules reflecting the Metris Group
Combined Tax Liability for such taxable year. Not later
than ten (10) business days following delivery of such pro
forma or other schedules, Metris shall review such return or
other comparable schedules and shall pay to FCI, or FCI
shall pay to Metris, as appropriate, an amount equal to the
difference, if any, between the Metris Group Combined Tax
Liability, for the taxable year and the amount paid by
Metris with respect to such taxable year under Section
3.5(b) of this Agreement.
3.7. REDETERMINATION AMOUNTS.
(a) IN GENERAL. In the event of any
redetermination of any item of income, gain, loss, deduction
or credit of any member of the Consolidated Group or
Combined Group as a result of a Final Determination or any
settlement or compromise with any Tax Authority (including
any amended tax return or claim for refund filed by FCI),
Metris shall pay FCI or FCI shall pay Metris, as the case
may be, the Redetermination Amount.
(b) COMPUTATION. The Redetermination Amount
shall be the difference, if any, between all amounts
previously determined under Section 2 of this Agreement and
all amounts that would have been determined under Section 2
of this Agreement taking such redetermination into account
(including any additions to tax or penalties applicable
thereto), together with interest for each day calculated (1)
with respect to redeterminations affecting Federal Income
Taxes, at the rate determined, in the case of payment by
Metris, under Section 6621(a)(2) of the Code and, in the
case of payment by FCI, under Section 6621(a)(1) of the
Code, and (2) with respect to redeterminations affecting Non-
Federal Combined Taxes, under similar laws, if any, of other
jurisdictions.
(c) PAYMENT. FCI shall deliver to Metris a
schedule reflecting the computation of any Redetermination
Amount with respect to any taxable year. Not later than ten
(10) days after the date such schedule is delivered, Metris
shall review such schedule and shall pay FCI, or FCI shall
pay Metris, such Redetermination Amount.
3.8. INTEREST. Payments under this Section 3 that are
not made within the prescribed period shall thereafter bear
interest at the Federal short-term rate established pursuant
to Section 6621 of the Code.
<PAGE> 7
SECTION 4. PROCEDURAL MATTERS
4.1. AGENT, PREPARATION AND FILING OF RETURNS. Until
Deconsolidation, FCI shall be the sole and exclusive agent
of Metris and any member of the Metris Group in any and all
matters relating to (a) Federal Income Taxes of the
Consolidated Group and (b) any Non-Federal Combined Taxes
for all Pre-Deconsolidation Periods and Straddle Periods.
Until December 31, 1997, FCI shall have the sole and
exclusive responsibility for the preparation and filing of
any (a) Consolidated Return or (b) Combined Return for all
Pre-Deconsolidation Periods and Straddle Periods. In its
sole discretion, FCI shall have the exclusive right with
respect to any such Consolidated Return or Combined Return
(a) to determine (1) the manner in which such Tax Return
shall be prepared and filed, including, without limitation,
the manner in which any item of income, gain, loss,
deduction or credit shall be reported, (2) whether any
extensions may be requested, (3) the elections that will be
made by any member of the Consolidated Group or Combined
Group, and (4) whether any amended tax returns should be
filed, (b) to control, contest, and represent the interests
of the Consolidated Group and Combined Group in any Audit
and to resolve, settle, or agree to any adjustment or
deficiency proposed, asserted or assessed as a result of any
Audit, (c) to file, prosecute, compromise or settle any
claim for refund, and (d) to determine whether any refunds,
to which the Consolidated Group or Consolidated Group may be
entitled, shall be paid by way of refund or credited against
the tax liability of the Consolidated Group and Combined
Group. Metris, for itself and its subsidiaries, hereby
irrevocably appoints FCI as its agent and attorney-in-fact
to take such action (including the execution of documents)
as FCI may deem appropriate to effect the foregoing.
4.2. FURNISHING INFORMATION. Each member of the Metris
Group shall (a) furnish to FCI in a timely manner such
information and documents as FCI may reasonably request for
purposes of (1) preparing any original or amended
Consolidated Return or Combined Return, (2) contesting or
defending any Audit, and (3) making any determination or
computation necessary or appropriate under this Agreement,
(b) cooperate in any Audit of any Consolidated Return or
Combined Return, (c) retain and provide on demand books,
records, documentation or other information relating to any
tax return until the later of (1) the expiration of the
applicable statute of limitations (giving effect to any
extension, waiver, or mitigation thereof) and (2) in the
event any claim is made under this Agreement for which such
information is relevant, until a Final Determination with
respect to such claim is made, and (d) take such action as
FCI may deem appropriate in connection therewith. FCI shall
provide the Metris Group with any assistance reasonably
required in providing any information requested pursuant to
this Section 4.2.
4.3. EXPENSES. Metris shall reimburse FCI for its
reasonable portion of third party legal and accounting
expenses incurred by FCI in the course of the planning and
preparation of any tax returns, the conduct of any Audit
regarding the tax liability of the Combined Group or
Consolidated Group, and for any other expense incurred by
FCI in the course of any litigation relating thereto, to the
extent such costs are reasonably attributable to the Metris
Group and provided FCI has conferred with Metris as to the
portion of such costs relating to the Metris Group.
Notwithstanding the foregoing, FCI shall have the sole
discretion to control, contest, represent, file, prosecute,
challenge or settle any Audit.
SECTION 5. DECONSOLIDATION
5.1. CONTINUING COVENANTS. Metris, for itself and the
Metris Affiliates, covenants that on or after a
Deconsolidation it will not, nor will it cause or permit any
member of the Metris Group to, make or change any tax
election, change any accounting method, amend any tax return
or take any tax position on any tax return, take any action,
omit to take any action or enter into any transaction that
results in any increased tax liability or reduction of any
Special Tax Attributes of the Metris Group in respect of any
Pre-Deconsolidation Period or Straddle Period.
5.2. REATTRIBUTION OF SPECIAL TAX ATTRIBUTES. In the
event of a Deconsolidation, FCI may, at its option, elect to
reattribute to itself certain Special Tax Attributes of the
Metris Group pursuant to Treasury Regulations Section 1.1502-
20(g) or similar provisions of other jurisdictions. If FCI
makes such an election, Metris shall comply with any
applicable requirements, including those of Treasury
Regulations Section 1.1502-20(g)(5).
<PAGE> 8
5.3. CARRYBACKS. FCI agrees to pay to Metris the
actual tax benefit received by the FCI Group from the use in
any Pre-Deconsolidation Period of a carryback of any Special
Tax Attributes of the Metris Group from a Post-
Deconsolidation Period. Such benefit shall be considered
equal to the lesser of (a) the benefit Metris would have
received had such Special Tax Attributes arisen in a Pre-
Deconsolidation Period and (b) the excess of (1) the amount
of Federal Income Taxes imposed on the Consolidated Group or
the amount of Combined Taxes imposed on the Combined Group,
as the case may be, that would have been payable by the
Consolidated Group or Combined Group in the absence of such
carryback over (2) the amount of Federal Income Taxes or
Combined Taxes, as the case may be, actually paid. Payment
of the amount of such benefit shall be made within ninety
(90) days of the filing of the applicable tax return for the
taxable year in which the Special Tax Attributes are
utilized. If subsequent to the payment by FCI to Metris of
any such amount, there shall be (a) a Final Determination
which results in a disallowance or a reduction of the
Special Tax Attributes so carried back or (b) a reduction in
the amount of the benefit realized by the FCI Group as a
result of any other Special Tax Attributes that arise in a
Post-Deconsolidation Period, Metris shall receive support
for such disallowance or reduction in writing, and shall
repay to FCI, within ninety (90) days of such event, any
amount which would not have been payable to Metris pursuant
to this Section 5.3 had the amount of the benefit been
determined in light of these events. Metris shall hold FCI
harmless for any penalty, addition to tax or interest
payable by any member of the FCI Group as a result of any
such event. Any such amount shall be provided to Metris in
writing and shall be paid by Metris to FCI within ninety
(90) days after notice to Metris of the payment by FCI, or
any member of the Consolidated Group or Combined Group of
any such penalty, addition to tax, or interest. Nothing in
this Section 5.3 shall require FCI to file a claim for
refund of Federal Income Taxes or Combined Taxes.
SECTION 6. DISPUTES
6.1. ACCOUNTING FIRM. If the parties are unable to
agree on the amount which is allocable or due to one party
from the other under this Agreement (including any payments
due under Section 3.5, 3.6 or 3.7), or on whether an action
or failure to act has the effect of minimizing taxes, then
either party may invoke this procedure by giving notice to
the other. Upon receipt of such notice, the parties shall
select and notify a single public accounting firm to resolve
the dispute. If the parties cannot agree on a single firm
within ten (10) days, they shall each select a nationally
recognized public accounting firm, which may include the
public accounting firm which regularly opines on either
party's financial statements ("Auditor). Those two firms
shall jointly select and notify, within ten (10) days, a
third independent nationally recognized public accounting
firm, which shall not be the Auditor of either party, to
resolve the dispute.
6.2 RESOLUTION OF DISPUTE. The chosen public
accounting firm (the "Arbitrator") shall be provided with
written arguments by each party and all supporting documents
which each party deems necessary within thirty (30) days of
selection of the Arbitrator. Each party shall provide the
other party with copies of all written arguments, documents,
and correspondence submitted to the Arbitrator. Either
party may discuss the issues with the Arbitrator provided
the other party is given the opportunity to be present.
Within sixty (60) days of selection of Arbitrator, the
Arbitrator may request each party to respond to the written
arguments provided by the other party. The Arbitrator may
also set a date, time and place for oral arguments. Within
sixty (60) days of any oral arguments or the last written
arguments, whichever is later, the Arbitrator shall notify
the parties of its decision. If in the opinion of the
Arbitrator, an expedited decision is necessary to protect
either party's rights, the Arbitrator shall accelerate the
dates for submissions, arguments and decision so as to
protect the rights of the parties.
6.3 BINDING RESOLUTION. The determination made by the
Arbitrator under Section 6.2 hereof shall be conclusive and
binding upon the parties and shall not be subject to appeal,
except in the case of manifest mathematical error.
6.4 COSTS OF DISPUTE RESOLUTION. The parties shall
share equally in all fees and costs of the Arbitrator.
<PAGE> 9
SECTION 7. MISCELLANEOUS
7.1. TERM. This Agreement shall expire upon the
Deconsolidation Date; provided, however, that all rights and
obligations arising hereunder with respect to a Pre-
Deconsolidation Period or Straddle Period shall survive
until they are fully effectuated or performed and, provided,
further, that notwithstanding anything in this Agreement to
the contrary, all rights and obligations arising hereunder
with respect to a Post-Deconsolidation Period shall remain
in effect and its provisions shall survive for the full
period of all applicable statutes of limitation (giving
effect to any extension, waiver or mitigation thereof).
7.2. ALLOCATIONS. All computations with respect to the
Pre-Deconsolidation Period ending on the Deconsolidation
Date, the immediately following taxable period of Metris and
the Metris Group and any Straddle Period shall be made
pursuant to the principles of Treasury Regulations Section
1.1502-76(b), taking into account such elections thereunder
as FCI, in its sole discretion, shall make.
7.3. CHANGES IN LAW. Any reference to a provision of
the Code or a similar law of another jurisdiction shall
include a reference to any successor provision to such
provision.
7.4. CONFIDENTIALITY. Each party shall hold and cause
its advisors and consultants to hold in strict confidence,
unless compelled to disclose by judicial or administrative
process or, in the opinion of its counsel, by other
requirements of law, all information (other than any such
information relating solely to the business or affairs of
such party) concerning the other parties hereto furnished it
by such other party or its representatives pursuant to this
Agreement (except to the extent that such information can be
shown to have been (a) previously known by the party to
which it was furnished, (b) in the public domain through no
fault of such party, or (c) later lawfully acquired from
other sources not under a duty of confidentiality by the
party to which it was furnished), and each party shall not
release or disclose such information to any other person,
except its auditors, attorneys, financial advisors, bankers
and other consultants who shall be advised of and agree to
be bound by the provisions of this Section 7.4. Each party
shall be deemed to have satisfied its obligation to hold
confidential information concerning or supplied by the other
party if it exercises the same care as it takes to preserve
confidentiality for its own similar information.
7.5. SUCCESSORS. This Agreement shall be binding on
and inure to the benefit of any successor, by merger,
acquisition of assets or otherwise, to any of the parties
hereto (including any successor of FCI and Metris succeeding
to the tax attributes of such party under Section 381 of the
Code), to the same extent as if such successor had been an
original party.
7.6. AUTHORIZATION, ETC. Each of the parties hereto
hereby represents and warrants that it has the power and
authority to execute, deliver and perform this Agreement,
that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that
this Agreement constitutes a legal, valid and binding
obligation of each such party and that the execution,
delivery and performance of this Agreement by such party
does not contravene or conflict with any provision of law or
of its charter or bylaws or any agreement, instrument or
order binding on such party.
7.7. ENTIRE AGREEMENT. This Agreement contains the
entire agreement among the parties hereto with respect to
the subject matter hereof and supersedes all prior
agreements.
7.8. SECTION CAPTIONS. Section captions used in this
Agreement are for convenience and reference only and shall
not affect the construction of this Agreement.
7.9. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Minnesota without giving effect to laws and principles
relating to conflicts of law.
<PAGE> 10
7.10. COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall be deemed
an original, but all of which together shall constitute one
and the same Agreement.
7.11. WAIVERS AND AMENDMENTS. This Agreement shall
not be waived, amended or otherwise modified except in
writing, duly executed by all of the parties hereto.
7.12. SEVERABILITY. In case any one or more of the
provisions in this Agreement should be invalid, illegal or
unenforceable, the enforceability of the remaining
provisions hereof will not in any way be effected or
impaired thereby.
7.13. NO THIRD PARTY BENEFICIARIES. This Agreement
is solely for the benefit of the parties to this Agreement
and the other members of the Consolidated Group and should
not be deemed to confer upon third parties any remedy,
claim, liability, reimbursement, claim of action or other
rights in excess of those existing without this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed by a duly authorized
officer as of the date first above written.
FINGERHUT COMPANIES, INC.
By:
Name:
Title:
METRIS COMPANIES INC.
By:
Name:
Title:
<PAGE> 1
Exhibit 10.p
REGISTRATION RIGHTS AGREEMENT
(this "Agreement"), dated as of [ ],
1996, between Fingerhut Companies, Inc., a
Minnesota corporation ("FCI"), and Metris
Companies Inc., a Delaware corporation (the
"Company").
WHEREAS, FCI [together with its subsidiaries] is
the owner of [all] of the issued and outstanding shares of
the common stock (the "Common Stock"), of the Company;
WHEREAS, the Company is offering and selling to
the public by means of a Registration Statement on Form S-1
(the "Registration Statement") up to [ ] shares of
the Common Stock; and
WHEREAS, the Company and FCI desire to provide for
certain registration rights with respect to the shares of
Common Stock held by FCI (the "Shares").
NOW THEREFORE, in consideration of the mutual
covenants and agreements set forth herein and for other good
and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
Effectiveness of Agreement; Term
SECTION 1.01. Closing Date. This Agreement shall
take effect upon the closing (the "Closing Date") of the
sale of shares of Common Stock offered by the Company
pursuant to the Registration Statement (File No. 333-10831)
filed with the Securities and Exchange Commission (the
"SEC") on [ ], 1996.
SECTION 1.02. Term. This Agreement shall remain
in effect from the Closing Date until that date (the
"Termination Date") which is five years after the date on
which FCI ceases to own at least [50%] of the outstanding
shares of stock of the Company entitled to vote generally in
the election of directors; provided, however, that this
Agreement shall remain in effect until the completion of any
registration of shares under Article II or Article III which
commenced prior to the Termination Date notwithstanding the
Termination Date.
<PAGE> 2
ARTICLE II
Demand Registration
SECTION 2.01. Notice. Upon the terms and subject
to the conditions set forth herein, upon written notice of
FCI or its Permitted Transferees (as defined in
Section 2.04) (FCI and such Permitted Transferees being
collectively referred to herein as the "Holders") requesting
that the Company effect the registration under the
Securities Act of 1933, as amended (the "Securities Act"),
of any or all of the Shares held by it, which notice shall
specify the intended method or methods of disposition of
such Shares, the Company will promptly give written notice
of the proposed registration to all other Holders and will
use its best efforts to effect (at the earliest possible
date) the registration under the Securities Act of such
Shares (and the Shares of any other Holders joining in such
request as are specified in a written notice received by the
Company within 20 days after receipt of the Company's
written notice of the proposed registration) for disposition
in accordance with the intended method or methods of
disposition stated in such request; provided, however, that:
(a) if the Company shall have previously effected
two registrations with respect to Shares pursuant to
this Article II within the previous 18 months, the
Company shall not be required to effect a registration
pursuant to this Article II until 18 months shall have
elapsed from the effective date of the second most
recent such registration;
(b) if, upon receipt of a registration request
pursuant to this Article II, the Company is advised in
writing, with a copy to the Holders of Shares proposed
to be included in the offering (the "Selling Holders"),
by a recognized independent investment banking firm
selected by the Company and reasonably acceptable to
the Selling Holders that, in such firm's opinion, a
registration at the time and on the terms requested
would adversely affect any public offering of
securities by the Company, other than in connection
with employee benefit and similar plans (a "Company
Offering") that had been contemplated by the Company
prior to the notice by the Holders requesting
registration, the Company shall not be required to
effect a registration pursuant to this Article II until
the earliest of (i) four months after the completion of
such Company Offering, (ii) the termination of any
"blackout" period required by the underwriters, if any,
to be applicable to the Holders in connection with such
Company Offering, (iii) promptly after abandonment of
such Company Offering or (iv) six months after the date
of written notice by the Holders requesting
registration;
(c) if, while a registration request is pending
pursuant to this Article II, the Company determines in
the good faith judgment of the general counsel of the
Company that the filing of a registration statement
would require the disclosure of material information
which the Company has a bona fide business purpose for
preserving as confidential and the disclosure of which
would have a material adverse effect on the Company or
the Company is unable to comply with SEC requirements,
the Company shall not be required to effect a
registration pursuant to this Article II until the
earlier of (i) the date upon which such material
information is disclosed to the public or ceases to be
material or (ii) 90 days after the Company makes such
good faith determination; and
(d) the number of Shares registered pursuant to
any registration requested pursuant to this Article II
shall represent not less than 5% of the Shares then
held by the Holders.
<PAGE> 3
SECTION 2.02. Registration Expenses. (a) All
Registration Expenses (as defined in Article VIII) for the
first three (plus the number of Blackout Termination Rights
provided for by Section 4.03(b)) registrations effected
pursuant to this Article II shall be paid by the Company on
behalf of any Holders; provided, however, that if any
securities are registered for sale for the account of any
Person (as such term is defined in Section 2(2) of the
Securities Act) other than the Selling Holders pursuant to
Section 2.03, each such other Person shall bear its pro rata
share of the Registration Expenses (or such other amount as
shall be determined by the Company and such Person) and the
Company shall bear the remaining share of the Registration
Expenses.
(b) The Company and FCI shall each bear one half
of the Registration Expenses (as defined in
Article VIII) for all registrations effected pursuant
to this Article II subsequent to those provided for by
Section 2.02(a); provided, however, that if any
securities are registered for sale for the account of
any Person (as such term is defined in Section 2(2) of
the Securities Act) other than the Selling Holders
pursuant to Section 2.03, each such other Person shall
bear its pro rata share of the Registration Expenses,
and the Company and FCI shall each bear one half of the
remaining share of the Registration Expenses.
SECTION 2.03. Third Person Shares. The Company
shall have the right to cause the registration of securities
for sale for the account of any Person (other than the
Selling Holders) in any registration of Shares requested
pursuant to this Article II; provided, however, that the
Company shall not have the right to cause the registration
of such securities of such other Persons if:
(a) the Selling Holders are advised in writing
(with a copy to the Company) by a recognized
independent investment banking firm selected by the
Selling Holders and reasonably acceptable to the
Company that, in such firm's opinion, registration of
such securities would adversely affect in a significant
manner the offering and sale of Shares then
contemplated by the Selling Holders; or
(b) the Selling Holders do not receive assurances
reasonably satisfactory to them that such other Person
for whose account such securities are being registered
will pay a pro rata share of the Registration Expenses
pursuant to Section 2.02 (provided that for purposes of
this clause (b), the guarantee by the Company to the
Selling Holders of payment of such share of the
Registration Expenses shall constitute satisfactory
assurance to the Selling Holders).
SECTION 2.04. Permitted Transferees. As used in
this Agreement, "Permitted Transferees" shall mean any
transferee, whether direct or indirect, of Shares designated
by FCI in a written notice to the Company as provided for in
Section 9.05. Such written notice shall be signed by both
FCI and the Permitted Transferees so designated and shall
include an undertaking by the Permitted Transferees to
comply with the terms and conditions of this Agreement
applicable to FCI.
<PAGE> 4
ARTICLE III
Incidental Registration
SECTION 3.01. Notice and Registration. If the
Company proposes to register any of the Common Stock ("Other
Securities") for public sale under the Securities Act
(whether proposed to be offered for sale by the Company or
any other Person), on a form and in a manner which would
permit registration of Shares for sale to the public under
the Securities Act, it will give prompt written notice to
the Holders of its intention to do so, and upon the written
request of any or all of the Holders delivered to the
Company within 10 business days after the giving of any such
notice (which request shall specify the Shares intended to
be disposed of by such Holders and the intended method of
disposition thereof) the Company will use its best efforts
to effect, in connection with the registration of the Other
Securities, the registration under the Securities Act of all
Shares which the Company has been so requested to register
by such Holders (which shall then become Selling Holders),
to the extent required to permit the disposition (in
accordance with the intended method or methods thereof as
aforesaid) of the Shares so to be registered; provided,
however, that:
(a) if, at any time after giving such written
notice of its intention to register any Other
Securities and prior to the effective date of the
registration statement filed in connection with such
registration, the Company shall determine for any
reason not to register the Other Securities, the
Company may, at its election, give written notice of
such determination to the Selling Holders (or, if prior
to delivery of the Holders' written request described
above in this Section 3.01, the Holders) and thereupon
the Company shall be relieved of its obligation to
register such shares in connection with the
registration of such Other Securities (but not from its
obligation to pay Registration Expenses to the extent
incurred in connection therewith as provided in
Section 3.02), without prejudice, however, to the
rights (if any) of any Selling Holders immediately to
request that such registration be effected as a
registration under Article II;
(b) the Company shall have the right to exclude
all the Shares from registration, or limit the number
of Shares to be registered, pursuant to this Article
III if an underwriter of the registration shall advise
the Company in writing (with a copy to the Selling
Holders or, if prior to delivery of the Holders'
written request described above in this Section 3.01,
the Holders) that, in such underwriter's opinion, a
registration of all Shares which the Company has been
requested to register at that time would adversely
affect the Company Offering; and
(c) the Company shall not be required to effect
any registration of Shares under this Article III
incidental to the registration of any of its securities
in connection with mergers, acquisitions, exchange
offers, subscription offers, dividend reinvestment
plans or stock option or other employee benefit plans.
No registration of Shares affected under this
Article III shall relieve the Company of its obligation to
effect a registration of Shares pursuant to Article II.
<PAGE> 5
SECTION 3.02. Registration Expenses. The Company
and the Selling Holders will each pay their respective
pro rata shares of the Registration Expenses in connection
with any registration pursuant to this Article III.
ARTICLE IV
Registration Procedures
SECTION 4.01. Registration and Qualification. If
and whenever the Company is required to use its best efforts
to effect the registration of any Shares under the
Securities Act as provided in Articles II and III, the
Company will as promptly as is practicable:
(a) prepare, file and use its best efforts to
cause to become effective a registration statement
under the Securities Act regarding Shares to be
offered;
(b) prepare and file with the SEC such amendments
and supplements to such registration statement and the
prospectus used in connection therewith as may be
necessary to keep such registration statement effective
and to comply with the provisions of the Securities Act
with respect to the disposition of all Shares until the
earlier of (i) such time as all of such Shares have
been disposed of in accordance with the intended
methods of disposition by the Selling Holders set forth
in such registration statement or (ii) the expiration
of nine months after such registration statement
becomes effective;
(c) furnish to the Selling Holders and to any
underwriter of such Shares such number of conformed
copies of such registration statement and of each such
amendment and supplement thereto (in each case
including all exhibits), such number of copies of the
prospectus included in such registration statement
(including each preliminary prospectus and any summary
prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by
reference in such registration statement or prospectus,
and such other documents as the Selling Holders or such
underwriter may reasonably request;
(d) use its best efforts to register or qualify
all Shares covered by such registration statement under
such other securities or blue sky laws of such United
States jurisdictions as the Selling Holders or any
underwriter of such Shares shall reasonably request,
and do any and all other acts and things which may be
necessary or advisable to enable the Selling Holders or
any underwriter to consummate the disposition in such
jurisdictions of its Shares covered by such
registration statement, except that the Company shall
not for any such purpose be required to qualify
generally to do business as a foreign corporation in
any jurisdiction where it is not so qualified, or to
subject itself to taxation in any such jurisdiction, or
to consent to general service of process in any such
jurisdiction;
<PAGE> 6
(e) (i) furnish to the Selling Holders, addressed
to them, an opinion of counsel for the Company, dated
the date of the closing under the underwriting
agreement, and (ii) use its best efforts to furnish to
the Selling Holders, addressed to them, a "cold
comfort" letter signed by the independent public
accountants who have certified the Company's financial
statements included in such registration statement,
covering substantially the same matters with respect to
such registration statement (and the prospectus
included therein) and, in the case of such accountants'
letter, with respect to events subsequent to the date
of such financial statements, as are customarily
covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in
underwritten public offerings of securities and such
other matters as the Selling Holders may reasonably
request; and
(f) immediately notify the Selling Holders at any
time when a prospectus relating to a registration
pursuant to Article II or III is required to be
delivered under the Securities Act of the happening of
any event as a result of which the prospectus included
in such registration statement, as then in effect,
includes an untrue statement of a material fact or
omits to state any material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made,
not misleading, and at the request of the Selling
Holders prepare and furnish to the Selling Holders a
reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such
Shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances under which they are made, not
misleading.
The Company may require the Selling Holders to
furnish the Company with such information regarding the
Selling Holders and the distribution of such securities as
the Company may from time to time reasonably request in
writing and as shall be required by law, the SEC or any
securities exchange on which any shares of Common Stock are
then listed for trading in connection with any registration.
SECTION 4.02. Underwriting. If requested by the
underwriters for any underwritten offering of Shares
pursuant to a registration requested hereunder (including
any registration under Article III which involves, in whole
or in part, an underwritten offering), the Company will
enter into an underwriting agreement with such underwriters
for such offering, such agreement to contain such
representations and warranties by the Company and such other
terms and provisions as are customarily contained in
underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities
and contribution to the effect and to the extent provided in
Article VI and the provision of opinions of counsel and
accountants' letters to the effect and to the extent
provided in Section 4.01(e). The Company may require that
Shares requested to be registered pursuant to Article III be
included in such underwriting on the same terms and
conditions as shall be applicable to the Other Securities
being sold through underwriters under such registration.
The Selling Holders of Shares to be distributed by such
underwriters shall be parties to any such underwriting
agreement, and the representations and warranties by, and
the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and
for the benefit of such Selling Holders.
<PAGE> 7
SECTION 4.03. Blackout Periods. (a) At any time
when a registration statement effected pursuant to
Article II relating to Shares is effective, upon written
notice from the Company to the Selling Holders that the
Company determines in the good faith judgment of the general
counsel of the Company that the Selling Holders sale of
Shares pursuant to the registration statement would require
disclosure of material information which the Company has a
bona fide business purpose for preserving as confidential
and the disclosure of which would have a material adverse
effect on the Company or the Company is unable to comply
with SEC requirements (an "Information Blackout"), the
Selling Holders shall suspend sales of Shares pursuant to
such registration statement until the earlier of (i) the
date upon which such material information is disclosed to
the public or ceases to be material, (ii) 90 days after the
Company makes such good faith determination or (iii) such
time as the Company notifies the Selling Holders that sales
pursuant to such registration statement may be resumed (the
number of days from such suspension of sales of the Selling
Holders until the day when such sales maybe resumed
hereunder is hereinafter called a "Sales Blackout Period").
(b) Any delivery by the Company of notice of an
Information Blackout during the 90 days immediately
following effectiveness of any registration statement
effected pursuant to Article II shall give the Selling
Holders the right, by notice to the Company within
20 days after the end of such blackout period, to
cancel such registration and obtain for the Holders one
additional registration right (a "Blackout Termination
Right") under Section 2.01(a).
(c) If there is an Information Blackout and the
Selling Holders do not exercise the cancellation right,
if any, pursuant to clause (b) of this Section 4.03,
or, if such cancellation right is not available, the
period set forth in Section 4.01(b)(ii) shall be
extended for a number of days equal to the number of
days in the Sales Blackout Period.
SECTION 4.04. Listing. In connection with the
registration of any offering of Shares pursuant to this
Agreement, the Company agrees to use its best efforts to
effect the listing of such Shares on any securities exchange
on which any shares of the Common Stock are then listed or
otherwise facilitate the public trading of such shares.
<PAGE> 8
ARTICLE V
Preparation; Reasonable Investigation
SECTION 5.01. Preparation; Reasonable
Investigation. In connection with the preparation and
filing of each registration statement registering Shares
under the Securities Act, the Company will give the Selling
Holders and the underwriters, if any, and their respective
counsel and accountants, such reasonable and customary
access to its books and records and such opportunities to
discuss the business of the Company with its officers and
the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion
of the Selling Holders and such underwriters or their
respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
ARTICLE VI
Indemnification and Contribution
SECTION 6.01. Indemnification and Contribution.
(a) In the event of any registration of any Shares
hereunder, the Company will enter into customary
indemnification arrangements to indemnify and hold harmless
each of the Selling Holders, each of their respective
directors and officers, each Person who participates as an
underwriter in the offering or sale of such securities, each
officer and director of each underwriter, and each Person if
any, who controls each such Selling Holder or any such
underwriter within the meaning of the Securities Act against
any losses, claims, damages, liabilities and expenses, joint
or several, to which such Person may be subject under the
Securities Act or otherwise insofar as such losses, claims,
damages, liabilities or expenses (or actions or proceedings
in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which
such securities were registered under the Securities Act,
any preliminary prospectus or final prospectus included
therein, or any amendment or supplement thereto, or any
document incorporated by reference therein, or (ii) any
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will
reimburse each such Person, as incurred, for any legal or
any other expenses reasonably incurred by such Person in
connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided, however,
that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in
such registration statement, any such preliminary prospectus
or final prospectus, amendment or supplement in reliance
upon and in conformity with written information furnished to
the Company by the Selling Holders or such underwriter
specifically for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Selling
Holders or any such Person and shall survive the transfer of
such Securities by the Selling Holders. The Company also
shall agree to provide for contribution as shall reasonably
be requested by the Selling Holders or any underwriters in
circumstances where such indemnity is held unenforceable.
<PAGE> 9
(b) The Selling Holders, by virtue of exercising
their respective registration rights hereunder, agree
and undertake to enter into customary indemnification
arrangements to indemnify and hold harmless (in the
same manner and to the same extent as set forth in
clause (a) of this Section 6.01) the Company, each
director of the Company, each officer of the Company
who shall sign such registration statement, each Person
who participates as an underwriter in the offering or
sale of such securities, each officer and director of
each underwriter, and each Person, if any, who controls
the Company or any such underwriter within the meaning
of the Securities Act, with respect to any statement in
or omission from such registration statement, any
preliminary prospectus or final prospectus included
therein, or any amendment or supplement thereto, if
such statement or omission was made in reliance upon
and in conformity with written information furnished by
the Selling Holders to the Company specifically for
inclusion in such registration statement or prospectus.
Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of
the Company or any such director, officer or
controlling Person and shall survive the transfer of
the registered securities by the Selling Holders. The
Selling Holders also shall agree to provide for
contribution as shall reasonably be requested by the
Company for any underwriters in circumstances where
such indemnity is held unenforceable.
(c) Indemnification and contribution similar to
that specified in the preceding subdivisions of this
Section 6.01 (with appropriate modifications) shall be
given by the Company and the Selling Holders with
respect to any required registration or other
qualification of such Shares under any federal or state
law or regulation of governmental authority other than
the Securities Act.
<PAGE> 10
ARTICLE VII
Benefits and Termination of Registration Rights
SECTION 7.01. Benefits and Termination of
Registration Rights. The Holders may jointly exercise the
registration rights granted hereunder in such manner and
proportions as they shall agree among themselves; provided,
however, any Permitted Transferees of Shares shall be
subject to and bound by all of the terms and conditions
hereof applicable to FCI (in addition to those terms and
conditions expressly applicable to Holders or Selling
Holders). The registration rights hereunder shall cease to
apply to Shares when: (a) a registration statement with
respect to the sale of such Shares shall have become
effective under the Securities Act and such Shares shall
have been disposed of in accordance with such registration
statement; (b) they shall have been sold to the public
pursuant to Rule 144 under the Securities Act (or any
successor provision); (c) they shall have been otherwise
transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by
the Company, and subsequent public distribution of them
shall not require registration or qualification of them
under the Securities Act or any similar state law then in
force; or (d) they shall have ceased to be outstanding.
ARTICLE VIII
Registration Expenses
SECTION 8.01. Registration Expenses. As used in
this Agreement, the term "Registration Expenses" means all
expenses incident to the Company's performance of or
compliance with the registration requirements set forth in
this Agreement including, without limitation, the following:
(a) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration
of Shares to be disposed of under the Securities Act;
(b) all expenses in connection with the preparation,
printing and filing of the registration statement, any
preliminary prospectus or final prospectus, any other
offering document and amendments and supplements thereto and
the mailing and delivering of copies thereof to the
underwriters and dealers; (c) the cost of printing and
producing any agreement(s) among underwriters, underwriting
agreement(s), and blue sky or legal investment memoranda,
any selling agreements and any amendments thereto or other
documents in connection with the offering, sale or delivery
of Shares to be disposed of; (d) all expenses in connection
with the qualification of Shares to be disposed of for
offering and sale under state securities laws, including the
fees and disbursements of counsel for the underwriters in
connection with such qualification and in connection with
any blue sky and legal investment surveys; (e) the filing
fees incident to securing any required review by NASDAQ of
the terms of the sale of Shares to be disposed of; (f) the
costs of preparing stock certificates; and (g) the costs and
charges of the Company's transfer agent and registrar.
Registration Expenses shall not include underwriting
discounts and underwriters commissions attributable to the
Shares being registered for sale on behalf of the Selling
Holders, and the fees, disbursements and expenses of the
Selling Holders' counsel, which shall be paid by the Selling
Holders.
<PAGE> 11
ARTICLE IX
Miscellaneous
SECTION 9.01. No Inconsistent Agreements. The
Company shall not on or after the date of this Agreement
enter into any agreement with respect to its securities that
violates the rights expressly granted to the Holders in this
Agreement.
SECTION 9.02. Assignment. This Agreement shall be
binding upon and inure to the benefit of and be enforceable
by the parties hereto and with respect to the Company, its
respective successors and assigns, and with respect to FCI,
any Permitted Transferees of the Shares.
SECTION 9.03. Governing Law; Jurisdiction. This
Agreement shall be construed, performed and enforced in
accordance with, and governed by, the laws of the State of
[ ] applicable to contracts executed in and to be
performed in that State.
SECTION 9.04. Severability. In the event that
any part of this Agreement is declared by any court or other
judicial or administrative body to be null, void or
unenforceable, said provision shall survive to the extent it
is not so declared, and all of the other provisions of this
Agreement shall remain in full force and effect.
SECTION 9.05. Notices. All notices, requests,
demands and other communications under this Agreement shall
be in writing and shall be deemed to have been fully given:
(a) on the date of service if served personally on the party
to whom notice is to be given; (b) on the day of
transmission if sent via facsimile transmission to the
facsimile number given below, and telephonic confirmation of
receipt is obtained promptly after completion of
transmission; (c) on the day after delivery to Federal
Express or similar overnight courier or the Express Mail
service maintained by the United States Postal Service; or
(d) on the fifth day after mailing, if mailed to the party
to whom notice is to be given, by first class mail,
registered or certified, postage prepaid and properly
addressed, to the party as follows:
If to FCI or any other Holder:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attn: General Counsel
Telecopy: (612) 936-5412
If to the Company:
[Fingerhut Financial Services Corporation
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attn: General Counsel
Telecopy: (612) 525-5070]
<PAGE> 12
Any party may change its address for the purpose
of this Section by giving the other party written notice of
its new address in the manner set forth above.
SECTION 9.06. Amendments; Waivers. This
Agreement may be amended or modified, and any of the terms,
covenants or conditions hereof may be waived, only by a
written instrument executed by the parties hereto, or in the
case of a waiver, by the party waiving compliance. Any
waiver by any party of any condition, or of the breach of
any provision, term or covenant contained in this Agreement,
in any one or more instances, shall not be deemed to be nor
construed as furthering or continuing waiver of any such
condition, or of the breach of any other provision, term or
covenant of this Agreement.
SECTION 9.07. Section and Paragraph Headings.
The section and paragraph headings in this Agreement are for
reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
SECTION 9.08. Counterparts. This Agreement may
be executed in counterparts, each of which shall be deemed
an original, but all of which shall constitute the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective officers
thereunto duly authorized as of the date first above
written.
METRIS COMPANIES INC.,
by
Name:
Title:
FINGERHUT COMPANIES, INC.,
by
Name:
Title:
<PAGE> 1
Exhibit 10.Q
METRIS COMPANIES INC.
LONG-TERM INCENTIVE AND STOCK OPTION PLAN
1. Purpose of Plan.
This Plan shall be known as the "METRIS COMPANIES INC. LONG-
TERM INCENTIVE AND STOCK OPTION PLAN" and is hereinafter referred
to as the "Plan." The purpose of the Plan is to aid in
maintaining and developing personnel capable of ensuring the
future success of Metris Companies Inc., a Delaware corporation
(the "Company"), to offer such personnel additional incentives to
put forth maximum efforts for the success of the business, and to
afford them an opportunity to acquire a proprietary interest in
the Company through stock options and other long-term incentive
awards as provided herein. Options granted under this Plan may
be either incentive stock options ("Incentive Stock Options"')
within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"'), or stock options which do not
qualify as Incentive Stock Options ("Nonqualified Stock
Options"). Awards granted under this Plan may be stock
appreciation rights, restricted stock or performance awards as
hereinafter described.
2. Stock Subject to Plan.
Subject to the provisions of Section 15 hereof, the stock to
be subject to options or other awards under the Plan shall be the
Company's common stock, $.01 par value (the "Common Stock").
Subject to adjustment as provided in Section 15 hereof, the
maximum number of shares on which options may be exercised or
other awards issued under this Plan shall be 1,880,000 shares.
If an option or award under the Plan expires, or for any reason
is terminated or unexercised with respect to any shares, such
shares shall again be available for options or awards thereafter
granted during the term of the Plan.
3. Administration of Plan.
(a) The Plan shall be administered by the Compensation
Committee of the Board of Directors (the "Committee") which shall
be a committee comprised solely of two or more "outside
directors" of Metris Companies Inc. which satisfied the
requirements of Section 162(m) of the Code.
(b) The Committee shall have plenary authority in its
discretion, but subject to the express provisions of the Plan:
(i) to determine the purchase price of the Common Stock covered
by each option or award, (ii) to determine the employees to whom
and the time or times at which such options and awards shall be
granted and the number of shares to be subject to each, (iii) to
determine the form of payment to be made upon the exercise of an
SAR or in connection with performance awards, either cash, Common
Stock or a combination thereof, (iv) to determine the terms of
exercise of each option and award, (v) to accelerate the time at
which all or any part of an option or award may be exercised,
(vi) to amend or modify the terms of any option or award with the
consent of the optionee, (vii) to interpret the Plan, (viii) to
prescribe, amend and rescind rules and regulations relating to
the Plan, (ix) to determine the terms and provisions of each
option and award agreement under the Plan (which agreements need
not be identical), including the designation of those options
intended to be Incentive Stock Options, and (x) to make all other
determinations necessary or advisable for the administration of
the Plan, subject to the exclusive authority of the Board of
Directors under Section 16 hereof to amend or terminate the Plan.
The Committee's determinations on the foregoing matters, unless
otherwise disapproved by the Board of Directors of the Company,
shall be final and conclusive.
4. Eligibility.
Incentive Stock Options may only be granted under this Plan
to any full or part-time employee (which term as used herein
includes, but is not limited to, officers and directors who are
also employees) of the Company and of its present and future
subsidiary corporations within the meaning of Section 424(f) of
the Code (herein called "subsidiaries"). Full or part-time
employees, consultants or independent contractors to the Company
or one of its subsidiaries [and full and part-time employees of
any subsidiary of Fingerhut Companies, Inc.] shall be eligible to
receive Nonqualified Stock Options and awards. In determining
the persons to whom options and awards shall be granted and the
number of shares subject to each, the Committee may take into
account the nature of services rendered by the respective
employees or consultants, their present and potential
contributions to the success of the Company and such other
factors as the Committee in its discretion shall deem relevant.
A person who has been granted an option or award under this Plan
may be granted additional options or awards under the Plan if the
Committee shall so determine; provided, however, that for
Incentive Stock Options granted after December 31, 1986, to the
extent the aggregate fair market value (determined at the time
the Incentive Stock Option is granted) of the Common Stock with
respect to which all Incentive Stock Options are exercisable for
the first time by an employee during any calendar year (under all
plans described in subsection (d) of Section 422 of the Code of
his employer corporation and its parent and subsidiary
corporations) exceeds $100,000, such options shall be treated as
Nonqualified Stock Options. Nothing in the Plan or in any
agreement thereunder shall confer on any employee any right to
continue in the employ of the Company or any of its subsidiaries
or affect, in any way, the right of the Company or any of its
subsidiaries [or Fingerhut Companies, Inc. or any of its
subsidiaries] to terminate his or her employment at any time.
<PAGE> 2
5. Price.
The option price for all Incentive Stock Options granted
under the Plan shall be determined by the Committee but shall not
be less than 100% of the fair market value per share of Common
Stock at the date of grant of such option. The option price for
Nonqualified Stock Options granted under the Plan and, if
applicable, the price for all awards shall also be determined by
the Committee. For purposes of the preceding sentence and for
all other valuation purposes under the Plan, the fair market
value of the Common Stock shall be as reasonably determined by
the Committee. If on the date of grant of any option or award
hereunder the Common Stock is not traded on an established
securities market, the Committee shall make a good faith attempt
to satisfy the requirements of this Section 5 and in connection
therewith shall take such action as it deems necessary or
advisable.
6. Term.
Each option and award and all rights and obligations
thereunder shall expire on the date determined by the Committee
and specified in the option or award agreement. The Committee
shall be under no duty to provide terms of like duration for
options or awards granted under the Plan, but the term of an
Incentive Stock Option may not extend more than ten (10) years
from the date of grant of such option and the term of options
granted under the Plan which do not qualify as Incentive Stock
Options may not extend more than fifteen (15) years from the date
of granting of such option.
7. Exercise of Option or Award.
(a) The Committee shall have full and complete authority to
determine whether an option or award will be exercisable in full
at any time or from time to time during the term thereof, or to
provide for the exercise thereof in such installments, upon the
occurrence of such events (such as termination of employment for
any reason) and at such times during the term of the option as
the Committee may determine and specify in the option or award
agreement.
(b) The exercise of any option or award granted hereunder
shall only be effective at such time that the sale of Common
Stock pursuant to such exercise will not violate any state or
federal securities or other laws.
(c) An optionee or grantee electing to exercise an option
or award shall give written notice to the Company of such
election and of the number of shares subject to such exercise.
The full purchase price of such shares shall be tendered with
such notice of exercise. Payment shall be made to the Company in
cash (including bank check, certified check, personal check, or
money order), or, at the discretion of the Committee and as
specified by the Committee, (i) by delivering certificates for
Common Stock already owned by the optionee or grantee having a
fair market value as of the date of grant equal to the full
purchase price of the shares, or (ii) by delivering the
optionee's or grantee's promissory note, which shall provide for
interest at a rate not less than the minimum rate required to
avoid the imputation of income, original issue discount or a
below-market-rate loan pursuant to Sections 483, 1274 or 7872 of
the Code or any successor provisions thereto, or (iii) a
combination of cash, the optionee's or grantee's promissory note
and such shares. The fair market value of such tendered shares
shall be determined as provided in Section 5 hereof. The
optionee's or grantee's promissory note shall be a full recourse
liability of the optionee and may, at the discretion of the
Committee, be secured by a pledge of the shares being purchased.
Until such person has been issued the shares subject to such
exercise, he or she shall possess no rights as a shareholder with
respect to such shares.
(d) The Committee may grant "restoration" options,
separately or together with another option, pursuant to which,
subject to the terms and conditions established by the Committee
and any applicable requirements of Rule 16b-3 promulgated under
the Securities and Exchange Act of 1934 or any other applicable
law, the optionee would be granted a new option when the payment
of the exercise price of the option to which such "restoration"
option relates is made by the delivery of shares of Common Stock
owned by the optionee, as described in subsection (c) above,
which new option would be an option to purchase the number of
shares not exceeding the sum of (a) the number of shares of
Common Stock tendered as payment upon the exercise of the option
to which such "restoration" option relates and (b) the number of
shares of Common Stock, if any, tendered as payment of the amount
to be withheld under applicable income tax laws in connection
with the exercise of the option to which such "restoration"
option relates, as described in Section 11 hereof. "Restoration"
options may be granted with respect to options previously granted
under this Plan or any prior stock option plan of the Company,
and may be granted in connection with any option granted under
this Plan at the time of such grant. The purchase price of the
Common Stock under each such new option, and the other terms and
conditions of such option, shall be determined by the Committee
consistent with the provisions of the Plan.
<PAGE> 3
8. Stock Appreciation Rights.
(a) Grant. At the time of grant of an option or award
under the Plan (or at any other time), the Committee, in its
discretion, may grant a stock appreciation right ("SAR")
evidenced by an agreement in such form as the Committee shall
from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the
agreement representing such SAR, which agreement shall comply
with and be subject to the following terms and conditions and any
additional terms and conditions established by the Committee that
are consistent with the terms of the Plan.
(b) Exercise. An SAR shall be exercised by the delivery to
the Company of a written notice which shall state that the holder
thereof elects to exercise his or her SAR as to the number of
shares specified in the notice and which shall further state what
portion, if any, of the SAR exercise amount (hereinafter defined)
the holder thereof requests be paid in cash and what portion, if
any, is to be paid in Common Stock of the Company. The Committee
promptly shall cause to be paid to such holder the SAR exercise
amount either in cash, in Common Stock of the Company, or any
combination of cash and shares as the Committee may by the holder
of the SAR or in the sole and absolute discretion of the
Committee. The SAR exercise amount is the excess of the fair
market value of one share of Common Stock on the date of exercise
over the per share exercise price in respect of which the SAR was
granted, multiplied by the number of shares as to which the SAR
is exercised. For the purposes hereof, the fair market value of
the Common Stock shall be determined as provided in Section 5
hereof.
9. Restricted Stock Awards.
Awards of Common Stock subject to forfeiture and transfer
restrictions may be granted by the Committee. Any restricted
stock award shall be evidenced by an agreement in such form as
the Committee shall from time to time approve, which agreement
shall comply with and be subject to the following terms and
conditions and any additional terms and conditions established by
the Committee that are consistent with the terms of the Plan:
(a) Grant of Restricted Stock Awards. Each restricted
stock award made under the Plan shall be for such number of
shares of Common Stock as shall be determined by the Committee
and set forth in the agreement containing the terms of such
restricted stock award. Such agreement shall set forth a period
of time during which the grantee must remain in the continuous
employment of the Company in order for the forfeiture and
transfer restrictions to lapse. If the Committee so determines,
the restrictions may lapse during such restricted period in
installments with respect to specified portions of the shares
covered by the restricted stock award. The agreement may also,
in the discretion of the Committee, set forth performance or
other conditions that will subject the Common Stock to forfeiture
and transfer restrictions. The Committee may, at its discretion,
waive all or any part of the restrictions applicable to any or
all outstanding restricted stock awards.
(b) Delivery of Common Stock and Restrictions. At the time
of a restricted stock award, a certificate representing the
number of shares of Common Stock awarded thereunder shall be
registered in the name of the grantee. Such certificate shall be
held by the Company or any custodian appointed by the Company for
the account of the grantee subject to the terms and conditions of
the Plan, and shall bear such a legend setting forth the
restrictions imposed thereon as the Committee, in its discretion,
may determine. The grantee shall have all rights of a
shareholder with respect to the Common Stock, including the right
to receive dividends and the right to vote such shares, subject
to the following restrictions: (i) the grantee shall not be
entitled to delivery of the stock certificate until the
expiration of the restricted period and the fulfillment of any
other restrictive conditions set forth in the restricted stock
agreement with respect to such Common Stock; (ii) none of such
shares may be sold, assigned, transferred, pledged, hypothecated
or otherwise encumbered or disposed of during such restricted
period or until after the fulfillment of any such other
restrictive conditions; and (iii) except as otherwise determined
by the Committee, all of the Common Stock shall be forfeited and
all rights of the grantee to such Common Stock shall terminate,
without further obligation on the part of the Company, unless the
grantee remains in the continuous employment of the Company or
any subsidiary of the Company [or any other subsidiary of
Fingerhut Companies, Inc.] for the entire restricted period in
relation to which such Common Stock was granted and unless any
other restrictive conditions relating to the restricted stock
award are met. Any Common Stock, any other securities of the
Company and any other property (except for cash dividends)
distributed with respect to the Common Stock subject to
restricted stock awards shall be subject to the same
restrictions, terms and conditions as such restricted Common
Stock.
<PAGE> 4
(c) Termination of Restrictions. At the end of the
restricted period and provided that any other restrictive
conditions of the restricted stock award are met, or at such
earlier time as otherwise determined by the Committee, all
restrictions set forth in the agreement relating to the
restricted stock award or in the Plan shall lapse as to the
restricted Common Stock subject thereto, and a stock certificate
for the appropriate number of shares of Common Stock, free of the
restrictions and the restricted stock legend, shall be delivered
to the grantee or his beneficiary or estate, as the case may be.
If the Common Stock is traded on a securities exchange, the
Company shall not be required to deliver such certificates until
such shares have been admitted for trading on such securities
exchange.
10. Performance Awards.
The Committee is further authorized to grant Performance
Awards. Subject to the terms of this Plan and any applicable
award agreement, a Performance Award granted under the Plan (i)
may be denominated or payable in cash, Common Stock (including,
without limitation, restricted stock), other securities, other
awards, or other property and (ii) shall confer on the holder
thereof rights valued as determined by the Committee, in its
discretion, and payable to, or exercisable by, the holder of the
Performance Award, in whole or in part, upon the achievement of
such performance goals during such performance periods as the
Committee, in its discretion, shall establish. Subject to the
terms of this Plan and any applicable award agreement, the
performance goals to be achieved during any performance period,
the length of any performance period, the amount of any
Performance Award granted, and the amount of any payment or
transfer to be made by the grantee and by the Company under any
Performance Award shall be determined by the Committee.
11. Income Tax Withholding.
In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action
as it deems appropriate to ensure that all applicable federal or
state payroll, withholding, income or other taxes, which are the
sole and absolute responsibility of an optionee or grantee under
the Plan, are withheld or collected from such optionee or
grantee. In order to assist an optionee or grantee in paying all
federal and state taxes to be withheld or collected upon exercise
of an option or award which does not qualify as an Incentive
Stock Option hereunder, the Committee, in its absolute discretion
and subject to such additional terms and conditions as it may
adopt, may permit the optionee or grantee to satisfy such tax
obligation by (i) electing to have the Company withhold a portion
of the shares otherwise to be delivered upon exercise of such
option or award with a fair market value, determined in
accordance with Section 5 hereof, equal to such taxes or (ii)
delivering to the Company Common Stock other than the shares
issuable upon exercise of such option or award with a fair market
value, determined in accordance with Section 5 hereof, equal to
such taxes.
12. Additional Restrictions.
(a) The Committee shall have full and complete authority to
determine whether all or any part of the Common Stock acquired
upon exercise of any of the options or awards granted under the
Plan shall be subject to restrictions on the transferability
thereof or any other restrictions affecting in any manner the
optionee's or grantee's rights with respect thereto, but any such
restriction shall be contained in the agreement relating to such
options or awards.
(b) No person, who is an employee of the Company at the
time of grant, may be granted any award or awards, the value of
which awards are based solely on an increase in the value of the
Common Stock after the date of grant of such awards, for more
than [________] shares, in the aggregate, in any one calendar
year period. The foregoing annual limitation specifically
includes the grant of any awards representing "qualified
performance-based compensation" within the meaning of Section
162(m) of the Code.
<PAGE> 5
13. Ten Percent Shareholder Rule.
Notwithstanding any other provision in the Plan, if at the
time an option is otherwise to be granted pursuant to the Plan
the optionee owns directly or indirectly (within the meaning of
Section 424(d) of the Code) Common Stock of the Company
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or its parent
or subsidiary corporations, if any (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be
granted to such optionee pursuant to the Plan shall satisfy the
requirements of Section 422(c)(5) of the Code, and the option
price shall be not less than 110% of the fair market value of the
Common Stock determined as described herein, and such option by
its terms shall not be exercisable after the expiration of five
(5) years from the date such option is granted.
14. Non-Transferability.
No option or award granted under the Plan shall be
transferable by an optionee or grantee, otherwise than by will or
the laws of descent or distribution. Except as otherwise
provided in an option or award agreement, during the lifetime of
an optionee or grantee, the option shall be exercisable only by
such optionee or grantee.
15. Dilution or Other Adjustments.
If there shall be any change in the Common Stock through
merger, consolidation, reorganization, recapitalization, dividend
in the form of stock (of whatever amount), stock split or other
change in the corporate structure, appropriate adjustments in the
Plan and outstanding options and awards shall be made by the
Committee. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number of
shares subject to the Plan, the number of shares and the price
per share subject to outstanding options and awards and the
amount payable upon exercise of outstanding awards, in order to
prevent dilution or enlargement of option or award rights.
16. Amendment or Discontinuance of Plan.
The Board of Directors may amend or discontinue the Plan at
any time. Subject to the provisions of Section 15 hereof,
however, no amendment of the Plan shall without shareholder
approval: (i) increase the maximum number of shares under the
Plan as provided in Section 2 hereof, (ii) decrease the minimum
price provided in Section 5 hereof, (iii) extend the maximum term
under Section 6 hereof, or (iv) modify the eligibility
requirements for participation in the Plan. The Board of
Directors shall not alter or impair any option or award
theretofore granted under the Plan without the consent of the
holder of the option or award.
17. Time of Granting.
Nothing contained in the Plan or in any resolution adopted
or to be adopted by the Board of Directors or by the shareholders
of the Company, and no action taken by the Committee or the Board
of Directors (other than the execution and delivery of an option
or award agreement), shall constitute the granting of an option
or award hereunder.
18. Effective Date and Termination of Plan.
(a) The Plan shall be submitted to the shareholders of the
Company for their approval and adoption.
(b) Unless the Plan shall have been discontinued as
provided in Section 16 hereof, the Plan shall terminate October
__, 2006. No option or award may be granted after such
termination, but termination of the Plan shall not, without the
consent of the optionee or grantee, alter or impair any rights or
obligations under any option or award theretofore granted.
<PAGE> 1
EXHIBIT 10.R
DATA SHARING AGREEMENT
THIS AGREEMENT dated the ___ day of October, 1996, between Fingerhut
Corporation (hereinafter referred to as "Fingerhut"), a corporation duly
organized under the laws of the State of Minnesota, with offices at 4400
Baker Road, Minnetonka, Minnesota 55343, and Direct Merchants Credit
Card Bank, National Association, a national banking association
(hereinafter referred to as "Direct Merchants Bank") with offices at 1400
West 2200 South, Salt Lake City, Utah, 84119.
WHEREAS, Direct Merchants Bank and Fingerhut create and maintain
files on their customers (as defined herein); and
WHEREAS, Direct Merchants Bank and Fingerhut desire to exchange
certain customer data;
NOW THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
I. DEFINITIONS
The following terms, as used herein, shall have the following
meanings whether used in the singular or plural:
"Account Booked" means a consumer credit account which meets
Direct Merchant Bank's underwriting criteria for approval with a credit line
opened greater than Direct Merchant Bank's minimum credit line in effect at
time of approval. Account Booked shall not mean an account which is
determined to be fraudulent.
"Behavior Model " means one or more attributes which rank a
Customer's credit performance with Fingerhut or Direct Merchants Bank, as the
case may be, with a credit score.
"Customer" means any consumer name and address which resides on the
data processing systems of Direct Merchants Bank or Fingerhut, as the
case may be.
"Customer File" means a name, address and other identifying
information of a Customer who has an account or other relationship
with Fingerhut or Direct Merchants Bank, as the case may be, and includes any
updates of such information.
<PAGE> 2
II. SERVICES
Section 2.1 File Access.
Fingerhut agrees to provide the Fingerhut Customer File to Direct
Merchants Bank for its use to solicit offers for all credit products issued
by Direct Merchants Bank. Fingerhut agrees to provide the requested
Customer File on a timely basis so as to ensure that Direct Merchants Bank
meets its production and solicitation dates for its credit product offers;
provided that Direct Merchants Bank has provided such production and
solicitation dates in writing to Fingerhut at least one week prior to the
date it needs such Customer File.
Section 2.2 Compensation.
Direct Merchants Bank agrees to pay Fingerhut (in immediately
available funds) in accordance with the terms and conditions set forth
in Exhibit A, attached hereto and incorporated herein by reference.
Payment of the fees shall be made not later than the thirtieth (30th)
business day of each month following the end of a calendar quarter,
within each calendar year during the Initial Term or subsequent Renewal Term.
Section 2.3 Use of Information.
Direct Merchants Bank and Fingerhut agree to provide to each other,
without charge, their own transaction and experience data on their own
Customer list which shall also include a Behavior Model derived from each
parties own transaction and experience data. The parties agree to update
such Customer list and Behavior Models in accordance with their own
business practices for updating such information. Other than as set forth in
this Agreement, Fingerhut agrees that it, any subsidiary or affiliate or on
behalf of third parties, will not directly or indirectly solicit via
direct mail or telemarketing Direct Merchants Bank Customers for any
products or services without the prior written consent of Direct Merchants
Bank. Subject to compliance with banking applicable laws and regulations
related to transactions with affiliates, Fingerhut and Direct Merchants Bank
agree that, during the term of this Agreement, Fingerhut will be the
exclusive provider of retail merchandise offers to the Customer list of
Direct Merchants Bank (excluding Direct Merchants Bank Customers that have a
cobrand, affinity, private label or other third party affiliation credit
account). The parties shall cooperate in good faith and mutually agree on
the parameters for merchandise offers. The parties confirm Direct Merchants
Bank may reasonably withhold approval of a merchandise offer if such offer
does not comply with applicable laws and regulations.
<PAGE> 3
Section 2.4 Restrictions on Use.
The Customer File and Behavior Models will only contain data on each
party's own transactions or experiences with its customers and shall not
contain any information provided by third parties, or other information, that
would cause either party in its reasonable interpretation, to be deemed a
consumer reporting agency as defined under applicable state or federal law.
Nothing in this Agreement shall require either party to disclose to the
other: (i) confidential information it received from third parties,
including without limitation, customer lists from third party sources, or
(ii) information which either party, in its reasonable interpretation, is
precluded from disclosing under any applicable laws, rules, regulations or
industry practices related to consumer privacy.
III. TERM
Section 3.1 Term and Termination.
Notwithstanding the execution date of this Agreement, the term of
this Agreement shall begin on January 1, 1995 and continue until September
23, 2003 ("Initial Term"). Unless otherwise terminated as provided
herein, at the end of the Initial Term, this agreement will
automatically renew for successive one year terms ("Renewal Term"). This
Agreement may also be terminated by either party under the
following conditions:
a. If either party materially breaches its obligations and
such breach is not cured within thirty (30) days of receipt of written
notice of breach by the non-breaching party.
b. Upon ninety (90) days' written notice prior to the end of the
Initial Term or any Renewal Term.
c. Fingerhut shall have the right to terminate this Agreement by
written notice to Direct Merchants Bank upon the occurrence of a Change of
Control (as defined below) with respect to Direct Merchants Bank. A "Change
of Control" shall be deemed to have occurred if (i) any person or group
(within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in
effect on the date hereof) other than Fingerhut shall own directly or
indirectly, beneficially or of record, shares representing more than 25% of
the aggregate ordinary voting power represented by the issued and
outstanding capital stock of Direct Merchants Bank; (ii) a majority of the
seats (other than vacant seats) on the Board of Directors of Direct Merchants
Bank shall at any time be occupied by persons who were neither (a)
nominated by Fingerhut or by the Board of Directors of Direct Merchants Bank,
nor (b) appointed by directors so nominated; or (iii) any person or group
other than Fingerhut shall otherwise directly or indirectly have the
power to exercise a controlling influence over the management or policies of
Direct Merchants Bank.
<PAGE> 4
IV. CONFIDENTIALITY
Section 4.1 Confidential Information.
a. All Confidential Information (as hereinafter defined)
disclosed by any of the parties to any other party hereunder is
confidential and proprietary to such disclosing party. Each party, its
affiliates, and officers, directors, employees, agents, consultants and
contractors shall not use any of the Confidential Information for any
purpose other than as expressly permitted hereunder. Confidential
Information furnished by any of the parties to any other in connection with
this Agreement and the transactions contemplated hereby will be kept in
confidence by such other party, including its affiliates or subsidiaries, in
accordance with its policies for maintaining the confidence of its own
information of similar content. The term Confidential Information shall
mean and include: (i) Customer data, Customer Files and Behavior Models,
(ii) all trade secrets and other confidential business information learned
in the course of performance by any party of its obligations hereunder,
or (iii) any information or data which is disclosed by any party to the other
party under or in contemplation of this Agreement.
b. Confidential Information may be either the property of the
disclosing party or information provided to the disclosing party by a
corporate affiliate of the disclosing party or by a third party.
Notwithstanding the foregoing, the term "Confidential Information" shall not
include information which: (i) is already known to such other party when
received, except for information periodically disclosed which is identified
as confidential prior to execution of this Agreement, (ii) thereafter
becomes generally obtainable by a party other than as a result of an
unauthorized disclosure by the party taking advantage of this clause, (iii)
is required by law, regulation or court order to be disclosed by such party,
provided that in the case of this clause, prior notice of such disclosure
has been given to the party which furnished such information, when legally
permissible, and that such other party which is required to make the
disclosure uses its best efforts to provide sufficient notice to permit the
party which furnished such information to take legal action to prevent the
disclosure, or (iv) is reasonably necessary, in the opinion of counsel, to
be disclosed in the context of a legal proceeding or regulatory
investigation provided that prior notice shall be given to the party which
furnished the information. This Section 4.1 shall survive any termination
of this Agreement for two (2) years.
