UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended 001-12351
September 30, 1997 Commission File Number
___________________________
METRIS COMPANIES INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1849591
(State of Incorporation) (I.R.S. Employer Identification No.)
600 South Highway 169, Suite 1800, St. Louis Park, Minnesota 55426
(Address of principal executive offices)
(612) 525-5020
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
As of October 31, 1997, 19,225,000 shares of the Registrant's Common
Stock, par value $.01 per share, were outstanding.
The purpose of this Amendment No. 1 to Form 10-Q, filed by Metris Companies
Inc. on November 18, 1997, is to amend the Consolidated Statements of Cash
Flows for the Nine Months Ended September 30, 1997, to amend the "Other
payables due to credit card securitizations, net", which should read
$71,928 versus $71,298 as reported in the original filing.
METRIS COMPANIES INC.
FORM 10-Q
TABLE OF CONTENTS
September 30, 1997
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets.................... 3
Consolidated Statements of Income.............. 4
Consolidated Statements of Cash Flows.......... 5
Notes to Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................27
Signatures.........................................28
Item 1.
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands, except per share data) (unaudited)
September 30, December 31,
1997 1996
Assets
Cash and due from banks $ 11,095 $ 8,902
Federal funds sold 38,286 19,001
Short-term investments 84 4,179
Cash and cash equivalents 49,465 32,082
Credit card loans:
Loans held for securitization 14,696 14,164
Retained interests in loans securitized 344,821 201,165
Less: Allowance for loan losses 23,847 12,829
Net credit card loans 335,670 202,500
Premises and equipment, net 10,678 5,163
Accrued interest and fees receivable 3,745 2,942
Prepaid expenses and deferred charges 15,426 4,826
Deferred income taxes 62,797 31,528
Customer base intangible 39,831 888
Other assets 8,053 6,687
Total assets $ 525,665 $ 286,616
Liabilities
Interest-bearing deposit from affiliate $ $ 1,000
Short-term borrowings 153,000 54,163
Accounts payable 27,067 15,583
Other payables due to credit card
securitizations, net 107,102 36,619
Current income taxes payable to FCI 7,180 1,460
Deferred income 46,930 23,183
Accrued expenses and other liabilities 18,220 15,890
Total liabilities 359,499 147,898
Stockholders' Equity
Preferred stock, par value $.01 per share;
10,000,000 shares authorized, none issued
or outstanding
Common stock, par value $.01; 100,000,000 shares
authorized, 19,225,000 shares issued and
outstanding 192 192
Paid-in capital 107,059 107,220
Retained earnings 58,915 31,306
Total stockholders' equity 166,166 138,718
Total liabilities and stockholders' equity $ 525,665 $ 286,616
See accompanying Notes to Consolidated Financial Statements.
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Interest Income
Credit card loans $ 16,490 $ 7,464 $42,645 $ 19,583
Federal funds sold 515 208 1,270 644
Other 210 56 568 120
Total interest income 17,215 7,728 44,483 20,347
Interest Expense
Deposit 12 7 36
Short-term borrowings 2,398 953 5,923 2,787
Total interest expense 2,398 965 5,930 2,823
Net Interest Income 14,817 6,763 38,553 17,524
Provision for loan losses 11,106 5,383 28,589 10,556
Net interest income after
provision for loan losses 3,711 1,380 9,964 6,968
Other Operating Income
Net extended service plan revenues 1,628 5,174 3,249 13,789
Net securitization and credit card
servicing income 14,706 13,190 59,533 33,726
Credit card fees, interchange
and other credit card income 10,488 5,184 28,324 17,262
Fee-based product revenues 14,457 8,482 39,082 20,549
41,279 32,030 130,188 85,326
Other Operating Expense
Credit card account and other
product solicitation and marketing 5,942 4,438 22,419 20,898
expenses
Employee compensation 8,318 6,362 24,455 14,885
Data processing services and
communications 3,628 3,435 12,893 8,632
Third-party servicing expenses 2,233 2,087 7,972 6,700
Warranty and debt waiver
underwriting and claims 1,689 2,781 4,077 6,842
servicing expenses
Credit card fraud losses 1,121 657 2,700 1,723
Other 4,925 4,216 20,117 8,718
27,856 23,976 94,633 68,398
Income Before Income Taxes 17,134 9,434 45,519 23,896
Income taxes 6,597 3,632 17,525 9,200
Net Income $ 10,537 $ 5,802 $27,994 $ 14,696
Earnings per share:
Primary $ .52 $ .35 $ 1.38 $ .89
Fully diluted $ .52 $ .35 $ 1.38 $ .89
Weighted average common and common
equivalent shares - fully diluted 20,308 16,514 20,323 16,514
See accompanying Notes to Consolidated Financial Statements.
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(dollars in thousands) (unaudited)
Nine Months Ended
September 30,
1997 1996
Operating Activities:
Net Income $ 27,994 $ 14,696
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 28,589 10,556
Depreciation and amortization 8,572 5,260
Net amortization of gain on securitization
of credit card loans (1,927) 2,803
Changes in operating assets and liabilities:
Accrued interest and fees receivable (803) 523
Prepaid expenses and deferred charges (15,966) (3,686)
Deferred income taxes (31,269) (14,886)
Accounts payable and accrued expenses 13,813 1,615
Other payables due to credit card
securitizations, net 71,928 53,967
Current income taxes payable to FCI 5,720 (2,887)
Deferred income 23,747 4,970
Other (5,647) (2,531)
Net cash provided by operating activities $ 124,751 $ 70,400
Investing Activities:
Proceeds from sales of loans 923,750 674,055
Net loans originated or collected (755,512) (738,764)
Credit card portfolio acquisition (366,587)
Additions to premise and equipment (6,470) (2,669)
Net cash used in investing activities $ (204,819) $ (67,378)
Financing Activities:
Decrease in interest-bearing deposit (1,000)
Net increase (decrease) in short-term borrowings 98,836 (10,097)
Cash dividends paid (385)
Net cash provided by (used in) financing $ 97,451 $ (10,097)
activities
Net increase (decrease) in cash and cash 17,383 (7,075)
equivalents
Cash and cash equivalents at beginning of period 32,082 34,743
Cash and cash equivalents at end of period $ 49,465 $ 27,668
See accompanying Notes to Consolidated Financial Statements.
METRIS COMPANIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Metris
Companies Inc. ("MCI") and its subsidiaries (collectively, "the Company").
The Company is an information-based direct marketer of consumer credit
products, fee-based products and services, and extended service plans to
moderate-income consumers. The Company's business is conducted through Metris
Direct, Inc., Direct Merchants Credit Card Bank, National Association ("Direct
Merchants Bank"), Metris Funding Co. ("MFC") and Metris Receivables, Inc.
("MRI"), each a wholly-owned subsidiary of MCI.
Prior to September 1996, the Company operated as a division of Fingerhut
Companies, Inc. ("FCI"). During September 1996, FCI reorganized the business
through the formation of MCI. The stock of Metris Direct, Inc., Direct
Merchants Bank, and MRI, in addition to the assets, liabilities and equity of
certain portions of the retail extended service plan business, were
contributed to the Company from FCI and its subsidiaries. In October 1996,
the Company completed an initial public offering of its common stock.
The consolidated financial statements include an allocation of expenses
for data processing and information systems, audit, accounting, 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 that, 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 consolidated financial statements also
reflect the retroactive effects of intercompany agreements entered into during
1996, including co-brand credit card, database access, data sharing and
extended service plan agreements with Fingerhut Corporation ("Fingerhut"), a
wholly owned subsidiary of FCI, and a tax sharing agreement with FCI. These
agreements have terms ranging up to seven years. In addition, the
consolidated financial statements include an allocation of interest expense
for the Company's net borrowings from FCI during 1996.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Interim Financial Statements
The unaudited interim consolidated financial statements and related
unaudited 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 consolidated financial position of the
Company, and the results of its operations and its cash flows for the interim
periods. These consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto contained in
the Company's 1996 annual report to shareholders and incorporated by reference
in the Company's annual report on Form 10-K. The nature of 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.
Pervasiveness of Estimates
The consolidated 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 consolidated 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
Consolidated Statements of Cash Flow
Cash paid for interest during the nine months ended September 30, 1997
and 1996, was $5.8 million and $2.8 million, respectively. Cash paid for
income taxes for the same periods was $43.1 million and $31.0 million,
respectively.
Earnings Per Share
Earnings per share is computed using net income applicable to common
stock and the weighted average number of common and common equivalent shares
outstanding, after giving retroactive effect to the shares outstanding as if
the Company's reorganization (See Note 1) had occurred at the beginning of the
first period shown. The common equivalent shares outstanding were calculated
using the treasury stock method, using the initial public offering price for
the period prior to the initial public offering. In addition, common
equivalent shares outstanding were calculated assuming that certain options
were converted into shares of the Company's common stock at the beginning of
the first period shown.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per
Share." This Statement is effective for financial statements issued for
periods ending after December 15, 1997 and supersedes APB Opinion No. 15,
"Earnings Per Share." The Statement replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement and requires companies to
restate prior-period EPS for all periods in which an income statement is
presented. Under FAS 128, basic and diluted earnings per share for the three
and nine months ended September 30 were:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
Income available to
common stockholders $ 10,537 $ 5,802 $ 27,994 $ 14,696
Weighted average common
shares outstanding 19,225 15,967 19,225 15,967
Adjustments for dilutive
securities:
Assumed exercise of
outstanding stock 1,074 541 999 519
options
Diluted common shares 20,299 16,508 20,224 16,486
Earnings per share:
Basic $ 0.55 $ 0.36 $ 1.46 $ 0.92
Diluted $ 0.52 $ 0.35 $ 1.38 $ 0.89
Extended Service Plans
The Company coordinates the marketing activities for Fingerhut's sales of
extended service plans and reimburses Fingerhut for the cost of its marketing
media and other services utilized in the sales of extended service plans,
based on contracts sold and on media utilization costs as agreed to by the
Company and Fingerhut.
The Company began performing administrative services on January 1, 1997,
and retained the claims risk for all extended service plans sold on or after
January 1, 1997. As a result, extended service plan revenues and the related
expenses have been deferred and will be recognized over the life of the
related extended service plan contracts. Prior to January 1, 1997 the Company
contracted with a third-party underwriter and claims administrator to service
and absorb the risk of loss for most claims. These claims servicing contract
costs were expensed as the service contracts were sold, net of the related
cost of anticipated service contract returns. In addition, the revenues
related to these contract sales were recognized immediately.
Customer Base Intangible
The customer base intangible represents the excess of amounts paid for
portfolio acquisitions over the related credit card loan balances net of
reserves and discounts. The intangible assets are amortized over the
estimated periods of benefit, generally 5 to 7 years, in proportion to the
expected benefits to be recognized.
Interest Rate Risk Management Contracts
The Company enters into interest rate cap and swap agreements to hedge
its economic exposure to fluctuating interest rates associated with both the
floating rate and fixed rate certificates issued by the Metris Master Trust.
If a derivative financial instrument or the instrument it is hedging is sold
or terminated, the Company will recognize a gain or loss resulting from the
transaction in the period the derivative is sold or terminated. The Company
has not sold or terminated any derivative financial instruments.
NOTE 3 - CREDIT CARD SECURITIZATIONS
The Company securitizes and sells a portion of its credit card loans to
both public and private investors through the Metris Master Trust (the
"Trust")and a third party multi-seller conduit (the "Conduit"). The Company
retains participating interests in the credit card loans (under "Retained
interests in loans securitized" on the consolidated balance sheets. 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 and the associated loans are not reflected on
the consolidated balance sheets. The Company has receivables from and
payables to the Trust and Conduit as a result of securitizations, including
amounts deposited in an investor reserve account held by the trustee for the
benefit of the Trust's certificateholders, the excess servicing asset, which
represents the net gain recorded at any point in time for loans sold under the
asset securitizations, net of recourse reserves for securitized loans and
normal and excess servicing fee receivables.
In May 1997, the Metris Master Trust issued Series 1997-1 certificates to
third parties with a principal amount of $794.8 million, generating proceeds
of $792.2 million of which $667.7 million was used to reduce the Class A
Variable Funding Certificates issued under Series 1995-1. The Series 1997-1
certificates are scheduled to begin accumulating principal collections in
March 2001, however the accumulation period could potentially begin at a later
date. The expected final payment date of these certificates is in April 2002.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(in thousands)
Balance at beginning of $ 18,191 $ 5,303 $ 12,829 $ 3,679
period
Allowance related to assets
acquired, net 2,009 2,815
Provision for loan losses 11,106 5,383 28,589 10,556
Loans charged-off 7,629 2,188 20,834 5,816
Recoveries 170 42 448 121
Net loans charged-off 7,459 2,146 20,386 5,695
Balance at end of period $ 23,847 $ 8,540 $23,847 $ 8,540
NOTE 5 - SHORT TERM BORROWINGS
The Company borrows under a $300 million, five-year Revolving Credit
Facility for the Company (the "Revolving Credit Facility"), guaranteed by FCI
to fund on-balance sheet loans and for other general business purposes. At
September 30, 1997 and December 31, 1996, the Company had outstanding
borrowings of $153 million and $50 million, respectively, under the Revolving
Credit Facility. The interest rates on the Revolving Credit Facility
borrowings at September 30, 1997 and December 31, 1996 were 8.5% and 5.9%,
respectively. The Company had outstanding borrowings from FCI of $4.2 million
at a weighted average interest rate of 7.1% at December 31, 1996.
NOTE 6 - PORTFOLIO ACQUISITIONS
In September 1997, the Company acquired a $317 million credit card
portfolio from Key Bank USA, National Association. These credit card
receivables were securitized and sold to investors through a third party multi-
seller conduit. The Company retains an interest in the receivables which is
financed by borrowings under the Revolving Credit Facility.
In October 1997, the Company acquired a $405 million credit card
portfolio from Mercantile Bank National Association. This portfolio was also
securitized and sold through the same third party multi-seller conduit. The
Company retains an interest in the receivables which is financed by borrowings
under the Revolving Credit Facility.
NOTE 7 - SUBSEQUENT EVENTS
On October 29, 1997, the Company declared a cash dividend in the amount
of $.01 per share, aggregating approximately $.2 million, payable on November
26, 1997, to shareholders of record as of the close of business on November
12, 1997.
On November 7, 1997, the Company privately issued and sold $100 million
of its 10% Senior Notes due 2004 pursuant to an exemption under the Securities
Act of 1933, as amended. The net proceeds of $97 million were used to pay
down borrowings under the Revolving Credit Facility.
ITEM 2.
METRIS COMPANIES INC. AND SUBSIDIARIES
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. and its subsidiaries (the "Company").
This discussion should be read in conjunction with the consolidated financial
statements and the related notes thereto.
General
The Company is an information-based direct marketer and provider of
consumer credit products, fee-based products and services and extended service
plans to moderate-income consumers.
Consumer Credit Products
The Company's consumer credit products are primarily unsecured credit
cards, including the Fingerhut co-branded MasterCard(R), the Bally Total
Fitness co-branded MasterCard, and the Direct Merchants Bank MasterCard and
Visa(R). 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, overlimit, 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.
Fee-Based Products and Services
The Company markets its fee-based products and services, including debt
waiver programs, card registration, third party insurance, and third party
membership clubs, to its credit card customers, third party partners and
Fingerhut Corporation ("Fingerhut") customers. Profitability for fee-based
products and services is affected by the response rates to product
solicitation efforts, the targeted solicitation plans, the commission rates
received from or paid to the Company's product partners, claims rates and
claims servicing costs for certain programs, and other operating expenses.
Extended Service Plans
The Company 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 affected 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.
Results of Operations
Net income for the three months ended September 30, 1997, was $10.5
million, or $.52 per share, up 82% from $5.8 million, or $.35 per share for
the third quarter of 1996. The increase in net income is the result of an
increase in net interest income and other operating income partially offset by
increases in the provision for loan losses and other operating expenses.
These increases are largely attributable to the growth in average managed
loans to $2.3 billion for the third quarter 1997 from $1.2 billion for the
third quarter 1996, an increase of 92%.
Net income for the nine months ended September 30, 1997, was $28.0
million, or $1.38 per share, up 90% from $14.7 million, or $.89 per share for
the first nine months of 1996. The increase in net income is the result of an
increase in net interest income and other operating income partially offset by
increases in the provision for loan losses and other operating expenses.
These increases are largely attributable to the growth in average managed
loans to $2.0 billion for the nine months ended September 30, 1997 from $890
million for the same period in 1996, an increase of 122%.
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 funding for the Company. The effect of securitization on the
Company's consolidated financial statements is to remove credit card loans
sold with limited recourse from the consolidated balance sheet and record a
gain on sale for the difference between the carrying value of the loans sold
and the sales proceeds.
The securitization and sale of credit card loans changes the Company's
interest in such loans from lender to servicer, with a corresponding change in
how revenues and expenses are reported in the income statement. For
securitized and sold credit card loans, amounts that otherwise would have been
recorded as net interest income, fee income and provision for loan losses are
instead reported in other operating income as net securitization and credit
card servicing income.
During the first quarter of 1997, the Company implemented Statement of
Financial Accounting Standards No. 125 ("FAS 125") "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities". FAS
125 did not have a material effect on the Company's consolidated financial
statements.
Managed Loan Portfolio
The Company analyzes its financial performance on a managed loan
portfolio basis. To do so, the income statement and balance sheet are adjusted
to reverse the effects of securitization. The Company's discussion of
revenues, where applicable, and provision for loan losses includes comparisons
to amounts reported in the Company's consolidated 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' interests in securitized credit card loans. The investors'
interests in securitized credit card loans is not an asset of the Company,
and, therefore, is not shown on the Company's consolidated balance sheets. The
following tables summarize the Company's managed loan portfolio:
September 30,
1997 1996
Dollars in thousands
Period-end balances
Credit card loans:
Loans held for securitization $ 14,696 $ 4,193
Retained interests in loans securitized 344,821 149,884
Investors' interests in securitized loans 2,324,360 1,122,610
Total managed loan portfolio $2,683,877 $ 1,276,687
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
Dollars in thousands 1997 1996 1997 1996
Average balances
Credit card loans:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans held for securitization $ 92,206 $ 17,613 $ 78,282 $ 28,137
Retained interests in loans
securitized 248,676 132,092 227,935 105,276
Investors' interests in securitized
loans 1,934,034 1,034,907 1,673,740 756,654
Total managed loan portfolio $ 2,274,916 $1,184,612 $1,979,957 $890,067
</TABLE>
Impact of Credit Card Securitizations. The following table provides 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, as well
as selected financial information on both an owned and a managed loan
portfolio basis:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Dollars in thousands
Statements of Income (owned
basis)
Net interest income $ 14,817 $ 6,763 $ 38,553 $17,524
Provision for loan losses 11,106 5,383 28,589 10,556
Other operating income 41,279 32,030 130,188 85,326
Other operating expense 27,856 23,976 94,633 68,398
Income before income taxes $ 17,134 $ 9,434 $ 45,519 $ 23,896
Adjustments for Securitizations
Net interest income $ 63,989 $ 36,826 $166,285 $ 78,416
Provision for loan losses 76,891 37,957 182,330 75,258
Other operating income 12,902 1,131 16,045 (3,158)
Other operating expense
Income before income taxes $ $ $ $
Statements of Income (managed
basis)
Net interest income $ 78,806 $ 43,589 $ 204,838 $ 95,940
Provision for loan losses 87,997 43,340 210,919 85,814
Other operating income 54,181 33,161 146,233 82,168
Other operating expense 27,856 23,976 94,633 68,398
Income before income taxes $ 17,134 $ 9,434 $ 45,519 $ 23,896
Other Data:
Owned Basis
Average interest-earning assets $ 394,395 $ 169,817 $ 352,068 $152,760
Return on average assets 8.6% 11.5% 8.9% 10.3%
Return on average equity 25.8% 27.1% 24.5% 25.0%
Net interest margin (1) 14.9% 15.8% 14.6% 15.3%
Managed Basis
Average interest-earning assets $2,328,429 $1,204,723 $2,025,808 $909,414
Return on average assets 1.8% 1.9% 1.8% 2.1%
Return on average equity 25.8% 27.1% 24.5% 25.0%
Net interest margin (1) 13.4% 14.4% 13.5% 14.1%
(1) Net interest margin is equal to annualized net interest income divided by
average interest-earning assets.