<PAGE> 5
V. REPRESENTATIONS & WARRANTIES
Section 5.1 Representations & Warranties of Fingerhut
Fingerhut hereby represents and warrants, as of the date of this
Agreement, as follows:
a. Fingerhut is a duly organized corporation, validly existing, and
in good standing under the laws of the State of Minnesota. Fingerhut is
duly qualified or licensed to perform any business necessary under this
Agreement and will be in good standing in each jurisdiction in which its
business or the exercise of its rights, powers or authority under this
Agreement renders such qualification necessary.
b. Fingerhut has the requisite corporate power and authority to
enter into, and to carry out its obligations under this Agreement.
c. The execution and delivery by Fingerhut of this Agreement and
the consummation by Fingerhut of the transactions contemplated hereby have
been duly authorized prior to the date of this Agreement by all necessary
corporate action on its part.
d. This Agreement has been duly executed and delivered by
Fingerhut and constitutes a valid and binding obligation of Fingerhut
enforceable against Fingerhut in accordance with its terms.
e. Fingerhut is not subject to, or obligated under any provision
of (i) its articles of incorporation, (ii) any material agreement,
arrangement or understanding, (iii) any license, franchise or permit, or
(iv) any law, regulation, order, judgment or decree that would be breached or
violated, or of which a right of termination or acceleration or any
encumbrance on any of its assets would be created by the execution, delivery
and performance of this Agreement by Fingerhut, or the consummation
by Fingerhut of the transactions contemplated by this Agreement.
f. No authorization, consent or approval of, waiver or exemption
by, or filing or registration with any public body, court, third party or
authority is necessary on the part of Fingerhut for the consummation by
Fingerhut of the transactions contemplated by this Agreement.
Section 5.2. Direct Merchants Bank Representations and
Warranties.
Direct Merchants Bank hereby represents and warrants, as of the date
of this Agreement, as follows:
a. Direct Merchants Bank is a national banking association
duly organized, validly existing, and in good standing under the laws of
the United States of America, and is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which its business or
the exercise of its rights, powers or authority under this Agreement renders
such qualification necessary.
b. Direct Merchants Bank has the requisite power and authority to
enter into, and to carryout its obligations under this Agreement.
c. The execution and delivery by Direct Merchants Bank of this
Agreement and the consummation by Direct Merchants Bank of the transactions
contemplated hereby have been duly authorized prior to the date of this
Agreement by all necessary action on its part.
d. This Agreement has been duly executed and delivered by
Direct Merchants Bank and constitutes a valid and binding obligation of
Direct Merchants Bank enforceable against Direct Merchants Bank in accordance
with its terms.
e. Direct Merchants Bank is not subject to, or obligated
under any provision of (i) its articles of incorporation or bylaws,
(ii) any material agreement, arrangement or understanding, (iii) any license,
franchise or permit, or (iv) any law, regulation, order, judgment or decree
that would be breached or violated, or which a right of termination
or acceleration or any encumbrance on any of its assets would be created
by the execution, delivery and performance of this Agreement by Direct
Merchants Bank, or the consummation by Direct Merchants Bank of the
transactions contemplated by this Agreement.
f. No authorization, consent or approval of, waiver or exemption
by, or filing or registration with any public body, court, third party or
authority is necessary on the part of Direct Merchants Bank for the
consummation by Direct Merchants Bank of the transactions contemplated by this
Agreement.
<PAGE> 6
VI. INDEMNIFICATION
Section 6.1 Indemnification Obligations
a. By Direct Merchants Bank. Direct Merchants Bank shall be liable
to and shall defend, indemnify and hold harmless, Fingerhut and its
affiliates, and its respective officers, directors, employees and permitted
assigns, from and against any and all Losses (as hereinafter defined)
incurred by any of them by reason of or related to Direct Merchants Bank's
failure to perform its obligations hereunder.
b. By Fingerhut. Fingerhut shall be liable to and shall defend,
indemnify and hold harmless, Direct Merchants Bank and its affiliates, and
its respective officers, directors, employees and permitted assigns, from
and against any and all Losses (as hereinafter defined) incurred by reason
of or related to Fingerhut's failure to perform its obligations hereunder.
c. "Losses" Defined. For purposes of this Section 6.1, the term
"Losses" shall mean any losses, liability, claims, damages, costs, and
expenses, including attorney's fees, disbursements and court costs,
reasonably incurred by an indemnified party, judgments, fines and other
amounts paid in settlement, incurred or suffered by an indemnified party
in connection with any threatened, pending or adjudicated claim, demand,
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by an unaffiliated third party arising out of or in connection
with any breach or alleged breach of this Agreement), without regard to
whether or not such Losses would be deemed material under this Agreement.
Section 6.2 Procedures
a. Notice of Claims. The parties agree that in case any claim is
made, or any suit or action is commenced which, if not corrected, may give
rise to a right of indemnification by a party hereunder ("Indemnified
Party") from one of the other parties ("Indemnifying Party"), the
Indemnified Party will give notice to the Indemnifying party as promptly as
practicable after receipt by the Indemnified party of such notice or knowledge
of such claim, suit, or action. On a best efforts basis, notice to the
Indemnifying Party shall be given no later than fifteen days after receipt by
the Indemnified Party in the event a suit or action has commenced or
thirty days under all other circumstances; provided, however, that the
failure to give prompt notice shall not relieve an Indemnifying Party of its
obligation to indemnify except to the extent that the Indemnifying Party is
materially prejudiced by such failure. The Indemnified Party shall make
available to the Indemnifying Party and its counsel and accountants at
reasonable times and for reasonable periods, during normal business hours,
all books and records of the Indemnified Party relating to any such
possible claim for indemnification, and each party will render to the
other such assistance as it may reasonably require of the other in order to
ensure prompt and adequate defense of any suit, claim or proceeding
based upon a statement of facts which may give rise to a right of
indemnification hereunder.
b. Selection of Counsel. The Indemnifying Party shall have the
right to defend, compromise and settle any suit, claim or proceeding in the
name of the Indemnified Party to the extent that the Indemnifying Party
may be liable to the Indemnified Party under Section 6 above in connection
therewith; provided, however, that the Indemnifying Party shall not
compromise or settle a suit, claim or proceeding unless it assumes the
obligation to indemnify for all Losses related thereto. The
Indemnifying Party shall notify the Indemnified Party within ten days of
having been notified pursuant to Section 6 of this Agreement if the
Indemnifying Party elects to assume the defense of any such claim, suit or
action and employ counsel in a reasonable exercise of its discretion. The
Indemnified Party shall have the right to employ its own counsel to
participate in such defense, compromise or settlement, but the fees and
expenses of such counsel shall be at the Indemnified Party's expense, unless
the Indemnifying Party shall not have employed counsel to take charge of the
defense thereof.
c. Settlement of Claims. The Indemnified Party may at any time
notify the Indemnifying Party of its intention to settle or compromise any
claim, suit or action against the Indemnified Party in respect of which
indemnification payments may be sought from the Indemnifying Party
hereunder, but shall not settle or compromise any matter for which
indemnification may be sought without the consent of the Indemnifying Party.
Any settlement or compromise of any claim, suit or action in
accordance with the preceding sentence, or any final judgment or decree
entered on or in any claim, suit or action which the Indemnifying Party
did not assume the defense of in accordance herewith, shall be deemed to have
been consented to by, and shall be binding upon, the Indemnifying Party as
fully as if the Indemnifying Party had assumed the defense thereof and a
final judgment or decree had been entered in such suit or action by a court
of competent jurisdiction for the amount of such settlement,
compromise, judgment or decree.
d. Subrogation. The Indemnified Party shall be subrogated to
any claims or rights of the Indemnifying Party as against any other persons
with respect to any amount paid by the Indemnifying Party under this Section
6. The Indemnified Party shall cooperate with the Indemnifying Party, at the
Indemnifying Party's expense, in the assertion by the Indemnifying Party of
any such claim against such other persons.
e. Indemnification Payments. Amounts owing under this Section
6.2 shall be paid promptly upon written demand for indemnification containing
in reasonable detail the facts giving rise to such liability; provided,
however, if the Indemnifying Party notifies the Indemnified Party within
thirty (30) days of receipt of such demand that it disputes its
obligation to indemnify and the Parties are not otherwise able to
reach agreement, the controversy shall be settled by final order entered
by a court of competent jurisdiction.
<PAGE> 7
Section 6.3. Survival of Indemnification.
The provisions of this Section shall expressly survive any termination
of this Agreement, under Section 3.1, or otherwise for a period of five
(5) years.
VII. MISCELLANEOUS
Section 7.1 Notices. Any notice provided for herein shall be in
writing and shall be hand delivered or mailed by first class, registered or
certified mail, postage prepaid return receipt requested, or sent by
electronic or facsimile transmission, addressed as follows:
If to Direct Merchants Bank:
Direct Merchants Credit Card Bank, National Association
1455 West 2200 South, Suite 300
Salt Lake City, Utah 84119
Attention: President
with a copy to:
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: President
If to Fingerhut:
Fingerhut Corporation
4400 Baker Road
Minnetonka, Minnesota 55426
Attention: President
With a copy to the General Counsel
Or at such other place as may be directed in writing by the party to
receive notice.
<PAGE> 8
Section 7.2. Assignment. This Agreement may be assigned by the
parties to any affiliate, subsidiary or successor of such party upon notice,
provided that any affiliate, subsidiary or successor agrees in writing to be
bound by the Terms of this Agreement. This Agreement may not otherwise be
assigned without the prior written consent of the non-assigning party.
Section 7.3 No Joint Venture. In performing the obligations under
this Agreement, the parties are independent contractors. This Agreement is
not intended to create and shall not be construed to create a
partnership, joint venture or agency relationship.
Section 7.4 Captions. The captions and headings used in this
Agreement have been inserted for convenience and for reference only and
shall not be deemed to limit or define the text of this Agreement.
Section 7.5 Validity. If any provision or portion thereof of this
Agreement is held invalid, illegal, void or unenforceable by reason of any
rule or law, administrative order, judicial decision or public policy, all
other provisions of this Agreement shall remain in full force and effect.
Section 7.6 Amendments. Except as provided herein, neither this
Agreement nor any of its provisions shall be amended or modified except in
writing executed by a duly authorized officer of each of the parties.
Section 7.7 Audit. Each party agrees to allow the other, upon
reasonable notice, to audit its performance under this agreement.
Section 7.8 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Minnesota without
giving effect to the principles of conflicts of laws thereof.
Section 7.9 Force Majeure. No party shall be liable for any
failure of or delay in the performance of this Agreement for the period that
such failure or delay is due to acts of God, public enemy, war, strikes or
labor disputes, or any other cause beyond the parties' reasonable control; it
being understood that lack of financial resources is not to be deemed a cause
beyond a party's control. Each party shall notify the other parties promptly
of the occurrence of any such cause and carry out this Agreement as promptly
as practicable after such cause is terminated; provided, however, that the
existence of any such cause shall not extend the term of this Agreement.
Section 7.10 Waiver. No party shall deemed to have waived any of
its rights, powers or remedies under this Agreement unless such waiver is
given in writing by such party.
Section 7.11 Entire Agreement. This Agreement constitutes the
entire agreement between the parties in connection with the services
hereunder and supersedes all prior agreements, negotiations and
communications on such subject matter.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have signed this Agreement
effective as of the date and year first above written:
FINGERHUT CORPORATION
By
Title
DIRECT MERCHANTS CREDIT CARD
BANK, NATIONAL ASSOCIATION
By
Title
EXHIBIT A
Compensation
Direct Merchants Bank agrees to pay Fingerhut a fee of XXXX dollars
($X.XX) for each Fingerhut Customer name and address subject to the
following conditions: (i) the Fingerhut customer name and address was first
obtained from the Fingerhut Customer File, and (ii) such Fingerhut Customer
name and address results in a Direct Merchants Bank Account Booked,
notwithstanding whether such Account Booked was a jointly marketed
product between Direct Merchants Bank and an unaffiliated third party.
Direct Merchants Bank shall not pay such fee to Fingerhut for any Account
Booked pursuant to the Co-brand Credit Card Agreement between Fingerhut
and Direct Merchants Bank dated __________, 1996 and effective March 1,
1995. In addition, Direct Merchants Bank shall pay a non-cumulative fee of
XX basis points of net purchases on an Account Booked excluding any
Account Booked pursuant to the Co-brand Credit Card Agreement. Payment of
the $X.XX and XX basis points of net purchases terminates upon
termination of this Agreement.
<PAGE> 1
Exhibit 10.s
$300,000,000
REVOLVING CREDIT
AND LETTER OF CREDIT FACILITY AGREEMENT
Dated as of September 16, 1996
among
METRIS COMPANIES INC.,
THE LENDERS NAMED HEREIN,
NATIONSBANK, N.A., as Co-Agent,
BANK OF AMERICA ILLINOIS, as an Issuing Bank,
FIRST BANK NATIONAL ASSOCIATION, as an Issuing Bank,
NORWEST BANK MINNESOTA, N.A., as an Issuing Bank,
and
THE CHASE MANHATTAN BANK, as Administrative Agent
and an Issuing Bank
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
Definitions . . . . . . . . . . . . . 5
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . 5
SECTION 1.02. Terms Generally . . . . . . . . . . . . . . . . . . 21
ARTICLE II
The Credits . . . . . . . . . . . . . 22
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.03. Competitive Bid Procedure . . . . . . . . . . . . . 23
SECTION 2.04. Standby Borrowing Procedure . . . . . . . . . . . . 26
SECTION 2.05. Refinancings, Continuances and Conversions of Loans 26
SECTION 2.06. Fees . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.07. Evidence of Debt; Repayment of Loans . . . . . . . . 28
SECTION 2.08. Interest on Loans . . . . . . . . . . . . . . . . . 29
SECTION 2.09. Default Interest . . . . . . . . . . . . . . . . . . 29
SECTION 2.10. Alternate Rate of Interest . . . . . . . . . . . . . 30
SECTION 2.11. Termination and Reduction of Commitments . . . . . . 30
SECTION 2.12. Prepayment . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.13. Reserve Requirements; Change in Circumstances . . . 31
SECTION 2.14. Change in Legality . . . . . . . . . . . . . . . . . 33
SECTION 2.15. Letters of Credit . . . . . . . . . . . . . . . . . 34
SECTION 2.16. Indemnity . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2.17. Pro Rata Treatment . . . . . . . . . . . . . . . . . 37
SECTION 2.18. Sharing of Setoffs . . . . . . . . . . . . . . . . . 38
SECTION 2.19. Payments . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 2.20. Taxes . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE III
Representations and Warranties . . . . . . . . 41
SECTION 3.01. Organization; Powers . . . . . . . . . . . . . . . . 41
SECTION 3.02. Authorization . . . . . . . . . . . . . . . . . . . 41
SECTION 3.03. Enforceability . . . . . . . . . . . . . . . . . . . 41
SECTION 3.04. Governmental Approvals . . . . . . . . . . . . . . . 42
SECTION 3.05. Financial Statements . . . . . . . . . . . . . . . . 42
SECTION 3.06. No Material Adverse Change . . . . . . . . . . . . . 42
SECTION 3.07. Title to Properties; Possession Under Leases . . . . 42
SECTION 3.08. Subsidiaries . . . . . . . . . . . . . . . . . . . . 42
SECTION 3.09. Litigation; Compliance with Laws . . . . . . . . . . 42
SECTION 3.10. Agreements . . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.11. Federal Reserve Regulations . . . . . . . . . . . . 43
SECTION 3.12. Investment Company Act; Public Utility Holding Company
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.13. Use of Proceeds . . . . . . . . . . . . . . . . . . 43
SECTION 3.14. Tax Returns . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.15. No Material Misstatements . . . . . . . . . . . . . 43
SECTION 3.16. Employee Benefit Plans . . . . . . . . . . . . . . . 44
SECTION 3.17. Environmental Matters . . . . . . . . . . . . . . . 44
SECTION 3.18. Security Interests . . . . . . . . . . . . . . . . . 44
<PAGE> 3
ARTICLE IV
Conditions of Lending . . . . . . . . . . . 45
SECTION 4.01. Conditions to Effectiveness . . . . . . . . . . . . 45
SECTION 4.02. Conditions to All Loans . . . . . . . . . . . . . . 46
ARTICLE V
Affirmative Covenants . . . . . . . . . . . 47
SECTION 5.01. Existence; Businesses and Properties . . . . . . . . 47
SECTION 5.02. Insurance . . . . . . . . . . . . . . . . . . . . . 47
SECTION 5.03. Obligations and Taxes . . . . . . . . . . . . . . . 48
SECTION 5.04. Financial Statements, Reports, etc . . . . . . . . . 48
SECTION 5.05. Litigation and Other Notices . . . . . . . . . . . . 49
SECTION 5.06. Employee Benefits . . . . . . . . . . . . . . . . . 49
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 5.08. Sale of Accounts . . . . . . . . . . . . . . . . . . 50
SECTION 5.09. Further Assurances . . . . . . . . . . . . . . . . . 50
ARTICLE VI
Negative Covenants . . . . . . . . . . . 51
SECTION 6.01. Liens . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.02. Sale and Lease-Back Transactions . . . . . . . . . . 52
SECTION 6.03. Mergers, Consolidations, Sales of Assets and
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6.05. Leverage Ratio . . . . . . . . . . . . . . . . . . . 54
SECTION 6.06. Minimum Consolidated Net Worth . . . . . . . . . . . 54
SECTION 6.07. Minimum Excess Spread . . . . . . . . . . . . . . . 54
SECTION 6.08. Minimum Equity to Managed Assets Ratio. . . . . . . 54
SECTION 6.09. Limitations on Restrictions on Dividends . . . . . . 54
SECTION 6.10. Limitations on Lines of Business . . . . . . . . . . 55
ARTICLE VII
Events of Default . . . . . . . . . . . . 55
ARTICLE VIII
The Administrative Agent . . . . . . . . . . 59
<PAGE> 4
ARTICLE IX
Miscellaneous . . . . . . . . . . . . . 61
SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 9.02. Survival of Agreement . . . . . . . . . . . . . . . 62
SECTION 9.03. Binding Effect . . . . . . . . . . . . . . . . . . . 62
SECTION 9.04. Successors and Assigns . . . . . . . . . . . . . . . 62
SECTION 9.05. Expenses; Indemnity . . . . . . . . . . . . . . . . 65
SECTION 9.06. Right of Setoff . . . . . . . . . . . . . . . . . . 66
SECTION 9.07. Applicable Law . . . . . . . . . . . . . . . . . . . 66
SECTION 9.08. Waivers; Amendment . . . . . . . . . . . . . . . . . 66
SECTION 9.09. Interest Rate Limitation . . . . . . . . . . . . . . 67
SECTION 9.10. Entire Agreement . . . . . . . . . . . . . . . . . . 67
SECTION 9.11. Waiver of Jury Trial . . . . . . . . . . . . . . . . 67
SECTION 9.12. Severability . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.13. Counterparts . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.14. Headings . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.15. Jurisdiction; Consent to Service of Process . . . . 68
SECTION 9.16. Confidentiality . . . . . . . . . . . . . . . . . . 68
Exhibits
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 Form of Standby Borrowing Request
Exhibit B Form of Security Agreement
Exhibit C Form of Assignment and Acceptance
Exhibit D Borrower Pledge Agreement
Exhibit E Form of Subsidiary Guaranty
Exhibit F Form of Parent Guaranty
Exhibit G Form of Affiliate Guaranty
<PAGE> 5
Schedules
Schedule 2.01 Commitments
Schedule 3.08 Subsidiaries
Schedule 3.09 Litigation
Schedule 3.14 Tax Returns
Schedule 3.18 Security Agreement Filings
Schedule 6.01 Liens
<PAGE> 6
REVOLVING CREDIT AND LETTER OF CREDIT FACILITY
AGREEMENT dated as of September 16, 1996, among METRIS
COMPANIES INC., a Delaware corporation (the
"Borrower"), the lenders listed in Schedule 2.01
hereto (the "Lenders"), NATIONSBANK, N.A., as co-agent
for the Lenders (in such capacity, the "Co-Agent"),
BANK OF AMERICA ILLINOIS, as an issuing bank, FIRST
BANK NATIONAL ASSOCIATION, as an issuing bank, NORWEST
BANK MINNESOTA, N.A., as an issuing bank, and THE
CHASE MANHATTAN BANK, as administrative agent for the
Lenders and as an issuing bank.
The Borrower has requested the Lenders to extend credit to the
Borrower in an aggregate principal amount of up to $300,000,000, of which
(i) the full amount minus the LC Exposure (as defined herein) shall be
available in the form of revolving credit loans and competitive advances
(pursuant to a procedure under which the Borrower may invite the Lenders to bid
on an uncommitted basis on borrowings by the Borrower) and (ii) up to
$50,000,000 shall be available in the form of letters of credit. Such credit
will mature five years after the Closing Date (as hereinafter defined). The
proceeds of all such borrowings and such letters of credit are to be used by
the Borrower and its subsidiaries to provide working capital and for other
general corporate purposes. The Lenders are willing to extend such credit to
the Borrower on the terms and subject to the conditions herein set forth.
Accordingly, the Borrower, the Lenders and the Administrative
Agent agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR
Standby Loans.
"ABR Standby Loan" shall mean any Standby Loan bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Accounts" shall mean all accounts (excluding credit
cardholder accounts but not excluding accounts receivable arising therefrom),
accounts receivable, other receivables, contract rights, chattel paper, and
related instruments and documents, insurance claims and proceeds, and notes,
whether now owned or hereafter acquired by the Borrower or any Subsidiary.
"Administrative Agent" shall mean The Chase Manhattan Bank,
together with its affiliates, as the arranger of the Commitments and as the
agent for the Lenders under this Agreement and the other Loan Documents.
"Administrative Agent Fees" shall have the meaning assigned to
such term in Section 2.06(b).
<PAGE> 7
"Affiliate" shall mean, when used with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with
the Person specified.
"Affiliate Guarantors" shall mean Fingerhut Corporation and
each other subsidiary of the Parent party to the Affiliate Guaranty.
"Affiliate Guaranty" shall mean the Guaranty to be executed
and delivered by each Affiliate Guarantor, substantially in the form of Exhibit
G hereto, as the same may be amended, supplemented, modified or restated from
time to time as permitted thereby or replaced by a comparable guaranty.
"Alternate Base Rate" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the
rate of interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal office in New
York City; each change in the Prime Rate shall be effective on the date such
change is publicly announced as effective. "Base CD Rate" shall mean the sum
of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory
Reserves and (b) the Assessment Rate. "Three-Month Secondary CD Rate" shall
mean, for any day, the secondary market rate for three-month certificates of
deposit reported as being in effect on such day (or, if such day shall not be a
Business Day, the next preceding Business Day) by the Board through the public
information telephone line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if such
rate shall not be so reported on such day or such next preceding Business Day,
the average of the secondary market quotations for three-month certificates of
deposit of major money center banks in New York City received at approximately
10:00 a.m., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the Administrative Agent
from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it. "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
presumed conclusive absent manifest error but subject to rebuttal by the
Borrower) that it is unable to ascertain the Base CD Rate or the Federal Funds
Effective Rate or both for any reason, including the inability or failure of
the Administrative Agent to obtain sufficient quotations in accordance with the
terms thereof, the Alternate Base Rate shall be determined without regard to
clause (b) or (c), or both, of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime
Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate
shall be effective on the effective date of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate,
respectively.
<PAGE> 8
"Assessment Rate" shall mean for any date the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%) most recently
estimated by the Administrative Agent as the then current net annual assessment
rate that will be employed in determining amounts payable by the Administrative
Agent to the Federal Deposit Insurance Corporation (or any successor) for
insurance by such Corporation (or such successor) of time deposits made in
dollars at the Administrative Agent's domestic offices.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted by the
Administrative Agent, in the form of Exhibit C.
"Big Six Accounting Firm" shall mean any of Price Waterhouse &
Co., Arthur Andersen & Co., Ernst & Young, KPMG Peat Marwick LLP, Deloitte &
Touche and Coopers & Lybrand or their respective successors.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Borrower Pledge Agreement" shall mean the Pledge Agreement,
substantially in the form of Exhibit D hereto, made by the Borrower in favor of
the Administrative Agent, as such agreement may be amended, supplemented,
modified or restated from time to time as permitted thereby or replaced by a
comparable agreement.
"Borrowing" shall mean a group of Loans of a single Type made
by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) on
a single date and as to which a single Interest Period is in effect.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
permitted to open for business in New York City; provided, however, that, when
used in connection with a Eurodollar Loan, the term "Business Day" shall also
exclude any day on which banks are not open for dealings in dollar deposits in
the London interbank market.
"Capital Lease" shall have the meaning given such term in the
definition of Capital Lease Obligation.
"Capital Lease Obligations" of any Person shall mean the
obligations of such Person to pay rent or other amounts under any lease (a
"Capital Lease") of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of such
Person under GAAP consistently applied and, for the purposes of this Agreement,
the amount of such obligations at any time shall be the capitalized amount
thereof at such time determined in accordance with GAAP consistently applied.
A "Change in Control" shall be deemed to have occurred if
either (a) the Parent shall have ceased to own (directly or indirectly),
beneficially and of record, free and clear of all Liens, at least 51% (on a
fully diluted basis) of the economic and voting interest in the Borrower's
common stock or (b) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) shall beneficially own (within the meaning of
Rule 13d-3 under the Exchange Act) shares representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding
<PAGE> 9
capital stock of the Parent or any Person directly or indirectly Controlling
the Parent or (c) at any time, individuals who on the Closing Date were
directors of the Parent (together with any replacement or additional directors
nominated or appointed by the majority of directors then in office) cease to
constitute a majority of the Board of Directors of the Parent.
"Change in Control Date" shall mean (a) in the case of a
Change in Control pursuant to clause (a) of the definition thereof, the date
on which such Change of Control shall have occurred and (b) in the case of a
Change in Control pursuant to either clause (b) or (c) of the definition
thereof, the date on which the Required Lenders shall have requested the
termination of the Commitments following the earlier of (i) the filing with the
Securities and Exchange Commission of a Schedule 13D (or any similar or
successor report or schedule) or any amendment thereto pursuant to
Regulation 13D or any similar or successor regulation promulgated under the
Exchange Act with respect to the Parent or any Person directly or indirectly
Controlling the Parent indicating that an event which constitutes such a Change
in Control has occurred, or (ii) the date on which the Parent becomes aware
that an event which constitutes such a Change in Control has occurred.
"Closing Date" shall mean September 16, 1996.
"Code" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"Collateral Documents" shall mean the Security Agreement and
the Borrower Pledge Agreement and the executed stock powers referred to
therein.
"Commitment" shall mean, with respect to each Lender, the
Commitment of such Lender to make Loans hereunder in an amount not in excess of
the amount set forth opposite such Lender's name in Schedule 2.01 hereto as
such Lender's Commitment may be permanently terminated or reduced from time to
time pursuant to Section 2.11 or adjusted from time to time pursuant to
Section 9.04.
"Commitment Percentage" shall mean, as to any Lender at any
time, the percentage which such Lender's Commitment then constitutes of the
aggregate Commitments.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a
notification made by the Borrower pursuant to Section 2.03(d) in the form of
Exhibit A-4 hereto.
"Competitive Bid Rate" shall mean, as to any Competitive Bid
made by a Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar
Competitive Loan, the Margin, and (ii) in the case of a Fixed Rate Loan, the
fixed rate of interest offered by the Lender making such Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant
to Section 2.03 in the form of Exhibit A-1 hereto.
"Competitive Borrowing" shall mean a borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
<PAGE> 10
whose Competitive Bids for such Borrowing have been accepted by the Borrower
under the bidding procedure described in Section 2.03.
"Competitive Loan" shall mean a Loan pursuant to the bidding
procedure described in Section 2.03. Each Competitive Loan shall be a Euro-
dollar Competitive Loan or a Fixed Rate Loan.
"Consolidated Net Worth" shall mean, as at any date of
determination, the consolidated stockholders' equity of the Borrower and its
consolidated Subsidiaries, as determined on a consolidated basis in conformity
with GAAP consistently applied.
"Consolidated Tangible Net Worth" shall mean, as at any date
of determination, Consolidated Net Worth less (to the extent reflected in
determining Consolidated Net Worth) (a) all write-ups subsequent to June 30,
1996 in the book value of any asset by the Borrower or any of its consolidated
Subsidiaries, (b) all investments in Persons that are not consolidated
Subsidiaries and (c) all unamortized debt discount and expense, unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade names,
anticipated future benefit of tax loss carry-forwards, copyrights, organization
or developmental expenses and other intangible assets.
"Control" shall have the meaning given such term in Rule 12b-2
under the Exchange Act and "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Credit Card Bank" shall mean Direct Merchants Credit Card
Bank, National Association, and any other Person that issues credit cards to be
formed or acquired by the Borrower or one of the Subsidiaries.
"Credit Event" shall mean each Borrowing, each issuance of a
Letter of Credit and each amendment of a Letter of Credit that increases the
principal amount thereof.
"Cumulative Consolidated Net Income" shall mean, as at any
date of determination, the aggregate net income, before consideration of any
gains or charges resulting from extraordinary items, of the Borrower and its
consolidated Subsidiaries, as determined on a consolidated basis in conformity
with GAAP consistently applied ("Net Operating Income"), for each fiscal
quarter of the Borrower (a) commencing with (i) at any time when clause (i) of
Section 6.06(a) is applicable, the fiscal quarter ended June 30, 1996 or (ii)
at any time when clause (ii) of Section 6.06(a) is applicable, the first fiscal
quarter immediately succeeding the last full fiscal quarter included in
determining IPO Consolidated Net Worth and (b) ending with the fiscal quarter
most recently ended on or prior to such date of determination, provided, that
"Cumulative Consolidated Net Income" shall be determined exclusive of any
fiscal quarter of the Borrower for which Net Operating Income is less than
zero.
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"Designated Debt" shall mean, as at any date, all obligations
of the Borrower and its consolidated Subsidiaries which are (or, as of such
date, should be) accounted for as indebtedness on a consolidated balance sheet
of the Borrower in conformity with GAAP consistently applied whether such
<PAGE> 11
obligations are classified as long-term or short-term under GAAP consistently
applied.
"dollars" or "$" shall mean lawful money of the United States
of America.
"Equity to Managed Assets Ratio" shall mean, at any time, the
ratio (expressed as a percentage) of (a) Consolidated Tangible Net Worth at
such time to (b) Managed Assets at such time.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that is a member of a group of which the Borrower is a member
and that is treated as a single employer under Section 414(b) or (c) of the
Code or, solely for purposes of Section 412 of the Code, that is treated as a
single employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Competitive Borrowing" shall mean a Borrowing
comprised of Eurodollar Competitive Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan
or Eurodollar Standby Loan.
"Eurodollar Standby Borrowing" shall mean a Borrowing composed
of Eurodollar Standby Loans.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Event of Default" shall have the meaning assigned to such
term in Article VII.
"Excess Spread" shall mean, for any three consecutive Monthly
Periods (a "Test Period"), the average of the Series Excess Spreads determined
in respect of such Test Period for each outstanding series of certificates
relating to the Metris Master Trust (which average shall be determined on a
weighted basis by reference to the average aggregate invested amount with
respect to each such series). As used in this definition, "Series Excess
Spread" means, with respect to any series referred to in the preceding
sentence, (a) the average of the Portfolio Yields for each of the three Monthly
Periods in the relevant Test Period minus (b) the weighted average Base Rates
for such three Monthly Periods.
In addition, as used in this definition, (i) with respect to
the series of certificates captioned 1995-1 or 1996-1 and issued pursuant to
the Metris Master Trust Pooling and Servicing Agreement dated as of May 26,
1995, "Base Rate" and "Portfolio Yield" shall have the respective meanings
<PAGE> 12
assigned to such terms in the relevant supplement to such Pooling and Servicing
Agreement as in effect on the Closing Date, and (ii) with respect to any other
series of certificates relating to the Metris Master Trust, (x) "Base Rate"
shall mean, as of any Business Day, the average of the per annum certificate
rates applicable to such certificates on such Business Day weighted by the
unpaid principal amount of each respective class of certificates as of such
Business Day plus the product of the per annum servicing fee rate applicable to
such series times a fraction the numerator of which is the amount by reference
to which such servicing fee is payable and the denominator of which is the
aggregate invested amount in respect of such series and (y) "Portfolio Yield"
shall mean, for any Monthly Period, the annualized percentage equivalent of a
fraction, the numerator of which is an amount equal to the sum of the aggregate
amount of available finance charge collections allocated to such series for
such Monthly Period (excluding amounts on deposit in any reserve account
established for such series), calculated on a cash basis, minus the aggregate
amount allocated to such series for such Monthly Period in respect of defaulted
Accounts and amounts required to be deposited, but not deposited, in any excess
funding account in connection with the adjustment of an Account, and the
denominator of which is the average daily aggregate invested amount of the
certificates with respect to such series for such Monthly Period; provided,
however, that, for the purposes of this clause (ii), the Base Rate and
Portfolio Yield will instead be calculated in the manner set forth in the
documentation governing the relevant series of certificates so long as such
terms (or their equivalent) are defined in such documentation in a manner no
less favorable to the Lenders (i.e., that would be expected to materially
increase the reported Series Excess Spread) than the relevant definitions set
forth in the Pooling and Servicing Agreement referred to in clause (i) above.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Facility Fee" shall have the meaning assigned to such term in
Section 2.06(a).
"Facility Fee Percentage" shall mean the applicable percentage
per annum set forth below based upon the ratings by S&P and Moody's,
respectively, applicable on such date to the Index Debt:
Rating Percentage
Category 1
A+/A1 .0800%
or above
Category 2
A, A-/A2, A3 .1000%
Category 3
BBB+/Baa1 .1250%
Category 4
BBB/Baa2 .1500%
Category 5
BBB-/Baa3 .1750%
Category 6
below BBB-/ .2500%
below Baa3
<PAGE> 13
For purposes of the foregoing, (i) if at any time either S&P
or Moody's shall not have in effect a rating for Index Debt (other than by
reason of the circumstances referred to in the last sentence of this
definition), then the Facility Fee Percentage shall be deemed to be .2500% per
annum; (ii) if the ratings established or deemed to have been established by
S&P or Moody's for the Index Debt shall fall within different Categories, the
Facility Fee Percentage shall be based on the numerically higher Category (with
Category 6 being the numerically highest Category); and (iii) if any rating
established or deemed to have been established by S&P or Moody's shall be
changed (other than as a result of a change in the rating system of S&P or
Moody's), such change shall be effective as of the date on which such change is
first announced by the applicable rating agency. Each change in the
Facility Fee Percentage shall apply during the period commencing on the
effective date of such change and ending on the date immediately preceding the
effective date of the next such change. If the rating system of S&P or Moody's
shall change, or if any such rating agency shall cease to be in the business of
rating corporate debt obligations, the Borrower and the Lenders shall negotiate
in good faith to amend this definition to reflect such changed rating system or
the nonavailability of ratings from such rating agency (and pending the
effectiveness of such amendment, the Facility Fee Percentage will be determined
by reference to the rating most recently in effect from such rating agency).
"Fees" shall mean the Facility Fee, the LC Fee, the Issuance
and Amendment Fees, and other fees referred to in paragraph (d) of Section 2.06
and the Administrative Agent Fees.
"Financial Officer" of any corporation shall mean the chief
financial officer, principal accounting officer, treasurer, assistant treasurer
or controller of such corporation.
"Fingerhut Liquidity Agreement" shall mean the Amended and
Restated Liquidity Agreement, dated as of May 26, 1995, among Fingerhut Owner
Trust, the lenders parties thereto and The Chase Manhattan Bank, as
Administrative Agent, as amended from time to time.
"Fingerhut Owner Trust" shall have the meaning given such term
in the definition of "Metris Master Trust".
"Fixed Rate Borrowing" shall mean a Borrowing comprised of
Fixed Rate Loans.
<PAGE> 14
"Fixed Rate Loan" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (expressed in the form of a
decimal to no more than four decimal places) specified by the Lender making
such Loan in its related Competitive Bid.
"FRI" shall mean Fingerhut Receivables, Inc., a Delaware
special purpose corporation.
"GAAP" shall mean generally accepted accounting principles in
the United States.
"Governmental Authority" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body with jurisdiction over the Borrower, any Subsidiary or any
Lender, as the case may be.
"Guarantee" of or by any Person shall mean, without
duplication, any obligation, contingent or otherwise, of such Person
guaranteeing or having the economic effect of guaranteeing any Indebtedness of
any other Person (the "primary obligor") (or any other obligation of a primary
obligor if the anticipated liability of such guarantor shall have been reserved
against in the financial statements of such guarantor or quantified in the
notes thereto), including third party mortgages or third party security
interests, in any manner, whether directly or indirectly, and including any
obligation of such Person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
other obligation or to purchase (or to advance or supply funds for the purchase
of) any security for the payment of such Indebtedness or other obligation,
(b) to purchase property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment of such
Indebtedness or other obligation or (c) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor for purposes of enabling the primary obligor to pay such Indebtedness
or other obligation; provided, however, that the term Guarantee shall not
include endorsements for collection or deposit, in either case, in the ordinary
course of business. For purposes of determining compliance with any covenant
contained herein, the "amount" of any Guarantee shall be deemed to equal
(i) the lesser of the amount of the Indebtedness guaranteed or otherwise
benefited by such Guarantee or the maximum amount of the Borrower's or the
applicable Subsidiary's liability with respect to such Guarantee or (ii) if
such Guarantee shall not be a guarantee of Indebtedness, the amount of the
anticipated liability reserved against in connection with such Guarantee in the
most recent balance sheet of the guarantor or any anticipated liability of the
guarantor thereunder quantified in the notes accompanying such balance sheet.
"Guarantors" shall mean the Parent, each subsidiary of the
Parent party to the Affiliate Guaranty and each Subsidiary of the Borrower
party to the Subsidiary Guaranty.
"Indebtedness" of any Person shall mean, without duplication,
(a) all obligations of such Person for borrowed money or with respect to
deposits or advances of any kind, (b) all obligations of such Person evidenced
by bonds, debentures, notes or similar instruments, (c) all obligations of such
Person upon which interest charges are customarily paid, (d) all obligations of
such Person under conditional sale or other title retention agreements relating
to property or assets purchased by such Person, (e) all obligations of such
Person issued or assumed as the deferred purchase price of property or services
<PAGE> 15
(other than trade payables and payroll expenses, so long as such trade payables
and payroll expenses are incurred in the ordinary course of business),
(f) Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed to the extent of the amount of
such Indebtedness or, if such Indebtedness is nonrecourse, to the extent of the
lesser of the amount of such Indebtedness and the value of the property
securing such Indebtedness, (g) all Guarantees by such Person of Indebtedness
of others, (h) all Capital Lease Obligations of such Person, and (i) all
obligations of such Person, actual or contingent, as an account party in
respect of letters of credit other than trade letters of credit and bankers'
acceptances. Notwithstanding the foregoing, Indebtedness shall exclude sales
of Accounts accounted for as sales under GAAP and obligations in respect of
Rate Protection Agreements. The Indebtedness of any Person shall include the
Indebtedness of any partnership (other than the Metris Master Trust) in which
such Person is a general partner.
"Index Debt" shall mean the senior unsecured, non-credit
enhanced long-term debt of the Parent.
"Initial Test Date" shall mean the earlier of December 31,
1996 and the IPO Date.
"Interest Payment Date" shall mean, with respect to any Loan,
the last day of the Interest Period applicable thereto and, in the case of a
Eurodollar Loan with an Interest Period of more than three months' duration or
a Fixed Rate Loan with an Interest Period of more than 90 days' duration, each
day that would have been an Interest Payment Date for such Loan had successive
Interest Periods of three months' duration or 90 days' duration, as the case
may be, been applicable to such Loan and, in addition, the date of any
refinancing or conversion of such Loan with or to a Loan of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing or on the last
day of the immediately preceding Interest Period applicable to such Borrowing,
as the case may be, and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day) in the calendar
month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, (b) as
to any ABR Borrowing, the period commencing on the date of such Borrowing and
ending on the earliest of (i) the next succeeding March 31, June 30,
September 30 and December 31, (ii) the Maturity Date and (iii) the date of
prepayment of such Borrowing and (c) as to any Fixed Rate Borrowing, the period
commencing on the date of such Borrowing and ending on the date specified in
the Competitive Bids in which the offer to make the Fixed Rate Loans comprising
such Borrowing was extended, which shall not be earlier than seven days after
the date of such Borrowing or later than 360 days after the date of such
Borrowing; provided, however, that, if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of Eurodollar Loans only, such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day. Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"IPO Consolidated Net Worth" shall have the meaning assigned
to such term in Section 6.06.
<PAGE> 16
"IPO Date" shall mean the date on which the initial public
offering of the Borrower's common stock shall have been consummated.
"Issuing Banks" shall mean The Chase Manhattan Bank, Bank of
America Illinois, Norwest Bank Minnesota, N.A., First Bank National Association
and one or more other Lenders which shall be designated in writing from time to
time by the Borrower with the consent of such Lender and the Administrative
Agent, which consent, in the case of the Administrative Agent, shall not be
unreasonably withheld.
"LC Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to acquire participations in Letters of Credit
hereunder as set forth in Section 2.15, in an amount not in excess of the
amount set forth opposite such Lender's name as its LC Commitment in
Schedule 2.01, as the same may be permanently reduced from time to time
pursuant to Section 2.11.
"LC Disbursement" shall mean any payment or disbursement made
by the Issuing Bank under or pursuant to a Letter of Credit.
"LC Exposure" shall mean, at any time, the sum of (a) the
aggregate undrawn amount of all Letters of Credit outstanding at such time and
(b) the aggregate amount of all LC Disbursements for which the Lenders have not
been reimbursed pursuant to Section 2.15 (and, when used with respect to a
particular Lender, shall mean such Lender's pro rata share, based upon its LC
Commitment, of such aggregate LC Exposure).
"LC Fee" shall have the meaning set forth in Section 2.06(c).
"Letter of Credit" shall mean any letter of credit issued
pursuant to the terms of Section 2.15(a).
"Leverage Ratio" shall mean, at any time, the ratio of
(a) Designated Debt of the Borrower at such time to (b) Consolidated Net Worth
at such time.
"LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the rate at which dollar
deposits approximately equal in principal amount to (i) in the case of a
Standby Borrowing, the Administrative Agent's portion of such Eurodollar
Borrowing and (ii) in the case of a Competitive Borrowing, a principal amount
that would have been the Administrative Agent's portion of such Competitive
Borrowing had such Competitive Borrowing been a Standby Borrowing, and for a
maturity comparable to such Interest Period are offered to the principal London
office of the Administrative Agent in immediately available funds in the London
interbank market at approximately 11:00 a.m., London time, two Business Days
prior to the commencement of such Interest Period.
"LIBOR Spread" shall mean, with respect to the LC Fee or the
Loans comprising any Eurodollar Standby Borrowing, the applicable percentage
per annum set forth below based upon the ratings by S&P and Moody's,
respectively, applicable on such date to the Index Debt:
<PAGE> 17
Rating Percentage
Category 1
A+/A1
or above .1700%
Category 2
A, A-/A2, A3 .2000%
Category 3
BBB+/Baa1 .2250%
Category 4
BBB/Baa2 .2500%
Category 5
BBB-/Baa3 .3250%
Category 6
below BBB-/ .5000%
below Baa3
For purposes of the foregoing, (i) if at any time either S&P
or Moody's shall not have in effect a rating for the Index Debt (other than by
reason of the circumstances referred to in the last sentence of this
definition), then the LIBOR Spread shall be deemed to be .5000%; (ii) if the
ratings established or deemed to have been established by S&P or Moody's for
the Index Debt shall fall within different Categories, the LIBOR Spread shall
be based on the numerically higher Category (with Category 6 being the
numerically highest Category); and (iii) if any rating established or deemed to
have been established by S&P or Moody's shall be changed (other than as a
result of a change in the rating system of S&P or Moody's), such change shall
be effective as of the date on which such change is first announced by the
applicable rating agency. Each change in the LIBOR Spread shall apply during
the period commencing on the effective date of such change and ending on the
date immediately preceding the effective date of the next such change. If the
rating system of S&P or Moody's shall change, or if any such rating agency
shall cease to be in the business of rating corporate debt obligations, the
Borrower and the Lenders shall negotiate in good faith to amend this definition
to reflect such changed rating system or the nonavailability of ratings from
such rating agency (and pending the effectiveness of such amendment, the LIBOR
Spread will be determined by reference to the rating most recently in effect
from such rating agency).
"Lien" shall mean, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset
and (c) in the case of securities, any purchase option, call or similar right
of a third party with respect to such securities.
<PAGE> 18
"Loan" shall mean a Competitive Loan or a Standby Loan,
whether made as a Eurodollar Loan, an ABR Standby Loan or a Fixed Rate Loan,
as permitted hereby.
"Loan Documents" shall mean this Agreement, the Parent
Guaranty, the Subsidiary Guaranty, the Affiliate Guaranty and the Collateral
Documents.
"Loan Parties" shall mean the Borrower and each Guarantor.
"Managed Assets" shall mean, at any time, the sum for the
Borrower and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) of (a) all on-balance sheet assets and (b)
all securitized assets.
"Margin" shall mean, as to any Eurodollar Competitive Loan,
the margin (expressed as a percentage rate per annum in the form of a decimal
to no more than four decimal places) to be added to or subtracted from the
LIBO Rate in order to determine the interest rate applicable to such Loan, as
specified in the Competitive Bid relating to such Loan.
"Margin Stock" shall have the meaning given such term under
Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse
effect on the business, assets, operations or financial condition of the
Borrower and the Subsidiaries taken as a whole, (b) material impairment of the
ability of the Borrower or any Subsidiary to perform any material obligation
under any Loan Document to which it now is or hereafter becomes a party or
(c) material impairment of any of the material rights of or benefits available
to the Lenders under the Loan Documents.
"Maturity Date" shall mean September 16, 2001.
"Metris Master Trust" shall mean (i) the Metris Master Trust
(formerly the Fingerhut Financial Services Master Trust) formed pursuant to
that certain Pooling and Servicing Agreement dated as of May 26, 1995, among
Direct Merchants Credit Card Bank, National Association, as servicer, MRI as
transferor, and Bank of New York (Delaware), as trustee, as amended or
supplemented from time to time, (ii) the Fingerhut Owner Trust formed pursuant
to that certain Owner Trust Agreement between FRI, as depositor, and Wilmington
Trust Company, as owner trustee (the "Fingerhut Owner Trust") and (iii) any
other independent trust formed for the purpose of acquiring interests in the
accounts receivable of the Borrower or any of its Subsidiaries and issuing
certificates of beneficial interest in such receivables or commercial paper
pursuant to a Receivables Transfer Program.
"Monthly Period" shall mean the period from and including the
first day of each fiscal month of the Borrower to and including the last day of
such fiscal month.
"Moody's" shall mean Moody's Investors Service, Inc., and its
successors.
"MRI" shall mean Metris Receivables, Inc. (formerly Fingerhut
Financial Services Receivables, Inc.), a Delaware special purpose corporation,
or its successors.
<PAGE> 19
"Multiemployer Plan" shall mean a multiemployer plan as
defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate (other than one considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Section 414 of the Code) is making or accruing an
obligation to make contributions, or has within any of the preceding five
plan years made or accrued an obligation to make contributions.
"Note Purchase Agreement" shall mean, collectively, (a) the
Purchase Agreement dated January 14, 1991, between the Parent and each of the
purchasers listed on Schedule 1 thereto, with respect to the Parent's 10.12%
Senior Notes, Series B, and (b) the Purchase Agreement dated as of June 15,
1992, between the Parent and each of the purchasers listed in Schedule 1
thereto, in each case, as the same may be amended, supplemented, modified or
restated from time to time as permitted thereby.
"Obligations" shall mean (a) the Borrower's obligations in
respect of the due and punctual payment of principal of and interest on the
Loans when and as due, whether at maturity or upon any Interest Payment Date,
by acceleration, upon one or more dates set for prepayment or otherwise,
(b) all amounts required to be paid by the Borrower under Section 2.15 or
otherwise in respect of any LC Disbursement, (c) all Fees, expenses,
indemnities, reimbursements and other obligations, monetary or otherwise, of
the Borrower under this Agreement or any other Loan Document and (d) all
obligations, monetary or otherwise, of each Subsidiary under each Loan Document
to which it is a party.
"Parent" shall mean Fingerhut Companies, Inc., a Minnesota
corporation.
"Parent Facility" shall have the meaning assigned to such term
in Section 4.01(g).
"Parent Guaranty" shall mean the Guaranty, substantially in
the form of Exhibit F hereto, made by the Parent in favor of the Administrative
Agent, as the same may be amended, supplemented, modified or restated from time
to time as permitted thereby or replaced by a comparable guaranty.
"Parent Receivables Transfer Program" shall mean (i) the
structured receivables program conducted pursuant to that certain Purchase
Agreement dated as of June 29, 1994, between Fingerhut Corporation and FRI and
that certain Pooling and Servicing Agreement dated as of June 29, 1994, among
FRI, Fingerhut Corporation and Bank of New York (Delaware), each as amended and
supplemented from time to time or replaced by a similar agreement and related
agreements; (ii) the owner trust commercial paper program conducted pursuant to
an owner trust agreement between FRI, as depositor, and Wilmington Trust
Company, as Owner Trustee, a liquidity agreement among the Fingerhut Owner
Trust, The Chase Manhattan Bank, as agent, and the lenders party thereto, and
related agreements under which the Fingerhut Owner Trust would issue commercial
paper and (iii) any other program under which the Parent and/or any of its
subsidiaries sell interests in its Accounts to one or more purchasers on a
limited-recourse basis as determined in accordance with GAAP, but excluding any
sales of Accounts made in conjunction with any sale of other assets of the
Parent or any of its subsidiaries.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
<PAGE> 20
"Person" shall mean any natural person, corporation, limited
liability company, business trust, joint venture, association, company,
partnership or government, or any agency or political subdivision thereof.
"Plan" shall mean any pension plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
which is maintained for employees of the Borrower or any ERISA Affiliate.
"Private Placement Indebtedness" shall mean the indebtedness
of the Parent issued pursuant to the Note Purchase Agreement.
"Rate Protection Agreements" shall mean interest rate
protection or exchange rate hedging agreements, foreign currency exchange
agreements or other interest or exchange rate hedging, cap or collar
arrangements.
"Receivables Transfer Subsidiary" shall mean (i) MRI and (ii)
any other special purpose Subsidiary formed pursuant to a Receivables Transfer
Program.
"Receivables Transfer Program" shall mean (i) the structured
receivables program conducted pursuant to that certain Bank Receivables
Purchase Agreement dated as of May 26, 1995, between Direct Merchants Credit
Card Bank, National Association, and the Borrower (as assignee of the Parent),
that certain Purchase Agreement dated as of May 26, 1995, between the Borrower
(as assignee of the Parent) and MRI and that certain Pooling and Servicing
Agreement dated as of May 26, 1995, among MRI, Direct Merchants Credit Card
Bank, National Association, and Bank of New York (Delaware), each as amended
and supplemented from time to time or replaced by a similar agreement and
related agreements; (ii) the owner trust commercial paper program conducted
pursuant to an owner trust agreement between FRI, as depositor, and Wilmington
Trust Company, as owner trustee, a liquidity agreement among the Fingerhut
Owner Trust, The Chase Manhattan Bank, as agent, and the lenders party thereto,
and related agreements under which the Owner Trust would issue commercial paper
and (iii) any other program under which the Borrower and/or any of its
Subsidiaries sell interests in its Accounts to one or more purchasers on a
limited recourse basis as determined in accordance with GAAP, but excluding any
sales of Accounts made in conjunction with any sale of other assets of the
Borrower or any of the Subsidiaries. Interests in Accounts sold by the
Borrower and/or any of its Subsidiaries under clause (i) above will for all
purposes be deemed sold pursuant to a Receivables Transfer Program as of the
date the Accounts are initially transferred to the relevant Receivables
Transfer Subsidiary.
"Register" shall have the meaning given such term in
Section 9.04(d).
"Regulation D" shall mean Regulation D of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation G" shall mean Regulation G of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
<PAGE> 21
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Replacement Letter of Credit" shall mean a letter of credit
issued by a bank with a rating of at least A by both Moody's and S&P, for the
benefit of the Administrative Agent to secure the repayment of any future
drawings under any outstanding Letters of Credit issued hereunder.
"Reportable Event" shall mean any reportable event as defined
in Section 4043(b) of ERISA or the regulations issued thereunder with respect
to a Plan (other than a Plan maintained by an ERISA Affiliate that is
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code).
"Required Lenders" shall mean, (i) at any time, Lenders having
Commitments representing at least a majority of the Total Commitment or
(ii) for purposes of acceleration of the Loans pursuant to clause (ii) of the
last paragraph of Article VII and for purposes of any demands in respect of the
Parent Guaranty, the Affiliate Guaranty or the Subsidiary Guaranty, Lenders
holding Loans and having LC Exposures representing a majority of the aggregate
principal amount of the Loans and the aggregate LC Exposure then outstanding.
"Responsible Officer" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other
officer or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Sale-Leaseback Transaction" shall have the meaning given such
term in Section 6.02.
"S&P" shall mean Standard & Poor's Ratings Services and its
successors.
"Security Agreement" shall mean the Security Agreement,
substantially in the form of Exhibit B hereto, made by the Borrower in favor of
the Administrative Agent, as such agreement may be amended, supplemented,
modified or restated from time to time as permitted thereby or replaced by a
comparable agreement.
"Standby Borrowing" shall mean a borrowing consisting of
simultaneous Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant
to Section 2.04 in the form of Exhibit A-5 hereto.
"Standby Commitment" shall mean, with respect to each Lender,
the commitment of such Lender to make Standby Loans hereunder as set forth in
Schedule 2.01, as such commitment may be permanently terminated or reduced from
time to time pursuant to Section 2.11.
<PAGE> 22
"Standby Loans" shall mean the revolving loans made by the
Lenders to the Borrower pursuant to Section 2.01. Each Standby Loan shall be a
Eurodollar Standby Loan or an ABR Standby Loan.
"Statutory Reserves" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board and any other banking authority to which
the Administrative Agent is subject for new negotiable nonpersonal time
deposits in dollars of over $100,000 with maturities approximately equal to
three months. Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
"subsidiary" shall mean, with respect to any Person (herein
referred to as the "parent"), any corporation, limited liability company,
partnership, association or other business entity of which securities or other
ownership interests representing more than 50% of the ordinary voting power or
more than 50% of the general partnership or membership interests are, at the
time any determination is being made, owned, controlled or held by the parent
and/or one or more subsidiaries of the parent.
"Subsidiary" shall mean any subsidiary of the Borrower
including any subsidiary of the Borrower created or acquired by the Borrower
after the date hereof other than Metris Master Trust.
"Subsidiary Guarantors" shall mean each Subsidiary of the
Borrower party to the Subsidiary Guaranty.
"Subsidiary Guaranty" shall mean the Guaranty to be executed
and delivered by each Subsidiary Guarantor, substantially in the form of
Exhibit E hereto, as the same may be amended, supplemented, modified or
restated from time to time as permitted thereby or replaced by a comparable
guaranty.
"Total Commitment" shall mean, at any time, the aggregate
amount of Commitments of all the Lenders, as in effect at such time.
"Total LC Commitment" shall mean, at any time, the aggregate
amount of the Lenders' LC Commitments, as in effect at such time.
"Transactions" shall have the meaning assigned to such term in
Section 3.02.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the LIBO Rate, the Alternate Base Rate and any Competitive Bid Rate.
"Withdrawal Liability" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in
Section 1.01 shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
<PAGE> 23
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". All references herein to Articles, Sections, Exhibits
and Schedules shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as
in effect from time to time; provided, however, that, for purposes of
determining compliance with any covenant set forth in Article VI, such terms
shall be construed in accordance with GAAP as in effect on the date of this
Agreement applied on a basis consistent with the application used in preparing
the Borrower's audited financial statements referred to in Section 3.05.
ARTICLE II
The Credits
SECTION 2.01. Commitments. (a) Subject to the terms and
conditions and relying upon the representations and warranties herein set
forth, each Lender agrees, severally and not jointly, to make Standby Loans to
the Borrower, at any time and from time to time on and after the Closing Date
and until the earlier of the Maturity Date and the termination of the
Commitment of such Lender, in an aggregate principal amount at any time out-
standing not to exceed such Lender's Commitment minus the amount by which the
Competitive Loans outstanding at such time and the LC Exposure at such time
shall be deemed to have used such Lender's Commitment pursuant to Section 2.17,
subject, however, to the condition that at all times the outstanding aggregate
principal amount of all Standby Loans made by each Lender shall equal the
product of (A) the percentage which its Commitment represents of the Total
Commitment times (B) the outstanding aggregate principal amount of all Standby
Loans made pursuant to Section 2.04 (except as a result of a default by any
Lender in its obligation to make any Standby Loan). Each Lender's Commitment
is set forth opposite its respective name in Schedule 2.01. Such Commitments
may be terminated or reduced from time to time pursuant to Section 2.11.
(b) Within the foregoing limits, the Borrower may borrow, pay
or prepay and reborrow hereunder, on and after the Closing Date and prior to
the Maturity Date, subject to the terms, conditions and limitations set forth
herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as
part of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their Commitments; provided, however, that the failure of any
Lender to make any Standby Loan shall not in itself relieve any other Lender of
its obligation to lend hereunder (it being understood, however, that no Lender
shall be responsible for the failure of any other Lender to make any Loan
required to be made by such other Lender). Each Competitive Loan shall be made
in accordance with the procedures set forth in Section 2.03. The Standby Loans
or Competitive Loans comprising any Borrowing shall be (i) in the case of
Competitive Loans, in an aggregate principal amount which is an integral
multiple of $1,000,000 and not less than $5,000,000 and (ii) in the case of
Standby Loans, in an aggregate principal amount which is an integral multiple
of $1,000,000 and not less than $5,000,000 (or an aggregate principal amount
equal to the remaining balance of the available Commitments). At no time shall
(A) the sum of (I) the outstanding aggregate principal amount of all Standby
Loans made by all Lenders, (II) the outstanding aggregate principal amount of
<PAGE> 24
all Competitive Loans made by all Lenders and (III) the LC Exposure exceed (B)
the Total Commitment.
(b) Each Standby Borrowing shall be comprised entirely of
Eurodollar Standby Loans or ABR Standby Loans and each Competitive Borrowing
shall be comprised entirely of Eurodollar Competitive Loans or Fixed Rate Loans
as the Borrower may request pursuant to Section 2.03 or 2.04, as applicable.
Each Lender may at its option make any Eurodollar Loan by causing any domestic
or foreign branch or Affiliate of such Lender to make such Loan; provided that
any exercise of such option shall not affect the obligation of the Borrower to
repay such Loan in accordance with the terms of this Agreement. Borrowings of
more than one Type may be outstanding at the same time; provided, however, that
the Borrower shall not be entitled to request any Borrowing which, if made,
would result in an aggregate of more than 10 separate Standby Loans of any
Lender being outstanding at any one time. For purposes of the foregoing,
Standby Loans having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Standby Loans.
(c) Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately
available funds to the Administrative Agent in New York, New York, not later
than 2:00 p.m., New York City time, and the Administrative Agent shall by
3:00 p.m., New York City time, credit the amounts so received to the general
deposit account of the Borrower with the Administrative Agent or, if a
Borrowing shall not occur on such date because any condition precedent herein
specified shall not have been met, return the amounts so received to the
respective Lenders. Competitive Loans shall be made by the Lender or Lenders
whose Competitive Bids therefor are accepted pursuant to Section 2.03 in the
amounts so accepted and Standby Loans shall be made by the Lenders pro rata in
accordance with their Commitments, subject to Section 2.17. Unless the
Administrative Agent shall have received notice from a Lender prior to the date
of any Borrowing that such Lender will not make available to the Administrative
Agent such Lender's portion of such Borrowing, the Administrative Agent may
assume that such Lender has made such portion available to the Administrative
Agent on the date of such Borrowing in accordance with this paragraph (c) and
the Administrative Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have made such portion available to the Administrative
Agent, such Lender and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent at (i) in the case of the Borrower, the interest rate applicable at the
time to the Loans comprising such Borrowing and (ii) in the case of such
Lender, the Federal Funds Effective Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement but
without interest being payable to such Lender prior to the date such amounts
shall have been repaid by it.
(d) Notwithstanding any other provision of this Agreement,
the Borrower shall not be entitled to request any Borrowing if the Interest
Period requested with respect thereto would end after the Maturity Date.
SECTION 2.03. Competitive Bid Procedure. (a) In order to
request Competitive Bids, the Borrower shall hand-deliver or telecopy to the
Administrative Agent a duly completed Competitive Bid Request in the form of
<PAGE> 25
Exhibit A-1 hereto, to be received by the Administrative Agent (i) in the case
of a Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City
time, four Business Days before a proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City
time, one Business Day before a proposed Competitive Borrowing. No ABR Standby
Loan shall be requested in, or made pursuant to, a Competitive Bid Request. A
Competitive Bid Request that does not conform substantially to the format of
Exhibit A-1 may be rejected in the Administrative Agent's sole discretion, and
the Administrative Agent shall promptly notify the Borrower of such rejection
by telecopier. Such request shall in each case refer to this Agreement and
specify (x) whether such Borrowing is to be a Eurodollar Borrowing or a Fixed
Rate Borrowing, (y) the date of such Borrowing (which shall be a Business Day)
and the aggregate principal amount thereof which shall be in a minimum
principal amount of $5,000,000 and in an integral multiple of $1,000,000, and
(z) the Interest Period with respect thereto (which may not end after the
Maturity Date). Promptly after its receipt of a Competitive Bid Request that
is not rejected as aforesaid, the Administrative Agent shall invite by
telecopier (in the form set forth in Exhibit A-2) the Lenders to bid, on the
terms and conditions of this Agreement, to make Competitive Loans pursuant to
the Competitive Bid Request.
(b) Each Lender may, in its sole discretion, make one or more
Competitive Bids to the Borrower responsive to a Competitive Bid Request. Each
Competitive Bid by a Lender must be received by the Administrative Agent via
telecopier, in the form of Exhibit A-3, (i) in the case of a Eurodollar
Competitive Borrowing, not later than 10:00 a.m., New York City time, three
Business Days before a proposed Competitive Borrowing and (ii) in the case of a
Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, on the day
of a proposed Competitive Borrowing. Multiple bids will be accepted by the
Administrative Agent. Competitive Bids that do not conform substantially to
the format of Exhibit A-3 may be rejected by the Administrative Agent after
conferring with, and upon the instruction of, the Borrower, and the
Administrative Agent shall notify the Lender making such nonconforming bid of
such rejection as soon as practicable. Each Competitive Bid shall refer to
this Agreement and specify (x) the principal amount (which shall be in a
minimum principal amount of $5,000,000 and in an integral multiple of
$1,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by the Borrower) of the Competitive Loan or Loans that the
Lender is willing to make to the Borrower, (y) the Competitive Bid Rate or
Rates at which the Lender is prepared to make the Competitive Loan or Loans and
(z) the Interest Period (which shall be the Interest Period set forth in the
applicable Competitive Bid Request) and the last day thereof. If any Lender
shall elect not to make a Competitive Bid, such Lender shall so notify the
Administrative Agent via telecopier (I) in the case of Eurodollar Competitive
Loans, not later than 10:00 a.m., New York City time, three Business Days
before a proposed Competitive Borrowing, and (II) in the case of Fixed Rate
Loans, not later than 10:00 a.m., New York City time, on the day of a proposed
Competitive Borrowing; provided, however, that failure by any Lender to give
such notice shall not cause such Lender to be obligated to make any Competitive
Loan as part of such Competitive Borrowing. A Competitive Bid submitted by a
Lender pursuant to this paragraph (b) shall be irrevocable.