Net Interest Income
Net interest income consists primarily of interest earned on the Company's
credit card loans less interest expense on borrowings to fund the loans.
Managed net interest income for the three months ended September 30, 1997, was
$78.8 million compared to $43.6 million for the same period in 1996. This
increase was primarily due to a $1.1 billion increase in average loans over
the comparable period in 1996.
Managed net interest income was $204.8 million for the nine months ended
September 30, 1997, compared to $95.9 million for the same period in 1996.
This increase was primarily due to a $1.1 billion increase in average loans
over the comparable period in 1996.
The following tables provide an analysis of interest income and expense,
net interest spread, net interest margin and average balance sheet data for
the three and nine month periods ended September 30, 1997 and 1996:
Analysis of Average Balances, Interest and Average Yields and Rates
<TABLE>
Three Months Ended September 30,
1997 1996
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
Dollars in thousands
Owned Basis
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 37,191 $ 515 5.5% $ 15,720 $ 208 5.3%
Short-term investments 16,322 210 5.1% 4,392 56 5.1%
Credit card loans 340,882 16,490 19.2% 149,705 7,464 19.8%
Total interest-earning
assets $ 394,395 $ 17,215 17.3% $ 169,817 $ 7,728 18.1%
Cash and due from banks 16,255 8,632
Accrued interest and fees 4,126 1,905
Other amounts due from
securitizations 580
Other assets 97,185 27,047
Allowance for loan losses (23,656) (7,478)
Total assets $ 488,305 $ 200,503
Liabilities and Equity:
Interest-bearing
liabilities:
Interest-bearing deposit $ $ $ 1,000 $ 12 4.8%
Short-term borrowings 125,087 2,398 7.6% 53,175 953 7.1%
Total 125,087 2,398 7.6% 54,175 965 7.1%
Other liabilities 200,934 61,242
Total liabilities 326,021 115,417
Stockholders' equity 162,284 85,086
Total liabilities and
equity $ 488,305 $ 200,503
Net interest income and
interest margin (1) $ 14,817 14.9% $ 6,763 15.8%
Net interest rate
spread (2) 9.7% 11.0%
Managed Basis
Credit card loans $2,274,916 $110,039 19.2% $1,184,612 $58,986 19.8%
Total interest-earning
assets 2,328,429 110,764 18.9% 1,204,724 59,250 19.6%
Total interest-bearing
liabilities 2,059,121 31,958 6.2% 1,092,240 15,661 5.7%
Net interest income and
interest margin (1) 78,806 13.4% 43,589 14.4%
Net interest rate
spread (2) 12.7% 13.9%
</TABLE>
(1) Net interest margin is computed by dividing annualized net interest
income by average total interest-earning assets.
(2) The net interest rate spread is the annualized yield on average interest-
earning assets minus the funding rate on average interest-bearing liabilities.
<TABLE>
Nine Months Ended September 30,
1997 1996
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
Dollars in thousands
Owned Basis
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 31,287 $ 1,270 5.4% $ 16,178 $ 644 5.3%
Short-term investments 14,564 568 5.2% 3,169 120 5.1%
Credit card loans 306,217 42,645 18.6% 133,413 19,583 19.6%
Total interest-earning
assets $ 352,068 $44,483 16.9% $ 152,760 $ 20,347 17.8%
Cash and due from banks 12,750 5,009
Accrued interest and fees 3,720 2,285
Other amounts due from
securitizations 11,187
Other assets 74,399 24,408
Allowance for loan losses (20,636) (5,878)
Total assets $ 422,301 $ 189,771
Liabilities and Equity:
Interest-bearing
liabilities:
Interest-bearing deposit $ 222 $ 7 4.4% $ 1,000 $ 36 4.8%
Short-term borrowings 110,268 5,923 7.2% 60,052 2,787 6.2%
Total 110,490 5,930 7.2% 61,052 2,823 6.2%
Other liabilities 159,063 50,198
Total liabilities 269,553 111,250
Stockholders' equity 152,748 78,521
Total liabilities and
equity $ 422,301 $ 189,771
Net interest income and
interest margin (1) $ 38,553 14.6% $ 17,524 15.3%
Net interest rate
spread (2) 9.7% 11.6%
Managed Basis
Credit card loans $1,979,957 $284,138 19.2% $ 890,067 $130,579 19.6%
Total interest-earning
assets 2,025,808 285,976 18.9% 909,414 131,343 19.3%
Total interest-bearing
liabilities 1,784,230 81,137 6.1% 818,759 35,403 5.8%
Net interest income and
interest margin (1) 204,839 13.5% 95,940 14.1%
Net interest rate
spread (2) 12.8% 13.5%
</TABLE>
(1) Net interest margin is computed by dividing annualized net interest
income by average total interest-earning assets.
(2) The net interest rate spread is the annualized yield on average interest-
earning assets minus the funding rate on average interest-bearing liabilities.
Other Operating Income
Other operating income contributes substantially to the Company's results
of operations, representing 71% and 75% of owned revenues for the three and
nine months ended September 30, 1997, respectively. Fee-based product
revenues, particularly from debt waiver products, continue to provide an
increasing percentage of other operating income. Debt waiver products and
other fee-based product revenues are expected to increase with growth in
credit card accounts and as the Company continues to offer other fee-based
products to its customer base and to customers of other third-party credit
card issuers. The following table presents other operating income on an owned
basis:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Dollars in thousands
Other Operating Income:
<S> <C> <C> <C> <C>
Net extended service plan revenues $ 1,628 $ 5,174 $ 3,249 $ 13,789
Net securitization and credit card
servicing income 14,706 13,190 59,533 33,726
Credit card fees, interchange and
other credit card income 10,488 5,184 28,324 17,262
Fee-based product revenues 14,457 8,482 39,082 20,549
Total $41,279 $ 32,030 $130,188 $ 85,326
</TABLE>
The following definitions may be helpful when reading the discussion
and analysis of other operating income:
Net extended service plan revenues - Net extended service plan revenues
include revenues received from sales of extended service plans, net of a
provision for service plan returns. The Company began performing
administrative services on January 1, 1997, and retained the claims risk for
all extended service plans sold on or after January 1, 1997. As a result,
extended service plan revenues are deferred and recognized over the life of
the related extended service plan contracts. Prior to January 1, 1997 the
Company contracted with a third-party underwriter and claims administrator to
service and absorb the risk of loss for most claims and the revenues related
to these contract sales were recognized immediately.
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, fee 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 expenses, including interest payments,
provision for loan losses, servicing costs and transaction expenses related to
securitized 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 generated from total accounts, which
represents fees payable by merchants to the credit card issuer for sales
transactions. This amount presently represents approximately 1.4% of all net
credit card purchases.
Fee-based product revenues - Fee-based product revenues presently include
revenues from sales of debt waiver protection for unemployment, disability,
and death, card registration, third party insurance, and revenues from
targeted list programs.
Other operating income increased $9.2 million and $44.9 million for the
three and nine months ended September 30, 1997, respectively, over the
comparable periods in 1996, primarily due to income generated from the growth
in average securitized credit card loans. Additionally, fee-based product
revenues increased by $6.0 million and $18.5 million, respectively, because of
the Company's marketing efforts to cross-sell other products and services to
its customers. Specifically, debt waiver product revenue increased by $4.9
million and $16.5 million, respectively, due to increased receivables on
accounts with debt waiver protection and the addition of new credit card
customers with debt waiver protection. The Company added 273,000 and 587,000
new credit card accounts in the three and nine month periods ended September
30, 1997, respectively. In addition, interchange revenue increased over the
prior-year periods due to credit card charge volume increasing to $611 million
and $1.7 billion for the three and nine months ended September 30, 1997,
compared to $403 million and $1.2 billion for the same periods in 1996,
respectively.
Net extended service plan revenues decreased by $3.5 million and $10.5
million, respectively, for the three and nine months ended September 30, 1997
compared to the same periods of 1996. These decreases reflect that on January
1, 1997, the Company assumed responsibility for claims processing and
underwriting on contracts sold on or after that date. As a result, all
extended service plan revenues and the related expenses have been deferred and
will be recognized over the life of the related extended service plan
contracts. The extended service plan revenues before accounting deferrals for
the third quarter 1997 were down 4% compared to the third quarter of 1996 due
to an 11% decrease in contracts sold.
Other Operating Expense
Total other operating expenses for the three and nine months ended
September 30, 1997, increased $3.9 million and $26.2 million, respectively,
over the comparable periods in 1996, primarily due to increases in employee
compensation, data processing services and communications, and other expenses.
Employee compensation increased due to staffing needs to support the increase
in credit card accounts, fee based products sold and internalization of
warranty operations. The increase in data processing services and
communications expense was largely due to the increased number of credit card
accounts, transaction volumes and loan balances. The increase in other
expenses is primarily due to general growth in all three business lines and
the costs associated with building an infrastructure to support the growth.
The following table presents other operating expense:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
Dollars in thousands 1997 1996 1997 1996
Other Operating Expense:
Credit card account and other product
<S> <C> <S> <C> <C> <C> <C>
solicitation and marketing expenses $ 5,942 $ 4,438 $ 22,419 $ 20,898
Employee compensation 8,318 6,362 24,455 14,885
Data processing services and
communications 3,628 3,435 12,893 8,632
Third party servicing expenses 2,233 2,087 7,972 6,700
Warranty and debt waiver underwriting
and claims servicing expenses 1,689 2,781 4,077 6,842
Credit card fraud losses 1,121 657 2,700 1,723
Other 4,925 4,216 20,117 8,718
Total $27,856 $ 23,976 $ 94,633 $ 68,398
</TABLE>
Total other operating expenses include direct and allocated expenses from
Fingerhut Companies, Inc. ("FCI") for administrative services provided to the
Company under the Administrative Services Agreement. Additionally, total
other operating expenses reflect the retroactive effects of additional
intercompany agreements and contracts between the Company and FCI or its
subsidiaries (See Note 1 to the Consolidated Financial Statements).
Income Taxes
The Company's provision for income taxes includes both federal and state
income taxes. The Company's effective tax rate was 38.5% for the three and
nine months ended September 30, 1997 and 1996, respectively.
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 effects 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 continues to focus
its resources on refining its credit underwriting standards for new accounts,
and on collections and post charge-off recovery efforts to minimize net
losses. At September 30, 1997, 43.3% of managed accounts and 34.5% of managed
loans were less than 12 months old, excluding the KeyCorp acquisition.
Accordingly, the Company believes that its loan portfolio will experience
increasing or fluctuating levels of delinquency and loan losses as the average
age of the Company's accounts increases.
This trend is reflected in the change in the Company's net charge-off
ratio. For the quarter ended September 30, 1997, the Company's net charge-off
ratio stood at an annualized rate of 8.7%, compared to 9.0% for the quarter
ended June 30, 1997 and 5.7% for the quarter ended September 30, 1996. For the
nine months ended September 30, 1997, the Company's net charge-off ratio stood
at an annualized rate of 8.7% compared to 5.6% for the nine months ended
September 30, 1996. Although the net charge-off ratio declined from the prior
quarter, 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 year.
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 rates 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 accounts.
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:
Managed Loan Delinquency
September 30, % of September 30, % of
1997 Total 1996 Total
Dollars in thousands
Managed loan portfolio $2,683,877 100% $1,276,687 100%
Loans delinquent
30 to 59 days 59,334 2.2% 26,800 2.1%
60 to 89 days 38,419 1.5% 15,782 1.3%
90 or more days 72,807 2.7% 23,195 1.8%
Total $ 170,560 6.4% $ 65,777 5.2%
The above numbers reflect continued seasoning of the Company's managed
loan portfolio. The Company continues to focus its resources on its collection
efforts to minimize the negative impact to net loan losses that results from
increased delinquency levels. In addition, the acquisition of KeyCorp credit
card loans reduced the September 30, 1997 delinquency rate by 0.5%.
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. The following table presents the Company's net
charge-offs for the periods indicated as reported in the consolidated
financial statements and on a managed portfolio basis:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Dollars in thousands
On-balance sheet portfolio:
Average loans outstanding $ 340,882 $ 149,705 $ 306,217 $ 133,413
Net charge-offs 7,459 2,146 20,386 5,695
Net charge-offs as a
percentage of loans
outstanding (1) 8.7% 5.7% 8.9% 5.7%
Managed loan portfolio:
Average loans outstanding $2,274,916 $1,184,612 $1,979,957 $ 891,067
Net charge-offs 49,751 17,010 129,323 37,398
Net charge-offs as a
percentage of loans
outstanding (1) 8.7% 5.7% 8.7 5.6%
(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 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, inherent in the
existing on-balance sheet loan portfolio.
The provision for loan losses on an owned basis for the three and nine
months ended September 30, 1997, totaled $11.1 million and $28.6 million,
respectively. This compares to provisions of $5.4 million and $10.6 million
for the three and nine months ended September 30, 1996, 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 increases for the three and
nine month periods ended September 30, 1997, as compared to the three and nine
month periods ended September 30, 1996, are primarily reflective of the
overall maturation of the portfolio, the increase in on-balance sheet loans
outstanding and the timing of credit card securitizations. 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:
<TABLE>
Analysis of Allowance for Loan Losses
Three Months Ended Nine Months Ended
September 30, September 30,
Dollars in thousands 1997 1996 1997 1996
(Owned basis)
<S> <C> <C> <C> <C>
Balance at beginning of $ 18,191 $ 5,303 $ 12,829 $ 3,679
period
Allowance related to assets
acquired, net 2,009 2,815
Provision for loan losses 11,106 5,383 28,589 10,556
Loans charged-off 7,629 2,188 20,834 5,816
Recoveries 170 42 448 121
Net loans charged-off 7,459 2,146 20,386 5,695
Balance at end of period $ 23,847 $ 8,540 $ 23,847 $ 8,540
Ending allowance as a percent
of loans 6.6% 5.5% 6.6% 5.5%
Three Months Ended Nine Months Ended
September 30, September 30,
Dollars in thousands 1997 1996 1997 1996
(Managed basis)
Balance at beginning of $139,825 $ 44,305 $ 95,669 $ 22,219
period
Allowance related to assets
acquired, net 12,555 13,361
Provision for loan losses 87,997 43,340 210,919 85,814
Loans charged-off 50,880 17,336 132,160 38,150
Recoveries 1,129 326 2,837 752
Net loans charged-off 49,751 17,010 1 29,323 37,398
Balance at end of period $190,626 $ 70,635 $ 190,626 $70,635
Ending allowance as a percent
of loans 7.1% 5.5% 7.1% 5.5%
</TABLE>
Derivatives Activities
The Company uses derivative financial instruments for the purpose of
managing its exposure to interest rate risks and has 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
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 the Company'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 Metris
Master Trust. In connection with the issuance of the $512.6 million Metris
Master Trust Series 1995-1 variable funding certificates in May 1995, the
Company entered into an eight-year agreement capping the certificates'
interest rate at 11.2%. Also, in connection with the issuance of additional
Series 1995-1 certificates related to the September 1996 amendment of Series
1995-1, the Company entered into additional six and two-thirds year agreements
capping the certificates' interest rate at 11.2% with a maximum notional
amount of $512.6 million. Additionally, FCI, on behalf of the Company,
entered into two interest rate swap agreements in April 1996 to synthetically
alter the fixed rate of the Metris Master Trust Series 1996-1 certificates to
a floating rate. Total notional amounts of these swap transactions amounted to
$605.5 million. In connection with the issuance of the Metris Master Trust
Series 1997-1 certificates the Company entered into a five year agreement to
synthetically alter the fixed rate of the certificates to a floating rate.
The total notional amount of this swap transaction amounted to $722.5 million.
The Company receives the benefits and bears the obligations of these swap
transactions, with FCI guaranteeing the Company's performance under the swap
agreements. The obligations of the Company and the counterparties under these
swap agreements are settled on a monthly basis. In the event that Spin Off
discussed below is consummated, FCI would no longer guarantee the Company's
swap agreements, and no assurance can be given as to the terms upon which the
Company could maintain these swap agreements on a stand-alone 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 uses a variety of
funding sources to establish a maturity pattern with 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 the Company or by FCI.
A significant source of funding for the Company has been the
securitization of credit card loans through the Metris Master Trust and a
third party multi-seller conduit. At September 30, 1997, the Company had
received cumulative net proceeds of approximately $2.3 billion from sales of
credit card loans, of which $14.7 million was deposited in an investor reserve
account held by the trustee of the Metris Master Trust for the benefit of the
Trust's certificateholders. Cash generated from these transactions was used to
reduce short-term borrowings and to fund further credit card loan growth.
On October 9, 1997, FCI announced that its board of directors had
approved the filing of an application with the Internal Revenue Service (IRS)
for a ruling on a tax free distribution of FCI's stock of the Company ("Spin
Off"). FCI filed the ruling request with the IRS on October 23, 1997. The
proposed Spin Off of the Company would be subject to receipt of a favorable
ruling from the IRS, to approval by Fingerhut's board of directors, and to
market conditions. If approved, the Spin Off would be expected to be
completed during 1998. The Spin Off may impact the means by which the Company
has obtained its funding as discussed below.
The Company's liquidity needs and funding sources may change over time.
On September 16, 1996, the Company executed agreements for the following
credit facilities: (1) a $300 million, five-year Revolving Credit Facility for
the Company (the "Revolving Credit Facility"), guaranteed by FCI; and (2)an
amendment to Series 1995-1 under the Metris Master Trust to (a) increase the
Class A Variable Funding Certificate to support a $400 million increase to
$1.2 billion (of which the Company may use up to $800 million) of the
Fingerhut Owner Trust Commercial Paper Program in which the Company
participates; and (b) issue $112.6 million of additional asset-backed
certificates (the "Certificates") to support the aforementioned increase in
the Commercial Paper Program.
The Company borrows under the Revolving Credit Facility to fund on-
balance sheet loans and for other general business purposes. At September 30,
1997 and December 31, 1996, the Company had outstanding borrowings of $153
million and $50 million, respectively, under the Revolving Credit Facility.
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 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. In the
event the Spin Off is consummated the Company would be required to negotiate
with its lenders to refinance the Revolving Credit Facility. While the
Company believes that it will be able to obtain stand-alone financing, no
assurance can be given that it will be able to do so on terms as favorable as
the Revolving Credit Facility. Any such stand-alone financing is expected to
result in higher funding costs than currently available under the Revolving
Credit Facility.
In November 1997, the Company privately issued and sold $100 million of
its 10% Senior Notes due 2004 pursuant to an exemption under the Securities
Act of 1933, as amended. The net proceeds were used to reduce borrowings under
the Revolving Credit Facility.
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 or its subsidiaries. Such
restrictions were not material to the operations of the Company at September
30, 1997 and December 31, 1996.
As the portfolio of credit card loans grows, or as the Trust certificates
amortize or are otherwise paid, the Company's funding needs will increase
accordingly. The Company believes that its asset securitization programs,
together with the Revolving Credit Facility and other sources of capital, will
provide adequate liquidity to the Company for meeting its anticipated cash
needs, although no assurance can be given to that effect.
Capital Adequacy
Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the Office of the Comptroller of Currency ("OCC") and the Federal
Reserve Board, and monitored by the Federal Deposit Insurance Corporation and
the OCC. At September 30, 1997 and December 31, 1996, Direct Merchants Bank
exceeded the minimum required capital levels and was considered a "well-
capitalized" depository institution under regulations of the OCC.
Newly Issued Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," ("FAS 129") which codifies existing
disclosure requirements regarding capital structure. FAS 129 will be required
to be adopted at year-end 1997 and is not expected to have a material impact
on the Company's current capital structure disclosures.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," ("FAS 131") which establishes standards for the way public
enterprises report information about operating segments in annual financial
statements and interim financial reports. FAS 131 is effective for fiscal
years beginning after December 15, 1997. The Company is evaluating the effect
adoption of this statement will have on the reporting of its financial
information.