(c) The Administrative Agent shall promptly notify the
Borrower by telecopier of all the Competitive Bids made, the Competitive Bid
Rate and the principal amount of each Competitive Loan in respect of which a
Competitive Bid was made and the identity of the Lender that made each bid.
The Administrative Agent shall send a copy of all Competitive Bids to the
<PAGE> 26
Borrower for its records as soon as practicable after completion of the bidding
process set forth in this Section 2.03.
(d) The Borrower may in its sole and absolute discretion,
subject only to the provisions of this paragraph (d), accept or reject any
Competitive Bid referred to in paragraph (c) above. The Borrower shall notify
the Administrative Agent by telephone, confirmed by telecopier in the form of a
Competitive Bid Accept/ Reject Letter in the form of Exhibit A-4, whether and
to what extent it has decided to accept or reject any of or all the bids
referred to in paragraph (c) above, (x) in the case of a Eurodollar Competitive
Borrowing, not later than 11:00 a.m., New York City time, three Business Days
before a proposed Competitive Borrowing, and (y) in the case of a Fixed Rate
Borrowing, not later than 11:00 a.m., New York City time, on the day of a
proposed Competitive Borrowing; provided, however, that (i) the failure by the
Borrower to give such notice shall be deemed to be a rejection of all the bids
referred to in paragraph (c) above, (ii) the Borrower shall not accept a bid
made at a particular Competitive Bid Rate if the Borrower has decided to reject
a bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the
Competitive Bids accepted by the Borrower shall not exceed the principal amount
specified in the Competitive Bid Request, (iv) if the Borrower shall accept a
bid or bids made at a particular Competitive Bid Rate but the amount of such
bid or bids shall cause the total amount of bids to be accepted by the Borrower
to exceed the amount specified in the Competitive Bid Request, then the
Borrower shall accept a portion of such bid or bids in an amount equal to the
amount specified in the Competitive Bid Request less the amount of all other
Competitive Bids accepted with respect to such Competitive Bid Request, which
acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such bid at such
Competitive Bid Rate, and (v) except pursuant to clause (iv) above, no bid
shall be accepted for a Competitive Loan unless such Competitive Loan is in a
minimum principal amount of $5,000,000 and an integral multiple of $1,000,000;
provided further, however, that if a Competitive Loan must be in an amount less
than $5,000,000 because of the provisions of clause (iv) above, such
Competitive Loan may be for a minimum of $1,000,000 or any integral multiple
thereof, and in calculating the pro rata allocation of acceptances of portions
of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv)
the amounts shall be rounded to integral multiples of $1,000,000 in a manner
which shall be in the discretion of the Borrower. A notice given by the
Borrower pursuant to this paragraph (d) shall be irrevocable.
(e) The Administrative Agent shall promptly notify each
bidding Lender whether or not its Competitive Bid has been accepted (and if so,
in what amount and at what Competitive Bid Rate) by telecopier sent by the
Administrative Agent, and each successful bidder will thereupon become bound,
subject to the other applicable conditions hereof, to make the Competitive Loan
in respect of which its bid has been accepted.
(f) A Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid Request.
(g) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Lender, it shall submit such bid directly
to the Borrower one quarter of an hour earlier than the latest time at which
the other Lenders are required to submit their bids to the Administrative Agent
pursuant to paragraph (b) above.
<PAGE> 27
(h) All Notices required by this Section 2.03 shall be given
in accordance with Section 9.01.
SECTION 2.04. Standby Borrowing Procedure. In order to
request a Standby Borrowing, the Borrower shall hand deliver or telecopy to the
Administrative Agent a borrowing request in the form of Exhibit A-5 hereto
(a) in the case of a Eurodollar Borrowing, not later than 12:00 noon, New York
City time, three Business Days before any such proposed Borrowing and (b) in
the case of an ABR Borrowing, not later than 12:00 noon, New York City time
(except that the Borrower shall use its best efforts to make such request by
11:00 a.m., New York City time), on the day of such proposed Standby Borrowing.
No Fixed Rate Loan shall be requested or made pursuant to a Standby Borrowing
Request. Such notice shall be irrevocable and shall in each case specify
(i) whether such Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing,
(ii) the date of such Borrowing (which shall be a Business Day) and the amount
thereof and (iii) if such Borrowing is to be a Eurodollar Borrowing, the
Interest Period with respect thereto. If no election as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall
be an ABR Borrowing. If no Interest Period with respect to any Eurodollar
Borrowing is specified in any such notice, then the Borrower shall be deemed to
have selected an Interest Period of one month's duration. If the Borrower
shall not have given notice in accordance with this Section 2.04 of its
election to refinance, continue or convert a Standby Borrowing prior to the end
of the Interest Period in effect for such Borrowing, then the Borrower shall
(unless such Borrowing is repaid at the end of such Interest Period) be deemed
to have given notice of an election to convert or continue such Borrowing with
an ABR Borrowing. The Administrative Agent shall promptly advise the Lenders
of any notice given pursuant to this Section 2.04 and of each Lender's portion
of the requested Borrowing.
SECTION 2.05. Refinancings, Continuances and Conversions of
Loans. (a) The Borrower may refinance all or any part of any Competitive
Borrowing at the end of the Interest Period thereof with a Borrowing of the
same or a different Type made pursuant to Section 2.03 or Section 2.04, and the
Borrower may refinance all or any part of a Standby Borrowing with a
Competitive Borrowing of the same or a different Type made pursuant to Section
2.04, in each case subject to the conditions and limitations set forth herein
and elsewhere in this Agreement. Any Borrowing or part thereof so refinanced
shall be deemed to be repaid in accordance with Section 2.07 with the proceeds
of a new Borrowing hereunder and the proceeds of the new Borrowing, to the
extent they do not exceed the principal amount of the Borrowing being
refinanced, shall not be paid by the Lenders to the Administrative Agent or by
the Administrative Agent to the Borrower pursuant to Section 2.02(c); provided,
however, that (i) if the principal amount extended by a Lender in a refinancing
is greater than the principal amount extended by such Lender in the Borrowing
being refinanced, then such Lender shall pay such difference to the
Administrative Agent for distribution to the Lenders described in (ii) below,
(ii) if the principal amount extended by a Lender in the Borrowing being
refinanced is greater than the principal amount being extended by such Lender
in the refinancing, the Administrative Agent shall return the difference to
such Lender out of amounts received pursuant to (i) above, and (iii) to the
extent any Lender fails to pay the Administrative Agent amounts due from it
pursuant to (i) above, any Loan or portion thereof being refinanced shall not
be deemed repaid in accordance with Section 2.07 and shall be payable by the
Borrower.
<PAGE> 28
(b) The Borrower shall have the right at any time upon prior
irrevocable notice to the Administrative Agent (i) not later than 12:00 (noon),
New York City time, one Business Day prior to conversion, to convert any
Eurodollar Standby Borrowing into an ABR Borrowing, (ii) not later than 10:00
a.m., New York City time, three Business Days prior to conversion or
continuation, to convert any ABR Borrowing into a Eurodollar Standby Borrowing
or to continue any Eurodollar Standby Borrowing as a Eurodollar Standby Borrow-
ing for an additional Interest Period, (iii) not later than 10:00 a.m., New
York City time, three Business Days prior to conversion, to convert the
Interest Period with respect to any Eurodollar Standby Borrowing to another
permissible Interest Period and (iv) not later than 10:00 a.m. New York City
time, on the date of such proposed Borrowing, to continue any ABR Borrowing for
an additional Interest Period, subject in each case to the following:
(i) each conversion or continuation shall be made pro rata
among the Lenders in accordance with the respective principal amounts
of the Loans comprising the converted or continued Standby Borrowing,
as the case may be;
(ii) if less than all the outstanding principal amount of
any Standby Borrowing shall be converted or continued, the aggregate
principal amount of such Standby Borrowing converted or continued shall
be an integral multiple of $1,000,000 and not less than $5,000,000;
(iii) if any Eurodollar Standby Borrowing is converted at a
time other than the end of the Interest Period applicable thereto, the
Borrower shall pay, upon demand, any amounts due to the Banks pursuant
to Section 2.16;
(iv) any portion of a Standby Borrowing maturing or
required to be repaid in less than one month may not be converted into
or continued as a Eurodollar Standby Borrowing;
(v) any portion of a Eurodollar Standby Borrowing which
cannot be converted into or continued as a Eurodollar Standby Borrowing
by reason of clause (iv) above shall be automatically converted at the
end of the Interest Period in effect for such Borrowing into an ABR
Borrowing; and
(vi) no Interest Period may be selected for any Eurodollar
Standby Borrowing that would end later than the Maturity Date.
Each notice pursuant to this Section 2.05(b) shall be
irrevocable and shall refer to this Agreement and specify (i) the identity and
amount of the Standby Borrowing that the Borrower requests be converted or
continued, (ii) whether such Standby Borrowing is to be converted to or
continued as a Eurodollar Standby Borrowing or an ABR Borrowing, (iii) if such
notice requests a conversion, the date of such conversion (which shall be a
Business Day) and (iv) if such Standby Borrowing is to be converted to or
continued as a Eurodollar Standby Borrowing, the Interest Period with respect
thereto. If no Interest Period is specified in any such notice with respect to
any conversion to or continuation as a Eurodollar Standby Borrowing, the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. The Administrative Agent shall promptly advise the other Lenders of
any notice given pursuant to this Section 2.05(b) and of each Lender's portion
of any converted or continued Standby Borrowing. If the Borrower shall not
have given notice in accordance with this Section 2.05(b) to continue any
<PAGE> 29
Standby Borrowing into a subsequent Interest Period (and shall not otherwise
have given notice in accordance with this Section 2.05(b) to convert such
Standby Borrowing), such Standby Borrowing shall, at the end of the Interest
Period applicable thereto (unless repaid pursuant to the terms hereof),
automatically be continued into a new Interest Period as an ABR Borrowing.
SECTION 2.06. Fees. (a) The Borrower agrees to pay to each
Lender, through the Administrative Agent, on each March 31, June 30,
September 30 and December 31, and on the date on which the Commitment of such
Lender shall be terminated as provided herein, a facility fee (the "Facility
Fee") equal to the Facility Fee Percentage in effect from time to time on the
amount of the Commitment of such Lender, whether used or unused, during the
quarter then ended (or shorter period commencing with the Closing Date or
ending with the Maturity Date or any date on which the Commitment of such
Lender shall be terminated). The Facility Fee shall be computed on the basis
of the actual number of days elapsed in a year of 365 or 366 days, as the case
may be. The Facility Fee due to each Lender shall commence to accrue on the
Closing Date and shall cease to accrue on the earlier of (I) the Maturity Date
and (II) the termination of the Commitment of such Lender as provided herein.
(b) To the extent not paid by the Parent, the Borrower agrees
to pay to the Administrative Agent the fees (the "Administrative Agent Fees")
relating to this Agreement at the times and in the amounts agreed upon in the
letter agreement dated July 1, 1996, between the Parent and The Chase Manhattan
Bank.
(c) The Borrower agrees to pay each Lender, through the
Administrative Agent, on each March 31, June 30, September 30 and December 31,
and on the date on which the Commitment of such Lender shall be terminated as
provided herein, a fee (the "LC Fee") equal to a percentage per annum equal to
the LIBOR Spread in effect on such date on such Lender's pro rata share, based
upon its Commitment, of the average daily amount of all Letters of Credit
outstanding during the preceding quarter (or shorter period commencing with the
Closing Date or ending with the earlier of the Maturity Date and any date on
which the Commitment of such Lender shall be terminated). The LC Fee shall be
computed on the basis of the actual number of days elapsed in a year of 365 or
366 days, as the case may be. The LC Fee due to each Lender shall commence to
accrue on the Closing Date and shall cease to accrue on the date on which the
Commitment of such Lender shall have terminated as provided herein.
(d) The Borrower agrees to pay to each Issuing Bank its
issuance and amendment fees (the "Issuance and Amendment Fees") as agreed upon
from time to time in connection with the issuance of and amendment of the
Letters of Credit. Each Issuing Bank has furnished or will furnish to the
Borrower a schedule of the Issuance and Amendment Fees in effect on the Closing
Date. The Borrower agrees to pay each Issuing Bank such other fees as may be
agreed upon by the Borrower and such Issuing Bank.
(e) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if and as
appropriate, among the Lenders. Once paid, none of the Fees shall be
refundable under any circumstances.
SECTION 2.07. Evidence of Debt; Repayment of Loans. (a) Each
Lender shall maintain in accordance with its usual practice an account or
accounts evidencing the indebtedness to such Lender resulting from each Loan
made by it from time to time, including the amounts of principal and interest
<PAGE> 30
payable and paid to such Lender from time to time under this Agreement. The
Administrative Agent shall maintain accounts in which it will record (i) the
amount of each Loan made hereunder, the Type of each Loan and each Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (iii) the amount of any sum received by the Administrative Agent hereunder
from the Borrower and each Lender's share thereof. The entries made in the
accounts maintained pursuant to this paragraph (a) shall, to the extent
permitted by applicable law, be prima facie evidence of the existence and
amounts of the obligations therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligations of the
Borrower to repay the Loans in accordance with their terms.
(b) The outstanding principal balance of each Competitive
Loan and Standby Loan shall be payable (i) in the case of a Competitive Loan,
on the earlier of the last day of the Interest Period applicable to such Loan
and on the Maturity Date and (ii) in the case of a Standby Loan, on the
Maturity Date.
SECTION 2.08. Interest on Loans. (a) Subject to the
provisions of Sections 2.09 and 2.10, the Loans comprising each Eurodollar
Borrowing shall bear interest (computed on the basis of the actual number of
days elapsed over a year of 360 days) at a rate per annum equal to (i) in the
case of each Eurodollar Competitive Loan, the LIBO Rate for the Interest Period
in effect for such Borrowing plus the Margin offered by the Lender making such
Loan and accepted by the Borrower pursuant to Section 2.03 and (ii) in the case
of each Eurodollar Standby Loan, the LIBO Rate for the Interest Period in
effect for such Borrowing plus the LIBOR Spread. Interest on each Eurodollar
Borrowing shall be payable on each applicable Interest Payment Date. The LIBO
Rate for each Interest Period shall be determined by the Administrative Agent,
and such determination shall be conclusive absent manifest error. The
Administrative Agent shall promptly advise the Borrower and each Lender of such
determination.
(b) Subject to the provisions of Section 2.09, the Loans
comprising each ABR Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of (i) 365 or 366 days, as the case
may be, during any period in which the Alternate Base Rate is based on the
Prime Rate, and (ii) 360 days, during any period in which the Alternate Base
Rate is based on the Base CD Rate or the Federal Funds Effective Rate) at a
rate per annum equal to the Alternate Base Rate. Interest on each ABR
Borrowing shall be payable on each applicable Interest Payment Date. The
Alternate Base Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error. The Administrative
Agent shall promptly advise the Borrower and each Lender of such determination.
(c) Subject to the provisions of Section 2.09, each Fixed
Rate Loan shall bear interest at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the fixed rate
of interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03. Interest on each Fixed Rate Loan shall be payable on
the Interest Payment Dates applicable to such Loan except as otherwise provided
in this Agreement.
SECTION 2.09. Default Interest. If the Borrower shall
<PAGE> 31
default in the payment of the principal of or interest on any Loan, or any
reimbursement obligation in respect of an LC Disbursement, becoming due
hereunder, whether by scheduled maturity, notice of prepayment, acceleration or
otherwise, the Borrower shall on demand from time to time from the
Administrative Agent or the Required Lenders pay interest, to the extent
permitted by applicable law, on such defaulted amount up to (but not including)
the date of actual payment (after as well as before judgment) at a rate per
annum (computed on the basis of the actual number of days elapsed over a year
of 360 days) equal to the Alternate Base Rate plus 2%.
SECTION 2.10. Alternate Rate of Interest. In the event, and
on each occasion, that on the day two Business Days prior to the commencement
of any Interest Period for a Eurodollar Borrowing the Administrative Agent
shall have determined that dollar deposits in the principal amounts of the
Eurodollar Loans comprising such Borrowing are not generally available in the
London interbank market, or that the rates at which such dollar deposits are
being offered will not adequately and fairly reflect the cost to the Lenders of
making or maintaining Eurodollar Loans during such Interest Period, or that
reasonable means do not exist for ascertaining the LIBO Rate, the
Administrative Agent shall, as soon as practicable thereafter, give written
notice of such determination to the Borrower and the Lenders. In the event of
any such determination, until the Administrative Agent shall have advised the
Borrower and the Lenders that the circumstances giving rise to such notice no
longer exist, (i) any request by the Borrower for a Eurodollar Competitive
Borrowing pursuant to Section 2.03 shall be of no force and effect and shall be
rejected by the Administrative Agent and (ii) any request by the Borrower for a
Eurodollar Standby Borrowing pursuant to Section 2.04 shall be deemed to be a
request for an ABR Borrowing. The Administrative Agent agrees to give written
notice to the Borrower promptly after it determines that the conditions giving
rise to any notice under the first sentence of this paragraph shall no longer
be in effect. Each determination by the Administrative Agent hereunder shall
be presumed conclusive absent manifest error but subject to rebuttal by the
Borrower.
SECTION 2.11. Termination and Reduction of Commitments.
(a) The Commitments and the LC Commitments shall be automatically terminated
on the earlier of (i) the Maturity Date and (ii) the Change in Control Date.
(b) Upon at least three Business Days' prior irrevocable
written notice to the Administrative Agent, the Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Total Commitment or the Total LC Commitment; provided, however, that
(i) each partial reduction of the Total Commitment or the Total LC Commitment,
as the case may be, shall be in an integral multiple of $1,000,000 and in a
minimum principal amount of $5,000,000; (ii) no such termination or reduction
shall be made which would reduce the Total Commitment to an amount less than
the sum of the aggregate outstanding principal amount of the Loans and the
LC Exposure, (iii) no such termination or reduction shall be made which would
reduce the Total Commitment below the Total LC Commitment and (iv) no such
termination or reduction shall be made which would reduce the Total LC
Commitment below the LC Exposure.
(c) Each reduction in the Total Commitment or the Total
LC Commitment hereunder shall be made ratably among the Lenders in accordance
with their respective Commitments or LC Commitments, as applicable. The
Borrower shall pay to the Administrative Agent for the account of the Lenders,
on the date of each termination or reduction hereunder, the Facility Fee on the
<PAGE> 32
amount of the Commitments so terminated or reduced accrued through the date of
such termination or reduction.
SECTION 2.12. Prepayment. (a) The Borrower shall have the
right at any time and from time to time to prepay any Standby Borrowing, in
whole or in part, upon giving written notice (or telephone notice promptly
confirmed by written notice) to the Administrative Agent: (i) before
12:00 noon, New York City time, three Business Days prior to prepayment, in the
case of Eurodollar Loans and before 12:00 noon, New York City time, one Busi-
ness Day prior to prepayment, in the case of ABR Standby Loans; provided,
however, that each partial prepayment shall be in an amount which is an
integral multiple of $1,000,000 and not less than $5,000,000. The Borrower
shall not have the right to prepay any Competitive Borrowing.
(b) On the date of any termination or reduction of the
Commitments pursuant to Section 2.11(a) or (b), (i) in the case of Section
2.11(a), the Borrower shall pay or prepay the principal of all Loans then out-
standing, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Borrower accrued hereunder and under any other
Loan Document, and the Borrower shall forthwith deposit cash with the
Administrative Agent in an amount equal to the aggregate LC Exposure or shall
deliver to the Administrative Agent a Replacement Letter of Credit drawable
without condition and in a face amount equal to the aggregate LC Exposure and
otherwise satisfactory in all respects to the Administrative Agent, which
Letter of Credit or cash deposit shall serve as collateral security for the
repayment of any further drawings under the Letters of Credit, and (ii) in the
case of Section 2.11(b), the Borrower shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the sum of the aggregate
principal amount of the Competitive Loans and Standby Loans outstanding and the
LC Exposure will not exceed the Total Commitment, after giving effect to such
termination or reduction.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the Borrower to prepay such
Borrowing (or portion thereof) by the amount stated therein on the date stated
therein. All prepayments under this Section 2.12 shall be subject to
Section 2.16 but otherwise without premium or penalty. All prepayments under
this Section 2.12 shall be accompanied by accrued interest on the principal
amount being prepaid to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the Closing Date, any
change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the inter-
pretation or administration thereof (whether or not having the force of law)
shall change the basis of taxation of payments to any Lender or such Issuing
Bank of the principal of or interest on any Eurodollar Loan or Fixed Rate Loan
made by such Lender or any Fees or other amounts payable hereunder, including
reimbursement of drawings under the Letters of Credit (other than changes in
respect of taxes imposed on the overall net income of such Lender by any
Governmental Authority as a result of a present or former connection between
the jurisdiction of the Governmental Authority imposing such tax on such Lender
(except a connection arising solely from such Lender having executed, delivered
or performed its obligations or received a payment under, or enforced, this
Agreement)), or shall impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
<PAGE> 33
account of or credit extended by such Lender, or shall impose on such Lender or
the London interbank market any other condition affecting this Agreement or any
Eurodollar Loan or Fixed Rate Loan made by such Lender, and the result of any
of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan or Fixed Rate Loan or to reduce the amount of
any sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise) in respect thereof by an amount deemed by such Lender to
be material, then the Borrower will pay to such Lender upon demand such addi-
tional amount or amounts as will compensate such Lender for such additional
costs incurred or reduction suffered. Notwithstanding the foregoing, no Lender
shall be entitled to request compensation under this paragraph with respect to
any Competitive Loan if it shall have been aware of the change giving rise to
such request and of the impact of such change on the cost of making such
Competitive Loans at the time of submission of the Competitive Bid pursuant to
which such Competitive Loan shall have been made.
(b) If any Lender shall have determined that the adoption
after the Closing Date of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any lending office of
such Lender) or any Lender's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lender's capital or on the capital of such
Lender's holding company, if any, as a consequence of this Agreement or the
Loans made by such Lender pursuant hereto to a level below that which such
Lender or such Lender's holding company could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy) by an amount deemed by such Lender to be material, then from
time to time the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender or such Lender's holding company for any
such reduction suffered after the date hereof.
(c) A certificate of a Lender setting forth such amount or
amounts, along with the Lender's method of computation of such amounts, as
shall be necessary to compensate such Lender (or participating banks or other
entities pursuant to Section 9.04) as specified in paragraph (a) or (b) above,
as the case may be, shall be delivered to the Borrower and shall be presumed
conclusive absent manifest error but subject to rebuttal by the Borrower. The
Borrower shall pay each Lender the amount shown as due on any such certificate
delivered by it within 10 days of its receipt of the same. In the event any
Lender delivers such a certificate, the Borrower may, at its own expense,
require such Lender to transfer and assign in whole or in part, without
recourse (in accordance with Section 9.04) all or part of its interests, rights
and obligations under this Agreement to an assignee which shall assume such
assigned obligations (which assignee may be another Lender, if a Lender accepts
such assignment); provided that (i) such assignment shall not conflict with any
law, rule or regulation or order of any court or other Governmental Authority,
(ii) the Borrower shall have received a written consent of the Administrative
Agent in the case of an entity that is not a Lender, which consent shall not
unreasonably be withheld, and (iii) the Borrower or such assignee shall have
paid to the assigning Lender in immediately available funds the principal of
and interest accrued to the date of such payment on the Loans made by it here-
under and all other amounts owed to it hereunder as of such date. Any Lender
<PAGE> 34
claiming any additional amounts payable pursuant to this Section 2.13 shall use
reasonable efforts (consistent with legal and regulatory restrictions) to file
any certificate or document requested by the Borrower or to change the
jurisdiction of its applicable lending office if the making of such a filing or
change would avoid the need for or reduce the amount of any additional amount
which may thereafter accrue and would not, in the sole determination of such
Lender, be otherwise disadvantageous to such Lender.
(d) Failure on the part of any Lender to demand compensation
for any increased costs or reduction in amounts received or receivable or
reduction in return on capital with respect to any period shall not constitute
a waiver of such Lender's right to demand compensation with respect to such
period or any other period; provided, however, that no Lender shall be entitled
to compensation for any such increased costs or reductions unless it shall have
submitted a certificate under paragraph (c) above with respect thereto not more
than 90 days after the date that such Lender knows that such increased costs
have been incurred or such reduction suffered. Notwithstanding any other
provision of this Section 2.13, no Lender shall demand compensation for any
increased cost or reduction referred to above if it shall not at the time be
the general policy of such Lender to demand such compensation in similar
circumstances under comparable provisions of other credit agreements, and each
Lender shall in good faith endeavor to allocate increased costs or reductions
fairly among all of its affected commitments and credit extensions (whether or
not it seeks compensation from all affected borrowers). The protection of this
Section 2.13 shall be available to each Lender regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or been
imposed.
SECTION 2.14. Change in Legality. (a) Notwithstanding any
other provision herein contained, if any change in any law or regulation or in
the interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written
notice to the Borrower and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made
by such Lender hereunder, whereupon such Lender shall not submit a
Competitive Bid in response to a request for Eurodollar Competitive
Loans and any request by the Borrower for a Eurodollar Standby Borrow-
ing shall, as to such Lender only, be deemed a request for an
ABR Standby Loan unless such declaration shall be subsequently
withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it
be converted to ABR Standby Loans, in which event all such Eurodollar
Loans shall be automatically converted to ABR Standby Loans as of the
effective date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied
to repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Standby Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
<PAGE> 35
(b) For purposes of this Section 2.14, a notice to the
Borrower by any Lender shall be effective as to each Eurodollar Loan, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrower. The Administrative Agent agrees to give written
notice to the Borrower promptly after it determines that the conditions giving
rise to any notice under paragraph (a) above shall no longer be in effect.
(c) Each Lender agrees to use reasonable efforts (consistent
with legal and regulatory restrictions) to file any certificate or document
requested by the Borrower or to change the jurisdiction of its applicable
lending office if the making of such filing or change would enable such Lender
to legally make or maintain any Eurodollar Loan referred to in paragraph (a) of
this Section 2.14; provided, however, that (i) such Lender shall not be
required to make such filing or change if, in the sole determination of such
Lender, such action would be otherwise disadvantageous to such Lender and (ii)
until such time as such Lender shall have determined that it can make or
maintain such Eurodollar Loan, the Lender may take the actions referred to in
Section 2.14(a).
SECTION 2.15. Letters of Credit. (a) Subject to the terms
and conditions and relying upon the representations and warranties herein set
forth, each Issuing Bank shall issue and deliver to the Borrower at any time
and from time to time on or after the Closing Date and prior to the fifth
Business Day before the Maturity Date, Letters of Credit for the account of the
Borrower or any Subsidiary in an aggregate undrawn amount at any one time
outstanding not to exceed $50,000,000; provided, however, that such Issuing
Bank shall not issue any Letter of Credit if, immediately after giving effect
to such issuance, the LC Exposure at such time would exceed the Total
LC Commitment or if the sum of the LC Exposure and the aggregate principal
amount of the outstanding Loans would exceed the Total Commitment. Each Letter
of Credit (x) shall be in form as shall have been agreed upon in writing by the
Borrower, the Administrative Agent and such Issuing Bank, (y) shall be in a
minimum principal amount of $2,000 and (z) shall permit drawings upon the
presentation of one or more sight drafts and such other documents as shall be
specified by the Borrower in the applicable notice delivered pursuant to
paragraph (b) below and shall expire on a date not later than the fifth
Business Day prior to the Maturity Date, except that Letters of Credit may
expire on a date later than the Maturity Date (but in any event no later than
the first anniversary of the Maturity Date), subject to the conditions set
forth in Section 2.15(g).
(b) The Borrower shall give such Issuing Bank written or
telecopy notice or notice via computer modem not later than 10:00 a.m., New
York City time, one Business Day (or such shorter period as shall be acceptable
to such Issuing Bank and the Administrative Agent) prior to any proposed
issuance of a Letter of Credit. Each such notice shall refer to this Agreement
and shall specify (i) the date on which such Letter of Credit is to be issued
(which shall be a Business Day), the account party on the Letter of Credit and
the face amount thereof (which shall be an amount in dollars), (ii) the name
and address of the beneficiary, (iii) whether such Letter of Credit shall
permit a single drawing or multiple drawings, (iv) the form of the sight draft
and any other documents required to be presented at the time of any drawing
(together with the exact wording of such documents or copies thereof) and
(v) the expiry date of such Letter of Credit. Such Issuing Bank shall give the
Administrative Agent, which shall in turn give to each Lender, prompt written
<PAGE> 36
or telecopy advice of any notice received from the Borrower pursuant to this
Section 2.15.
(c) By the issuance of a Letter of Credit and without any
further action on the part of such Issuing Bank or the Lenders in respect
thereof, such Issuing Bank hereby grants to each Lender, and each Lender hereby
acquires from such Issuing Bank, a participation in such Letter of Credit equal
to such Lender's pro rata percentage, based upon its LC Commitment, of the face
amount of such Letter of Credit, effective upon the issuance of such Letter of
Credit; provided, however, that no Lender shall be required to acquire
participations in Letters of Credit that would result in its pro rata
percentage, based upon its LC Commitment, of the LC Exposure exceeding its
LC Commitment, as the same may be reduced from time to time in accordance with
Section 2.11. In consideration and in furtherance of the foregoing, each
Lender hereby absolutely and unconditionally agrees severally and not jointly
to pay to the Administrative Agent, on behalf of such Issuing Bank, in
accordance with paragraph (e) below, such Lender's pro rata percentage, based
upon its LC Commitment, of each unreimbursed LC Disbursement made by such
Issuing Bank; provided, however, that the Lenders shall not be obligated to
make any such payment with respect to any payment or disbursement made under
any Letter of Credit as a result of the gross negligence or wilful misconduct
of such Issuing Bank. Notwithstanding the foregoing, if, as permitted by
Section 2.15(f), an Issuing Bank has separately agreed with the Borrower that
the Issuing Bank will be held to a higher standard of care, such standard shall
govern as between the Issuing Bank and the Lenders.
(d) Each Lender acknowledges and agrees that its acquisition
of participations pursuant to paragraph (c) above in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any circum-
stance whatsoever, including the occurrence and continuance of any Default or
Event of Default hereunder, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Promptly after it shall have ascertained that any draft
and any accompanying documents presented under a Letter of Credit appear to be
in conformity with the terms and conditions of such Letter of Credit, such
Issuing Bank shall give written or telecopy notice to the Borrower and the
Administrative Agent of the receipt and amount of such draft and the date on
which payment thereon will be made. If the Administrative Agent shall not have
received from the Borrower the payment required pursuant to paragraph (f) below
by 12:00 noon, New York City time, on the date on which payment of a draft
presented under any Letter of Credit has been made, the Administrative Agent
shall promptly notify such Issuing Bank and each Lender of the LC Disbursement
and, in the case of each Lender, its pro rata percentage, based upon its
LC Commitment of such LC Disbursement. Each Lender shall pay to the
Administrative Agent, not later than 2:00 p.m., New York City time, on such
date, such Lender's percentage of such LC Disbursement, which the
Administrative Agent shall promptly pay to such Issuing Bank. The
Administrative Agent will promptly remit to each Lender such Lender's
percentage of any amounts subsequently received by the Administrative Agent
from the Borrower in respect of such LC Disbursement; provided that amounts so
received for the account of any Lender prior to payment by such Lender of
amounts required to be paid by it hereunder in respect of any LC Disbursement
shall be remitted to such Issuing Bank.