Forward-Looking Statements
This quarterly report contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1993, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements
include statements regarding intent, belief or current expectations of the
Company and its management. Stockholders and prospective investors are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve a number of risks and uncertainties that may
cause the Company's actual results to differ materially from the results
discussed in the forward-looking statements. Among the factors that could
cause actual results to differ materially from those indicated by such forward-
looking statements are the Company's limited operating history as a stand-
alone entity; the Company's ability to obtain third parties to provide
extended service plans; the Company's limited experience with respect to
originating and servicing credit card accounts, including limited delinquency,
default and loss experience; the lack of seasoning of its credit card
portfolio, which makes the predictability of delinquency and loss levels more
difficult; risks associated with unsecured credit transactions, particularly
to moderate income consumers; interest rate risks; dependence on the
securitization of the Company's credit card loans to fund operations; general
economic conditions affecting consumer income, which may increase consumer
bankruptcies, defaults and delinquencies; state and federal laws and
regulations, including consumer and debtor protection laws; and the highly
competitive industry in which the Company operates. Each of these factors is
more fully discussed in Exhibit 99 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997. Reference to this Cautionary
Statement or Exhibit 99 in the context of a forward-looking statement or
statements shall be deemed to be a statement that any one or more of these
factors may cause actual results to differ materially from those anticipated
in such forward-looking statement or statements.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.a Amendment No. 2 dated as of September
30, 1997 to the Pooling and Servicing Agreement
(incorporated by reference to Exhibit 4(d) to
Registration Statement No. 333-36503)
10.b Amendment No. 1 dated as of September 30,
1997 to the Receivables Purchase Agreement
(incorporated by reference to Exhibit 4(j) to
Registration Statement No. 333-36503)
10.c Transfer and Administration Agreement
dated as of October 23, 1997 among Kitty Hawk Funding
Corporation, Metris Funding Co., as transferor, Direct
Merchants Credit Card Bank, National Association, as
collection agent, and NationsBank, N.A., as Agent and
Bank Investor.
10.d Transfer and Administration Agreement
dated as of September 30, 1997 among Kitty Hawk
Funding Corporation, Metris Funding Co., as
transferor, Direct Merchants Credit Card Bank,
National Association, as collection agent, and
NationsBank, N.A., as Agent and Bank Investor (This
document is being omitted from filing pursuant to
Instruction 2 to Item 601 of Regulation S-K).
11. Computation of Earnings per Share
27. Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
METRIS COMPANIES INC.
Date: By:
/s/ Robert W. Oberrender
Chief Financial Officer
(Principal Financial Officer)
Date: By:
/s/ Jean C. Benson
Controller
(Principal Accounting Officer)
Exhibit 11
Metris Companies Inc. and Subsidiaries
Computation of Earnings Per Share
(in thousands, except share and per share data)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Primary:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $ 10,537 $ 5,802 $ 27,994 $ 14,696
Weighted average shares of
common stock outstanding (1) 19,225,000 15,966,667 19,225,000 15,966,667
Common stock equivalents (2) 1,069,275 540,676 992,949 519,036
Weighted average common and
common equivalent shares 20,294,275 16,507,343 20,217,949 16,485,703
Net income per share $ .52 $ .35 $ 1.38 $ .89
Fully diluted:
Net income $ 10,537 $ 5,802 $ 27,994 $ 14,696
Weighted average shares of
common stock outstanding (1)
Common stock equivalents (2) 1,082,816 547,259 1,098,493 547,259
Weighted average common and
common equivalent shares 20,307,816 16,513,926 20,323,493 16,513,926
Net income per share $ .52 $ .35 $ 1.38 $ .89
</TABLE>
(1) Assume shares outstanding as if the Company reorganization had occurred
at the beginning of the periods shown.
(2) Based on the treasury stock method using the average market price for
primary earnings per share and the higher of the average or year-end market
price for fully diluted earnings per share. Prior to October 25, 1996, the
initial public offering price of $16 was used.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Metris Companies Inc. for the quarter ended
September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,095
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 38,286
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 359,517
<ALLOWANCE> 23,847
<TOTAL-ASSETS> 525,665
<DEPOSITS> 0
<SHORT-TERM> 153,000
<LIABILITIES-OTHER> 206,499
<LONG-TERM> 0
0
0
<COMMON> 192
<OTHER-SE> 165,974
<TOTAL-LIABILITIES-AND-EQUITY> 525,665
<INTEREST-LOAN> 42,645
<INTEREST-INVEST> 1,270
<INTEREST-OTHER> 568
<INTEREST-TOTAL> 44,483
<INTEREST-DEPOSIT> 7
<INTEREST-EXPENSE> 5,930
<INTEREST-INCOME-NET> 38,553
<LOAN-LOSSES> 28,589
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 94,633
<INCOME-PRETAX> 45,519
<INCOME-PRE-EXTRAORDINARY> 27,994
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,994
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
<YIELD-ACTUAL> 16.9
<LOANS-NON> 0
<LOANS-PAST> 22,847
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,829
<CHARGE-OFFS> 20,834
<RECOVERIES> 448
<ALLOWANCE-CLOSE> 23,847
<ALLOWANCE-DOMESTIC> 23,847
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
TRANSFER AND ADMINISTRATION AGREEMENT
TRANSFER AND ADMINISTRATION AGREEMENT (this
"Agreement"), dated as of October 23, 1997, by and among METRIS
FUNDING CO., a Delaware corporation, as transferor (in such
capacity, the "Transferor"), DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION, a national banking association ("DMCCB"),
as collection agent (in such capacity, the "Collection Agent"),
KITTY HAWK FUNDING CORPORATION, a Delaware corporation (the
"Company"), and NATIONSBANK, N.A., a national banking association
("NationsBank"), as agent for the Company and the Bank Investors
(in such capacity, the "Agent") and as a Bank Investor.
PRELIMINARY STATEMENTS
WHEREAS, the Transferor may desire to convey,
transfer and assign, from time to time, undivided percentage
interests in certain accounts receivable, and the Company may
desire to, and the Bank Investors, if requested, shall, accept
such conveyance, transfer and assignment of such undivided
percentage interests, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.
SECTION 1.1. Certain Defined Terms.
As used in this Agreement, the following terms
shall have the following meanings:
"Account" shall mean each VISA or MasterCard
account in existence as of the Cut-Off Date pursuant to an
Account Agreement, which accounts were sold by Mercantile to the
Seller pursuant to the Mercantile Agreement and by the Seller to
the Initial Purchaser and by the Initial Purchaser to the
Transferor pursuant, respectively, to the Receivables Purchase
Agreements, which is identified by account number and by the
outstanding balance as of the Cut-Off Date and referred to in the
Account Schedule delivered to the Agent on the Closing Date
pursuant to Section 2.8, including any Related Account, any
Related Account established after the Cut-Off Date and any
Account converted to the Seller's systems, shall be identified on
the Account Schedule, as such schedule may be amended from time
to time pursuant to Section 2.8.
"Account Agreement" shall mean the cardholder
agreements and Federal Truth in Lending Statement for Accounts,
between an Obligor and, originally, Mercantile, or to which the
Seller has become a party, as such agreements or statement may be
amended, modified or otherwise changed from time to time.
"Account Schedule" shall mean the schedule of
Accounts (which schedule may be in the form of a computer file or
microfiche) of the Transferor delivered to the Agent on the
Closing Date, as amended or modified from time to time pursuant
to the terms of this Agreement.
"Accrued Interest Component" means, for any
Collection Period, that portion of the Interest Component of all
Related Commercial Paper outstanding at any time during such
Collection Period which has accrued from the first day through
the last day of such Collection Period whether or not such
Related Commercial Paper matures during such Collection Period,
based on the actual number of days in such Collection Period that
such Related Commercial Paper was outstanding.
"Additional Investment Certificate" means a
certificate, in substantially the form attached hereto as Exhibit
A or in such other form as is mutually agreed to by the
Transferor and the Agent, furnished by the Collection Agent
pursuant to Section 2.11 hereof.
"Adjusted LIBOR Rate" means, with respect to any
period during which the return to any Bank Investor or the
Liquidity Provider is to be calculated by reference to the London
interbank offered rate, a rate which is (x) .375% while FCI owns
any outstanding capital stock of the Initial Purchaser, and (y)
thereafter, .875% in excess of a rate per annum equal to the sum
(rounded upwards, if necessary, to the next higher 1/100 of 1%)
of (A) the rate obtained by dividing (i) the applicable LIBOR
Rate by (ii) a percentage equal to 100% of the maximum reserve
requirement as specified in Regulation D (including, without
limitation, any marginal, emergency, supplemental, special or
other reserves) that is applicable to the Agent during such
period in respect of eurocurrency or eurodollar funding, lending
or liabilities (or, if more than one percentage shall be so
applicable, the daily average of such percentage for those days
in such period during which any such percentage shall be
applicable) plus (B) the then daily net annual assessment rate
(rounded upwards, if necessary, to the nearest 1/100 of 1%) as
estimated by the Agent for determining the current annual
assessment payable by the Agent to the Federal Deposit Insurance
Corporation in respect of eurocurrency or eurodollar funding,
lending or liabilities.
"Adjustment Payment" has the meaning assigned to
that term in Section 2.9(a).
"Administrative Fee" means the fee payable by the
Transferor to the Company pursuant to Section 2.7 hereof, the
terms of which are set forth in the Fee Letter.
"Adverse Claim" means a lien, security interest,
charge or encumbrance, or other right or claim in, of or on any
Person's assets or properties in favor of any other Person
(including any UCC financing statement or any similar instrument
filed against such Person's assets or properties), excluding any
liens created under this Agreement or the Receivables Purchase
Agreements or liens against the Initial Purchaser or the Seller
that secure the payment of taxes, assessments and governmental
charges or levies, if such taxes are either (a) not delinquent or
(b) being contested in good faith by appropriate legal or
administrative proceedings and as to which adequate reserves in
accordance with generally accepted accounting principles shall
have been established.
"Affected Assets" means, collectively, the
Receivables and the Collections and Proceeds relating thereto.
"Affiliate" means, with respect to any Person, any
other Person directly or indirectly controlling, controlled by,
or under direct or indirect common control with, such Person. A
Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power
to direct or cause the direction of the management or policies of
the controlled Person, whether through ownership of voting stock,
by contract or otherwise.
"Agent" means NationsBank, N.A., in its capacity
as agent for the Company and the Bank Investors, and any
successor thereto appointed pursuant to Article IX.
"Aggregate Interest Component" means aggregate sum
of the Interest Components of all issued and outstanding Related
Commercial Paper.
"Aggregate Unpaids" means, at any time, an amount
equal to the sum of (i) the aggregate accrued and unpaid Carrying
Costs at such time, (ii) all amounts of the type included in the
definition of Carrying Costs which will accrue after such time,
(iii) the Net Investment at such time, and (iv) all other amounts
owed (whether due or accrued) hereunder by the Transferor to the
Company, the Agent or any Bank Investor at such time.
"Agreement Fee" means the fee payable by the
Transferor to the Agent pursuant to Section 4.1 hereof, the
terms of which are set forth in the Fee Letter.
"Assignment Amount" with respect to a Bank
Investor shall mean at any time an amount equal to the lesser of
(i) such Bank Investor's Pro Rata Share of the Net Investment at
such time and (ii) such Bank Investor's unused Commitment.
"Assignment and Assumption Agreement" means an
Assignment and Assumption Agreement substantially in the form of
Exhibit B attached hereto.
"Bank Investors" shall mean NationsBank, N.A. and
each other financial institution that becomes a Bank Investor
pursuant to an Assignment and Assumption Agreement and the
respective successors and permitted assigns of any of the
foregoing.
"Bankruptcy Code" has the meaning assigned to that
term in Section 3.1(k) hereof.
"Base Rate" or "BR" means, a rate per annum equal
to the greater of (i) the prime rate of interest announced by the
Liquidity Provider (or, if more than one Liquidity Provider, then
by NationsBank) from time to time, changing when and as said
prime rate changes (such rate not necessarily being the lowest or
best rate charged by the Liquidity Provider (or NationsBank, as
applicable) and (ii) the sum of (a) 1.50% and (b) the rate equal
to 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 for such day (or, if such
day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day that is a Business Day, the average of
the quotations for such day for such transactions received by the
Liquidity Provider (or, if more than one Liquidity Provider, then
by NationsBank) from three Federal funds brokers of recognized
standing selected by it.
"Benefit Plan" means any employee benefit plan as
defined in Section 3(3) of ERISA in respect of which the
Transferor, the Initial Purchaser, the Seller or any ERISA
Affiliate of the Transferor, the Initial Purchaser, or the Seller
is, or at any time during the immediately preceding six years
was, an "employer" as defined in Section 3(5) of ERISA.
"Business Day" means any day excluding Saturday,
Sunday and any day on which banks in New York, New York,
Charlotte, North Carolina or in the States of Minnesota, Utah,
Missouri, Illinois, Nebraska or Oklahoma are authorized or
required by law to close, and, when used with respect to the
determination of any Adjusted LIBOR Rate or any notice with
respect thereto, any such day which is also a day for trading by
and between banks in United States dollar deposits in the London
interbank market.
"Buyer's Percentage Factor" shall mean, with
respect to any Collection Period, the fraction (expressed as a
percentage) computed at any time of determination as follows:
NI
PRB
Where:
NI = the Net Investment at the time of such
computation.
PRB = the amount of Principal Receivables plus the
amount on deposit in the Excess Funding Account at the time of
such computation.
Notwithstanding the foregoing computation, (i) the
Buyer's Percentage Factor shall not exceed 100%, and (ii) the
Buyer's Percentage Factor with respect to Principal Collections
at any time on and after the Termination Date shall be the
percentage equivalent of a fraction the numerator of which is the
Net Investment as of the Termination Date and the denominator of
which is the lesser of (x) the Principal Receivables plus the
amount on deposit in the Excess Funding Account on the last day
of the Collection Period immediately prior to the Termination
Date or (y) the Principal Receivables plus the amount on deposit
in the Excess Funding Account on the last day of the immediately
preceding Collection Period.
"Carrying Costs" means, for a Collection Period
the sum of (i) the sum of the dollar amount of the Company's
obligations for such Collection Period determined on an accrual
basis in accordance with GAAP consistently applied (a) to pay
interest with respect to Purchased Interests pursuant to the
provisions of the Liquidity Provider Agreement (such interest to
be calculated based on the Adjusted LIBOR Rate, provided that if
a Termination Event (other than those specified in clause (k) or
(l) of Section 7.1) shall have occurred, such interest shall be
calculated at the Base Rate plus 2.00%) outstanding at any time
during such Collection Period accrued from the first day through
the last day of such Collection Period whether or not such
interest is payable during such Collection Period and to pay
interest with respect to amounts disbursed by a Credit Support
Provider pursuant to the Credit Support Agreement outstanding at
any time during such Collection Period accrued from the first day
through the last day of such Collection Period whether or not
such interest is payable during such Collection Period, (b) to
pay the Accrued Interest Component of Related Commercial Paper
with respect to any Collection Period (and, for purposes of this
clause (b), Related Commercial Paper shall include Commercial
Paper issued to fund the Net Investment even if such Commercial
Paper is issued in an amount in excess of the Net Investment),
(c) to pay the Dealer Fee with respect to Related Commercial
Paper issued during such Collection Period, (d) to pay any past
due interest not paid in clause (a) and (b) with respect to prior
Collection Periods, and (e) to pay the costs of the Company with
respect to the operation of Sections 8.1, 8.2, 8.3 and 8.4, and
(ii) the Program Fee, the Administrative Fee and the Facility Fee
accrued from the first day through the last day of such
Collection Period whether or not such amount is payable during
such Collection Period, and all interest amounts due the Bank
Investors in accordance with Section 2.3(c), (d) and (e).
"Certificate" means the certificate issued to the
Agent for the benefit of the Company and the Bank Investors
pursuant to Section 2.2(g) hereof.
"Closing Date" means October 23, 1997.
"Code" means the Internal Revenue Code of 1986, as
amended and in effect from time to time.
"Collateral Agent" means NationsBank, N.A., as
collateral agent for any Liquidity Provider, any Credit Support
Provider, the holders of Commercial Paper and certain other
parties.
"Collection Account" means the account,
established by the Agent, for the benefit of the Company and the
Bank Investors, pursuant to Section 2.12(a) hereof.
"Collection Agent" means at any time the Person
then authorized pursuant to Section 6.1 hereof to service,
administer and collect Receivables.
"Collection Agent Default" has the meaning
specified in Section 6.4 hereof.
"Collection Period" means the calendar month
preceding the Remittance Date, or in the case of the first
Collection Period, the period commencing on the Cut-Off Date to
the end of the calendar month preceding the first Remittance
Date.
"Collections" means, with respect to any
Receivable, all cash collections and other cash proceeds of such
Receivable, including, without limitation, all Recoveries and
collections on Finance Charge Receivables, if any, and cash
proceeds with respect to such Receivable.
"Commercial Paper" means the promissory notes
issued by the Company in the commercial paper market.
"Commitment" means (i) with respect to each Bank
Investor party hereto, the commitment of such Bank Investor to
make acquisitions from the Transferor or the Company in
accordance herewith in an amount not to exceed the dollar amount
set forth opposite such Bank Investor's signature on the
signature page hereto under the heading "Commitment", minus the
dollar amount of any Commitment or portion thereof assigned
pursuant to an Assignment and Assumption Agreement plus the
dollar amount of any increase to such Bank Investor's Commitment
consented to by such Bank Investor prior to the time of
determination, (ii) with respect to any assignee of a Bank
Investor party hereto taking pursuant to an Assignment and
Assumption Agreement, the commitment of such assignee to make
acquisitions from the Transferor or the Company not to exceed the
amount set forth in such Assignment and Assumption Agreement
minus the dollar amount of any Commitment or portion thereof
assigned pursuant to an Assignment and Assumption Agreement prior
to such time of determination and (iii) with respect to any
assignee of an assignee referred to in clause (ii), the
commitment of such assignee to make acquisitions from the
Transferor or the Company not to exceed the amount set forth in
an Assignment and Assumption Agreement between such assignee and
its assign.
"Commitment Termination Date" means October 22,
1998, or such later date to which the Commitment Termination Date
may be extended by the Transferor, the Agent and the Bank
Investors not later than 60 days prior to the then current
Commitment Termination Date.
"Company" means Kitty Hawk Funding Corporation and
its successors and assigns.
"Credit and Collection Policy" means the written
policies and procedures of the Seller relating to the operation
of its consumer revolving credit card business, including,
without limitation, the written policies and procedures for
determining the creditworthiness of credit card customers, the
extension of credit to credit card customers and relating to the
maintenance of credit card accounts and collection of receivables
with respect thereto, as such policies and procedures are
amended, modified or otherwise changed from time to time.
"Credit Support Agreement" means the agreement
between the Company and the Credit Support Provider evidencing
the obligation of the Credit Support Provider to provide credit
support to the Company in connection with the issuance by the
Company of Commercial Paper.
"Credit Support Provider" means the Person or
Persons who provides credit support to the Company in connection
with the issuance by the Company of Commercial Paper.
"Cut-Off Date" means October 10, 1997.
"Date of Processing" means, with respect to any
transaction giving rise to a Receivable, the date on which such
transaction is settled according to the Collection Agent's
computer master file of Accounts.
"Dealer Fee" means the fee payable by the
Transferor to the Company, pursuant to Section 2.5 hereof, the
terms of which are set forth in the Fee Letter.
"Default Ratio" means, for any Collection Period,
the ratio (expressed as a percentage) the numerator of which is
the product of (i) 12 and (ii) the aggregate balance of all
Eligible Receivables which became Defaulted Receivables during
such Collection Period and the denominator of which is the
average outstanding balance of all Eligible Receivables during
such Collection Period.
"Defaulted Receivable" means a Receivable in an
Account with respect to which, in accordance with the Credit and
Collection Policy or the Collection Agent's customary and usual
servicing procedures, the Collection Agent has charged off such
Receivable as uncollectible; a Receivable shall become a
Defaulted Receivable on the day on which it is recorded as
charged off as uncollectible on the Collection Agent's computer
master file of consumer credit card revolving accounts.
Notwithstanding any other provision hereof, any Defaulted
Receivables that are not Eligible Receivables shall be treated as
Receivables which are not Eligible Receivables rather than as
Defaulted Receivables.
"Determination Date" shall mean with respect to
any Collection Period, the date which is two Business Days before
the related Remittance Date.
"Discount Percentage" means the Percentage
designated by the Transferor pursuant to Section 2.5(e).
"Discount Receivables" shall have the meaning
specified in Section 2.5(e).
"Discount Receivables Collections" means, for any
day, the product of (a) the Discount Percentage and (b) Principal
Collections (without giving effect to Discount Receivables
Collections) on such day.
"DMCCB" means Direct Merchants Credit Card Bank,
National Association, a national banking association.
"Early Collection Fee" means, for any funding
period during which the portion of the Net Investment that was
allocated to such funding period is reduced for any reason
whatsoever, the excess, if any, of (i) the additional interest
that would have accrued during such funding period if such
reductions had not occurred, minus (ii) the income, if any,
received by the recipient of such reductions from investing the
proceeds of such reductions.
"Eligible Account" means, as of the Cut-Off Date
(or, with respect to Accounts arising after the Cut-Off Date, as
of the date of creation), each Account in existence and owned by
the Seller:
(i) the credit card or cards related thereto have not been
reported lost or stolen or designated fraudulent;
(ii) the Obligor on which has provided, as its most recent
billing address, an address located in the United States or its
territories or possessions, or Canada, or which is a United
States military address;
(iii) which is not an Account as to which any of the
Receivables existing thereunder are Defaulted Receivables; and
(iv) which was purchased by the Seller from Mercantile
(or is a Related Account) and to which the Seller has good title,
free and clear of all Adverse Claims;
"Eligible Investments" means any of the following
(a) negotiable instruments or securities represented by
instruments in bearer or registered or in book-entry form which
evidence (i) obligations fully guaranteed by the United States of
America; (ii) time deposits in, or bankers acceptances issued by,
any depositary institution or trust company incorporated under
the laws of the United States of America or any state thereof and
subject to supervision and examination by Federal or state
banking or depositary institution authorities; provided, however,
that at the time of investment or contractual commitment to
invest therein, the certificates of deposit or short-term
deposits, if any, or long-term unsecured debt obligations (other
than such obligation whose rating is based on collateral or on
the credit of a Person other than such institution or trust
company) of such depository institution or trust company shall
have a credit rating from Moody's and S&P of at least "P-1" and
"A-1", respectively, in the case of the certificates of deposit
or short-term deposits, or a rating not lower than one of the two
highest investment categories granted by Moody's and by S&P;
(iii) certificates of deposit having, at the time of investment
or contractual commitment to invest therein, a rating from
Moody's and S&P of at least "P-1" and "A-1", respectively; or
(iv) investments in money market funds rated in the highest
investment category or otherwise approved in writing by the
applicable rating agencies; (b) demand deposits in any depositary
institution or trust company referred to in (a)(ii) above; (c)
commercial paper (having original or remaining maturities of no
more than 30 days) having, at the time of investment or
contractual commitment to invest therein, a credit rating from
Moody's and S&P of at least "P-1" and "A-1", respectively; (d)
Eurodollar time deposits having a credit rating from Moody's and
S&P of at least "P-1" and "A-1", respectively; and (e) repurchase
agreements involving any of the Eligible Investments described in
clauses (a)(i), (a)(iii) and (d) hereof so long as the other
party to the repurchase agreement has at the time of investment
therein, a rating from Moody's and S&P of at least "P-1" and "A-
1", respectively.
"Eligible Receivable" means, at any time, any
Receivable:
(i) with respect to which the related Account is
an Eligible Account;
(ii) to which, immediately prior to the
transfer to the Company, the Transferor has good title thereto,
free and clear of all Adverse Claims;
(iii) which (together with the Collections
related thereto) has been the subject of either a valid transfer
and sale from the Transferor to the Agent, on behalf of the
Company and the Bank Investors, of all of the Transferor's right,
title and interest therein or the grant of a first priority
perfected security interest therein (and in the Collections
related thereto), effective until the termination of this
Agreement;
(iv) the Obligor of which is not a government or a
government subdivision or agency;
(v) which is not a Defaulted Receivable at the
time of the initial creation of an interest therein hereunder;
(vi) which is an "eligible asset" as defined in
Rule 3a-7 under the Investment Company Act of 1940, as amended;
(vii) a purchase of which with the proceeds of
Commercial Paper would constitute a "current transaction" within
the meaning of Section 3(a)(3) of the Securities Act of 1933, as
amended;
(viii) which is an "account," "chattel paper"
or "general intangible" within the meaning of Article 9 of the
UCC of the applicable jurisdiction;
(ix) which is denominated and payable only in
United States dollars;
(x) which arises under an Account that, together
with the Receivable related thereto, is in full force and effect
and constitutes the legal, valid and binding obligation of the
related Obligor enforceable against such Obligor in accordance
with its terms and is not, at the time of transfer hereunder,
subject to any litigation, right of recission, dispute, offset,
counterclaim or other defense;
(xi) which, together with the Account related
thereto, complies in all material respects with all laws, rules
or regulations applicable thereto (including, without limitation,
laws, rules and regulations relating to truth in lending, fair
credit billing, fair credit reporting, equal credit opportunity,
fair debt collection practices and privacy) and with respect to
which the Account Agreement related thereto is not in violation
of any such law, rule or regulation in any material respect;
(xii) which is assignable without the consent
of, or notice to, the Obligor thereunder;
(xiii) the transfer of which under the
Receivables Purchase Agreements by the Seller and the Initial
Purchaser and hereunder by the Transferor does not violate,
breach or contravene any applicable laws, rules, regulations,
orders or writs or any contractual or other restriction,
limitation or encumbrance;
(xiv) which, at the time of transfer
hereunder, has not been compromised, adjusted or modified
(including the granting of any discounts, allowances or credits);
provided, however, that only such portion of such Receivable that
is the subject of such compromise, adjustment or modification
shall be deemed to be ineligible pursuant to the terms of this
clause (xiv);
(xv) as to which no effective financing statement
or other instrument similar in effect covering such Receivable,
any interest therein, Account or Collections with respect thereto
is on file in any recording office except such as may be filed in
favor of the Initial Purchaser or the Transferor, pursuant to the
Receivables Purchase Agreements, or the Company hereunder; and
(xvi) with respect to which all material
consents, licenses, approvals or authorizations of, or
registrations or declarations with, any governmental authority
required to be obtained, effected or given by the Initial
Purchaser, Transferor or the Seller in connection with the
creation of such Receivable or the execution, delivery, creation
and performance by the Initial Purchaser, Transferor or the
Seller of the Account Agreement pursuant to which such Receivable
was created, have been duly obtained, effected or given and are
in full force and effect.
"ERISA" means the U.S. Employee Retirement Income
Security Act of 1974, as amended from time to time, and the
regulations promulgated and rulings issued thereunder.
"ERISA Affiliate" means, with respect to any
Person, (i) any corporation which is a member of the same
controlled group of corporations (within the meaning of Section
414(b) of the Code) as such Person; (ii) a trade or business
(whether or not incorporated) under common control (within the
meaning of Section 414(c) of the Code) with such Person; or (iii)
a member of the same affiliated service group (within the meaning
of Section 414(n) of the Code) as such Person, any corporation
described in clause (i) above or any trade or business described
in clause (ii) above; provided, however, that none of FCI and its
Affiliates (other than the Initial Purchaser and its
Subsidiaries) shall be an ERISA Affiliate.
"Event of Bankruptcy" means, with respect to any
Person, (i) that such Person (a) shall generally not pay its
debts as such debts become due or (b) shall admit in writing its
inability to pay its debts generally or (c) shall make a general
assignment for the benefit of creditors; (ii) any proceeding
shall be instituted by or against such Person seeking to
adjudicate it as bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating
to bankruptcy, insolvency or reorganization or relief of debtors,
or seeking the entry of an order for relief or the appointment of
a receiver, trustee or other similar official for it or any
substantial part of its property; or (iii) if such Person is a
corporation, such Person or any Subsidiary shall take any
corporate action to authorize any of the actions set forth in the
preceding clauses (i) or (ii).
"Excess Funding Account" shall have the meaning
assigned to that term in Section 2.12(c).
"Excluded Taxes" shall have the meaning specified
in Section 8.3 hereof.
"Facility Fee" means the fee payable by the
Transferor to the Agent for distribution to the Bank Investors
pursuant to Section 2.7 hereof, the terms of which are set forth
in the Fee Letter.
"Facility Limit" means $450,000,000.
"FCI" means Fingerhut Companies, Inc., a Minnesota
corporation.
"Fee Letter" means the letter agreement dated the
date hereof between the Transferor and the Company with respect
to the fees to be paid by the Transferor hereunder, as amended,
modified or supplemented from time to time.
"Finance Charge Collections" shall mean, with
respect to any Business Day, Collections received by the
Collection Agent with respect to Finance Charge Receivables on
such Business Day.
"Finance Charge Receivables" shall mean the sum of
(w) all amounts billed from time to time to the Obligors on any
Account in respect of (i) Periodic Finance Charges, (ii) over
limit fees, (iii) late charges, (iv) returned check fees, (v)
annual membership fees and annual service charges, if any, (vi)
transaction charges, (vii) cash advance fees and (viii) similar
fees and charges, excluding fees and charges for insurance and
insurance type products, plus (x) Recoveries and (y) Discount
Receivables, if any.
"GAAP" means generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other
statements by such accounting profession, which are in effect
from time to time.
"Incremental Transfer" means a Transfer which is
made pursuant to Section 2.2(a) hereof.
"Indemnified Amounts" has the meaning specified in
Section 8.1 hereof.
"Indemnified Parties" has the meaning specified in
Section 8.1 hereof.
"Initial Purchaser" means Metris Companies, Inc.,
a Delaware corporation, and its successors and permitted assigns.
"Interest Component" means, (i) with respect to
any Commercial Paper issued on an interest-bearing basis, the
interest payable on such Commercial Paper at its maturity
(including any dealer commissions) and (ii) with respect to any
Commercial Paper issued on a discount basis, the portion of the
face amount of such Commercial Paper representing the discount
incurred in respect thereof (including any dealer commissions to
the extent included as part of such discount).
"Investor Report" means a report, in substantially
the form attached hereto as Exhibit D or in such other form as is
mutually agreed to by the Transferor and the Agent, furnished by
the Collection Agent pursuant to Section 2.11 hereof.
"Law" means any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance,
order, injunction, writ, decree or award of any Official Body.
"LIBOR Rate" means, with respect to any Collection
Period, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on telerate Page 3750 (or any
successor page) as the London interbank offered rate for deposits
in U.S. dollars at approximately 11:00 a.m. (London time) two
London Business Days prior to the first day of such Collection
Period for a term of one month. If for any reason such rate is
not available, the term "LIBOR Rate" shall mean, for any
Collection Period, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for
deposits in dollars at approximately 11:00 a.m. (London time) two
London Business Days prior to the first day of such Collection
Period for a term of one; provided, however, if more than one
rate is specified on the Reuters Screen LIBO Page, the applicable
rate shall be the arithmetic mean of all such rates.
"Liquidity Provider" means the Person or Persons
who will provide liquidity support to the Company in connection
with the issuance by the Company of Commercial Paper.
"Liquidity Provider Agreement" means the agreement
between the Company and the Liquidity Provider evidencing the
obligation of the Liquidity Provider to provide liquidity support
to the Company in connection with the issuance by the Company of
Commercial Paper.
"Majority Investors" shall have the meaning
specified in Section 9.1(a) hereof.
"Material Adverse Effect" means any event or
condition which could reasonably be expected to have a material
adverse effect on (i) the collectibility of the Receivables,
taken as a whole, (ii) the condition (financial or otherwise),
businesses or properties of the Transferor, the Initial Purchaser
or the Seller, (iii) the ability of the Transferor, the Initial
Purchaser or the Seller to perform its respective obligations
under the Transaction Documents to which it is a party and (iv)
the interests of the Agent, the Company or the Bank Investors
under the Transaction Documents.
"Maximum Buyer's Percentage Factor" means 82%.
"Mercantile" means Mercantile Bank National
Association, a national banking association and successor to
Mercantile Bank of Illinois National Association and shall
include, with respect to the origination or creation of any
Account sold pursuant to the Mercantile Agreement, any
predecessor in interest to Mercantile which actually originated
such Account.
"Mercantile Agreement" means the Purchase
Agreement, dated as of September 25, 1997, by and between
Mercantile and DMCCB, as it may be modified, amended and
supplemented from time to time.
"Minimum Transferor's Interest" means the amount
computed at any time of determination as follows:
NI - NI
82%
Where:
NI = the Net Investment at the time of such
computation.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multi-employer plan"
as defined in Section 4001(a)(3) of ERISA which is or was at any
time during the current year or the immediately preceding five
years contributed to by the Transferor, the Initial Purchaser the
Seller or any ERISA Affiliate of the Transferor or the Seller on
behalf of its employees.
"Net Asset Test" means, in connection with any
assignment by the Company to the Bank Investors of an interest in
the Net Investment pursuant to Section 9.7 hereof, that on the
day immediately prior to the day on which such assignment is to
take effect, the Principal Receivables shall be greater than or
equal to the Net Investment.
"Net Investment" means the sum of the cash amounts
paid to the Transferor for each Incremental Transfer less the
aggregate amount of Collections received and applied by the Agent
to reduce such Net Investment pursuant to Section 2.5, 2.6 or 2.9
hereof; provided, however, that the Net Investment shall be
restored and reinstated in the amount of any Collections so
received and applied if at any time the distribution of such
Collections is rescinded or must otherwise be returned for any
reason; and, provided, further, that the Net Investment may be
increased by the amount described in Section 9.7(d) hereof as
described therein.
"Net Portfolio Yield" means, with respect to any
Collection Period, the annualized percentage equivalent of a
fraction the numerator of which is equal to the Buyer's
Percentage Factor of Finance Charge Collections for such
Collection Period minus the Carrying Costs for such Collection
Period minus the Buyer's Percentage Factor of the amount of
Receivables which became Defaulted Receivables during such
Collection Period minus the Buyer's Percentage Factor of the
Servicing Fee with respect to such Collection Period and the
denominator of which is equal to the average Net Investment for
such Collection Period.
"Obligor" means a Person obligated to make
payments pursuant to an Account, including any guarantor
thereunder.
"Official Body" means any government or political
subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality of any such government
or political subdivision, or any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic.
"Other Transferor" means any Person other than the
Transferor that has entered into a receivables purchase agreement
or transfer and administration agreement with the Company.
"Payment Rate" means, for any Collection Period,
the percentage equivalent of a fraction, the numerator of which
is equal to the amount of all cash Collections during such
Collection Period and the denominator of which is equal to the
average amount of Receivables outstanding during the prior
Collection Period.
"Periodic Finance Charges" shall have, with
respect to any Account, the meaning specified in the Account
Agreement applicable to such Account for finance charges (due to
periodic rate) or any similar term.
"Person" means any corporation, limited liability
company, natural person, firm, joint venture, partnership, trust,
unincorporated organization, enterprise, government or any
department or agency of any government.
"Potential Termination Event" means an event which
but for the lapse of time or the giving of notice, or both, would
constitute a Termination Event.
"Principal Collections" means, with respect to any
Collection Period, all Collections received during such period
other than Finance Charge Collections.
"Principal Receivables" means amounts shown on the
Collection Agent's records as amounts payable by Obligors with
respect to Eligible Receivables on any Account other than such
amounts that are Finance Charge Receivables (including Discount
Receivables) or Defaulted Receivables 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.
"Pro Rata Share" means, for a Bank Investor, the
Commitment of such Bank Investor divided by the sum of the
Commitments of all Bank Investors.
"Proceeds" means "proceeds" as defined in Section
9-306(1) of the UCC.
"Program Fee" means the fee payable by the
Transferor to the Company pursuant to Section 2.7 hereof, the
terms of which are set forth in the Fee Letter.
"Purchased Interest" means the interest in the
Receivables acquired by the Liquidity Provider through purchase
pursuant to the terms of the Liquidity Provider Agreement.
"Purchase Termination Date" means the date upon
which the Transferor or the Initial Purchaser shall cease, for
any reason whatsoever, to make purchases of Receivables under the
applicable Receivables Purchase Agreement or either Receivables
Purchase Agreement shall terminate for any reason whatsoever.
"Receivable" means all of the indebtedness of any
Obligor to the Transferor 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
Transferor under the applicable Account Agreement.
"Receivables Purchase Agreements" means,
collectively, the (a) Amended and Restated Bank Receivables
Purchase Agreement, dated as of May 26, 1995, between the Seller,
as seller, and FCI, as buyer, which was assigned by FCI to the
Initial Purchaser pursuant to the Assignment and Assumption
Agreement, dated as of September 16, 1996, among FCI, the Initial
Purchaser and the Seller, and (b) the Purchase Agreement, dated
as of the date hereof, by and between the Initial Purchaser, as
seller, and the Transferor, as purchaser, as such agreements may
be amended, modified or supplemented and in effect from time to
time.
"Records" means all right, title and interest of
the Seller, the Initial Purchaser and the Transferor in and to
all Account Agreements and other documents, books, records and
other information (including, without limitation, computer
programs, tapes, discs, punch cards, data processing software and
related property and rights) maintained with respect to
Receivables and the related Obligors.
"Recoveries" means all amounts received or
collected by the Collection Agent with respect to Defaulted
Receivables.
"Reinvestment Termination Date" means the second
Business Day after the delivery by the Company to the Transferor
of written notice that the Company elects to assign the Net
Investment to the Bank Investors pursuant to Section 9.7.
"Related Account" shall mean an Account having the
following characteristics: (i) such Related Account was
originated in accordance with the Credit and Collection Policy;
(ii) the Obligor or Obligors with respect to such Related Account
is the same Person or Persons as the Obligor or Obligors of an
Account; (iii) such Related Account is originated as a result of
the credit card with respect thereto being lost or stolen; and
(iv) such Related Account can be traced or identified as a
successor account to an Account by reference to or by way of the
computer or other records of the Collection Agent or the
Transferor.
"Related Commercial Paper" shall mean Commercial
Paper issued by the Company the proceeds of which were used to
acquire, or refinance the acquisition of, an interest in
Receivables with respect to the Transferor.
"Remittance Date" means the twentieth day of each
calendar month, or if such day is not a Business Day, the next
succeeding Business Day; provided, however, that the first
Remittance Date shall be December 22, 1997.
"Section 8.2 Costs" has the meaning specified in
Section 8.2(d) hereof.
"Seller" means DMCCB and its successors and
permitted assigns.
"Servicing Fee" means the fee payable to the
Collection Agent in an amount equal to 2% per annum on the
average daily amount of the Principal Receivables. Such fee
shall accrue from the date of the initial purchase of an interest
in the Receivables to the date on which the Buyer's Percentage
Factor is reduced to zero. Such fee shall be payable only from
Collections pursuant to, and subject to the priority of payments
set forth in, Section 2.5 hereof.
"Spread Account" means the account established by
the Agent, for the benefit of the Company and the Bank Investors,
pursuant to Section 2.12(b) hereof.
"Spread Account Cap Percentage Amount", as of any
Remittance Date, means the product of the Net Investment on such
Remittance Date and the applicable "Spread Account Cap
Percentage" determined as set forth in the chart immediately
below, subject to the following: (a) if the average Default
Ratio for any three consecutive Collection Periods is greater
than 17%, then the applicable Spread Account Cap Percentages set
forth below shall each be increased by 2%; (b) any decrease in
the Spread Account Cap Percentage will take effect only after
three consecutive Remittance Dates during which such decrease (or
any greater decrease) shall have prevailed; and (c) any
calculation of the "Spread Account Percentage" based on the
Collection Periods ending in September 1997 and October 1997
shall assume that, for each such Collection Period, (x) the Net
Portfolio Yield was 4.91% and 5.63%, respectively, (y) the
Payment Rate was 10.67% and 10.76%, respectively, and (z) the
Default Ratio was 14.38% and 15.15%, respectively.
The Spread Account Cap Percentage Amount
applicable on the Closing Date shall be $0.
Average Net Portfolio
Yield for the three Spread Account Cap Spread Account Cap
consecutive Collection Percentage(1) Percentage(2)
Periods immediately
preceding the
Remittance Date
Greater than 4.50% 0% 1%
Greater than 4.00% and 1% 2%
less than or equal to
4.50%
Greater than 3.00% and 2% 3%
less than or equal to
4.00%
Greater than 2.00% and 3% 4%
less than or equal to
3.00%
2.00% and less 4% 5%
(1) Spread Account Cap Percentage in effect if average
Payment Rate for the three consecutive Collection Periods
immediately preceding the Remittance Date is greater than 10%.