(f) If such Issuing Bank shall pay any draft presented under
<PAGE> 37
a Letter of Credit, the Borrower shall pay to such Issuing Bank or to the
Administrative Agent for the account of such Issuing Bank or, if the
Administrative Agent shall have received the payments provided in paragraph (e)
above with respect to such drawing, for the accounts of the Lenders, an amount
equal to the amount of such draft before 12:00 noon, New York City time, on the
date of payment of such draft. The obligations of the Borrower under this
paragraph (f) shall be absolute, unconditional and irrevocable and shall be
satisfied strictly in accordance with their terms irrespective of:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, setoff, defense or other right
which the Borrower or any other Person may at any time have against the
beneficiary under any Letter of Credit, the Administrative Agent, such
Issuing Bank or any other Lender (other than the defense of payment in
accordance with the terms of this Agreement or a defense based on the
gross negligence or wilful misconduct of the Administrative Agent or
such Issuing Bank) or any other Person in connection with this
Agreement or any other transaction;
(iii) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect; provided that payment by such Issuing Bank under such Letter
of Credit against presentation of such draft or document shall not have
constituted gross negligence, wilful misconduct or breached any other
standard agreed to in writing by the applicable Issuing Bank;
(iv) payment by such Issuing Bank under a Letter of Credit
against presentation of a draft or other document which does not comply
in any immaterial respect with the terms of such Letter of Credit;
provided that such payment shall not have constituted gross negligence
or wilful misconduct; or
(v) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing; provided that such other circumstance
or event shall not have been the result of gross negligence or wilful
misconduct of such Issuing Bank.
It is understood that in making any payment under a Letter of
Credit (x) such Issuing Bank's exclusive reliance on the documents presented to
it under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary equals the amount of
such draft and whether or not any document presented pursuant to such Letter of
Credit proves to be insufficient in any respect, if such document on its face
appears to be in order, and whether or not any other statement or any other
document presented pursuant to such Letter of Credit proves to be forged or
invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever, and (y) any noncompliance in any immaterial respect of the
documents presented under a Letter of Credit with the terms thereof shall, in
either case, not be deemed wilful misconduct or gross negligence of such
Issuing Bank. Notwithstanding the foregoing, to the extent such Issuing Bank
has separately agreed with the Borrower to a standard of care which varies from
that set forth above, such standard shall govern as between the Borrower and
such Issuing Bank.
<PAGE> 38
(g) In the event any Letters of Credit shall have an expiry
date after the Maturity Date, the Borrower shall, prior to the Business Day
before the Maturity Date, forthwith deposit cash with the Administrative Agent,
in an amount equal to the aggregate LC Exposure, or deliver to the
Administrative Agent a Replacement Letter of Credit drawable without condition
and in a face amount equal to the aggregate LC Exposure and otherwise
satisfactory in all respects to the Administrative Agent, which cash deposit or
Replacement Letter of Credit shall serve as collateral security for the
repayment of any future drawings under such Letters of Credit.
(h) Each Issuing Bank hereby agrees to share, pro rata in
accordance with its LC Exposure, with all of the Lenders, its security interest
in all documents and goods in which it will have a security interest in
connection with the issuance of any Letter of Credit and to share on the same
basis all amounts recovered by such Issuing Bank in connection with any such
security interest.
SECTION 2.16. Indemnity. The Borrower shall indemnify each
Lender against any loss or reasonable expense which such Lender may sustain or
incur as a consequence of (a) any failure by the Borrower to fulfill on the
date of any Borrowing hereunder the applicable conditions set forth in
Article IV, (b) any failure by the Borrower to borrow or to refinance, convert
or continue any Loan hereunder after irrevocable notice of such Borrowing,
refinancing, conversion or continuation has been given pursuant to
Section 2.03, 2.04 or 2.05, (c) any payment, prepayment or conversion of a
Eurodollar Loan required by any other provision of this Agreement or otherwise
made or deemed made on a date other than the last day of the Interest Period
applicable thereto or (d) the occurrence of any Event of Default, including, in
each such case, any loss or reasonable expense sustained or incurred or to be
sustained or incurred in liquidating or employing deposits from third parties
acquired to effect or maintain such Loan or any part thereof as a Eurodollar
Loan. Such loss or reasonable expense shall include an amount equal to the
excess, if any, as reasonably determined by such Lender, of (i) its cost of
obtaining the funds for the Loan being paid, prepaid, converted, continued or
not borrowed (based on the LIBO Rate or, in the case of a Fixed Rate Loan, the
fixed rate of interest applicable thereto) for the period from the date of such
payment, prepayment or failure to borrow to the last day of the Interest Period
for such Loan (or, in the case of a failure to borrow, the Interest Period for
such Loan which would have commenced on the date of such failure) over (ii) the
amount of interest (as reasonably determined by such Lender) that would be
realized by such Lender in reemploying the funds so paid, prepaid or not bor-
rowed for such period or Interest Period, as the case may be. A certificate of
any Lender setting forth any amount or amounts which such Lender is entitled to
receive pursuant to this Section 2.16 and the method of calculation employed by
such Lender shall be delivered to the Borrower and shall be presumed conclusive
absent manifest error but subject to rebuttal by the Borrower.
SECTION 2.17. Pro Rata Treatment. Except as required under
Section 2.14, each Standby Borrowing, each payment or prepayment of principal
of any Standby Borrowing, each payment of interest on the Standby Loans, each
payment of the Facility Fee, each payment of the LC Fees, each reduction of the
Commitments and each refinancing of any Borrowing with a Standby Borrowing of
any Type, shall be allocated pro rata among the Lenders in accordance with
their respective Commitments (or, if such Commitments shall have expired or
been terminated, in accordance with the respective principal amounts of their
outstanding Standby Loans). Each payment of principal of any Competitive
Borrowing shall be allocated pro rata among the Lenders participating in such
<PAGE> 39
Borrowing in accordance with the respective principal amounts of their
outstanding Competitive Loans comprising such Borrowing. Each payment of
interest on any Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the respective
amounts of accrued and unpaid interest on their outstanding Competitive Loans
comprising such Borrowing. For purposes of determining the available
Commitments of the Lenders at any time, each outstanding Competitive Borrowing
shall be deemed to have utilized the Commitments of the Lenders (including
those Lenders which shall not have made Loans as part of such Competitive
Borrowing) pro rata in accordance with such respective Commitments. Each
Lender agrees that in computing such Lender's portion of any Borrowing to be
made hereunder, the Administrative Agent may, in its discretion, round each
Lender's percentage of such Borrowing to the next higher or lower whole dollar
amount.
SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if
it shall, through the exercise of a right of banker's lien, setoff or counter-
claim against the Borrower, or pursuant to a secured claim under Section 506 of
Title 11 of the United States Code or other security or interest arising from,
or in lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other
means, obtain payment (voluntary or involuntary) in respect of any Standby Loan
or Loans as a result of which the unpaid principal portion of the Standby Loans
made by it shall be proportionately less than the unpaid principal portion of
the Standby Loans of any other Lender, it shall be deemed simultaneously to
have purchased from such other Lender at face value, and shall promptly pay to
such other Lender the purchase price for, a participation in the Standby Loans
of such other Lender, so that the aggregate unpaid principal amount of the
Standby Loans and participations in Standby Loans held by each Lender shall be
in the same proportion to the aggregate unpaid principal amount of all Standby
Loans then outstanding as the principal amount of its Standby Loans, prior to
such exercise of banker's lien, setoff or counterclaim or other event was to
the principal amount of all Standby Loans outstanding prior to such exercise of
banker's lien, setoff or counterclaim or other event; provided, however, that,
if any such purchase or purchases or adjustments shall be made pursuant to this
Section 2.18 and the payment giving rise thereto shall thereafter be recovered,
such purchase or purchases or adjustments shall be rescinded to the extent of
such recovery and the purchase price or prices or adjustment restored without
interest. The Borrower expressly consents to the foregoing arrangements and
agrees that any Lender holding a participation in a Standby Loan deemed to have
been so purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by the Borrower to such
Lender by reason thereof as fully as if such Lender had made a Standby Loan
directly to the Borrower in the amount of such participation.
SECTION 2.19. Payments. (a) The Borrower shall make each
payment (including principal of or interest on any Borrowing or any Fees (other
than the fees referred to in paragraph (d) of Section 2.06) or other amounts)
hereunder and under any other Loan Document not later than 12:00 noon, New York
City time, on the date when due in dollars to the Administrative Agent at its
offices at 270 Park Avenue, New York, New York, in immediately available funds.
(b) Whenever any payment (including principal of or interest
on any Borrowing or any Fees or other amounts) hereunder or under any other
Loan Document shall become due, or otherwise would occur, on a day that is not
a Business Day, such payment may be made on the next succeeding Business Day,
<PAGE> 40
and such extension of time shall in such case be included in the computation of
interest, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by the
Borrower hereunder shall be made, in accordance with Section 2.19, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding taxes imposed on or measured by the net income or earnings
of the Administrative Agent or any Lender (or any transferee or assignee
thereof, including a participation holder (any such entity being called a
"Transferee")) and franchise taxes imposed by any Governmental Authority on the
Administrative Agent or any Lender (or Transferee) as a result of a present or
former connection between the jurisdiction of the Governmental Authority
imposing such tax on the Administrative Agent or such Lender (except a
connection arising solely from the Administrative Agent or such Lender having
executed, delivered or performed its obligations or received a payment under,
or enforced, this Agreement) (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder to the Lenders (or any Transferee)
or the Administrative Agent, (i) the sum payable shall be increased by the
amount necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.20) such
Lender (or Transferee) or the Administrative Agent (as the case may be) shall
receive an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with applicable law;
provided, however, that no Transferee of any Lender shall be entitled to
receive any greater payment under this paragraph (a) than such Lender would
have been entitled to receive with respect to the rights assigned, participated
or otherwise transferred unless such assignment, participation or transfer
shall have been made at a time when the circumstances giving rise to such
greater payment did not exist.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) The Borrower will indemnify each Lender (or Transferee)
and the Administrative Agent for the full amount of Taxes and Other Taxes paid
by such Lender (or Transferee) or the Administrative Agent, as the case may be,
and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted by the relevant taxing authority or other
Governmental Authority. Such indemnification shall be made within 30 days
after the date any Lender (or Transferee) or the Administrative Agent, as the
case may be, makes written demand therefor. If a Lender (or Transferee) or the
Administrative Agent shall become aware that it is entitled to receive a refund
in respect of Taxes or Other Taxes as to which it has been indemnified by the
Borrower pursuant to this Section 2.20, it shall promptly notify the Borrower
of the availability of such refund and shall, within 30 days after receipt of a
request by the Borrower, apply for such refund at the Borrower's expense. If
any Lender (or Transferee) or the Administrative Agent receives a refund in
<PAGE> 41
respect of any Taxes or Other Taxes as to which it has been indemnified by the
Borrower pursuant to this Section 2.20, it shall promptly notify the Borrower
of such refund and shall, within 30 days after receipt of a request by the
Borrower (or promptly upon receipt, if the Borrower has requested application
for such refund pursuant hereto), repay such refund to the Borrower (to the
extent of amounts that have been paid by the Borrower under this Section 2.20
with respect to such refund), net of all out-of-pocket expenses of such Lender
and without interest (except to the extent such refund includes any interest);
provided that the Borrower, upon the request of such Lender (or Transferee) or
the Administrative Agent, agrees to return such refund (plus penalties, inter-
est or other charges) to such Lender (or Transferee) or the Administrative
Agent in the event such Lender (or Transferee) or the Administrative Agent is
required to repay such refund. Nothing contained in this paragraph (c) shall
require any Lender (or Transferee) or the Administrative Agent to make
available any of its tax returns (or any other information relating to its
taxes which it deems to be confidential).
(d) Within 30 days after the date of any payment of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any Lender
(or Transferee) or the Administrative Agent, the Borrower will furnish to the
Administrative Agent, at its address referred to in Section 9.01, the original
or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.20
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(f) Upon the written request of the Borrower, each Lender (or
Transferee) that is organized under the laws of a jurisdiction outside the
United States shall, if legally able to do so, prior to the immediately
following due date of any payment by the Borrower hereunder, deliver to the
Borrower such certificates, documents or other evidence, as required by the
Code or Treasury Regulations issued pursuant thereto, including Internal
Revenue Service Form 1001 or Form 4224 and any other certificate or statement
of exemption required by Treasury Regulation Section 1.1441-1, 1.1441-4 or
1.1441-6(c) or any subsequent version thereof or successors thereto, properly
completed and duly executed by such Lender (or Transferee) establishing that
such payment is (i) not subject to United States Federal withholding tax under
the Code because such payment is effectively connected with the conduct by such
Lender (or Transferee) of a trade or business in the United States or
(ii) totally exempt from United States Federal withholding tax, or subject to a
reduced rate of such tax under a provision of an applicable tax treaty. Unless
the Borrower and the Administrative Agent have received forms or other docu-
ments satisfactory to them indicating that such payments hereunder are not
subject to United States Federal withholding tax or are subject to such tax at
a rate reduced by an applicable tax treaty, the Borrower or the Administrative
Agent shall withhold taxes from such payments at the applicable statutory rate.
(g) The Borrower shall not be required to pay any additional
amounts to any Lender (or Transferee) in respect of United States Federal
withholding tax pursuant to paragraph (a) above if the obligation to pay such
additional amounts would not have arisen but for a failure by such Lender (or
Transferee) to comply with the provisions of paragraph (f) above; provided,
however, the Borrower shall be required to pay those amounts to any Lender (or
Transferee) it was required to pay hereunder prior to the failure of such
Lender (or Transferee) to comply with the provisions of paragraph (f).
<PAGE> 42
(h) Any Lender (or Transferee) claiming any additional
amounts payable pursuant to this Section 2.20 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document requested by the Borrower or to change the jurisdiction of its appli-
cable lending office if the making of such a filing or change would avoid the
need for or reduce the amount of any such additional amounts which may there-
after accrue and would not, in the sole determination of such Lender, be other-
wise disadvantageous to such Lender (or Transferee).
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to each of the Lenders
that:
SECTION 3.01. Organization; Powers. Each of the Borrower and
the Subsidiaries (a) is a corporation duly incorporated, validly existing and
in good standing under the laws of the jurisdiction of its organization,
(b) has all requisite power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be conducted, (c) is
qualified to do business in every jurisdiction where such qualification is
required, except where the failure so to qualify is not materially likely to
result in a Material Adverse Effect, and (d) has the corporate power and
authority to execute, deliver and perform its obligations under each of the
Loan Documents and each other agreement or instrument contemplated thereby to
which it is or will be a party and to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and
performance by the Borrower and each Subsidiary Guarantor of each of the Loan
Documents to which it is a party, the Borrowings and issuances of Letters of
Credit (collectively, the "Transactions") (a) have been duly authorized by all
requisite corporate and, if required, stockholder action and (b) will not
(i) violate (A) any provision of law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitutive documents or
by-laws of the Borrower or any Subsidiary, (B) any order of any Governmental
Authority or (C) any provision of any material indenture, agreement or other
instrument to which the Borrower or any Subsidiary is a party or by which any
of them or any of their property is or may be bound, (ii) result in a breach of
or constitute (alone or with notice or lapse of time or both) a default under
any such indenture, agreement or other instrument or (iii) result in the crea-
tion or imposition of any Lien upon or with respect to any property or assets
now owned or hereafter acquired by the Borrower or any Subsidiary other than
pursuant to the Collateral Documents.
SECTION 3.03. Enforceability. This Agreement has been duly
executed and delivered by the Borrower and constitutes, and each other Loan
Document to which the Borrower or any Subsidiary Guarantor is a party, when
executed and delivered by the Borrower or such Subsidiary Guarantor, as the
case may be, will constitute, a legal, valid and binding obligation of the
Borrower or such Subsidiary Guarantor, as the case may be, enforceable against
the Borrower or such Subsidiary Guarantor, as the case may be, in accordance
with its terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
creditors' rights generally and to general principles of equity).
<PAGE> 43
SECTION 3.04. Governmental Approvals. No action, consent or
approval of, registration or filing with or any other action by any
Governmental Authority is or will be required by the Borrower or any of the
Subsidiaries in connection with the Transactions, except such as have been made
or obtained and are in full force and effect.
SECTION 3.05. Financial Statements. The Borrower has hereto-
fore furnished to the Lenders its balance sheets and statements of earnings and
statements of cash flows (a) as of and for the fiscal year ended December 31,
1995, audited by and accompanied by the opinion of KPMG Peat Marwick LLP,
independent public accountants, and (b) as of and for the six-month period
ended June 30, 1996. Such financial statements present fairly the financial
condition and results of operations of the Borrower and its Subsidiaries as of
such dates and for such periods. Such financial statements and the notes
thereto were prepared in accordance with GAAP applied on a consistent basis,
except as disclosed in such statements and notes.
SECTION 3.06. No Material Adverse Change. There has been no
material adverse change in the business, assets, operations or financial
condition of the Borrower and the Subsidiaries, taken as a whole, since
December 31, 1995.
SECTION 3.07. Title to Properties; Possession Under Leases.
(a) Each of the Borrower and the Subsidiaries has good and marketable title
to, or valid, subsisting and enforceable leasehold interests in, all its
material properties and assets, except for minor defects in title that do not
interfere with its ability to conduct its business as currently conducted or to
utilize such properties and assets for their intended purposes. All such
material properties and assets are free and clear of Liens, other than Liens
expressly permitted by Section 6.01.
(b) Each of the Borrower and the Subsidiaries has complied
with all material obligations under all material leases to which it is a party
and all such leases are in full force and effect. Each of the Borrower and the
Subsidiaries enjoys peaceful and undisturbed possession under all such material
leases.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of
the Closing Date a list of all Subsidiaries of the Borrower and the percentage
of the shares of each class of capital stock owned beneficially or of record by
the Borrower therein.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except
as set forth in Schedule 3.09, there are not any actions, suits or proceedings
at law or in equity or by or before any Governmental Authority pending or, to
the knowledge of the Borrower, threatened against or affecting the Borrower or
any Subsidiary or any business, property or rights of any such Person (i) which
involve any Loan Document or the Transactions or (ii) which would be materially
likely to result in a Material Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in
violation of any law, rule or regulation, or in default with respect to any
judgment, writ, injunction or decree of any Governmental Authority, where such
violation or default would be materially likely to result in a Material Adverse
Effect.
<PAGE> 44
SECTION 3.10. Agreements. (a) Neither the Borrower nor any
of the Subsidiaries is a party to any agreement or instrument or subject to any
corporate restriction that would be materially likely to result in a Material
Adverse Effect.
(b) Neither the Borrower nor any of its Subsidiaries is in
default in any manner under any provision of any indenture or other agreement
or instrument evidencing Indebtedness, or any other material agreement or
instrument to which it is a party or by which it or any of its properties or
assets are or may be bound, where such default would be materially likely to
result in a Material Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither the
Borrower nor any of its Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately,
(i) to purchase or carry Margin Stock or to extend credit to others for the
purpose of purchasing or carrying Margin Stock or to refund indebtedness
originally incurred for such purpose, or (ii) for any purpose which entails a
violation of, or which is inconsistent with, the provisions of the regulations
of the Board, including Regulation G, U or X.
SECTION 3.12. Investment Company Act; Public Utility Holding
Company Act. Neither the Borrower nor any Subsidiary is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrower will use the
proceeds of the Loans and the Letters of Credit only for working capital, the
purchase of goods and services by the Borrower and the Subsidiaries and other
general corporate purposes.
SECTION 3.14. Tax Returns. Except as described in
Schedule 3.14, each of the Borrower and the Subsidiaries has filed or caused to
be filed all Federal, state and material local tax returns required to have
been filed. When required or elected, the Borrower and the Subsidiaries have
been included in the Federal, state and material local consolidated or combined
tax returns of the Parent and its subsidiaries. All such Parent returns have
been filed or caused to be filed. In any case, each of the Parent, the
Borrower and the Subsidiaries have paid or caused to be paid all taxes shown to
be due and payable on such returns or on any assessments received by it, except
taxes or assessments that are being contested in good faith by appropriate
proceedings and for which the Borrower shall have set aside on its books
whatever reserves are required in accordance with GAAP consistently applied.
SECTION 3.15. No Material Misstatements. (a) No report,
financial statement, schedule or other information relating to historical
events or conditions furnished to the Lenders or the Administrative Agent by
the Borrower, in connection with this Agreement contains any material
misstatement of fact or omitted or omits to state any material fact necessary
to make the statements therein, when taken as a whole, not misleading.
<PAGE> 45
(b) Based upon all information currently available to the
Borrower, any report, projection, schedule or other information relating to
forecast of future events or conditions furnished to the Lenders or the
Administrative Agent by the Borrower in connection with this Agreement has been
prepared on a reasonable basis based upon reasonable assumptions.
SECTION 3.16. Employee Benefit Plans. The Borrower and each
of its ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the Code and the regulations and published
interpretations thereunder with respect to the employee benefit plans (as
defined in Section 3(3) of ERISA) of the Borrower and its ERISA Affiliates. No
Reportable Event has occurred in respect of any Plan of the Borrower or any
ERISA Affiliate. The present value of all benefit liabilities under each Plan
(based on those assumptions used to fund such Plan) did not, as of the last
annual valuation date applicable thereto, exceed by more than $5,000,000 the
value of the assets of such Plan, and the present value of all benefit
liabilities of all underfunded Plans (based on those assumptions used to fund
each such Plan) did not, as of the last annual valuation dates applicable
thereto, exceed $20,000,000. Neither the Borrower nor any ERISA Affiliate has
incurred any Withdrawal Liability that would be materially likely to have a
Material Adverse Effect. Neither the Borrower nor any ERISA Affiliate has
received any notification that any Multiemployer Plan is in reorganization or
has been terminated, within the meaning of Title IV of ERISA, and no Multi-
employer Plan is reasonably expected to be in reorganization or to be
terminated, where such reorganization or termination would be materially likely
to result, through increases in the contributions required to be made to such
Plan or otherwise, in a Material Adverse Effect.
SECTION 3.17. Environmental Matters. Each of the Borrower
and the Subsidiaries has complied in all material respects with all material
Federal, state, local and other statutes, ordinances, orders, judgments,
rulings and regulations relating to environmental pollution or to environmental
regulation or control. Neither the Borrower nor any Subsidiary has received
notice of any failure so to comply which alone or together with any other such
failure is materially likely to result in a Material Adverse Effect. The
Borrower's and the Subsidiaries' plants do not manage any hazardous wastes,
hazardous substances, hazardous materials, toxic substances or toxic
pollutants, as those terms are used in the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response Compensation and Liability Act,
the Hazardous Materials Transportation Act, the Toxic Substance Control Act,
the Clean Air Act, the Clean Water Act or any other applicable law, in
violation of any such law or any regulations promulgated pursuant thereto or in
any other applicable law where such violation is materially likely to result,
individually or together with other violations, in a Material Adverse Effect.
SECTION 3.18. Security Interests. (a) At all times after
execution and delivery of the Borrower Pledge Agreement by the Borrower, the
Administrative Agent will have a valid, first priority, perfected security
interest in the Pledged Stock (as defined in the Borrower Pledge Agreement),
subject to no other Liens.
(b) At all times after execution and delivery of the Security
Agreement by the Borrower and completion of the filings listed on Schedule
3.18, the security interests created in favor of the Administrative Agent, for
the ratable benefit of the Lenders, pursuant to the Security Agreement will
constitute valid, perfected security interests in the collateral subject
thereto, subject to no other Liens (it being understood that the foregoing
<PAGE> 46
representation shall not apply to any such collateral sold in accordance with
this Agreement).
ARTICLE IV
Conditions of Lending
SECTION 4.01. Conditions to Effectiveness. The obligations
of the Lenders to make Loans hereunder and of the Issuing Banks to issue
Letters of Credit hereunder, and the effectiveness of any amendment to a Letter
of Credit that increases the principal amount thereof, shall not become
effective until the date on which each of the following conditions is
satisfied:
(a) The Administrative Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the
Borrower, with a counterpart for each Lender, (ii) the Borrower Pledge
Agreement, executed and delivered by a duly authorized officer of the
Borrower, with a counterpart or a conformed copy for each Lender, (iii)
each of the Parent Guaranty, the Affiliate Guaranty and the Subsidiary
Guaranty, each executed and delivered by a duly authorized officer of
the relevant Loan Parties, with a counterpart or a conformed copy for
each Lender, and (iv) the Security Agreement, executed and delivered by
a duly authorized officer of the Borrower, with a counterpart or a
conformed copy for each Lender.
(b) The Administrative Agent shall have received, with a
counterpart for each Lender, a copy of the resolutions of the Board of
Directors of each Loan Party authorizing the execution, delivery and
performance of the Loan Documents to which such Loan Party is a party
certified by the Secretary or an Assistant Secretary of such Loan Party
as of the Closing Date, which certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked
or rescinded.
(c) The Administrative Agent shall have received, with a
counterpart for each Lender, true and complete copies of the
certificate of incorporation and by-laws of each Loan Party, certified
as of the Closing Date as complete and correct copies thereof by the
Secretary or an Assistant Secretary of such Loan Party.
(d) The Administrative Agent shall have received, with a
counterpart for each Lender, an executed legal opinion of counsel to
the Loan Parties (which may be in-house), in form and substance
reasonably satisfactory to the Administrative Agent.
(e) The Administrative Agent shall have received the results
of a recent search of the Uniform Commercial Code, judgment and tax
lien filings which may have been filed with respect to the Borrower,
and the results of such search shall be satisfactory to the
Administrative Agent.
(f) The Administrative Agent shall have received audited
financial statements of the Borrower and its Subsidiaries for the year
ended December 31, 1995, and unaudited financial statements of the
Borrower and its Subsidiaries for each fiscal quarter in 1996 ending
<PAGE> 47
more than 45 days prior to the Closing Date, prepared in accordance
with GAAP applied on a consistent basis.
(g) An amendment and restatement of the Parent's revolving
credit and letter of credit facility, pursuant to which, among other
things, the aggregate commitments thereunder shall be reduced from
$400,000,000 to $200,000,000, shall have become effective (as so
amended and restated, and as further amended, supplemented or
otherwise modified from time to time, the "Parent Facility").
(h) A $400,000,000 increase in the Fingerhut Liquidity
Agreement and concurrent increases in the Class B, Class C and Owner
Trust Certificates associated therewith shall have become effective.
SECTION 4.02. Conditions to All Loans. The obligations of
the Lenders to make any Loans hereunder and of the Issuing Banks to issue any
Letters of Credit hereunder are subject to the satisfaction of the conditions
that, on the date of each Credit Event, including each Borrowing in which Loans
are refinanced as contemplated by Section 2.05(a), but excluding each Borrowing
in which Loans are continued or converted as contemplated in Section 2.05(b):
(a) In the case of a Borrowing, the Administrative Agent shall
have received a notice of such Borrowing as required by Section 2.03 or
Section 2.04, as applicable, or, in the case of an issuance of a Letter
of Credit, the Issuing Bank shall have received a notice in accordance
with Section 2.15(b).
(b) The representations and warranties set forth in Article III
hereof, Section 3 of the Borrower Pledge Agreement, Section 3 of the
Security Agreement, Section 3 of the Affiliate Guaranty (to the extent
applicable to Persons that are parties to the Affiliate Guaranty on the
date of such Credit Event), Section 3 of the Subsidiary Guaranty (to
the extent applicable to Persons that are parties to the Subsidiary
Guaranty on the date of such Credit Event) and Section 3 of the Parent
Guaranty (except, in the case of a refinancing of a Standby Borrowing
with a new Standby Borrowing that does not increase the aggregate
principal amount of the Loans of any Lender outstanding or in the case
of an issuance of a Letter of Credit that does not increase the
aggregate LC Exposure, the representations set forth in Sections 3.06
and 3.09(a)) shall be true and correct in all material respects on and
as of the date of such Credit Event with the same effect as though made
on and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) The Borrower shall be in compliance with all the terms and
provisions set forth herein and in each other Loan Document on its part
to be observed or performed, and at the time of and immediately after
such Credit Event no Event of Default or Default shall have occurred
and be continuing.
(d) In the case of any Credit Event at any time when, or after
giving effect to which, the aggregate principal amount of Loans and LC
Exposure shall be in excess of $200,000,000, for any such amount in
excess of $200,000,000, the Borrower or its Subsidiaries, directly or
through a Parent- or Borrower- sponsored vehicle, shall have available
(and shall maintain to the extent of such excess amount while such
excess amount is outstanding) an equal amount of (a) unutilized
<PAGE> 48
commitments allocable to the Metris Master Trust under the Fingerhut
Liquidity Agreement, any replacement liquidity facility having
comparable terms and conditions (including any such liquidity facility
supporting only commercial paper associated with the Metris Master
Trust) or any other liquidity facility approved by the Required Lenders
or (b) cash in connection with a pre-funded asset-backed term security.
Each Credit Event, excluding each Borrowing in which Loans are continued or
converted as contemplated in Section 2.05(b), shall be deemed to constitute a
representation and warranty by the Borrower (or any other relevant Loan Party,
as the case may be), on the date of such Borrowing as to the matters specified
in paragraphs (b), (c) and (d) of this Article IV.
ARTICLE V
Affirmative Covenants
The Borrower covenants and agrees with each Lender and the
Administrative Agent that, so long as this Agreement shall remain in effect,
the principal of or interest on any Loan, any Fees or any other expenses or
amounts payable under any Loan Document shall be unpaid or any Letter of Credit
shall remain outstanding, unless the Required Lenders shall otherwise consent
in writing, the Borrower will, and will cause each of the Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do
or cause to be done all things necessary to preserve, renew and keep in full
force and effect its legal existence, except as otherwise expressly permitted
under Section 6.03 and with regard to any Subsidiary which has no significant
assets and no significant liabilities.
(b) Do or cause to be done all things necessary to obtain,
preserve, renew, extend and keep in full force and effect the rights, licenses,
permits, franchises, authorizations, patents, copyrights, trademarks and trade
names material to the conduct of its business; maintain and operate such
business in substantially the manner in which it is presently conducted and
operated (except as permitted pursuant to Section 6.03); comply in all material
respects with all applicable laws, rules, regulations and orders of any
Governmental Authority, whether now in effect or hereafter enacted, the failure
to comply with which would be materially likely to result in a Material Adverse
Effect; and at all times maintain and preserve all property material to the
conduct of such business and keep such property in good repair, working order
and condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may be
properly conducted at all times.
SECTION 5.02. Insurance. Keep its insurable properties
adequately insured at all times by financially sound and reputable insurers;
maintain such other insurance, to such extent and against such risks, including
fire and other risks insured against by extended coverage, as is customary with
companies in the same or similar businesses, including public liability
insurance against claims for personal injury or death or property damage
occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by it; and maintain such other insurance as may
be required by law.
<PAGE> 49
SECTION 5.03. Obligations and Taxes. Pay its Indebtedness
and other obligations promptly and in accordance with their terms and pay and
discharge promptly when due all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or in respect of its
property, before the same shall become delinquent or in default, as well as all
lawful claims for labor, materials and supplies or otherwise which, if unpaid,
might give rise to a Lien upon such properties or any part thereof; provided,
however, that such payment and discharge shall not be required with respect to
any such tax, assessment, charge, levy or claim so long as the validity or
amount thereof shall be contested in good faith by appropriate proceedings and
the Borrower shall have set aside on its books whatever reserves are required
in accordance with GAAP.