(2) Spread Account Cap Percentage in effect if average
Payment Rate for the three consecutive Collection Periods
immediately preceding the Remittance Date is less than or equal
to 10%.
"Standard & Poor's" or "S&P" means Standard &
Poor's Ratings Services, a division of McGraw-Hill Companies,
Inc.
"Subsidiary" of a Person means any Person more
than 50% of the outstanding voting interests of which shall at
any time be owned or controlled, directly or indirectly, by such
Person or by one or more Subsidiaries of such Person or any
similar business organization which is so owned or controlled.
"Taxes" shall have the meaning specified in
Section 8.3 hereof.
"Termination Date" means the earliest of (i) the
Business Day designated by the Transferor to the Agent as the
Termination Date at any time following 60 days' written notice to
the Agent, (ii) the date of termination of the commitment of the
Liquidity Provider under the Liquidity Provider Agreement, (iii)
the date of termination of the commitment of the Credit Support
Provider under the Credit Support Agreement, (iv) the day upon
which the Termination Date is declared or automatically occurs
pursuant to Section 7.2(a) hereof, (v) two Business Days prior to
the Commitment Termination Date, (vi) the Purchase Termination
Date or (vii) October 22, 1998.
"Termination Event" means an event described in
Section 7.1 hereof.
"Transaction Costs" has the meaning specified in
Section 8.4(a) hereof.
"Transaction Documents" means, collectively, this
Agreement, the Receivables Purchase Agreements, the Fee Letter,
the Certificate, the Transfer Certificate and all of the other
instruments, documents and other agreements executed and
delivered by the Seller or the Transferor in connection with any
of the foregoing, in each case, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"Transfer" means a conveyance, transfer and
assignment by the Transferor to the Company or the Bank Investors
of an undivided percentage ownership interest in Receivables
hereunder (including, without limitation, as a result of any
reinvestment of Collections in Transferred Interests pursuant to
Sections 2.2(e) and 2.5 hereof).
"Transfer Certificate" has the meaning specified
in Section 2.2(c) hereof.
"Transfer Date" means, with respect to each
Transfer, the Business Day on which such Transfer is made.
"Transfer Price" means with respect to any
Incremental Transfer, the amount paid to the Transferor by the
Company or the Bank Investors as described in the applicable
Transfer Certificate.
"Transferor" means Metris Funding Co., a Delaware
corporation, and its successors and permitted assigns.
"Transferor's Percentage Interest" means (i) 100%
(1) minus (ii) the Buyer's Percentage Factor.
"Transferred Interest" means, at any time of
determination, an undivided percentage ownership interest in (i)
each and every then outstanding Receivable, (ii) all Collections
with respect thereto, and (iii) other Proceeds of the foregoing,
which undivided ownership interest shall be equal to the Buyer's
Percentage Factor at such time, and only at such time (without
regard to prior calculations). The Transferred Interest in each
Receivable, together with Collections and Proceeds with respect
thereto, shall at all times be equal to the Transferred Interest
in each other Receivable, together with Collections and Proceeds
with respect thereto. To the extent that the Transferred
Interest shall decrease as a result of a recalculation of the
Buyer's Percentage Factor, the Agent, on behalf of the Company or
the Bank Investors, as applicable, shall be considered to have
reconveyed to the Transferor an undivided percentage ownership
interest in each Receivable, together with Collections and
Proceeds with respect thereto, in an amount equal to such
decrease such that in each case the Transferred Interest in each
Receivable shall be equal to the Transferred Interest in each
other Receivable.
"UCC" means, with respect to any state, the
Uniform Commercial Code as from time to time in effect in such
state.
"U.S." or "United States" means the United States
of America.
SECTION 1.2. Other Terms.
All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. All terms
used in Article 9 of the UCC in the State of New York, and not
specifically defined herein, are used herein as defined in such
Article 9.
SECTION 1.3. Computation of Time Periods.
Unless otherwise stated in this Agreement, in the
computation of a period of time from a specified date to a later
specified date, the word "from" means "from and including", the
words "to" and "until" each means "to but excluding", and the
word "within" means "from and excluding a specified date and to
and including a later specified date".
ARTICLE I I
PURCHASES AND SETTLEMENTS
SECTION 2.
SECTION 2.1. Facility.
Upon the terms and subject to the conditions
herein set forth at any time prior to the Termination Date (x)
the Transferor may, at its option, convey, transfer and assign to
the Agent, on behalf of the Company or the Bank Investors, as
applicable, and (y) the Agent, on behalf of the Company, may, at
the Company's option, or the Agent, on behalf of the Bank
Investors, shall accept such conveyance, transfer and assignment
from the Transferor of, without recourse except as provided
herein, undivided percentage ownership interests in the
Receivables, together with Collections and Proceeds with respect
thereto, from time to time. By accepting any conveyance,
transfer and assignment hereunder, neither the Company, any Bank
Investor nor the Agent assumes or shall have any obligations or
liability under any of the Accounts, all of which shall remain
the obligations and liabilities of the Transferor, the Initial
Purchaser and the Seller.
SECTION 2.2. Transfers; Certificates; Eligible Receivables.
(a) Upon the terms and subject to the conditions herein set
forth the Transferor may, at its option, convey, transfer and
assign to the Agent, on behalf of the Company or the Bank
Investors, as applicable, and the Agent, on behalf of the Company
may, provided that the Termination Date shall not have occurred,
at the Company's option, or the Agent, on behalf of the Bank
Investors, provided that the Termination Date shall not have
occurred and that the Bank Investors shall have previously
accepted the assignment by the Company of all of its interest in
the Affected Assets, shall, if so requested by the Transferor,
accept such conveyance, transfer and assignment from the
Transferor, without recourse except as provided herein, of
undivided percentage ownership interests in the Receivables,
together with Collections and Proceeds with respect thereto
(each, an "Incremental Transfer"); provided, however, that after
giving effect to the payment to the Transferor of such Transfer
Price (x) the sum of the Net Investment plus, in the case where
the Transferred Interest is held by the Agent on behalf of the
Company, the Interest Component of all outstanding Related
Commercial Paper, would not exceed the Facility Limit; and (y)
the Transferor's Percentage Interest, when multiplied by the
Principal Receivables, shall not be less than the Minimum
Transferor's Interest; and, provided further, that the
representations and warranties set forth in Sections 3.1 and 3.2
hereof shall be true and correct both immediately before and
immediately after giving effect to any such Incremental Transfer
and the payment to the Transferor of the Transfer Price related
thereto and an Additional Investment Certificate shall have been
delivered with respect to such Incremental Transfer as required
by Section 2.11(b) hereof.
(b) The Transferor shall, by notice to the Agent given by no
later than 11:00 a.m. (New York City time) at least one (1)
Business Day prior to the proposed date of any Incremental
Transfer by telecopy, offer to convey, transfer and assign to the
Agent, on behalf of the Company or the Bank Investors, as
applicable, undivided percentage ownership interests in the
Receivables and the other Affected Assets relating thereto. Each
such notice shall specify (w) whether such request is made to the
Agent, on behalf of the Company or on behalf of the Bank
Investors (it being understood and agreed that once any
Transferred Interest hereunder is acquired on behalf of the Bank
Investors, the Agent, on behalf of Bank Investors, shall be
required to purchase all Transferred Interests held by the Agent
on behalf of the Company in accordance with Section 9.7 hereof
and thereafter that no additional Incremental Transfers shall be
acquired on behalf of the Company hereunder), (x) the desired
Transfer Price (which shall be at least $1,000,000 or integral
multiples of $250,000 in excess thereof) or, to the extent that
the then available unused portion of the Facility Limit is less
than such amount, such lesser amount equal to such available
portion of the Facility Limit), and (y) the desired date of such
Incremental Transfer. The Agent will promptly notify the Company
or each of the Bank Investors, as the case may be, of the Agent's
receipt of any request for an Incremental Transfer to be made to
the Agent on behalf of such Person. To the extent that any such
Incremental Transfer is requested of the Agent, on behalf of the
Company, the Company shall instruct the Agent to accept or reject
such offer by notice given to the Transferor and the Agent by
telephone or telecopy by no later than the close of its business
on the Business Day following its receipt of any such request.
Each notice of proposed Transfer shall be irrevocable and binding
on the Transferor and the Transferor shall indemnify the Company
and each Bank Investor against any loss or expense incurred by
the Company or any Bank Investor, either directly or indirectly
(including, in the case of the Company, through the Liquidity
Provider Agreement) as a result of any failure by the Transferor
to complete such Incremental Transfer including, without
limitation, any loss (including loss of anticipated profits) or
expense incurred by the Company or any Bank Investor, either
directly or indirectly (including, in the case of the Company,
pursuant to the Liquidity Provider Agreement) by reason of the
liquidation or reemployment of funds acquired by the Company (or
the Liquidity Provider) or any Bank Investor (including, without
limitation, funds obtained by issuing commercial paper or
promissory notes or obtaining deposits as loans from third
parties) for the Company or any Bank Investor to fund such
Incremental Transfer.
(c) On the date of the initial Incremental Transfer, the Agent,
on behalf of the Company or the Bank Investors, as applicable,
shall deliver written confirmation to the Transferor of the
Transfer Price and the Transferor shall deliver to the Agent the
Transfer Certificate in the form of Exhibit F hereto (the
"Transfer Certificate"). The Agent shall indicate the amount of
the initial Incremental Transfer together with the date thereof
on the grid attached to the Transfer Certificate. On the date of
each subsequent Incremental Transfer, the Agent shall send
written confirmation to the Transferor of the Transfer Price
applicable to such Incremental Transfer. The Agent shall
indicate the amount of the Incremental Transfer together with the
date thereof as well as any decrease in the Net Investment on the
grid attached to the Transfer Certificate. The Transfer
Certificate shall evidence the Incremental Transfers. Following
each Incremental Transfer, the Company shall deposit to the
Transferor's account at the location indicated in Section 10.3
hereof, in immediately available funds, an amount equal to the
Transfer Price for such Incremental Transfer.
(d) By no later than 11:00 a.m. (New York time) on any Transfer
Date, the Company or each Bank Investor, as the case may be,
shall remit its share (which, in the case of an Incremental
Transfer to the Bank Investors, shall be equal to such Bank
Investor's Pro Rata Share) of the aggregate Transfer Price for
such Transfer to the account of the Agent specified therefor from
time to time by the Agent by notice to such Persons. The
obligation of each Bank Investor to remit its Pro Rata Share of
any such Transfer Price shall be several from that of each other
Bank Investor, and the failure of any Bank Investor to so make
such amount available to the Agent shall not relieve any other
Bank Investor of its obligation hereunder. Following each
Incremental Transfer and the Agent's receipt of funds from the
Company or the Bank Investors as aforesaid, the Agent shall remit
the Transfer Price to the Transferor's account at the location
indicated in Section 10.3 hereof, in immediately available funds,
an amount equal to the Transfer Price for such Incremental
Transfer. Unless the Agent shall have received notice from the
Company or any Bank Investor, as applicable, that such Person
will not make its share of any Transfer Price relating to any
Incremental Transfer available on the applicable Transfer Date
therefor, the Agent may (but shall have no obligation to) make
the Company's or any such Bank Investor's share of any such
Transfer Price available to the Transferor in anticipation of the
receipt by the Agent of such amount from the Company or such Bank
Investor. To the extent the Company or any such Bank Investor
fails to remit any such amount to the Agent after any such
advance by the Agent on such Transfer Date, the Company or such
Bank Investor, on the one hand, and the Transferor, on the other
hand, shall be required to pay such amount, together with
interest thereon at a per annum rate equal to the Federal funds
rate (as determined in accordance with clause (ii) of the
definition of "Base Rate"), in the case of the Company, any such
Bank Investor, or the Transferor, to the Agent upon its demand
therefor (provided that the Company shall have no obligation to
pay such interest amounts except to the extent that it shall have
sufficient funds to pay the face amount of its Commercial Paper
in full). Until such amount shall be repaid, such amount shall
be deemed to be Net Investment paid by the Agent and the Agent
shall be deemed to be the owner of a Transferred Interest
hereunder. Upon the payment of such amount to the Agent (x) by
the Transferor, the amount of the aggregate Net Investment shall
be reduced by such amount or (y) by the Company or such Bank
Investor, such payment shall constitute such Person's payment of
its share of the applicable Transfer Price for such Transfer.
(e) On each Business Day occurring after the initial Incremental
Transfer hereunder and prior to the Termination Date, the
Transferor hereby agrees to convey, transfer and assign to the
Agent, on behalf of the Company or the Bank Investors, the Agent,
on behalf of the Company may, and the Agent, on behalf of the
Bank Investors shall agree to purchase from the Transferor
undivided percentage ownership interests in each and every
Receivable, together with Collections and Proceeds with respect
thereto, to the extent that Collections are available for such
Transfer in accordance with Section 2.5 hereof, such that after
giving effect to such Transfer, (i) the amount of the Net
Investment at the close of business on such Business Day shall be
equal to the amount of the Net Investment at the close of the
business on the Business Day immediately preceding such Business
Day plus the Transfer Price of any Incremental Transfer made on
such day, if any, and (ii) the Transferred Interest in each
Receivable, together with Collections and Proceeds with respect
thereto, shall be equal to the Transferred Interest in each other
Receivable, together with Collections and Proceeds with respect
thereto.
(f) Each Transfer shall constitute a transfer to the Agent, on
behalf of the Company or the Bank Investors, as applicable, of
undivided percentage ownership interests in each and every
Receivable, together with Collections and Proceeds with respect
thereto, then existing, as well as in each and every Receivable,
together with Collections and Proceeds with respect thereto,
which arises at any time after the date of such Transfer. The
Agent's aggregate undivided percentage ownership interest in the
Receivables, together with the Collections and Proceeds with
respect thereto, held on behalf of the Company or the Bank
Investors, as applicable, shall equal the Buyer's Percentage
Factor in effect from time to time. The Agent shall hold the
Transferred Interests on behalf of the Company and each Bank
Investor in accordance with each of the Company's and each Bank
Investor's percentage interest in the Transferred Interest
(determined on the basis of the relationship that the portion of
the Net Investment funded by such Person bears to the aggregate
Net Investment of the Company and all of the Bank Investors at
such time).
(g) The Transferor shall issue to the Agent the Certificate, in
the form of Exhibit E, on or prior to the date hereof.
(h) The Buyer's Percentage Factor shall be initially computed as
of the opening of business of the Collection Agent on the date of
the initial Incremental Transfer hereunder. Thereafter until the
Termination Date, the Buyer's Percentage Factor shall be
automatically recomputed as of the close of business of the
Collection Agent on each day (other than a day after the
Termination Date). The Buyer's Percentage Factor shall remain
constant from the time as of which any such computation or
recomputation is made until the time as of which the next such
recomputation, if any, shall be made.
SECTION 2.3. Selection of Interest Rates and Interest
Periods; LIBOR Protection; Illegality.
(a) Prior to the Termination Date; Transferred Interest held on
behalf of the Company. At all times hereafter, but prior to the
Termination Date and not with respect to any portion of the
Transferred Interest held on behalf of the Bank Investors (or any
of them), the Transferor may, subject to the Company's approval
and the limitations described below, request that the Net
Investment be allocated among one or more funding periods, so
that the aggregate amounts so allocated at all times shall equal
the Net Investment held on behalf of the Company. The Transferor
shall give the Company irrevocable notice by telephone of the new
requested funding period(s) by 11:00 a.m. at least one (1)
Business Day prior to the expiration of any then existing funding
period; provided, however, that the Company may select, in its
sole discretion, any such new funding period if (i) the
Transferor fails to provide such notice on a timely basis or (ii)
the Company determines, in its sole discretion, that the funding
period requested by the Transferor is unavailable or for any
reason commercially undesirable. The Company confirms that it is
its intention to fund all or substantially all of the Net
Investment held on behalf of it by issuing Related Commercial
Paper; provided that the Company may determine, from time to
time, in its sole discretion, that funding such Net Investment by
means of Related Commercial Paper is not possible or is not
desirable for any reason. If the Liquidity Provider acquires
from the Company a Purchased Interest with respect to the
Receivables pursuant to the terms of the Liquidity Provider
Agreement, NationsBank, on behalf of the Liquidity Provider, may
exercise the right of selection granted to the Company hereby.
The initial funding period applicable to any such Purchased
Interest shall be a period of not greater than 14 days and shall
accrue Carrying Costs on the basis of the Base Rate. Thereafter,
provided that the Termination Date shall not have occurred,
Carrying Costs shall accrue on the basis of either the Base Rate
or the Adjusted LIBOR Rate, as determined by NationsBank. In the
case of any funding period outstanding upon the Termination Date,
such funding period shall end on such date.
(b) After the Termination Date; Transferred Interest Held on
behalf of the Company. At all times on and after the Termination
Date, with respect to any portion of the Transferred Interest
which shall be held by the Agent on behalf of the Company, the
Company or NationsBank, as applicable, shall select all funding
periods and rates applicable thereto.
(c) Prior to the Termination Date; Transferred Interest Held on
Behalf of Bank Investor. At all times with respect to any
portion of the Transferred Interest held by the Agent on behalf
of the Bank Investors, but prior to the Termination Date, the
initial funding period applicable to such portion of the Net
Investment allocable thereto shall be a period of not greater
than 14 days and shall accrue Carrying Costs on the basis of the
Base Rate. Thereafter, with respect to such portion, and with
respect to any other portion of the Transferred Interest held on
behalf of the Bank Investors (or any of them), provided that the
Termination Date shall not have occurred, Carrying Costs shall
accrue with respect thereto at either the Base Rate or the
Adjusted LIBOR Rate, at the Transferor's option. The Transferor
shall give the Agent irrevocable notice by telephone of the new
requested funding period at least three (3) Business Days prior
to the expiration of any then existing funding period. In the
case of any funding period outstanding upon the occurrence of the
Termination Date, such funding period shall end on the date of
such occurrence.
(d) After the Termination Date; Transferred Interest Held on
behalf of Bank Investor. At all times on and after the
Termination Date, with respect to any portion of the Transferred
Interest held by the Agent on behalf of the Bank Investors, the
Agent shall select all funding periods and rates applicable
thereto.
(e) LIBOR Rate Protection; Illegality.
(i) If the Agent is unable to obtain on a timely
basis the information necessary to determine the LIBOR Rate for
any proposed funding period, then
(A) the Agent shall forthwith notify the
Company or Bank Investors, as applicable and the
Transferor that the Adjusted LIBOR Rate cannot be
determined for such funding period, and
(B) while such circumstances exist, neither
the Company, the Bank Investors or the Agent shall
allocate the Net Investment of any additional
Transferred Interests purchased during such period
or reallocate the Net Investment allocated to any
then existing funding period ending during such
period, to a funding period which accrues Carrying
Costs on the basis of the Adjusted LIBOR Rate.
(ii) If, with respect to any outstanding funding
period which accrues Carrying Costs on the basis of the Adjusted
LIBOR Rate, the Company or any of the Bank Investors on behalf of
which the Agent holds any Transferred Interest therein notifies
the Agent that it is unable to obtain matching deposits in the
London inter-bank market to fund its purchase or maintenance of
such Transferred Interest or that the Adjusted LIBOR Rate
applicable to such Transferred Interest will not adequately
reflect the cost to the Person of funding or maintaining its
respective Transferred Interest for such funding period then the
Agent shall forthwith so notify the Transferor, whereupon neither
the Agent nor the Company or the Bank Investors, as applicable,
shall, while such circumstances exist, allocate any Net
Investment of any additional Transferred Interest purchased
during such period or reallocate the Net Interest allocated to
any funding period ending during such period, to a funding period
which accrues Carrying Costs on the basis of the Adjusted LIBOR
Rate.
(iii) Notwithstanding any other provision of this
Agreement, if the Company or any of the Bank Investors, as
applicable, shall notify the Agent that such Person has
determined (or has been notified by any Liquidity Provider) that
the introduction of or any change in or in the interpretation of
any law or regulation after the Closing Date makes it unlawful
(either for the Company, such Bank Investor, or such Liquidity
Provider, as applicable), or any central bank or other
governmental authority asserts that it is unlawful, for the
Company, such Bank Investor or such Liquidity Provider, as
applicable, to fund the purchases or maintenance of Transferred
Interests at the Adjusted LIBOR Rate, then (x) as of the
effective date of such notice from such Person to the Agent, the
obligation or ability of the Company or such Bank Investor, as
applicable, to fund its purchase or maintenance of Transferred
Interests at the Adjusted LIBOR Rate shall be suspended until
such Person notifies the Agent that the circumstances causing
such suspension no longer exist and (y) the Net Investment
allocated to each funding period which accrues Carrying Costs on
the basis of the Adjusted LIBOR Rate in which such Person owns an
interest shall either (1) if such Person may lawfully continue to
maintain such Transferred Interest at the Adjusted LIBOR Rate
until the last day of the applicable funding period, be
reallocated on the last day of such funding period to another
funding period in respect of which the Net Investment allocated
thereto which accrues Carrying Costs on a basis other than the
Adjusted LIBOR Rate or (2) if such Person shall determine that it
may not lawfully continue to maintain such Transferred Interest
at the Adjusted LIBOR Rate until the end of the applicable
funding period, such Person's share of the Net Investment
allocated to such funding period shall be deemed to accrue
Carrying Costs on the basis of the Base Rate from the effective
date of such notice until the end of such funding period.
SECTION 2.4. Carrying Costs, Fees and Other Costs and
Expenses.
The Transferor agrees to pay, as and when due in
accordance with this Agreement, each Early Collection Fee and all
Carrying Costs and Servicing Fees. On each Remittance Date, the
Transferor shall pay to the Agent, on behalf of the Company or
the Bank Investors, as applicable, an amount equal to the accrued
and unpaid Carrying Costs for the related Collection Period. The
Transferor shall pay to the Agent, on behalf of the Company, on
each day on which Related Commercial Paper is issued by the
Company, the Dealer Fee with respect to such Related Commercial
Paper. All payments referred to in this Section shall be made
solely out of Collections, in the order of priority set forth in
Section 2.5, except for the amounts described in paragraph (e)
of the definition of "Carrying Costs," which shall be paid
directly by the Transferor to extent Collections are not
available therefor.
SECTION 2.5. Allocations of Collections; Non-Liquidation
Settlement and Reinvestment Procedures.
(a) On each Determination Date, the Collection Agent shall
allocate all Collections received during the preceding Collection
Period as Principal Collections or Finance Charge Collections.
Principal Collections shall be applied by the Collection Agent as
described in subsection (d) below. On each Remittance Date, the
product of (A) the daily average of the Buyer's Percentage Factor
over the preceding Collection Period and (B) the aggregate
Finance Charge Collections for such preceding Collection Period
(plus any investment earnings on the Excess Funding Account)
shall be applied by the Collection Agent, without duplication, in
the following order of priority. (For all purposes in this
Section 2.5, the Buyer's Percentage Factor shall be calculated
using the Buyer's Percentage Factor at the opening of business on
the first day of the preceding Collection Period):
(i) first, an amount equal to any accrued and unpaid Carrying
Costs for such Collection Period, shall be paid to the Agent
for the account of the Company and the Bank Investors;
(ii) second, to the payment to the Collection Agent of the
Buyer's Percentage Factor of any Servicing Fee due and owing;
(iii) third, an amount equal to the Buyer's Percentage Factor
of Defaulted Receivables for the related Collection Period plus
an amount equal to the Buyer's Percentage Factor of any unpaid
Defaulted Receivables from prior Collection Periods shall be
applied as Principal Collections in accordance with Section
2.5(d) hereof;
(iv) fourth, to the payment of any Adjustment Payments which the
Transferor was required, but failed, to make under Section 2.9(a)
or any payment which the Transferor was required, but failed, to
make under Section 2.9(b), in each case during the related
Collection Period or any prior Collection Period, which payment
shall be applied as Principal Collections in accordance with
Section 2.5(d) below; and
(v) fifth, to the extent any Finance Charge Collections remain
after application in accordance with clauses (i) through (iv)
above, (A) if prior to the Termination Date, such excess amounts
shall be (i) deposited in the Spread Account, up to the Spread
Account Cap Percentage Amount and (ii) thereafter, paid to the
Transferor and (B) if on or after the Termination Date such
excess amounts shall be paid to the Agent in reduction of the Net
Investment, until the Net Investment has been reduced to zero and
thereafter to the Transferor.
(b) On each Remittance Date, subject to Section 2.5(c), the
product of (A) the Transferor's Percentage Factor at the opening
of business on the first day of the preceding Collection Period
and (B) the aggregate Finance Charge Collections for the
preceding Collection Period shall be applied as follows:
(i) first, to the payment to the Collection Agent of the
Transferor's Percentage Factor of any Servicing Fee due and
owing;
(ii) second, an amount equal to the Transferor's Percentage
Factor of any Defaulted Receivables for the related Collection
Period and any such amount unpaid for prior Collection Periods
shall be applied as Principal Collections in accordance with
Section 2.5(d) below; and
(iii) third, any remaining amounts shall be remitted to the
Transferor.
(c) In the event that, on any Remittance Date, the Buyer's
Percentage Factor of Finance Charge Collections are insufficient
to pay the sum of the amounts due and payable pursuant to (x)
clause (a)(i) above, then, in such event, on such Remittance Date
the entire amount of Finance Charge Collections distributable or
allocable to the Transferor, up to the amount of any such
insufficiency, or (y) clauses (a)(ii) through (a)(v) above, then,
in such event, on such Remittance Date the amount of Finance
Charge Collections distributable or allocable to the Transferor
pursuant to clauses (b)(ii) and (b)(iii) above, up to the amount
of any such insufficiency, and to the extent any such
insufficiency continues to remain, the amounts then on deposit in
the Spread Account, then the amounts on deposit in the Excess
Funding Account, and then the amounts distributable to the
Transferor pursuant to Section 2.5(d), shall be reduced by the
amount of such insufficiency, and such amount(s) shall be
applied as Finance Charge Collections allocable to the
Transferred Interest and shall be applied and distributed in
accordance with the priority set forth in clauses (i) through (v)
of Section 2.5(a).
(d) On each Remittance Date prior to the Termination Date, (i)
the Collection Agent shall allocate to the Company and/or the
Bank Investors the Buyer's Percentage Factor of Principal
Collections received during the related Collection Period and not
previously accounted for or applied toward reinvestment in new
Receivables or reduction of the Net Investment, and, at the
Transferor's option, (A) pay such amount to the Transferor, for
the benefit of the Company and/or the Bank Investors, and the
Transferor shall apply such amount toward the purchase of
additional undivided percentage interests in each Receivable
pursuant to Section 2.2(b), or (B) pay such amount plus, at the
Transferor's option, subject to Section 2.5(f) below, all or a
portion of the amount on deposit in the Excess Funding Account,
to the Agent in reduction of the Net Investment and (ii) the
Collection Agent shall pay to the Transferor the portion of such
Principal Collections not allocated to the Transferred Interest
and remaining after any reallocations pursuant to Section 2.5(c)
above.
On each Remittance Date on or subsequent to the
Termination Date, the Collection Agent shall allocate to the
Company or the Bank Investors, as applicable, the Buyer's
Percentage Factor of all Principal Collections received during
the related Collection Period and not previously applied or
accounted for, plus all amounts on deposit in the Excess Funding
Account, and pay such amount to the Agent in reduction of the Net
Investment. In the event the Termination Date occurred as a
result of a Termination Event (other than a Termination Event
caused by items (k) or (l) of the definition thereof), the
portion of such Principal Collections not allocated to the
Transferred Interest and remaining after any reallocations
pursuant to Section 2.5(c) above shall be distributed to the
Agent in reduction of the Net Investment and, in the case of any
other Termination Date, the portion of such Principal Collections
not allocated to the Transferred Interest and remaining after any
allocations pursuant to Section 2.5(c) above shall be distributed
to the Transferor.
(e) The Transferor shall have the option to designate a fixed or
variable percentage (the "Discount Percentage") of all Principal
Receivables (without giving effect to Discount Receivables) to be
treated as finance charge receivables ("Discount Receivables") in
accordance with the provisions of this Section 2.5(e), and shall
be applied in accordance with Section 2.5(a), which percentage
shall remain fixed and in effect until such time as the
Transferor has provided a subsequent designation to the Agent and
the Agent shall consent thereto. The initial Discount Percentage
shall equal 7.5%.
(f) On any Business Day prior to the Termination Date on which
the Buyer's Percentage Factor of the aggregate Principal
Receivables is equal to or greater than the Net Investment, the
Transferor or Collection Agent may request that any or all
amounts in the Excess Funding Account be distributed to the
Transferor.
SECTION 2.6. Liquidation Settlement Procedures.
On each Remittance Date occurring on and following
the Termination Date, Principal Collections shall be applied in
accordance with Section 2.5(d). The Agent, upon its receipt of
such amounts in the Agent's account, shall distribute such
amounts to the Company and/or the Bank Investors entitled thereto
as set forth above; provided that if the Agent shall have
insufficient funds to pay all of the above amounts in full on any
such date, the Agent shall pay such amounts in the order of
priority set forth above and, with respect to any such category
above for which the Agent shall have insufficient funds to pay
all amounts owing on such date, ratably (based on the amounts in
such categories owing to such Persons) among all such Persons
entitled to payment thereof.
Following the date on which the Net Investment has
been reduced to zero and all other Aggregate Unpaids have been
paid in full, (i) the Collection Agent shall recompute the
Buyer's Percentage Factor as zero, (ii) the Agent, on behalf of
the Company and the Bank Investors, shall be deemed to have
reconveyed to the Transferor all of the Agent's right, title and
interest in and to the Affected Assets (including the Transferred
Interest), (iii) the Collection Agent shall pay to the Transferor
any remaining Collections held by the Agent or the Collection
Agent pursuant to Section 2.5 or 2.12 and (iv) the Agent, on
behalf of the Company and the Bank Investors, shall execute and
deliver to the Transferor, at the Transferor's expense, such
documents or instruments as are necessary to terminate the
Agent's interests in the Affected Assets. Any such documents
shall be prepared by or on behalf of the Transferor.
SECTION 2.7. Fees.
On each Remittance Date the Transferor shall pay
(which payments shall be made from Collections in the order of
priority set forth in Section 2.5), with respect to the preceding
Collection Period, to the Company solely for its own account, the
Program Fee and the Administrative Fee, and to the Agent, for
distribution to the Bank Investors, the Facility Fee.
SECTION 2.8. Protection of Ownership Interest of the Company
and the Bank Investors.
(a) The Transferor agrees that it will, and will cause the
Initial Purchaser and the Seller to, from time to time, at
Transferor's expense, promptly execute and deliver all
instruments and documents and take all actions as may be
necessary or as the Agent may reasonably request in order to
perfect or protect the Transferred Interest or to enable the
Agent, the Company or the Bank Investors to exercise or enforce
any of their respective rights hereunder. Without limiting the
foregoing, the Transferor will, and will cause the Seller and
Initial Purchaser to, upon the request of the Agent, the Company
or any of the Bank Investors, in order to accurately reflect this
purchase and sale transaction, execute and file such financing or
continuation statements or amendments thereto or assignments
thereof (as permitted pursuant to Section 9.7 hereof) as may be
requested by the Agent, the Company or any of the Bank Investors.
The Transferor shall, and shall cause the Initial Purchaser and
the Seller to, upon request of the Agent, the Company or any of
the Bank Investors obtain such additional search reports as the
Agent, the Company or any of the Bank Investors shall request.
To the fullest extent permitted by applicable law, the Agent
shall be permitted to sign and file continuation statements and
assignments thereof without the Transferor's or the Seller's
signature. Carbon, photographic or other reproduction of this
Agreement or any financing statement shall be sufficient as a
financing statement. The Transferor shall not, and shall not
permit the Initial Purchaser or Seller to, change its respective
name, identity or corporate structure (within the meaning of
Section 9-402(7) of the UCC as in effect in the States of New
York, Utah, Delaware and Minnesota, as applicable, relocate its
respective chief executive office unless it shall have:
(i) given the Agent at least thirty (30) days prior notice
thereof and (ii) prepared at Transferor's expense and delivered
to the Agent all financing statements, instruments and other
documents necessary to preserve and protect the Transferred
Interest or requested by the Agent in connection with such change
or relocation. Any filings under the UCC or otherwise that are
occasioned by such change in name or location shall be made at
the expense of Transferor. The Transferor shall notify the Agent
promptly after it, the Initial Purchaser or the Seller relocates
any office where Records are kept of any such new location.
(b) The Transferor agrees that it will, and will cause the
Seller and each other Person having possession of any Records to,
at Transferor's expense, on or prior to the Closing Date
indicate clearly and unambiguously in its master data processing
records and on any storage containers containing Records that the
Receivables created in connection with the Accounts have been
conveyed to the Transferor and transferred to the Agent, for the
benefit of the Company and the Bank Investors. The Transferor
further agrees to deliver or to cause the Collection Agent to
deliver to the Agent a computer file or microfiche list
containing a true and complete list of all such Accounts,
identified by account number and by Receivable balance as of the
Cut-Off Date. Such file or list shall be marked as the Account
Schedule delivered to the Agent as confidential and proprietary,
and is hereby incorporated into and made a part of this
Agreement. The Transferor agrees to deliver or to cause the
Collection Agent to deliver to the Agent within five (5) Business
Days of the request therefor by the Agent a computer file or
microfiche list containing a true and complete list of all
Accounts, including all Related Accounts created on or after the
Cut-Off Date, in existence as of the last day of the prior
Collection Period, identified by account number and by Receivable
balance as of the last day of the prior Collection Period. Such
file or list shall be marked as the Account Schedule delivered to
the Agent as confidential and proprietary, shall replace the
previously delivered Account Schedule and shall be incorporated
into and made a part of this Agreement. The Collection Agent
agrees, on behalf of the Transferor, at its own expense, by the
end of each Collection Period in which any Accounts or Related
Accounts have been originated to indicate clearly and
unambiguously in its master data processing records and any
storage containers containing Records that the Receivables
created in connection with such Accounts have been conveyed to
the Transferor and transferred to the Agent, for the benefit of
the Company and the Bank Investors, pursuant to this Agreement.
SECTION 2.9. Application of Payments.
(a) If on any day any Receivable is either (x) reduced or
canceled as a result of any defective, rejected or returned
merchandise or services, any discount, credit, rebate, dispute,
warranty claim, chargeback, allowance or any billing or other
adjustment, or (y) reduced or canceled as a result of a setoff or
offset in respect of any claim by any Person (whether such claim
arises out of the same or a related transaction or an unrelated
transaction and whether such reduction or cancellation is
effected through the granting of credits against the applicable
Receivables or by the issuance of a check or other payment in
respect of, and as payment for, such reduction) or (z) any other
downward adjustments to the balance of such Receivable without
receiving Collections therefor and prior to such Receivable
becoming a Defaulted Receivable, then such amount shall
thereafter be deducted from the aggregate balance of the
Receivables and the Principal Receivables. If such reduction
would result in a Buyer's Percentage Factor greater than the
Maximum Buyer's Percentage Factor, the Transferor shall pay (or
direct the Servicer to pay from Collections otherwise
distributable to the Transferor) to the Agent an amount (the
payment of such amount is herein referred to as an "Adjustment
Payment") equal to the amount that, when (A) deposited into the
Excess Funding Account or (B) applied in reduction of the Net
Investment, will result in a Buyer's Percentage Factor less than
or equal to the Maximum Buyer's Percentage Factor. At the
Transferor's election, such amount shall be (A) deposited into
the Excess Funding Account or (B) applied by the Agent to the
reduction of the Net Investment.
(b) If on any day any of the representations or warranties set
forth in (x) Section 3.1 (d), (j), (l) or (s) or Section 3.3(f)
was or becomes untrue with respect to a Receivable or (y) Section
3.1(e) or Section 3.3(d) was or becomes untrue with respect to
the existence or amount of any Receivable (whether, in any case,
on or after the date of any transfer of an interest therein to
the Agent, the Company or the Bank Investors as contemplated
hereunder), then such Receivable shall thereafter not be included
in any calculation of the outstanding Receivables or the
Principal Receivables; provided, however, that if such
representations and warranties shall on any day thereafter be
true and correct in all material respects as if such Receivable
had then been created, such Receivable shall be eligible for
purchase hereunder. If such reduction would result in a Buyer's
Percentage Factor greater than the Maximum Buyer's Percentage
Factor, the Transferor shall pay (or direct the Servicer to pay
from Collections otherwise distributable to the Transferor) to
the Agent an amount equal to the amount that, when (A) deposited
into the Excess Funding Account or (B) applied in reduction of
the Net Investment, will result in a Buyer's Percentage Factor
less than or equal to the Maximum Buyer's Percentage Factor. At
the Transferor's election, such amount shall be (A) deposited
into the Excess Funding Account or (B) applied by the Agent to
the reduction of the Net Investment.
SECTION 2.10. Payments and Computations, Etc.
All amounts to be paid or deposited by the
Transferor or the Collection Agent hereunder shall be paid or
deposited in accordance with the terms hereof no later than 11:00
a.m. (New York City time) on the day when due in immediately
available funds; if such amounts are payable to the Agent
(whether on behalf of the Company or any Bank Investor or
otherwise) they shall be paid or deposited in the account
indicated in Section 10.3 hereof, until otherwise notified by the
Agent. The Transferor shall, to the extent permitted by law, pay
to the Agent, for the benefit of the Company and the Bank
Investors upon demand, interest on all amounts not paid or
deposited when due hereunder at a rate equal to 2% per annum plus
the Base Rate. All computations of interest and all per annum
fees hereunder shall be made on the basis of a year of 360 days
for the actual number of days (including the first but excluding
the last day) elapsed. Any computations by the Agent of amounts
payable by the Transferor hereunder shall create a rebuttable
presumption of correctness.
SECTION 2.11. Reports.
(a) Prior to each Determination Date after the Closing Date,
beginning with the November 18, 1997 Determination Date, the
Collection Agent shall prepare and forward to the Agent (i) an
Investor Report as of the end of the last day of the immediately
preceding month, (ii) if requested by the Agent, a listing by
Obligor of all Receivables together with an aging of such
Receivables and (iii) such other information as the Agent may
reasonably request.
(b) On or before the date of an Incremental Transfer, the
Collection Agent shall prepare and forward to the Agent an
Additional Investment Certificate, reporting the Principal
Receivables, the Buyer's Percentage Factor, the Spread Account
Cap Percentage Amount, the amount on deposit in the Spread
Account and such other information as the Agent may request (i)
as of the close of business on the Business Day preceding the
date of the requested Incremental Transfer, beginning on or after
March 3, 1998, and (ii) as of the close of business on the second
Business Day preceding the date of the Incremental Transfer,
through March 2, 1998.
SECTION 2.12. Collection Account, Spread Account and Excess
Funding Account.
(a) There shall be established on the day of the initial
Incremental Transfer hereunder and maintained with the Agent, a
segregated account (the "Collection Account"), bearing a
designation clearly indicating that the funds deposited therein
are held for the benefit of the Agent, on behalf of the Company
and the Bank Investors. The Collection Agent shall remit daily
but in any event within forty-eight hours of receipt to the
Collection Account, (a) if prior to the occurrence of a
Termination Event (or during the occurrence of a Termination
Event listed in clause (k) or (l) of Section 7.1) the Buyer's
Percentage Factor of all Finance Charge Collections, and (b) if
on or after the occurrence of a Termination Event (except those
listed in clause (k) or (l) of Section 7.1), all Collections
received with respect to any Receivables. For purposes of this
Section 2.12(a), the Buyer's Percentage Factor during any
Collection Period shall be the Buyer's Percentage Factor at the
opening of business on the first day of such Collection Period.
Funds on deposit in the Collection Account (other than investment
earnings) shall be invested by the Agent in Eligible Investments
that will mature so that such funds will be available prior to
the Remittance Date following such investment. On each
Remittance Date, all interest and earnings (net of losses and
investment expenses) on funds on deposit in the Collection
Account shall be applied as if such amounts were the Buyer's
Percentage Factor of Finance Charge Collections. On the date on
which the Net Investment and all Aggregate Unpaids have been paid
in full, any funds remaining on deposit in the Collection Account
shall be paid to the Transferor.