SECTION 5.04. Financial Statements, Reports, etc. In the case
of the Borrower, furnish to the Administrative Agent and each Lender (by
delivery of a regular or periodic report filed under the Exchange Act
containing such items or otherwise):
(a) within 100 days after the end of each fiscal year, its
consolidated balance sheets and related statements of earnings and cash
flows showing the financial condition of the Borrower and its
consolidated Subsidiaries as of the close of such fiscal year and the
results of its operations and the operations of such Subsidiaries
during such year, audited by KPMG Peat Marwick LLP or any other Big Six
Accounting Firm and accompanied by an opinion of such accountants
(which shall not be qualified in any material respect) to the effect
that such consolidated financial statements fairly present the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with
GAAP consistently applied (except for changes concurred in by the
Borrower's independent public accountants and disclosed in such
statements or the notes thereto);
(b) within 50 days after the end of each of the first three
fiscal quarters of each fiscal year (commencing with the first fiscal
quarter of the 1997 fiscal year), its consolidated balance sheets and
related statements of earnings and cash flow showing the financial
condition of the Borrower and its consolidated subsidiaries as of the
close of such fiscal quarter and the results of its operations and the
operations of such Subsidiaries during such fiscal quarter and the then
elapsed portion of the fiscal year, all certified by one of its Finan-
cial Officers, as fairly presenting the financial condition and results
of operations of the Borrower on a consolidated basis in accordance
with GAAP consistently applied (except for changes concurred in by the
Borrower's independent public accountants and disclosed in such
statements or the notes thereto, subject to normal year-end audit
adjustments;
(c) concurrently with any delivery of financial statements
under (a) and (b) above, (x) a certificate of the accounting firm, in
the case of (a), or Financial Officer, in the case of (b), referred to
in the applicable paragraph certifying that no Event of Default or
Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective
action taken or proposed to be taken with respect thereto and (y) a
certificate of a Financial Officer setting forth computations in
reasonable detail satisfactory to the Administrative Agent
<PAGE> 50
demonstrating compliance with the covenants contained in Sections 6.05,
6.06, 6.07 (as of the last day of each calendar month included in the
relevant fiscal period) and 6.08;
(d) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by it with the Securities and Exchange Commission, or any Govern-
mental Authority succeeding to any of or all the functions of said
Commission, or with any national securities exchange, or distributed to
its shareholders, as the case may be; and
(e) as soon as reasonably practicable, from time to time, such
other information regarding the operations, business affairs and
financial condition of the Borrower or any Subsidiary, or compliance
with the terms of any Loan Document, as the Administrative Agent or any
Lender may reasonably request.
SECTION 5.05. Litigation and Other Notices. Furnish to the
Administrative Agent and each Lender prompt written notice of the following
promptly after a Responsible Officer of the Borrower or any Subsidiary becomes
aware of the same:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or receipt of notice of
intention of any Person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against the Borrower or any Affiliate thereof
which would be materially likely to result in a Material Adverse
Effect;
(c) any development affecting or relating to the Borrower or
any Subsidiary that in the reasonable judgment of the Borrower has
resulted in, or is materially likely to result in, a Material Adverse
Effect referred to in clause (a) of the definition of such term; and
(d) the occurrence of any event which constitutes a Change in
Control.
SECTION 5.06. Employee Benefits. (a) Comply in all material
respects with the applicable provisions of ERISA and the Code with respect to
the employee benefit plans (as defined in Section 3(3) of ERISA) of the
Borrower and the ERISA Affiliates and (b) furnish to the Administrative Agent
(i) as soon as possible after, and in any event within 30 days after any
Responsible Officer of the Borrower or any ERISA Affiliate knows or has reason
to know that any Reportable Event has occurred that alone or together with any
other Reportable Event could reasonably be expected to result in liability of
the Borrower or any ERISA Affiliate to the PBGC in an aggregate amount
exceeding $5,000,000, a statement of a Financial Officer setting forth details
as to such Reportable Event and the action that the Borrower or such ERISA
Affiliate proposes to take with respect thereto, together with a copy of the
notice, if any, of such Reportable Event to the PBGC, (ii) promptly after
receipt thereof, a copy of any notice that the Borrower or any ERISA Affiliate
may receive from the PBGC relating to the intention of the PBGC to terminate
any Plan or Plans (other than a Plan maintained by an ERISA Affiliate that is
<PAGE> 51
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code) or to appoint a trustee to administer any such Plan,
(iii) within 10 days after the due date for filing with the PBGC pursuant to
Section 412(n) of the Code a notice of failure to make a required installment
or other payment with respect to a Plan, a statement of a Financial Officer
setting forth details as to such failure and the action that the Borrower
proposes to take with respect thereto, together with a copy of any such notice
given to the PBGC and (iv) promptly and in any event within 30 days after
receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, a copy of each notice received by the Borrower or any ERISA
Affiliate concerning (A) the imposition of Withdrawal Liability or (B) a
determination that a Multiemployer Plan is, or is expected to be, terminated or
in reorganization, both within the meaning of Title IV of ERISA.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Maintain or cause to be maintained at all times true and complete
books and records of its financial operations and permit the Administrative
Agent or any Lender and their designated representatives reasonable access
after reasonable notice to all such books and records and to any of the
properties or assets of the Borrower and the Subsidiaries during regular
business hours in order that the Administrative Agent and the Lenders may make
such examinations and make abstracts from such books and records and may
discuss the affairs, finances and accounts with, and be advised as to the same
by, Financial Officers and, after consultation with the Borrower, the
independent accountants of the Borrower or any Subsidiary, all as the
Administrative Agent or any Lender may reasonably deem appropriate for the
purpose of verifying the accuracy of the various reports delivered by the
Borrower or any Subsidiary thereof to the Administrative Agent and/or the
Lenders pursuant to this Agreement or for otherwise ascertaining compliance
with this Agreement. Except during the continuance of any Event of Default,
all requests by Lenders under this Section shall be made through and
coordinated by the Administrative Agent with a view to minimizing inconvenience
to the Borrower and its Subsidiaries.
SECTION 5.08. Sale of Accounts. Cause each Credit Card Bank
to sell all of such Credit Card Bank's Accounts to the Borrower or directly, or
indirectly through a Receivables Transfer Subsidiary, into any Receivables
Transfer Program (except in connection with sales of credit cardholder accounts
permitted by Section 6.03).
SECTION 5.09. Further Assurances. (a) Promptly perform or
cause to be performed any and all such acts and execute or cause to be
executed, at the cost and expense of the Borrower, any and all documents under
the provisions of any applicable law, rule or regulation of any Governmental
Authority, which are necessary from time to time, in order to grant, maintain,
preserve and protect in favor of the Administrative Agent, for the benefit of
the Lenders, the security interest in and pledge of the collateral under the
Security Agreement and the Borrower Pledge Agreement, including the perfection
and priority thereof, all as provided in the Security Agreement and the
Borrower Pledge Agreement.
(b) With respect to any Person that, subsequent to the Closing
Date, becomes a Subsidiary (other than a Credit Card Bank), promptly (i)
execute and deliver to the Administrative Agent, for the benefit of the
Lenders, a new pledge agreement or such amendments or supplements to the
Borrower Pledge Agreement as the Administrative Agent shall deem necessary or
advisable to grant to the Administrative Agent, for the benefit of the Lenders,
<PAGE> 52
a Lien on all of the capital stock of such Subsidiary owned directly or
indirectly by the Borrower, and (ii) deliver to the Administrative Agent the
certificates representing such capital stock, together with undated stock
powers executed and delivered in blank by a duly authorized officer of the
parent company of such Subsidiary.
(c) With respect to any Person that, subsequent to the Closing
Date, becomes a Subsidiary (other than a Receivables Transfer Subsidiary or a
Credit Card Bank), cause such Subsidiary to execute and deliver to the
Administrative Agent one or more instruments (as the Administrative Agent shall
request and satisfactory to the Administrative Agent in form and substance)
pursuant to which such Subsidiary shall undertake the obligations of a
Subsidiary Guarantor under the Subsidiary Guaranty.
ARTICLE VI
Negative Covenants
The Borrower covenants and agrees with each Lender and the
Administrative Agent that, so long as this Agreement shall remain in effect,
the principal of or interest on any Loan, any Fees or any other expenses or
amounts payable under any Loan Document shall be unpaid or any Letter of Credit
shall remain outstanding, unless the Required Lenders shall otherwise consent
in writing, the Borrower will not, and will not cause or permit any of the
Subsidiaries to:
SECTION 6.01. Liens. Create, incur, assume or permit to
exist any Lien on any property or assets, including stock or other securities
of any Person (other than assets sold pursuant to the Receivables Transfer
Program) now owned or hereafter acquired or assign or convey any rights to or
security interests in any future revenue; provided, that, notwithstanding the
foregoing, the following Liens shall be permitted so long as, in each case,
such Liens do not apply to the capital stock of any Credit Card Bank:
(a) Liens on property or assets of the Borrower and its
Subsidiaries existing on the Closing Date which (with the exception of
existing Liens consisting of the interests of lessors under Capital
Leases) are set forth in Schedule 6.01; provided that such Liens shall
secure only those obligations which they secure on the Closing Date;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; provided that
(i) such Lien is not created in contemplation of or in connection with
such acquisition and (ii) such Lien does not apply to any other
property or assets of the Borrower or any Subsidiary;
(c) Liens for taxes not yet due or which are being contested
in compliance with Section 5.03 and judgment liens securing judgments
which have not given rise to Events of Default;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due or that are being
contested in compliance with Section 5.03;
<PAGE> 53
(e) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation, unemployment
insurance and other social security laws or regulations;
(f) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases (other than Capital
Lease Obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(g) zoning restrictions, easements, rights-of-way,
restrictions on use of real property and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and do not materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of the Borrower or any of its Subsidiaries;
(h) Liens on Accounts and on credit cardholder accounts owned
by the Borrower or any of its Subsidiaries, in each case securing
Indebtedness incurred to finance the acquisition thereof so long as (i)
such Liens do not at any time encumber any asset other than the
Accounts and credit cardholder accounts financed by such Indebtedness
and (ii) recourse for repayment of such Indebtedness is limited to the
Accounts and credit cardholder accounts so financed (subject to
customary limited recourse to the Borrower and its Subsidiaries
relating to representations and warranties made with respect to such
Accounts and credit cardholder accounts in connection with the
incurrence of such Indebtedness);
(i) other Liens to secure Indebtedness of the Borrower and/or
any Subsidiary, so long as after giving effect thereto, the sum of
(A) the aggregate outstanding principal amount of Indebtedness secured
by Liens under this Section 6.01(i) and (B) the aggregate outstanding
capitalized amount of the obligations of the Borrower and the
Subsidiaries to pay rent or other amounts as a result of all Sale-
Leaseback Transactions permitted under Section 6.02 does not exceed 25%
of Consolidated Net Worth at such time;
(j) the interest of any lessor under any Capital Lease and
purchase money security interests in real property, improvements
thereto or equipment hereafter acquired (or, in the case of
improvements, constructed) by the Borrower or any Subsidiary and
financed with Indebtedness; provided that (i) such lessor's interests
or security interests secure only Indebtedness, (ii) such security
interests are incurred, and the Indebtedness secured thereby is
created, within 90 days after such acquisition (or construction) and
(iii) such security interests do not apply to any other property or
assets; and
(k) Liens created by the Collateral Documents.
SECTION 6.02. Sale and Lease-Back Transactions. Enter into
any arrangement, directly or indirectly, with any Person whereby it shall sell
or transfer any property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease such
property or other property which it intends to use for substantially the same
purpose or purposes as the property being sold or transferred (a "Sale-
<PAGE> 54
Leaseback Transaction"), except that the Borrower and the Subsidiaries at any
time may enter into any Sale-Leaseback Transaction so long as after giving
effect thereto, the sum of (a) the aggregate outstanding capitalized amount of
the obligations of the Borrower and the Subsidiaries to pay rent or other
amounts as a result of such all Sale-Leaseback Transactions and (b) the
aggregate outstanding principal amount of Indebtedness referred to in
Section 6.01(i) does not exceed 25% of Consolidated Net Worth at such time.
SECTION 6.03. Mergers, Consolidations, Sales of Assets and
Acquisitions. Merge into or consolidate with any other Person, or permit any
other Person to merge into or consolidate with it, or, except for sales of
accounts receivable pursuant to the Receivables Transfer Program, sell,
transfer, lease or otherwise dispose of (in one transaction or in a series of
transactions) all or any substantial part of its assets (whether now owned or
hereafter acquired) or sell, transfer, lease or otherwise dispose of any
capital stock of any Subsidiary, or purchase, lease or otherwise acquire (in
one transaction or a series of transactions) all or any substantial part of the
assets of any other Person, except that:
(a) if immediately after giving effect thereto no Event of
Default or Default shall have occurred and be continuing (i) any wholly
owned Subsidiary may (A) merge or consolidate into the Borrower in a
transaction in which the Borrower is the surviving corporation or
(B) transfer assets to the Borrower, (ii) any wholly owned Subsidiary
may merge into or consolidate with or transfer assets to or acquire
assets from any other wholly owned Subsidiary in a transaction in which
the surviving entity is a wholly owned Subsidiary and no Person other
than the Borrower or a wholly owned Subsidiary receives any consider-
ation and (iii) the Borrower may merge or consolidate with or into the
Parent if the Parent (A) is the continuing or surviving corporation and
(B) shall expressly assume the obligations of the Borrower hereunder
pursuant to a written agreement in form and substance reasonably
satisfactory to the Administrative Agent;
(b) if at the time thereof and immediately after giving effect
thereto no Event of Default or Default shall have occurred and be
continuing, the Borrower or any Subsidiary at any time may sell,
transfer or otherwise dispose of all or any part of the assets of any
Subsidiary (including the outstanding capital stock of such Subsidiary)
to any Person, provided that (i) the consideration in respect of such
disposition is at least equal to the fair market value of such assets
and (ii) the book value of such assets (or capital stock), when added
to the aggregate book value of all other assets (or capital stock)
previously disposed of pursuant to this paragraph (b), does not exceed
25% of Consolidated Net Worth at such time (immediately prior to giving
effect to such disposition);
(c) if at the time thereof and immediately after giving effect
thereto no Default or Event of Default shall have occurred and be
continuing and subject to the further conditions set forth below, the
Borrower or any Subsidiary may acquire all or any part of the assets or
capital stock or equity interest of any other Person or may merge or
consolidate with such Person in a transaction in which the Borrower or
such Subsidiary is the surviving corporation; provided, however, that
prior to the consummation of such transaction, the Borrower shall have
provided to the Administrative Agent a certificate in reasonable detail
demonstrating that such merger, acquisition, or consolidation will not,
<PAGE> 55
on a pro forma basis, cause a breach of the covenants contained in any
of Sections 6.05, 6.06, 6.07 or 6.08 hereof and will not otherwise
cause a breach of any other covenant required to be performed or
observed by the Borrower or any Subsidiary hereunder;
(d) any Credit Card Bank may sell credit cardholder accounts
(and the related Accounts) of Fingerhut Corporation customers at fair
market value to any Affiliate of the Parent or any other Person
designated by the Parent; and
(e) any Credit Card Bank may sell credit cardholder accounts
(and the related Accounts) so long as, after giving effect to such
sale, the aggregate number of such accounts sold pursuant to this
paragraph (e) during the twelve-month period ending on the date of such
sale shall not exceed 10% of the number of such accounts (excluding
credit cardholder accounts of Fingerhut Corporation customers) owned by
the Borrower and its Subsidiaries immediately prior to giving effect to
such sale.
SECTION 6.04. Limitations on Indebtedness. Create, incur,
assume or suffer to exist any Indebtedness, except (a) Indebtedness of the
Borrower or any Subsidiary Guarantor under this Agreement or the Subsidiary
Guaranty and (b) other Indebtedness of the Borrower or any of its Subsidiaries
so long as, on the date of incurrence thereof, after giving effect thereto, the
aggregate outstanding principal amount of Indebtedness incurred pursuant to
this clause (b) shall not exceed 15% of Consolidated Net Worth.
SECTION 6.05. Leverage Ratio. In the case of the Borrower,
permit the Leverage Ratio at any time on or after the Initial Test Date to
exceed 9.0 to 1.0.
SECTION 6.06. Minimum Consolidated Net Worth. In the case of
the Borrower, permit Consolidated Net Worth at any time on or after the Initial
Test Date to be less than the sum of (a) (i) prior to the IPO Date, $60,159,000
(it being understood that this clause (i) shall be applicable only if the
Initial Test Date precedes the IPO Date) or (ii) on or after the IPO Date, 75%
of Consolidated Net Worth on the IPO Date after giving effect to the
consummation of the offering referred to in the definition of "IPO Date" ("IPO
Consolidated Net Worth") and (b) 25% of Cumulative Consolidated Net Income as
of the last day of the fiscal quarter of the Borrower most recently ended.
SECTION 6.07. Minimum Excess Spread. In the case of the
Borrower, permit Excess Spread determined in respect of any three consecutive
Monthly Periods to be less than 1%.
SECTION 6.08. Minimum Equity to Managed Assets Ratio. In the
case of the Borrower, permit the Equity to Managed Assets Ratio at any time on
or after the Initial Test Date to be less than 4%.
SECTION 6.09. Limitations on Restrictions on Dividends by
Subsidiaries. Permit or place, or permit any Subsidiary to permit or place,
any restriction, directly or indirectly on (i) the payment of dividends or
other distributions by any Subsidiary to the Borrower or (ii) the making of
advances or other cash payments by any Subsidiary to the Borrower, except, in
either case, (x) as specifically set forth in this Agreement, (y) as may be
required under a Receivables Transfer Program with respect to the frequency of
<PAGE> 56
dividends from any Receivables Transfer Subsidiary and (z) as may be required
by non-consensual restrictions imposed by applicable requirements of law.
SECTION 6.10. Limitations on Lines of Business, etc. (a)
Enter into any business or business activity other than (i) in the case of any
Receivables Transfer Subsidiary, the purchasing, holding, owning and selling of
the Accounts of the Borrower and its Subsidiaries and any activities incidental
to and necessary or convenient for the accomplishment of such purposes and (ii)
in the case of the Borrower or any other Subsidiary, marketing and providing
financial services, including, but not limited to, consumer credit products,
extended service plans and fee-based products, (b) except in the case of a
Credit Card Bank, originate any Accounts relating to credit cardholder accounts
or acquire any Accounts relating to credit cardholder accounts from any Person
other than the Borrower or a Credit Card Bank; provided, however, that any
Subsidiary may originate or acquire Accounts not relating to credit cardholder
accounts or (c) in the case of the Borrower, sell, transfer or otherwise
dispose of any Accounts owned by it to any Person except (i) to a Receivables
Transfer Subsidiary whose capital stock has been pledged pursuant to the
Borrower Pledge Agreement or (ii) directly into a Receivables Transfer Program.
ARTICLE VII
Events of Default
In case of the happening of any of the following events
("Events of Default"):
(a) any representation or warranty made or deemed made in or
in connection with any Loan Document or the borrowings hereunder, or
any representation, warranty, statement or information contained in any
report, certificate, financial statement or other instrument furnished
in connection with or pursuant to any Loan Document, shall prove to
have been false or misleading in any respect material to the interests
of the Lenders when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of
any Loan when and as the same shall become due and payable, whether at
the due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise, or default shall be made in the
payment of any reimbursement obligation in respect of any Letter of
Credit when and as the same shall become due and payable;
(c) default shall be made in the payment of any interest on
any Loan or any Fee (other than an amount referred to in (b) above) due
under any Loan Document, when and as the same shall become due and
payable, and such default shall continue unremedied for a period of
three Business Days;
(d) default shall be made in the due observance or performance
of any covenant, condition or agreement contained in Section 5.01(a),
Section 5.05(a) or Article VI (other than Section 6.01) of this
Agreement or Section 4(a)(i) (but only with respect to the Parent, any
Guarantor or any Significant Subsidiary (as defined in the Parent
Guaranty)), Section 4(e)(i) or Section 5 (other than Section 5(a)) of
the Parent Guaranty;
<PAGE> 57
(e) default shall be made in the due observance or performance
of any covenant, condition or agreement contained in Section 5.05(b),
(c) or (d) or Section 6.01 of this Agreement or Section 4(e)(ii), (iii)
or (iv) or Section 5(a) of the Parent Guaranty, and such default shall
continue unremedied for a period of 10 Business Days;
(f) default shall be made in the due observance or performance
of any covenant, condition or agreement contained in any Loan Document
(other than those specified in clause (b), (c), (d) or (e) above) and
such default shall continue unremedied for a period of 30 Business Days
after notice thereof from the Administrative Agent or the Required
Lenders to the Borrower;
(g) the Borrower, the Parent or any of their respective
subsidiaries shall (i) fail to pay any principal or interest,
regardless of amount, due in respect of any Indebtedness in a principal
amount in excess of $10,000,000 or fail to pay any amount in excess of
$10,000,000 due in respect of any Rate Protection Agreement, in each
case when and as the same shall become due and payable (after giving
effect to any applicable period of grace specified in the instrument
evidencing or governing such Indebtedness or Rate Protection
Agreement), (ii) fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or instrument evi-
dencing or governing any such Indebtedness in a principal amount in
excess of $10,000,000 after giving effect to any applicable period of
grace specified in the instrument evidencing or governing such
Indebtedness, if the effect of any failure referred to in this
clause (ii) is to cause such Indebtedness to become due prior to its
stated maturity, or (iii) in the case of the Parent, fail to observe or
perform any term, covenant, condition or agreement contained in the
Note Purchase Agreement or any other agreement or instrument evidencing
or governing any of the Private Placement Indebtedness if the effect of
any failure referred to in this clause (iii) is to cause, or to permit
the holder or holders of such Private Placement Indebtedness (or any
Person acting on their behalf) to cause, with the giving of notice if
required, all or any portion of such Private Placement Indebtedness to
become due prior to its stated maturity;
(h) (i) an event of default, termination event or similar event
shall occur which results in the suspension or termination of the
ability of the Borrower, the Parent or any of their respective
subsidiaries to sell receivables for cash pursuant to the Receivables
Transfer Program or the Parent Receivables Transfer Program, as the
case may be; provided, however, this clause (i) will not be applicable,
in the case of any such event with respect to a Receivables Transfer
Program, so long as the Borrower obtains a commitment for an
alternative Receivables Transfer Program (for a comparable or greater
amount) within 30 days after the occurrence of such event and such
commitment is maintained throughout the remaining scheduled term of the
affected Receivables Transfer Program, or (ii) the Borrower, the Parent
or any of their respective subsidiaries shall fail to maintain the
existence of the Receivables Transfer Program or the Parent Receivables
Transfer Program, as the case may be, for a period of 30 consecutive
days other than as a result of an event or condition described in
clause (i) of this paragraph (h).
<PAGE> 58
(i) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower, the Parent
or any of their respective subsidiaries, or of a substantial part of
the property or assets of the Borrower, the Parent or any of their
respective subsidiaries, under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower, the Parent or any of
their respective subsidiaries or for a substantial part of the property
or assets of the Borrower, the Parent or any of their respective
subsidiaries or (iii) the winding-up or liquidation of the Borrower,
the Parent or any of their respective subsidiaries; and such proceeding
or petition shall continue undismissed for 60 days or an order or
decree approving or ordering any of the foregoing shall be entered;
(j) the Borrower, the Parent or any of their respective
subsidiaries shall (i) voluntarily commence any proceeding or file any
petition seeking relief under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (ii) consent to
the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in
paragraph (i) above, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Borrower, the Parent or any of their respective
subsidiaries or for a substantial part of the property or assets of the
Borrower, the Parent or any of their respective subsidiaries, (iv) file
an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for
the benefit of creditors, (vi) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the fore-
going;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $10,000,000 shall be rendered against the
Borrower, the Parent, any of their respective subsidiaries or any
combination thereof (unless such judgment is covered by insurance and
the insurer has offered to defend such judgment or acknowledged, in
writing, its liability with respect thereto) and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of the
Borrower, the Parent or any of their respective subsidiaries to enforce
any such judgment (unless the Borrower, the Parent or the relevant
subsidiary, as applicable, has previously established reserves under
GAAP consistently applied for the full amount of such judgment);
(l) a Reportable Event or Reportable Events, or a failure to
make a required installment or other payment (within the meaning of
Section 412(n)(1) of the Code) shall have occurred with respect to any
Plan or Plans that reasonably could be expected to result in liability
of the Borrower to the PBGC or to a Plan in an aggregate amount
exceeding $10,000,000 and, within 30 days after the reporting of any
such Reportable Event to the Administrative Agent or after the receipt
<PAGE> 59
by the Administrative Agent of the statement required pursuant to
Section 5.06(b)(iii) hereof, the Administrative Agent shall have
notified the Borrower in writing that (i) the Required Lenders have
made a determination that, on the basis of such Reportable Event or
Reportable Events or the failure to make a required payment, there are
reasonable grounds (A) for the termination of such Plan or Plans by the
PBGC, (B) for the appointment by the appropriate United States district
court of a trustee to administer such Plan or Plans or (C) for the
imposition of a lien in favor of a Plan and (ii) as a result thereof an
Event of Default exists hereunder; or a trustee shall be appointed by a
United States district court to administer any such Plan or Plans; or
the PBGC shall institute proceedings (including giving notice of intent
thereof) to terminate any such Plan or Plans;
(m)(i) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or
such ERISA Affiliate does not have reasonable grounds for contesting
such Withdrawal Liability or is not contesting such Withdrawal
Liability in a timely and appropriate manner and (iii) the amount of
such Withdrawal Liability specified in such notice, when aggregated
with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date or
dates of such notification) either (A) exceeds $10,000,000 or requires
payments exceeding $5,000,000 in any year or (B) is less than
$10,000,000 but any Withdrawal Liability payment remains unpaid 30 days
after such payment is due;
(n) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, if solely as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and its
ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have been or will
be increased over the amounts required to be contributed to such Multi-
employer Plans for their most recently completed plan years by an
amount exceeding $5,000,000; or
(o) any Collateral Document shall not be in full force and
effect, enforceable in accordance with its terms, or the security
interest purported to be created by any Collateral Document shall not
be a valid and enforceable perfected first priority security interest
in any collateral subject thereto (except, in the case of the Security
Agreement, in connection with releases of collateral thereunder in
accordance with the terms thereof);
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (i) or (j) above), and at any time thereafter during the
continuance of such event, the Administrative Agent, at the request of the
Required Lenders, shall, by notice to the Borrower, take any of the following
actions, at the same or different times: (i) terminate forthwith the
Commitments; (ii) declare the Loans then outstanding to be forthwith due and
payable in whole or in part, whereupon the principal of the Loans so declared
to be due and payable, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of the Borrower accrued hereunder and
under any other Loan Document, shall become forthwith due and payable, without
<PAGE> 60
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by the Borrower, anything contained herein or in any
other Loan Document to the contrary notwithstanding and (iii) require that the
Borrower deposit cash with the Administrative Agent, in an amount equal to the
aggregate LC Exposure, as collateral security for the repayment of any future
drawings under the Letters of Credit; and in any event with respect to the
Borrower described in paragraph (i) or (j) above, the Commitments shall auto-
matically terminate and the principal of the Loans then outstanding, together
with accrued interest thereon and any unpaid accrued Fees and all other
liabilities of the Borrower accrued hereunder and under any other Loan Docu-
ment, shall automatically become due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by the Borrower, anything contained herein or in any other Loan Document
to the contrary notwithstanding, and the Borrower shall forthwith be required
to deposit cash with the Administrative Agent in an amount equal to the
aggregate LC Exposure or shall deliver to the Administrative Agent a
Replacement Letter of Credit drawable without condition and in a face amount
equal to the aggregate LC Exposure and otherwise satisfactory in all respects
to the Administrative Agent, which Letter of Credit or cash deposit shall serve
as collateral security for the repayment of any further drawings under the
Letters of Credit.
ARTICLE VIII
The Administrative Agent
In order to expedite the transactions contemplated by this
Agreement, the Administrative Agent is hereby appointed to act as agent on
behalf of the Lenders. Each of the Lenders, and each subsequent holder of any
Loan by its acceptance thereof, hereby irrevocably authorizes the
Administrative Agent to take such actions on behalf of such Lender or holder
and to exercise such powers as are specifically delegated to the Administrative
Agent by the terms and provisions hereof, together with such actions and powers
as are reasonably incidental thereto. The Administrative Agent is hereby
expressly authorized by the Lenders, without hereby limiting any implied
authority, (a) to receive on behalf of the Lenders all payments of principal of
and interest on the Loans and all other amounts due to the Lenders hereunder,
and promptly to distribute to each Lender its proper share of each payment so
received; (b) to give notice on behalf of each of the Lenders to the Borrower
of any Event of Default specified in this Agreement of which the Administrative
Agent has actual knowledge acquired in connection with its agency hereunder;
(c) to act as Administrative Agent on behalf of the Lenders under the other
Loan Documents and to exercise all rights granted to the Administrative Agent
under the other Loan Documents; (d) to distribute to each Lender copies of all
notices, financial statements and other materials delivered by the Borrower
pursuant to this Agreement as received by the Administrative Agent; and
(e) take the actions it is authorized to take pursuant to the Collateral
Documents in order to release collateral thereunder.
Neither the Administrative Agent nor any of its directors,
officers, employees or agents shall be liable as such for any action taken or
omitted by any of them except for its or his own gross negligence or wilful
misconduct, or be responsible for any statement, warranty or representation
herein or the contents of any document delivered in connection herewith, or be
required to ascertain or to make any inquiry concerning the performance or
observance by any Loan Party of any of the terms, conditions, covenants or
<PAGE> 61
agreements contained in any Loan Document. The Administrative Agent shall not
be responsible to the Lenders or the holders of the Loans for the due
execution, genuineness, validity, enforceability or effectiveness of this
Agreement, or any other Loan Documents or other notes, instruments or
agreements. The Administrative Agent shall in all cases be fully protected in
acting, or refraining from acting, in accordance with written instructions
signed by the Required Lenders and, except as otherwise specifically provided
herein, such instructions and any action or inaction pursuant thereto shall be
binding on all the Lenders and each subsequent holder of any Loan. The
Administrative Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on any instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the proper Person or
Persons. Neither the Administrative Agent nor any of its directors, officers,
employees or agents shall have any responsibility to the Borrower on account of
the failure of or delay in performance or breach by any Lender of any of its
obligations hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or the Borrower of any of their
respective obligations hereunder or under any other Loan Document or in
connection herewith or therewith. The Administrative Agent may execute any and
all duties hereunder by or through agents or employees and shall be entitled to
rely upon the advice of legal counsel selected by it with respect to all
matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that the Administrative Agent
shall be under no duty to take any discretionary action permitted to be taken
by it pursuant to the provisions of this Agreement unless it shall be requested
in writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, (i) the Administrative Agent may resign
at any time by notifying the Lenders, the Issuing Banks and the Borrower and
(ii) the Administrative Agent, at the request of the Borrower and with the
consent of the Required Lenders (which consent shall not be unreasonably
withheld) shall resign. Upon any such resignation, the Borrower shall have the
right to appoint a successor, subject to the approval of the Required Lenders
(which approval shall not be unreasonably withheld). If no successor shall
have been so appointed by the Borrower and approved by the Required Lenders and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent gives notice of its resignation or the Required Lenders
consent to the resignation of the Administrative Agent, then (i) the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, if the Administrative Agent shall have resigned by
notifying the Lenders or (ii) otherwise, the Required Lenders may appoint a
successor Administrative Agent to replace the terminated Administrative Agent,
in each case which successor shall be a bank with an office in New York, New
York, having a combined capital and surplus of at least $500,000,000 or an
Affiliate of any such bank. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor bank, such successor shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. After the
Administrative Agent's resignation hereunder, the provisions of this
Article and Section 9.05 shall continue in effect for its benefit in respect of
any actions taken or omitted to be taken by it while it was acting as
Administrative Agent.