(b) (i) There shall be established on the Closing Date
hereunder and maintained with the Agent a segregated account (the
"Spread Account"), bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of the
Agent, on behalf of the Company and the Bank Investors. On each
Determination Date, the Spread Account Cap Percentage Amount for
such Determination Date shall be calculated by the Agent. If the
funds on deposit in the Spread Account on such Determination Date
are less than the Spread Account Cap Percentage Amount,
Collections shall be deposited into the Spread Account on the
next succeeding Remittance Date in accordance with Section 2.5 up
to the Spread Account Cap Percentage Amount.
(ii) Funds on deposit in the Spread Account (other
than investment earnings) shall be invested by the Agent in
Eligible Investments that will mature so that funds will be
available prior to the Remittance Date following such investment.
On each Remittance Date, all interest and earnings (net of losses
and investment expenses) on funds on deposit in the Spread
Account shall be applied as if such amounts were the Buyer's
Percentage Factor of Finance Charge Collections. On the date on
which the Net Investment and all Aggregate Unpaids have been paid
in full, any funds remaining on deposit in the Spread Account
shall be paid to the Transferor.
(c) (i) There shall be established on the Closing Date
hereunder and maintained with the Agent either a separate,
segregated account or a subaccount of the Collection Account (the
"Excess Funding Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the
benefit of the Agent, on behalf of the Company and the Bank
Investors. In the event that on any day the Buyer's Percentage
Factor exceeds the Maximum Buyer's Percentage Factor, the
Collection Agent shall remit to the Excess Funding Account an
amount of Principal Collections which would cause the Buyer's
Percentage Factor not to exceed the Maximum Buyer's Percentage
Factor.
(ii) Funds on deposit in the Excess Funding Account
(other than investment earnings) shall be invested by the Agent
at the direction of the Collection Agent in Eligible Investments
that will mature so that funds will be available prior to the
Remittance Date following such investment. On each Remittance
Date, all funds on deposit in the Excess Funding Account shall be
available to make any payments required to be made from the
Excess Funding Account in accordance with Section 2.5. On the
date on which the Net Investment and all Aggregate Unpaids have
been paid in full, any funds remaining on deposit in the Excess
Funding Account shall be paid to the Transferor.
SECTION 2.13. Sharing of Payments, Etc.
If the Company or any Bank Investor (for purposes
of this Section only, being a "Recipient") shall obtain any
payment (whether voluntary, involuntary, through the exercise of
any right of setoff, or otherwise) on account of Transferred
Interest owned by it (other than pursuant to Section 2.7, or
Article VIII and other than as a result of the differences in the
timing of the applications of Collections pursuant to Section 2.5
or 2.6) in excess of its ratable share of payments on account of
Transferred Interest obtained by the Company and/or the Bank
Investors entitled thereto, such Recipient shall forthwith
purchase from the Company and/or the Bank Investors entitled to a
share of such amount participations in the Percentage Interests
owned by such Persons as shall be necessary to cause such
Recipient to share the excess payment ratably with each such
other Person entitled thereto; provided, however, that if all or
any portion of such excess payment is thereafter recovered from
such Recipient, such purchase from each such other Person shall
be rescinded and each such other Person shall repay to the
Recipient the purchase price paid by such Recipient for such
participation to the extent of such recovery, together with an
amount equal to such other Person's ratable share (according to
the proportion of (a) the amount of such other Person's required
payment to (b) the total amount so recovered from the Recipient)
of any interest or other amount paid or payable by the Recipient
in respect of the total amount so recovered.
SECTION 2.14. Right of Setoff.
Without in any way limiting the provisions of
Section 2.13, each of the Company and the Bank Investors is
hereby authorized (in addition to any other rights it may have)
at any time after the occurrence of the Termination Date or
during the continuance of a Potential Termination Event to
setoff, appropriate and apply (without presentment, demand,
protest or other notice which are hereby expressly waived) any
deposits held by the Company or such Bank Investor in the
Collection Account, the Excess Funding Account or the Spread
Account to, or for the account of, the Transferor against the
amount of the Aggregate Unpaids owing by the Transferor to such
Person or to the Agent on behalf of such Person (even if
contingent or unmatured).
ARTICLE I II
REPRESENTATIONS AND WARRANTIES
SECTION 3.
SECTION 3.1. Representations and Warranties of the
Transferor.
The Transferor represents and warrants to the
Agent, the Company and the Bank Investors that:
(a) Corporate Existence and Power.
The Transferor is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all
material governmental licenses, authorizations, consents and
approvals required to carry on its business in each jurisdiction
in which its business is now conducted. The Transferor is duly
qualified to do business in, and is in good standing in, every
other jurisdiction in which the nature of its business requires
it to be so qualified, except where the failure to be so
qualified or in good standing would not have a Material Adverse
Effect.
(b) Corporate and Governmental Authorization; Contravention.
The execution, delivery and performance by the
Transferor of this Agreement, the Receivables Purchase Agreement
to which it is a party, the Fee Letter, the Certificate, the
Transfer Certificate and the other Transaction Documents to which
the Transferor is a party are within the Transferor's corporate
powers, have been duly authorized by all necessary corporate
action, require no action by or in respect of, or filing with,
any Official Body or official thereof (except as contemplated by
Section 2.8 hereof), and do not contravene, or constitute a
default under, any provision of applicable law, rule or
regulation or of the Certificate of Incorporation or Bylaws of
the Transferor or of any agreement, judgment, injunction, order,
writ, decree or other instrument binding upon the Transferor or
result in the creation or imposition of any Adverse Claim on the
assets of the Transferor or any of its Subsidiaries (except as
contemplated by Section 2.8 hereof).
(c) Binding Effect.
Each of this Agreement, the Receivables Purchase
Agreements to which it is a party, the Fee Letter, the
Certificate and the other Transaction Documents to which the
Transferor is a party constitutes, and the Transfer Certificate
upon payment of the Transfer Price set forth therein will
constitute, the legal, valid and binding obligation of the
Transferor, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other
similar laws affecting the rights of creditors generally and as
such enforceability may be limited by general principles of
equity (whether considered in a proceeding at law or in equity).
(d) Perfection.
Immediately preceding each Transfer hereunder, the
Transferor shall be the lawful owner of all of the Receivables,
free and clear of all Adverse Claims. On or prior to each
Transfer and each recomputation of the Transferred Interest, all
financing statements and other documents required to be recorded
or filed in order to perfect and protect Agent's Transferred
Interest against all creditors of and purchasers from the
Transferor, the Initial Purchaser and the Seller will have been
duly filed in each filing office necessary for such purpose and
all filing fees and taxes, if any, payable in connection with
such filings shall have been paid in full.
(e) Accuracy of Information.
All information heretofore furnished by or on
behalf of the Seller, the Collection Agent or the Transferor
(including without limitation, the Investor Reports, any reports
delivered pursuant to Section 2.11 hereof and the Transferor's
financial statements) to the Company, any Bank Investors or the
Agent for purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all such information
hereafter furnished by the Transferor to the Company, any Bank
Investors, the Agent or the Agent will be, true, accurate and
complete in every material respect, on the date such information
is stated or certified.
(f) Tax Status.
The Transferor has filed all tax returns (federal,
state and local) required to be filed and has paid or made
adequate provision for the payment of all taxes, assessments and
other governmental charges, except to the extent it is contesting
any such payment in good faith, through appropriate proceedings
and after having set aside adequate reserves therefor.
(g) No Actions, Suits.
There are no actions, suits or proceedings pending
or, to the knowledge of the Transferor, threatened against or
affecting the Transferor, the Seller or the Initial Purchaser or
their respective properties, in or before any court, arbitrator
or other body, which question the validity of the transactions
contemplated hereby or which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(h) Use of Proceeds.
No proceeds of any Transfer will be used by the
Transferor to acquire any security in any transaction which is
subject to Section 13 or 14 of the Securities Exchange Act of
1934, as amended.
(i) Place of Business.
The principal place of business and chief
executive office of the Transferor are located at the address of
the Transferor indicated in Section 10.3 hereof and the offices
where the Transferor keeps all its Records, are located in Salt
Lake City, Utah, Omaha, Nebraska, Hennepin County, Minnesota,
Tulsa, Oklahoma and St. Cloud, Minnesota and such other addresses
as are described on Exhibit G or such other locations notified to
the Company in accordance with Section 2.8 hereof in
jurisdictions where all action required by Section 2.8 hereof has
been taken and completed.
(j) Good Title.
Upon each Transfer and each recomputation of the
Transferred Interest, the Agent shall acquire a valid and
perfected first priority undivided percentage ownership interest
to the extent of the Transferred Interest or a first priority
perfected security interest in each Receivable that exists on the
date of such Transfer and recomputation and in the Collections
with respect thereto free and clear of any Adverse Claim.
(k) Tradenames, Etc.
Except as set forth on Exhibit H, as amended from
time to time, (i) the Transferor's chief executive office is
located at the address for notices set forth in Section 10.3
hereof; (ii) the Seller has no subsidiaries or divisions; and
(iii) the Transferor has, within the last five (5) years,
operated only under its legal name, and, within the last five (5)
years, has not changed its name, merged with or into or
consolidated with any other corporation or been the subject of
any proceeding under Title 11, United States Code (the
"Bankruptcy Code").
(l) Nature of Receivables.
Each Receivable (x) represented by the Transferor
or the Collection Agent to be an Eligible Receivable (including
in any Investor Report or other report delivered pursuant to
Section 2.11 hereof) or (y) included in the calculation of
Principal Receivables in fact satisfies at such time the
definition thereof.
(m) Coverage Requirement; Amount of Receivables.
The Buyer's Percentage Factor does not exceed the
Maximum Buyer's Percentage Factor. As of the Cut-Off Date, the
aggregate outstanding balance of the Principal Receivables in
existence was $367,560,721.04.
(n) Collections and Servicing.
Since July 29, 1997, there has been no material
adverse change in the ability of the Collection Agent (to the
extent it is the Seller, the Transferor or any Subsidiary or
Affiliate of any of the foregoing) to service and collect the
Receivables.
(o) No Termination Event.
No event has occurred and is continuing and no
condition exists which constitutes a Termination Event or a
Potential Termination Event.
(p) Not an Investment Company.
The Transferor is not, and is not controlled by,
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions
of such Act.
(q) ERISA.
Each of the Transferor and its ERISA Affiliates is
in compliance in all material respects with ERISA and no lien
exists in favor of the Pension Benefit Guaranty Corporation on
any of the Receivables.
(r) Bulk Sales.
No transaction contemplated hereby or by the
Receivables Purchase Agreements requires compliance with any bulk
sales act or similar law.
(s) Transfers under Receivables Purchase Agreements.
Each Receivable which has been transferred to the
Transferor by the Initial Purchaser and to the Initial Purchaser
by the Seller has been purchased, respectively, by the Transferor
from the Initial Purchaser and by the Initial Purchaser from the
Seller pursuant to, and in accordance with, the terms of the
respective Receivables Purchase Agreements. The Affected Assets
have been conveyed by DMCCB to the Initial Purchaser pursuant to
the Receivables Purchase Agreement between DMCCB and the Initial
Purchaser.
(t) Preference; Voidability.
The Transferor and the Initial Purchaser shall
have given reasonably equivalent value to the Initial Purchaser
and the Seller, respectively, in consideration for the transfer
to the Transferor and the Initial Purchaser of the Receivables
from the Initial Purchaser and the Seller, respectively, and each
such transfer shall not have been made for or on account of an
antecedent debt owed by the Initial Purchaser to the Transferor
or Seller to the Initial Purchaser, respectively, and no such
transfer is or may be voidable under any Section of the
Bankruptcy Code.
(u) Representations and Warranties of the Seller.
Each of the representations and warranties of the
Seller and Initial Purchaser set forth in the Receivables
Purchase Agreements and of the Seller, Initial Purchaser and the
Transferor in each other Transaction Document are true and
correct in all material respects and the Transferor hereby
remakes all such representations and warranties for the benefit
of the Company, the Bank Investors and the Agent. Any document,
instrument, certificate or notice delivered to the Company
hereunder shall be deemed a representation and warranty by the
Transferor.
SECTION 3.2. Reaffirmation of Representations and Warranties
by the Transferor.
On each day that a Transfer is made hereunder, the
Transferor, by accepting the proceeds of such Transfer, whether
delivered to the Transferor pursuant to Section 2.2(a) or Section
2.5 hereof, shall be deemed to have certified that all
representations and warranties described in Section 3.1 hereof
are correct on and as of such day as though made on and as of
such day. Each Incremental Transfer shall be subject to the
further condition precedent that prior to the date of such
Incremental Transfer, the Collection Agent shall have delivered
to the Agent, in form and substance satisfactory to the Agent a
completed Additional Investment Certificate, together with such
additional information as may be reasonably requested by the
Agent; and the Transferor shall be deemed to have represented and
warranted that such conditions precedent have been satisfied.
SECTION 3.3. Representations and Warranties of the Collection
Agent.
The Collection Agent represents and warrants to
the Company and the Bank Investors that:
(a) Corporate Existence and Power.
The Collection Agent is a national banking
association duly organized, validly existing and in good standing
under the laws of the United States and has all corporate power
and all material governmental licenses, authorizations, consents
and approvals required to carry on its business in each
jurisdiction in which its business is now conducted. The
Collection Agent is duly qualified to do business in, and is in
good standing (or is exempt from such requirements) in, every
other jurisdiction in which the nature of its business requires
it to be so qualified, except where the failure to be so
qualified or in good standing would not have a Material Adverse
Effect.
(b) Corporate and Governmental Authorization; Contravention.
The execution, delivery and performance by the
Collection Agent of this Agreement are within the Collection
Agent's corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect
of, or filing with, any Official Body or official thereof, and do
not contravene, or constitute a default under, any provision of
applicable law, rule or regulation or of the Articles of
Association or Bylaws of the Collection Agent or of any
agreement, judgment, injunction, order, writ, decree or other
instrument binding upon the Collection Agent or result in the
creation or imposition of any Adverse Claim on the assets of the
Collection Agent or any of its Subsidiaries (except as
contemplated by Section 2.8).
(c) Binding Effect.
This Agreement constitutes the legal, valid and
binding obligation of the Collection Agent, enforceable in
accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws affecting the rights
of creditors and as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law
or in equity).
(d) Accuracy of Information.
All information heretofore furnished by the
Collection Agent to the Agent, the Company, any Bank Investor or
the Agent for purposes of or in connection with this Agreement or
any transaction contemplated hereby is, and all such information
hereafter furnished by the Collection Agent to the Agent, the
Company, any Bank Investor or the Agent will be, true and
accurate in every material respect, on the date such information
is stated or certified.
(e) Actions, Suits.
There are no actions, suits or proceedings
pending, or to the knowledge of the Collection Agent threatened,
against or affecting the Collection Agent or its respective
properties, in or before any court, arbitrator or other body,
which may, individually or in the aggregate, have a Material
Adverse Effect.
(f) Nature of Receivables.
Each Receivable included in the calculation of the
Principal Receivables in fact satisfies at such time the
definition of "Eligible Receivable".
(g) Amount of Receivables.
As of the Cut-Off Date, the aggregate outstanding
balance of the Principal Receivables in existence was
$367,560,721.04.
(h) Collections and Servicing.
Since July 29, 1997, there has been no material
adverse change in the ability of the Collection Agent to service
and collect the Receivables.
(i) Not an Investment Company.
The Collection Agent is not, and is not controlled
by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions
of such Act.
(j) Tax Status.
The Collection Agent has filed all tax returns
(federal, state and local) required to be filed and has paid or
made adequate provision for the payment of all taxes, assessments
and other governmental charges, except to the extent it is
contesting any such payment in good faith, through appropriate
proceedings and after having set aside adequate reserves
therefor.
(k) ERISA.
The Collection Agent is in compliance in all
material respects with ERISA.
(l) Chief Executive Office. Its chief executive office for
purposes of Article 9 of the UCC is located as specified below
its name in Section 10.3.
ARTICLE I V
CONDITIONS PRECEDENT
SECTION 4. Do not remove this number
SECTION 4.1. Conditions to Closing.
On or prior to the date of execution hereof, the
Transferor shall deliver to the Agent the following documents,
instruments and fees, all of which shall be in a form and
substance acceptable to the Agent:
(a) A copy of the resolutions of the Board of Directors of the
Transferor certified by its Secretary approving the execution,
delivery and performance by the Transferor of this Agreement, the
Receivables Purchase Agreement to which it is a party and the
other Transaction Documents to be delivered by the Transferor
hereunder or thereunder.
(b) A copy of the resolutions of the Board of Directors of each
of the Seller and the Initial Purchaser, certified by its
Secretary, approving the execution, delivery and performance by
the Seller and the Initial Purchaser of this Agreement, the
Receivables Purchase Agreements and the other Transactions
Documents to be delivered by the Seller and the Initial Purchaser
hereunder or thereunder.
(c) The Certificate of Incorporation of the Transferor certified
by the Secretary of State or other similar official of the
Transferor's jurisdiction of incorporation.
(d) The Articles of Association of the Seller, certified by the
Seller's corporate secretary, and the Certificate of
Incorporation of the Initial Purchaser, certified by the
Secretary of State or other similar official of the Initial
Purchaser's jurisdiction of incorporation.
(e) A Good Standing Certificate for the Transferor issued by the
Secretary of State or a similar official of the Transferor's
jurisdiction of incorporation, dated a date reasonably prior to
the Closing Date.
(f) A Good Standing Certificate for the Initial Purchaser issued
by the Secretary of State or a similar official of its
jurisdiction of incorporation, dated a date reasonably prior to
the Closing Date.
(g) A Certificate of an officer of the Transferor, Seller and
Initial Purchaser as to the truth of representations and
warranties on the Closing Date, and a certificate of the
Secretary of each of the Transferor, Seller and the Initial
Purchaser as to the incumbency of all officers signing
Transaction Documents on their behalf, with such attachments, and
including such other matters, as are requested by the Agent.
(h) Copies of proper financing statements (Form UCC-1), dated a
date reasonably near to the date of the initial Incremental
Transfer naming the Transferor as the debtor in favor of the
Agent, for the benefit of the Company and the Bank Investors, as
secured party or other similar instruments or documents as may be
necessary or in the reasonable opinion of the Agent desirable
under the UCC of all appropriate jurisdictions or any comparable
law to perfect the Agent's undivided percentage interest in all
Receivables and Collections relating thereto.
(i) Copies of proper financing statements (Form UCC-1), (x)
naming the Seller as the debtor in favor of the Initial Purchaser
as secured party, which were filed in respect of the Receivables
Purchase Agreement between such parties, and (y) dated a date
reasonably near to the date of the initial Incremental Transfer,
naming the Initial Purchaser as the debtor in favor of the
Transferor as secured party, or other similar instruments or
documents as may be necessary or in the reasonable opinion of the
Agent desirable under the UCC of all appropriate jurisdictions or
any comparable law to perfect the Transferor's and the Initial
Purchaser's ownership interest in all Receivables.
(j) Copies of proper financing statements (Form UCC-3), if any,
necessary to terminate all security interests and other rights of
any person in Receivables previously granted by Transferor.
(k) Copies of proper financing statements (Form UCC-3), if any,
necessary to terminate all security interests and other rights of
any person in Receivables previously granted by Mercantile, the
Seller or the Initial Purchaser.
(l) Certified copies of request for information (Form UCC-11)
(or a similar search report certified by parties acceptable to
the Agent) dated a date reasonably near the date of the initial
Incremental Transfer listing all effective financing statements
which name the Transferor, the Seller or the Initial Purchaser
(under their respective present names and any previous names) as
debtor and which are filed in jurisdictions in which the filings
were made pursuant to items (h) or (i) above together with copies
of such financing statements (none of which shall cover any
Receivables or Accounts except for those referred to in clause
(i)(x) above).
(m) An opinion of in-house counsel to the Transferor, the
Collection Agent, the Seller and the Initial Purchaser, covering
the matters requested by the Agent.
(n) A copy of an executed notice to Bank of New York excluding
the Receivables from being conveyed pursuant to a certain
receivables purchase agreement between the Initial Purchaser and
Metris Receivables Inc.
(o) An opinion of Faegre & Benson LLP, counsel to the Transferor
and the Initial Purchaser, covering certain bankruptcy and
insolvency matters (i.e. "true sale" and "non-consolidation").