<PAGE> 62
With respect to the Loans made by it and the Letter of Credit
participations acquired by it hereunder, the Administrative Agent in its
individual capacity and not as Administrative Agent shall have the same rights
and powers as any other Lender and may exercise the same as though it were not
the Administrative Agent, and the Administrative Agent and its Affiliates may
accept deposits from, lend money to and generally engage in any kind of
business with the Borrower or any Subsidiary or other Affiliate thereof as if
it were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent,
on demand, in the amount of its pro rata share (based on its Commitment
hereunder) of any expenses incurred for the benefit of the Lenders by the
Administrative Agent, including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, which shall not
have been reimbursed by the Borrower and (ii) to indemnify and hold harmless
the Administrative Agent and any of its directors, officers, employees or
agents, on demand, in the amount of such pro rata share, from and against any
and all liabilities, taxes, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against it in its
capacity as the Administrative Agent or any of them in any way relating to or
arising out of this Agreement or any other Loan Document or any action taken or
omitted by it or any of them under this Agreement or any other Loan Document,
to the extent the same shall not have been reimbursed by the Borrower; provided
that no Lender shall be liable to the Administrative Agent for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the gross negligence or
wilful misconduct of the Administrative Agent or any of its directors,
officers, employees or agents.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also acknow-
ledges that it will, independently and without reliance upon the Administrative
Agent or any other Lender and based on such documents and information as it
shall from time to time deem appropriate, continue to make its own decisions in
taking or not taking action under or based upon this Agreement or any other
Loan Document, any related agreement or any document furnished hereunder or
thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or over-
night courier service, mailed or sent by telecopier, as follows:
(a) if to the Borrower, to it at Metris Companies Inc., 600
South Highway 169, Suite 1800, St. Louis Park, Minnesota 55426, Atten-
tion of Vice President, Chief Financial Officer (Telephone No. (612)
525-5020) (Telecopy No. (612) 525-5070), with a copy to Fingerhut
Companies, Inc., at 4400 Baker Road, Minnetonka, Minnesota 55343,
Attention General Counsel (Telephone No. (612) 932-3200) (Telecopy No.
(612) 936-5412);
<PAGE> 63
(b) if to the Administrative Agent, to it at Chase Agency
Services, Grand Central Tower, 140 East 45th Street, New York, New York
10017, Attention: Miranda Chin (Telecopy No. 212-622-0122) and, in the
case of Competitive Bid matters, Christopher Consomer (Telecopy No.
212-622-1308) and, in the case of Competitive Bid matters, with a copy
to Chase Securities Inc., Ten South LaSalle Street, Suite 2300,
Chicago, Illinois 60603-1097, Attention of Paul Doran (Telecopy
No. (312) 346-9310); and
(c) if to a Lender, to it at its address (or telecopy number)
set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender became a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or other telegraphic communications equipment of the sender, or on the
date five Business Days after dispatch by certified or registered mail if
mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section 9.01 or in accordance with the latest
unrevoked direction from such party given in accordance with this Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by the Borrower herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the making by the
Lenders of the Loans, regardless of any investigation made by the Lenders or on
their behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any Fee or any other amount
payable under this Agreement or any other Loan Document is outstanding and
unpaid and so long as the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower, the Administrative
Agent and each Lender and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Administrative Agent and each Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
consent of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Borrower, the Administrative
Agent or the Lenders that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing
to it); provided, however, that (i) except in the case of an assignment to a
Lender or an Affiliate of such Lender, the Borrower, the Issuing Banks and the
Administrative Agent must give their prior written consent to such assignment
(which consent, in each case, shall not be unreasonably withheld); (ii) unless
otherwise agreed by the Borrower and the Administrative Agent, the amount of
<PAGE> 64
the Commitment of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Administrative Agent) shall not be less than
$5,000,000 (or, if less, the then-remaining Commitment of the assigning Lender)
and the amount of the Commitment of such Lender remaining after such assignment
shall not be less than $6,000,000 or shall be zero; (iii) the parties to each
such assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, together with a processing and recordation fee of
$3,500 (to be paid by the assignee or the assignor); and (iv) after giving
effect thereto, (x) the Commitment Percentage of the assigning Lender shall
equal such Lender's "Commitment Percentage" under and as defined in the Parent
Facility and (y) the Commitment Percentage of the assignee shall equal such
assignee's "Commitment Percentage" under and as defined in the Parent Facility.
Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least five Business Days after the execution
thereof, (A) the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and (B) the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of
an assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto (but shall continue to be entitled to the
benefits of Sections 2.13, 2.16, 2.20 and 9.05, as well as to any Fees accrued
for its account hereunder and not yet paid)). Notwithstanding the foregoing,
any Lender assigning its rights and obligations under this Agreement may retain
any Competitive Loans made by it outstanding at such time, and in such case
shall retain its rights hereunder in respect of any Loans so retained until
such Loans have been repaid in full in accordance with this Agreement.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and
that its Commitment, and the outstanding balances of its Standby Loans and
Competitive Loans, in each case without giving effect to assignments thereof
which have not become effective, are as set forth in such Assignment and
Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto or the financial condition of
any Loan Party or the performance or observance by any Loan Party of any of its
obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance; (iv) such assignee confirms that it has received a
copy of this Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 5.04 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Administrative Agent, such
assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
<PAGE> 65
credit decisions in taking or not taking action under this Agreement; (vi) such
assignee appoints and authorizes the Administrative Agent to take such action
as agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all the obligations which
by the terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its
offices in the City of New York a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses
of the Lenders, and the Commitment of, and principal amount of the Loans owing
to, each Lender pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive in the absence of
manifest error and the Borrower, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement. The Register
shall be available for inspection by the Borrower and any Lender, at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, an administrative
questionnaire in form satisfactory to the Administrative Agent completed in
respect of the assignee (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b)
above and, if required, the written consent of the Borrower and the
Administrative Agent to such assignment, the Administrative Agent shall
(i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Lender and the Issuing Banks.
(f) Each Lender may without the consent of the Borrower or
the Administrative Agent sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided, however, that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) the
participating banks or other entities shall be entitled to the benefit of the
cost protection provisions contained in Sections 2.13 and 2.16 limited, as to
each participant, to the amount the selling Lender could claim and (iv) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights
and obligations under this Agreement, and such Lender shall retain the sole
right to enforce the obligations of the Borrower relating to the Loans and to
approve any amendment, modification or waiver of any provision of this
Agreement (other than amendments, modifications or waivers decreasing any fees
payable hereunder or the amount of principal of or the rate at which interest
is payable on the Loans, or extending any scheduled principal payment date or
date fixed for the payment of principal of or interest on the Loans).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 9.04, disclose to the assignee or participant or proposed assignee
or participant any information relating to the Borrower furnished to such
Lender by or on behalf of the Borrower; provided that, prior to any such
disclosure of information designated by the Borrower as confidential, each such
<PAGE> 66
assignee or participant or proposed assignee or participant shall execute an
agreement whereby such assignee or participant shall agree (subject to
customary exceptions) to preserve the confidentiality of such confidential
information. It is understood that confidential information relating to the
Borrower would not ordinarily be provided in connection with assignments or
participations of Competitive Loans.
(h) Notwithstanding the limitations set forth in paragraph
(b) above, (i) any Lender may at any time assign or pledge all or any portion
of its rights under this Agreement to a Federal Reserve Bank and (ii) any
Lender which is a "fund" may at any time assign or pledge all or any portion of
its rights under this Agreement to secure such Lender's indebtedness, in each
case without the prior written consent of the Borrower or the Administrative
Agent; provided that each such assignment shall be made in accordance with
applicable law and no such assignment shall release a Lender from any of its
obligations hereunder. In order to facilitate any such assignment, the
Borrower shall, at the request of the assigning Lender, duly execute and
deliver to the assigning Lender a registered promissory note or notes
evidencing the Loans made to the Borrower by the assigning Lender hereunder.
(i) The Borrower shall not assign or delegate any of its
respective rights and duties hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees
to pay all reasonable out-of-pocket expenses incurred by the Administrative
Agent in connection with the preparation of this Agreement and the other Loan
Documents or in connection with any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the transactions hereby
contemplated shall be consummated) or incurred by the Administrative Agent,
Issuing Banks or any Lender in connection with the enforcement or protection of
their rights in connection with this Agreement and the other Loan Documents or
in connection with the Loans made hereunder, including (i) the reasonable fees
and disbursements of Simpson Thacher & Bartlett, counsel for the Administrative
Agent, (ii) in connection with any such amendment, modification or waiver, the
fees and disbursements of any common counsel, and (iii) in connection with any
such enforcement or protection, the fees and disbursements of any counsel for
the Administrative Agent or any Lender. The Borrower further agrees that it
shall indemnify the Administrative Agent, the Issuing Bank and the Lenders from
and hold them harmless against any documentary taxes, assessments or charges
made by any Governmental Authority by reason of the execution and delivery of
this Agreement or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Administrative Agent,
the Issuing Banks, each Lender and their directors, officers, employees and
agents (each such Person being called an "Indemnitee") against, and to hold
each Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including reasonable counsel fees and expenses, incurred
by or asserted against any Indemnitee arising out of, in any way connected
with, or as a result of (i) the execution or delivery of this Agreement or any
other Loan Document or any agreement or instrument contemplated thereby, the
performance by the parties thereto of their respective obligations thereunder
or the consummation of the Transactions and the other transactions contemplated
thereby, (ii) the use of the proceeds of the Loans or (iii) any claim, litiga-
tion, investigation or proceeding relating to any of the foregoing, whether or
not any Indemnitee is a party thereto; provided, however, that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
<PAGE> 67
competent jurisdiction by final and nonappealable judgment to have resulted
from the gross negligence or wilful misconduct of such Indemnitee; provided
further, however, that the Borrower will only be liable for the fees of a
single firm which shall act as common counsel for the Lenders, except in the
case where (i) a Lender reasonably determines based upon the written advice of
legal counsel, a copy of which shall be provided to the Borrower, in its
judgment that having common counsel would present such counsel with a conflict
of interest, (ii) a Lender reasonably concludes that there may be legal
defenses available to it that are different from or in addition to those
available to other Lenders or (iii) defense of any action or proceeding is not
assumed by the Lenders.
(c) The provisions of this Section 9.05 shall remain
operative and in full force and effect regardless of the expiration of the term
of this Agreement, the consummation of the transactions contemplated hereby,
the repayment of any of the Loans, the invalidity or unenforceability of any
term or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Administrative Agent or any Lender.
All amounts due under this Section 9.05 shall be payable on written demand
therefor accompanied by evidence in reasonable detail sufficient to identify
the nature and amount of the expense so incurred.
SECTION 9.06. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement or
any other Loan Document held by such Lender, irrespective of whether or not
such Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have. Each Lender
agrees promptly to notify the Borrower of any such setoff and the application
thereof made by such Lender.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay
of the Administrative Agent, the Issuing Bank or any Lender in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent, the Issuing Bank and the
Lenders hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
<PAGE> 68
(b) Neither this Agreement, any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except pursuant
to an agreement or agreements in writing entered into by the Borrower, each
other affected Loan Party and the Required Lenders (except, in the case of the
Parent Guaranty, as otherwise provided in Section 11 thereof); provided,
however, that no such agreement shall (i) decrease the principal amount of, or
extend the maturity of or any scheduled principal payment date or date for the
payment of any interest on any Loan, or waive or excuse any such payment or any
part thereof, or decrease the rate of interest on any Loan, without the prior
written consent of each Lender affected thereby, (ii) change the Commitment or
decrease the Facility Fee of any Lender without the prior written consent of
such Lender, (iii) amend or modify the provisions of Section 2.17, the provi-
sions of this Section or the definition of the "Required Lenders", without the
prior written consent of each Lender or (iv) release or otherwise limit or
modify the obligations of any Guarantor (except as provided in the Subsidiary
Guaranty or the Affiliate Guaranty) or release any of the collateral securing
the Obligations (except as provided in the Security Agreement) in each case
without the prior written consent of each Lender; provided further that no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent hereunder without the prior written consent of the
Administrative Agent. Each Lender and each holder of a Loan shall be bound by
any waiver, amendment or modification authorized by this Section, and any
consent by any Lender or holder of a Loan pursuant to this Section shall bind
any Person subsequently acquiring a Loan from it.
SECTION 9.09. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the applicable interest rate,
together with all fees and charges which are treated as interest under appli-
cable law (collectively, the "Charges"), as provided for herein or in any other
document executed in connection herewith, or otherwise contracted for, charged,
received, taken or reserved by any Lender, shall exceed the maximum lawful rate
(the "Maximum Rate") which may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable in respect of the Loans held by such Lender, together with all Charges
payable to such Lender, shall be limited to the Maximum Rate.
SECTION 9.10. Entire Agreement. This Agreement and the other
Loan Documents and the letter agreement referred to in Section 2.06 constitute
the entire contract between the parties relative to the subject matter hereof.
Any previous agreement among the parties with respect to the subject matter
hereof is superseded by this Agreement and the other Loan Documents. Nothing
in this Agreement or in the other Loan Documents, expressed or implied, is
intended to confer upon any party other than the parties hereto and thereto any
rights, remedies, obligations or liabilities under or by reason of this
Agreement or the other Loan Documents.
SECTION 9.11. Waiver of Jury Trial. Each party hereto hereby
waives, to the fullest extent permitted by applicable law, any right it may
have to a trial by jury in respect of any litigation directly or indirectly
arising out of, under or in connection with this Agreement or any of the other
Loan Documents. Each party hereto (a) certifies that no representative, agent
or attorney of any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to enforce the
foregoing waiver and (b) acknowledges that it and the other parties hereto have
been induced to enter into this Agreement and the other Loan Documents, as
applicable, by, among other things, the mutual waivers and certifications in
this Section 9.11.
<PAGE> 69
SECTION 9.12. Severability. In the event any one or more of
the provisions contained in this Agreement or in any other Loan Document should
be held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby. The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 9.13. Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall constitute an original but all
of which when taken together shall constitute but one contract, and shall
become effective as provided in Section 9.03.
SECTION 9.14. Headings. The cover page, the Article and
Section headings and the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process.
(a) Each of the parties hereto agrees that a final judgment in any New York
State court or any Federal court of the United States of America sitting in New
York City shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party hereto may have to bring any
action or proceeding relating to this Agreement or the other Loan Documents in
the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or the
other Loan Documents in any New York State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.16. Confidentiality. Unless otherwise agreed to in
writing by the Borrower, the Administrative Agent and each Lender hereby agree
to keep all Proprietary Information (as defined below) confidential and not to
disclose or reveal any Proprietary Information to any Person other than the
Administrative Agent's or such Lender's directors, officers, employees,
Affiliates and agents and to actual or potential assignees and participants,
and then only on a confidential basis; provided, however, that the
Administrative Agent or any Lender may disclose Proprietary Information (a) as
required by law, rule, regulation or judicial process, (b) to its attorneys and
accountants or (c) as requested or required by any state or Federal or foreign
authority or examiner regulating banks or banking. For purposes of this
Agreement, the term "Proprietary Information" shall include all information
about the Borrower or any of its Affiliates which has been furnished by the
<PAGE> 70
Borrower or any of its Affiliates, whether furnished before or after the date
hereof, and regardless of the manner in which it is furnished; provided,
however, that Proprietary Information does not include information which (x) is
or becomes generally available to the public other than as a result of a
disclosure by the Administrative Agent or any Lender not permitted by this
Agreement, (y) was available to the Administrative Agent or any Lender on a
nonconfidential basis prior to its disclosure to the Administrative Agent or
such Lender by the Borrower or any of its Affiliates from a Person who is not
otherwise bound by a confidentiality agreement with the Company or any of its
Affiliates or is not otherwise prohibited from transmitting the information to
the Administrative Agent or such Lender or (z) becomes available to the
Administrative Agent or any Lender on a nonconfidential basis from a Person
other than the Borrower or its Affiliates who is not otherwise bound by a
confidentiality agreement with the Company or any of its Affiliates, or is not
otherwise prohibited from transmitting the information to the Administrative
Agent or such Lender. In addition, the terms of any confidentiality agreement
between any Lender and the Parent or the Borrower will remain in full force and
effect pursuant to the terms thereof.
<PAGE> 71
IN WITNESS WHEREOF, the Borrower the Administrative Agent and
the Lenders have caused this Agreement to be duly executed by their respective
authorized officers as of the day and year first above written.
METRIS COMPANIES INC., as
Borrower
By
Name:
Title:
By
Name:
Title:
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent and an
Issuing Bank
By
Name:
Title:
NATIONSBANK, N.A.,
individually and as Co-Agent
By
Name:
Title:
<PAGE> 72
BANK OF AMERICA ILLINOIS,
individually and as an
Issuing Bank
By
Name:
Title:
THE BANK OF NEW YORK
By
Name:
Title:
THE BANK OF NOVA SCOTIA
By
Name:
Title:
BANK OF TOKYO-MITSUBISHI,
LTD., Chicago Branch
By
Name:
Title:
COMMERZBANK
AKTIENGESELLSCHAFT Grand
Cayman Branch
By
Name:
Title:
By
Name:
Title:
CAISSE NATIONALE DE CREDIT
AGRICOLE
By
Name:
Title:
<PAGE> 73
CREDIT LYONNAIS CHICAGO
BRANCH
By
Name:
Title:
THE DAI-ICHI KANGYO BANK,
LTD.
By
Name:
Title:
DEUTSCHE BANK AG-CHICAGO
BRANCH and/or CAYMAN ISLAND
BRANCH
By
Name:
Title:
By
Name:
Title:
DEUTSCHE GENOSSENSCHAFTSBANK-
CAYMAN ISLAND BRANCH
By
Name:
Title:
By
Name:
Title:
FIRST BANK N.A.,
individually and as an
Issuing Bank
By
Name:
Title:
<PAGE> 74
THE FIRST NATIONAL BANK OF
CHICAGO
By
Name:
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By
Name:
Title:
THE FUJI BANK, LIMITED,
CHICAGO BRANCH
By
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, CHICAGO BRANCH
By
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED, CHICAGO
BRANCH
By
Name:
Title:
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED, NEW YORK
BRANCH
By
Name:
Title:
<PAGE> 75
NORDDEUTSCHE LANDESBANK
GIROZENTRALE-NEW YORK and/or
CAYMAN ISLAND BRANCH
By
Name:
Title:
By
Name:
Title:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION,
individually and as an
Issuing Bank
By
Name:
Title:
THE SAKURA BANK, LIMITED
By
Name:
Title:
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By
Name:
Title:
By
Name:
Title:
THE YASUDA TRUST AND BANKING
CO., LIMITED
By
Name:
Title:
<PAGE> 76
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank, as Administrative Agent for
the Lenders referred to below,
Chase Agency Services
Grand Central Tower
140 East 45th Street, 29th Floor
New York, NY 10017
Attention: Miranda Chin
Telecopy: 212-622-0122
[Date]
Dear Gentlemen and Ladies:
The undersigned, Metris Companies Inc. (the "Borrower"),
refers to the Revolving Credit and Letter of Credit Facility Agreement dated as
of September 16, 1996 (as it may hereafter be amended, modified, extended or
restated from time to time, the "Credit Agreement"), among the Borrower, the
Lenders named therein, The Chase Manhattan Bank, as Administrative Agent for
the Lenders, NationsBank, N.A., as Co-Agent, and certain Issuing Banks.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The Borrower hereby
gives you notice pursuant to Section 2.03(a) of the Credit Agreement that it
requests a Competitive Borrowing under the Credit Agreement, and in that
connection sets forth below the terms on which such Competitive Borrowing is
requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day) ____________________
(B) Principal Amount of
Competitive Borrowing<F1> ____________________
(C) Interest rate basis<F2> ____________________
(D) Interest Period and the last
day thereof<F3> ____________________
<PAGE> 77
Upon acceptance of any or all of the Loans offered by the
Lenders in response to this request, the Borrower shall be deemed to have
represented and warranted that the conditions to lending specified in
Article IV of the Credit Agreement have been satisfied.
Very truly yours,
METRIS COMPANIES INC.
By __________________________
Title: [Responsible
Officer]
<PAGE> 78
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank, as Administrative Agent for
the Lenders referred to below,
Chase Agency Services
Grand Central Tower
140 East 45th Street, 29th Floor
New York, NY 10017
Attention: Miranda Chin
Telecopy: 212-622-0122
[Date]
Dear Gentlemen and Ladies:
Reference is made to the Revolving Credit and Letter of
Facility Agreement dated as of September 16, 1996 (as it may hereafter be
amended, modified, extended or restated from time to time, the "Credit Agree-
ment"), among Metris Companies Inc. (the "Borrower"), the Lenders named
therein, The Chase Manhattan Bank, as Administrative Agent for the Lenders,
NationsBank, N.A., as Co-Agent, and certain Issuing Banks. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned
to such terms in the Credit Agreement. The Borrower made a Competitive Bid
Request on , 19 , pursuant to Section 2.03(a) of the Credit Agree-
ment, and in that connection you are invited to submit a Competitive Bid
by [Date]/[Time] .<F4> Your Competitive Bid must comply with Sec-
tion 2.03(b) of the Credit Agreement and the terms set forth below on which the
Competitive Bid Request was made:
(A) Date of Competitive Borrowing ____________________
(B) Principal amount of
Competitive Borrowing ____________________
(C) Interest rate basis ____________________
<PAGE> 79
(D) Interest Period and the last
day thereof ____________________
Very truly yours,
THE CHASE MANHATTAN BANK, as
Administrative Agent
By ____________________
Title:
<PAGE> 80
EXHIBIT A-3
FORM OF COMPETITIVE BID
The Chase Manhattan Bank, as Administrative Agent for
the Lenders referred to below,
Chase Agency Services
Grand Central Tower
140 East 45th Street, 29th Floor
New York, NY 10017
Attention: Miranda Chin
Telecopy: 212-622-0122
[Date]
Dear Gentlemen and Ladies:
The undersigned, [Name of Lender], refers to the Revolving
Credit and Letter of Credit Facility Agreement dated as of September 16, 1996
(as it may hereafter be amended, modified, extended or restated from time to
time, the "Credit Agreement"), among Metris Companies Inc. (the "Borrower"),
the Lenders named therein, The Chase Manhattan Bank, as Administrative Agent
for the Lenders, NationsBank, N.A., as Co-Agent, and certain Issuing Banks.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The undersigned
hereby makes a Competitive Bid pursuant to Section 2.03(b) of the Credit Agree-
ment, in response to the Competitive Bid Request made by the Borrower on
, 19 , and in that connection sets forth below the terms on which such
Competitive Bid is made:
(A) Principal Amount<F5> ____________________
(B) Competitive Bid Rate<F6> ____________________
(C) Interest Period and last
day thereof ____________________
The undersigned hereby confirms that it is prepared, subject
to the conditions set forth in the Credit Agreement, to extend credit to the
Borrower upon acceptance by the Borrower of this bid in accordance with
Section 2.03(d) of the Credit Agreement.
Very truly yours,
[NAME OF LENDER]
By _________________________
Title:
<PAGE> 81
EXHIBIT A-4
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Chase Manhattan Bank, as Administrative Agent for
the Lenders referred to below,
Chase Agency Services
Grand Central Tower
140 East 45th Street, 29th Floor
New York, NY 10017
Attention: Miranda Chin
Telecopy: 212-622-0122
Dear Gentlemen and Ladies:
The undersigned, Metris Companies Inc., (the "Borrower"),
refers to the Revolving Credit and Letter of Credit Facility Agreement dated as
of September 16, 1996 (as it may hereafter be amended, modified, extended or
restated from time to time, the "Credit Agreement"), among the Borrower, the
Lenders named therein, The Chase Manhattan Bank, as Administrative Agent for
the Lenders, NationsBank, N.A., as Co-Agent, and certain Issuing Banks.
In accordance with Section 2.03(c) of the Credit Agreement, we
have received a summary of bids in connection with our Competitive Bid Request
dated ___________ and in accordance with Section 2.03(d) of the Credit
Agreement, we hereby accept the following bids for maturity on [date]:
Principal Amount Fixed Rate/Margin Lender
$ [%]/[+/-. %]
$
We hereby reject the following bids:
Principal Amount Fixed Rate/Margin Lender
$ [%]/[+/-. %]
$
<PAGE> 82
The $ should be deposited in The Chase Manhattan Bank
account number [ ] on [date].
Very truly yours,
METRIS COMPANIES INC.
By____________________
Name:
Title:
<PAGE> 83
EXHIBIT A-5
FORM OF STANDBY BORROWING REQUEST
The Chase Manhattan Bank, as Administrative Agent for
the Lenders referred to below,
Chase Agency Services
Grand Central Tower
140 East 45th Street, 29th Floor
New York, NY 10017
Attention: Miranda Chin
Telecopy: 212-622-0122
[Date]
Dear Gentlemen and Ladies:
The undersigned, Metris Companies Inc., (the "Borrower"),
refers to the Revolving Credit and Letter of Credit Facility Agreement dated as
of September 16, 1996 (as it may hereafter be amended, modified, extended or
restated from time to time, the "Credit Agreement"), among the Borrower, the
Lenders named therein, The Chase Manhattan Bank, as Administrative Agent for
the Lenders, NationsBank, N.A., as Co-Agent, and certain Issuing Banks.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The Borrower hereby
gives you notice pursuant to Section 2.04 of the Credit Agreement that it
requests a Standby Borrowing under the Credit Agreement, and in that connection
sets forth below the terms on which such Standby Borrowing is requested to be
made:
(A) Date of Standby Borrowing
(which is a Business Day) ____________________
(B) Principal Amount of
Standby Borrowing<F7> ____________________
(C) Interest rate basis<F8> ____________________
(D) Interest Period and the last
day thereof<F9> ____________________
<PAGE> 84
Upon acceptance of any or all of the Loans made by the Lenders
in response to this request, the Borrower shall be deemed to have represented
and warranted that the conditions to lending specified in Article IV of the
Credit Agreement have been satisfied (unless all such Loans are continued or
converted as contemplated by Section 2.05(b)).
Very truly yours,
METRIS COMPANIES INC.
By
Title: [Responsible Officer]
<PAGE> 85
EXHIBIT C
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to Revolving Credit and Letter of Credit
Facility Agreement dated as of September 16, 1996 (as it may hereafter be
amended, modified, extended or restated from time to time, the "Credit
Agreement"), among Metris Companies Inc., a Delaware corporation (the
"Borrower"), the Lenders named therein (the "Lenders") and The Chase Manhattan
Bank, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), NationsBank, N.A., as Co-Agent, and certain Issuing
Banks. Terms defined in the Credit Agreement are used herein with the same
meanings.
1. The Assignor hereby sells and assigns, without recourse,
to the Assignee, and the Assignee hereby purchases and assumes, without
recourse, from the Assignor, effective as of the Effective Date set forth on
the second page hereof, the interests set forth on the third page hereof (the
"Assigned Interest") in the Assignor's rights and obligations under the Credit
Agreement, including, without limitation, the interests set forth on the second
page hereof in the Commitment of the Assignor on the Effective Date and the
Competitive Loans and Standby Loans owing to the Assignor which are outstanding
on the Effective Date, together with unpaid interest accrued on the assigned
Loans to the Effective Date and the amount, if any, set forth on the reverse
hereof of the Fees accrued to the Effective Date for the account of the
Assignor. Each of the Assignor and the Assignee hereby makes and agrees to be
bound by all the representations, warranties and agreements set forth in
Section 9.04(c) of the Credit Agreement, a copy of which has been received by
each such party. From and after the Effective Date (i) the Assignee shall be a
party to and be bound by the provisions of the Credit Agreement and, to the
extent of the interests assigned by this Assignment and Acceptance, have the
rights and obligations of a Lender thereunder and under the Loan Documents and
(ii) the Assignor shall, to the extent of the interests assigned by this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in
Section 2.20(f) of the Credit Agreement, duly completed and executed by such
Assignee and (ii) a processing and recordation fee of $3,500.
3. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
<PAGE> 86
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):
<PAGE> 87
Percentage Assigned of
Commitments (set
forth, to at Least 8
decimals, as a
Commitment Amount percentage of the
Assigned (and aggregate Commitments
identifying information of all Lenders
as to individual Loans) thereunder)
Commitment: $ %
Competitive Advance:
Fees Assigned (if
any):
The terms set forth above and on
the reverse side hereof are hereby
agreed to:
Accepted<F10>
__________________, as Assignor THE CHASE MANHATTAN BANK, as
Administrative Agent
By:_____________________ By:______________________
Name: Name:
Title: Title:
__________________, as Assignee METRIS COMPANIES, INC.
By:_____________________ By:______________________
Name: Name:
Title: Title:
<PAGE> 88
SCHEDULE 6.01
LIENS ON PROPERTY OR ASSETS OF
THE BORROWER AND THE SUBSIDIARIES
1. Lessors under various operating leases of the Borrower and its
Subsidiaries have made and may make in the future notice filings with
respect to the lessor's property that is the subject of such leases.
<PAGE> 89
SCHEDULE 3.14
TAX RETURNS AND PAYMENTS
The Borrower and its Subsidiaries have filed all applicable Federal, State and
material local tax returns and have paid or caused to be paid all associated
taxes due and payable on such returns or on any assessments received by them;
except that because one of the Borrower's Subsidiaries, Direct Merchants Credit
Card Bank, National Association, is a national banking entity (established in
1995) which derives the majority of its income from co-branded Mastercard
credit cards, it may be subject to special financial institution rules in
certain states. Such rules attempt to impute state income tax nexus to a
credit card company if it obtains finance revenue and/or has credit card
receivables generated from customers in that state. Of the states that have
adopted such financial institution rules, Minnesota is the only state where the
Borrower and its Subsidiaries are currently filing income or franchise tax
returns. States which currently have rules pursuant to which they may attempt
to impose income tax nexus based upon such credit card activity include:
Arkansas Minnesota
California New Mexico
Hawaii Tennessee
Indiana West Virginia
Massachusetts
Direct Merchants Credit Card Bank, National Association, has not filed in
states other than Minnesota because it believes the above referenced financial
institution rules to be unconstitutional.
<PAGE> 90
SCHEDULE 3.08
METRIS COMPANIES INC.
SUBSIDIARIES
NAME INCORPORATION 100% Owned By
Direct Merchants Credit Card Bank, National Association Metris Companies Inc.
National Association
DMCCB, Inc. Minnesota Metris Companies Inc.
Metris Direct, Inc. Minnesota Metris Companies Inc.
Metris Receivables, Inc. Delaware Metris Companies Inc.
<PAGE> 91
SCHEDULE 3.09
LITIGATION
There are not any actions, suits or proceedings at law or in equity or by or
before any Governmental Authority pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower or any Subsidiary or any business,
property or rights of any such Person (i) which involve any Loan Document or
the Transactions or (ii) which would be materially likely to result in a
Material Adverse Effect.
2.____________________
3.[FN]
<F1>Not less than $5,000,000 (and in integral multiples of $1,000,000) or
greater than the Total Commitment.
<F2>Eurodollar Competitive Loan or Fixed Rate Competitive Loan.
<F3>Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
<F4>The Competitive Bid must be received by the Administrative Agent (i) in the
case of a Eurodollar Competitive Loan, not later than 10:00 a.m., New York City
time, four Business Days before a proposed Competitive Borrowing, and (ii) in
the case of Fixed Rate Competitive Borrowing, not later than 10:00 a.m., New
York City time, one Business Day before a Competitive Borrowing.
<F5>Not less than $5,000,000 or greater than the requested Competitive
Borrowing and in integral multiples of $1,000,000. Multiple bids will be
accepted by the Administrative Agent.
<F6>I.e., LIBO Rate + or - %, in the case of Eurodollar Loans or %, in
the case of Fixed Rate Loans.
<F7>Not less than $5,000,000 (and in integral multiples of $1,000,000) or
greater than the Total Commitment then available.
<F8>Eurodollar Loan or ABR Loan.
<F9>Which shall be subject to the definition of "Interest Period" and end not
later than the Maturity Date.
<F10>To be completed only if consents are required under Section 9.04(b).
<PAGE> 1
Exhibit 22
Subsidiaries of the Registrant
NAME JURISDICTION OF INCORPORATION
Direct Merchants Credit Card National banking association
Bank, National Association
(d/b/a Direct Merchants Bank)
Metris Direct, Inc. Minnesota
(d/b/a Metris Direct)
Metris Receivables, Inc. Delaware
DMCCB, Inc. Minnesota
<PAGE> 1
Exhibit 23
KPMG Peat Marwick LLP
4200 Norwest Centre
90 South Seventh Street
Minneapolis, MN 55402
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Metris Companies Inc.:
We consent to the use of our report included herein and to
the reference to our firm under the heading "Experts" in the
prospectus.
Minneapolis, Minnesota
October 7, 1996