(p) An opinion of Van Cott, Bagley, Cornwall & McCarthy, special
Utah counsel to the Seller, as to the perfection and priority of
the security interest created under the Receivables Purchase
Agreement between the Seller and the Initial Purchaser.
(q) A letter addressed to the Agent from Dorsey & Whitney LLP,
updating and entitling the Agent to rely on their opinion of June
2, 1997 as to the enforceability of the security interest
referred to in clause (p) above notwithstanding any insolvency of
the Seller.
(r) An opinion of Dorsey & Whitney LLP, counsel to the Initial
Purchaser and the Transferor, covering the perfection and
priority of security interests under this Agreement and the
Receivables Purchase Agreement between the Initial Purchaser and
the Transferor and the creation of security interests under the
Receivables Purchase Agreement between DMCCB and the Initial
Purchaser.
(s) A computer tape setting forth as of the Cut-Off Date all
Receivables and the Receivables balances thereon and such other
information as the Agent may reasonably request.
(t) An executed copy of this Agreement, the Receivables Purchase
Agreements, the Fee Letter and each of the other Transaction
Documents to be executed by the Seller, the Initial Purchaser or
the Transferor.
(u) The Transfer Certificate, duly executed by the Transferor.
(v) The Certificate, duly executed by the Transferor and
appropriately completed.
(w) An Agreement Fee to the Agent solely for its own account.
(x) Evidence that the Spread Account has been established in
accordance with Section 2.12(b) hereof.
(y) All documents pursuant to which the Receivables have been
sold by Mercantile to the Seller.
(z) Such other documents, instruments, certificates and opinions
as the Agent shall reasonably request.
ARTICLE V
COVENANTS
SECTION 5.
SECTION 5.1. Affirmative Covenants of Transferor.
At all times from the date hereof to the later to
occur of (i) the Termination Date or (ii) the date on which the
Net Investment has been reduced to zero and all other Aggregate
Unpaids shall have been paid in full, in cash, unless the Agent
shall otherwise consent in writing:
(a) Financial Reporting.
The Transferor will maintain, for itself and each
of its Subsidiaries, a system of accounting established and
administered in accordance with GAAP, and furnish or cause to be
furnished to the Agent:
(i) Annual Reporting.
Within one hundred (100) days after the close
of the Initial Purchaser's fiscal years, audited
financial statements, prepared in accordance with GAAP
on a consolidated basis for the Initial Purchaser and
its Subsidiaries, in each case, including balance
sheets as of the end of such period, related statements
of income and cash flows, accompanied by an opinion
(which shall not be qualified in any material respect)
of a "Big Six" independent certified public accounting
firm, prepared in accordance with generally accepted
auditing standards and by a certificate of said
accountants that, in the course of the foregoing, they
have obtained no knowledge of any Termination Event or
Potential Termination Event, or if, in the opinion of
such accountants, any Termination Event or Potential
Termination Event shall exist, stating the nature and
status thereof.
(ii) Quarterly Reporting.
Within fifty (50) days after the close of the
first three quarterly periods of the Initial
Purchaser's fiscal years, for the Initial Purchaser and
its Subsidiaries, in each case, consolidated unaudited
balance sheets as at the close of each such period and
consolidated related statements of income and cash
flows for the period from the beginning of such fiscal
year to the end of such quarter, all as contained in
the Initial Purchaser's filing with the Securities and
Exchange Commission on Form 10-Q.
(iii) Compliance Certificate.
Together with the financial statements
required hereunder, a compliance certificate signed by
the Initial Purchaser's chief financial officer stating
that (x) the attached financial statements have been
prepared in accordance with GAAP and accurately reflect
the financial condition of the Initial Purchaser and
its Subsidiaries and (y) to the best of such Person's
knowledge, no Termination Event or Potential
Termination Event exists, or if any Termination Event
or Potential Termination Event exists, stating the
nature and status thereof.
(iv) Notice of Termination Events or Potential Termination
Events.
As soon as possible and in any event within
two (2) days after the occurrence of each Termination
Event or each Potential Termination Event, a statement
of the chief financial officer or chief accounting
officer of the Transferor setting forth details of such
Termination Event or Potential Termination Event and
the action which the Transferor proposes to take with
respect thereto.
(v) Change in Credit and Collection Policy and Debt
Ratings.
Within five (5) days after the date of any
change in the Transferor's, the Seller's or the Initial
Purchaser's public or private debt ratings, if any, a
written certification of the Transferor's, the Seller's
or the Initial Purchaser's public and private debt
ratings after giving effect to any such change.
(vi) ERISA.
Promptly after the filing or receiving
thereof, copies of all reports and notices with respect
to any Reportable Event (as defined in Article IV of
ERISA) which the Transferor, the Initial Purchaser, the
Seller or any ERISA Affiliate of the Transferor, the
Initial Purchaser or the Seller files under ERISA with
the Internal Revenue Service, the Pension Benefit
Guaranty Corporation or the U.S. Department of Labor or
which the Transferor, the Initial Purchaser, the Seller
or any ERISA Affiliates of the Transferor, the Initial
Purchaser, or the Seller receives from the Internal
Revenue Service, the Pension Benefit Guaranty
Corporation or the U.S. Department of Labor.
(vii) Other Information.
Such other information (including non-
financial information) as the Agent or the Agent may
from time to time reasonably request with respect to
the Seller, the Initial Purchaser, the Transferor or
any Subsidiary of any of the foregoing.
(b) Conduct of Business.
The Transferor will carry on and conduct its
business in substantially the same manner and in substantially
the same fields of enterprise as it is presently conducted, and
will do, and cause the Initial Purchaser and the Seller to do,
all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its
jurisdiction of incorporation and maintain all requisite
authority to conduct its business in each jurisdiction in which
its business is conducted.
(c) Compliance with Laws.
The Transferor will, and will cause each of the
Seller and the Initial Purchaser to, comply with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or
awards to which it or its respective properties may be subject,
where the failure to comply with the foregoing could be
reasonably expected to have a Material Adverse Effect.
(d) Furnishing of Information and Inspection of Records.
The Transferor will, and will cause each of the
Seller and the Initial Purchaser, furnish to the Agent from time
to time such information with respect to the Receivables as the
Agent may reasonably request, including, without limitation,
listings identifying the Obligor and the outstanding balance for
each Receivable. The Transferor will, and will cause each of the
Seller and the Initial Purchaser to, at any time and from time to
time during regular business hours and after reasonable notice
permit the Agent, or its agents or representatives, (i) to
examine and make copies of and take abstracts from all Records
and (ii) to visit the offices and properties of the Transferor,
the Initial Purchaser or the Seller, as applicable, for the
purpose of examining such Records, and to discuss matters
relating to Receivables or the Transferor's, the Initial
Purchaser's or the Seller's performance hereunder and under the
other Transaction Documents to which such Person is a party with
any of the officers, directors, employees or independent public
accountants of the Transferor, the Initial Purchaser or the
Seller, as applicable, having knowledge of such matters.
(e) Keeping of Records and Books of Account.
The Transferor will, and will cause the Initial
Purchaser and the Seller to, maintain and implement
administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Receivables
in the event of the destruction of the originals thereof), and
keep and maintain, all documents, books, records and other
information reasonably necessary or advisable for the collection
of all Receivables (including, without limitation, records
adequate to permit the daily identification of each new
Receivable and all Collections of and adjustments to each
existing Receivable).
(f) Performance and Compliance with Receivables and Accounts.
The Transferor, at its expense, will, and will
cause the Seller and Initial Purchaser to, timely and fully
perform and comply with all material provisions, covenants and
other promises required to be observed by the Transferor, Initial
Purchaser or the Seller under the Accounts related to the
Receivables.
(g) Credit and Collection Policies.
The Transferor will, and will cause the Seller,
Initial Purchaser and the Collection Agent to, comply with the
Credit and Collection Policy in regard to the Receivables and the
related Accounts, except insofar as any failure to so comply
could not be reasonably expected to impair the collectibility of
the Receivables, on the whole, or a substantial amount thereof,
or otherwise have a Material Adverse Effect.
(h) Collections Received.
The Transferor shall, and shall cause the Seller
and the Collection Agent to, hold in trust, and deposit,
immediately, but in any event not later than forty-eight (48)
hours of its receipt thereof, to the Collection Account all
Collections received from time to time by the Transferor, Initial
Purchaser or the Seller, as the case may be, in accordance with
Section 2.12(a).
(i) Sale Treatment.
The Transferor will not (i) and will not permit
the Seller or the Initial Purchaser to, account for (including
for accounting and tax purposes), or otherwise treat, the
transactions contemplated by the Receivables Purchase Agreements
in any manner other than as a sale of Receivables by the Seller
to the Initial Purchaser or by the Initial Purchaser to the
Transferor, or (ii) account for (other than for tax purposes) or
otherwise treat the transactions contemplated hereby in any
manner other than as a sale of Receivables by the Transferor to
the Agent on behalf of the Company or the Bank Investors, as
applicable. In addition, the Transferor shall, and shall cause
the Seller and the Initial Purchaser to, disclose (in a footnote
or otherwise) in all of their respective financial statements
(including any such financial statements consolidated with any
other Persons' financial statements) the existence and nature of
the transaction contemplated hereby and by the Receivables
Purchase Agreements and the interest of the Transferor (in the
case of the Initial Purchaser's financial statements) and the
Agent, on behalf of the Company and the Bank Investors, in the
Affected Assets.
(j) Separate Existence
The Transferor shall at all times (a) to the
extent the Transferor's office is located in the offices of the
Seller or any Affiliate of the Seller, pay fair market rent for
its executive office space located in the offices of the Seller
or any Affiliate of the Seller, (b) have at all times at least
two members of its board of directors which are not and have
never been employees, officers or directors of the Seller or any
Affiliate of the Seller or of any creditor of the Seller or any
Affiliate of the Seller and are persons who are familiar and have
experience with asset securitization, (c) maintain the
Transferor's books, financial statements, accounting records and
other corporate documents and records separate from those of the
Seller or any other entity and maintain separate accounts, (d)
not commingle the Transferor's assets with those of the Seller or
any other entity, (e) act solely in its corporate name and
through its own authorized officers and agents, (f) make
investments directly or by brokers engaged and paid by the
Transferor or its agents (provided that if any such agent is an
Affiliate of the Transferor it shall be compensated at a fair
market rate for its services), (g) separately manage the
Transferor's liabilities from those of the Seller or any
Affiliates of the Seller and pay its own liabilities, including
all administrative expenses, from its own separate assets, except
that the Seller may pay the organizational expenses of the
Transferor, (h) pay from the Transferor's assets all obligations
and indebtedness of any kind incurred by the Transferor, and (i)
take no actions which may mislead third parties as to the
separate corporate identities and separate assets and liabilities
of the Seller, the Initial Purchaser and the Transferor. The
Transferor shall abide by all corporate formalities, including
the maintenance of current minute books, and the Transferor shall
cause its financial statements to be prepared in accordance with
generally accepted accounting principles in a manner that
indicates the separate existence of the Transferor and its assets
and liabilities. The Transferor shall (i) pay all its
liabilities, (ii) not assume the liabilities of the Seller or
any Affiliate of the Seller, (iii) not lend funds or extend
credit to the Seller except pursuant to the Receivables Purchase
Agreements in connection with the purchase of Receivables
thereunder and (iv) not guarantee the liabilities of the Seller
or any Affiliates of the Seller. The officers and directors of
the Transferor (as appropriate) shall make decisions with respect
to the business and daily operations of the Transferor
independent of and not dictated by any controlling entity. The
Transferor shall not engage in any business not permitted by its
Certificate of Incorporation.
(k) Corporate Documents.
The Transferor shall only amend, alter, change or
repeal its Certificate of Incorporation and the Receivables
Purchase Agreements with the prior written consent of the Agent,
which consent shall not be unreasonably withheld.
(l) Payment to the Initial Purchaser.
With respect to any Receivable sold by the Initial
Purchaser to the Transferor, the Transferor shall, and shall
cause the Initial Purchaser to, effect such sale under, and
pursuant to the terms of, the applicable Receivables Purchase
Agreement, including, without limitation, the payment by the
Transferor to the Initial Purchaser and by the Initial Purchaser
to the Seller of the purchase price for such Receivable as
required by the terms of the applicable Receivables Purchase
Agreement.
SECTION 5.2. Negative Covenants of the Transferor.
At all times from the date hereof to the later to
occur of (i) the Termination Date or (ii) the date on which the
Net Investment has been reduced to zero and all other Aggregate
Unpaids shall have been paid in full, in cash, unless the Agent
shall otherwise consent in writing:
(a) No Sales, Liens, Etc.
Except as otherwise provided herein and in the
Receivables Purchase Agreements, the Transferor will not, and
will not permit the Initial Purchaser or the Seller to, sell,
assign (by operation of law or otherwise) or otherwise dispose
of, or create or suffer to exist any Adverse Claim upon (or the
filing of any financing statement) or with respect to any of the
Affected Assets, or assign any right to receive income in respect
thereof.
(b) No Extension or Amendment of Receivables.
Except as otherwise permitted in Section 6.2
hereof, the Transferor will not, and will not permit the Seller
to, extend, amend or otherwise modify the terms of any
Receivable, or amend, modify or waive any term or condition of
any Account related thereto. The Transferor further covenants
that, except as otherwise required by law (or as is deemed by the
Seller to be necessary in order to maintain its credit card
business on a competitive basis), it shall not, and shall not
cause or otherwise permit the Collection Agent at any time to
reduce the periodic finance charges assessed on any Receivable or
other fees on any Account if, as a result of such reduction, the
reasonable expectation of the Net Portfolio Yield as of such date
would be less than 2.00% and unless (i) such reduction is made
applicable to the comparable segment of the consumer revolving
credit accounts owned and serviced by the Collection Agent that
have characteristics the same as, or substantially similar to,
the Accounts that are the subject of such change or (ii) if it
does not own such a comparable segment, it will not make any such
change with the intent to materially benefit itself over the
Company and the Bank Investors.
(c) No Change in Business or Credit and Collection Policy.
The Transferor will not make any change in the
character of its business or in the Credit and Collection Policy,
which change would, in either case, impair the collectibility of
the Receivables or otherwise have a Material Adverse Effect.
(d) No Mergers, Etc.
The Transferor will not, and except as otherwise
permitted pursuant to the Receivables Purchase Agreements, will
not permit the Seller to, (i) consolidate or merge with or into
any other Person, or (ii) sell, lease or transfer all or
substantially all of its assets to any other Person unless (a)
the Transferor or Seller, respectively, is the surviving
corporation, or the entity or Person formed by or surviving any
such consolidation or merger (if other than the Transferor or
Seller, respectively) or to which such sale, lease or transfer
shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District
of Columbia; (b) the entity or Person formed by or surviving any
such consolidation or merger (if other than the Transferor or
Seller, respectively) or the entity or Person to which such sale,
lease, or transfer shall have been made assumes all the
obligations of the Transferor or Seller, respectively, under this
Agreement and the other Transaction Documents pursuant to an
agreement in form and substance satisfactory to the Agent; and
(c) immediately after such transaction, no Potential Termination
Event or Termination Event exists.
(e) Change of Name, Etc.
The Transferor will not, and will not permit the
Seller to, change its name, identity or structure or the location
of its chief executive office, unless at least 10 days prior to
the effective date of any such change the Transferor or the
Seller, as applicable, delivers to the Agent such documents,
instruments or agreements, executed by the Transferor or the
Seller, as applicable, as are necessary to reflect such change
and to continue the perfection of the Agent's ownership interests
or security interests in the Affected Assets.
(f) Amendment to Receivables Purchase Agreements.
The Transferor will not, and will not permit the
Seller to, amend, modify, or supplement the Receivables Purchase
Agreements or waive any provision thereof, in each case except
with the prior written consent of the Agent (which shall not be
unreasonably withheld); nor shall the Transferor take, or permit
the Seller to take, any other action under the Receivables
Purchase Agreements that shall have a material adverse affect on
the Agent, the Company or any Bank Investor or which is
inconsistent with the terms of this Agreement.
(g) Other Debt.
Except as provided for herein, the Transferor will
not create, incur, assume or suffer to exist any indebtedness
whether current or funded, or any other liability other than (i)
indebtedness of the Transferor representing fees, expenses and
indemnities arising hereunder or under the Receivables Purchase
Agreement to which it is a party for the purchase price of such
Receivables under the Receivables Purchase Agreements or under
the Transfer and Administration Agreement, dated as of
September 23, 1997, among the parties hereto, and (ii) other
indebtedness incurred in the ordinary course of its business in
an amount not to exceed $9,750 at any time outstanding.
(h) ERISA Matters.
The Transferor will not, and will not permit the
Seller or the Initial Purchaser to, (i) engage or permit any of
its respective ERISA Affiliates to engage in any prohibited
transaction (as defined in Section 4975 of the Code and Section
406 of ERISA) for which an exemption is not available or has not
previously been obtained from the U.S. Department of Labor; (ii)
permit to exist any accumulated funding deficiency (as defined in
Section 302(a) of ERISA and Section 412(a) of the Code) or
funding deficiency with respect to any Benefit Plan other than a
Multiemployer Plan; (iii) fail to make any payments to any
Multiemployer Plan that the Transferor, the Seller, the Initial
Purchaser or any ERISA Affiliate of the Transferor, the Initial
Purchaser or the Seller is required to make under the agreement
relating to such Multiemployer Plan or any law pertaining
thereto; (iv) terminate any Benefit Plan so as to result in any
liability; or (v) permit to exist any occurrence of any
reportable event described in Title IV of ERISA which represents
a material risk of a liability to the Transferor, the Seller, the
Initial Purchaser or any ERISA Affiliate of the Transferor, the
Initial Purchaser or the Seller under ERISA or the Code.
(i) Performance of Account Agreements.
The Transferor shall not, and shall not permit the
Seller to fail to comply with and perform its obligations under
the applicable Account Agreements relating to the Accounts and
the Credit and Collection Policy except insofar as any such
failure to comply or perform would not materially and adversely
affect the rights of the Company, the Agent, or any Bank Investor
in the Receivables or the collectibility of the Receivables. The
Transferor shall not change the terms and provisions of the
Account Agreement or the Credit and Collection Policy in any
respect (including, without limitation, the calculation of the
amount, and the timing, of uncollectible Receivables) with the
intent to materially benefit itself over the Company, the Agent,
or any Bank Investor, unless such change does not materially and
adversely affect the rights of the Company, the Agent or any Bank
Investor in the Receivables or the collectibility of the
Receivables.
SECTION 5.3. Affirmative Covenants of the Collection Agent.
At all times from the date hereof to the later to
occur of (i) the Termination Date or (ii) the date on which the
Net Investment has been reduced to zero and all other Aggregate
Unpaids shall have been paid in full, in cash, unless the Agent
shall otherwise consent in writing:
(a) Conduct of Business.
The Collection Agent shall carry on and conduct
its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently
conducted and do all things necessary to remain duly chartered,
validly existing and in good standing as a national banking
association and maintain all requisite authority to conduct its
business in each jurisdiction in which its business is conducted.
(b) Compliance with Laws.
The Collection Agent shall comply with all laws,
rules, regulations, orders, writs, judgments, injunctions,
decrees or awards to which it or its respective properties may be
subject which pertain to its duties hereunder and shall maintain
in effect all material qualifications required by law to service
the Receivables and Accounts properly.
(c) Furnishing of Information and Inspection of Records.
The Collection Agent shall furnish to the Agent
from time to time such information with respect to the
Receivables as the Agent may reasonably request, including,
without limitation, listings identifying the Obligor and the
outstanding balance for each Receivable. The Collection Agent
shall, at any time and from time to time during regular business
hours and upon reasonable notice permit the Agent, or its agents
or representatives, (i) to examine and make copies of and take
abstracts from all Records and (ii) to visit the offices and
properties of the Collection Agent for the purpose of examining
such Records, and to discuss matters relating to Receivables or
the Transferor's, the Seller's, the Initial Purchaser's or the
Collection Agent's performance hereunder and under the other
Transaction Documents to which such Person is a party with any of
the officers, directors, employees or independent public
accountants of the Collection Agent having knowledge of such
matters.
(d) Keeping of Records and Books of Account.
The Collection Agent shall maintain and implement
operating procedures (including, without limitation, an ability
to recreate records evidencing Receivables in the event of the
destruction of the originals thereof), and keep and maintain, all
documents, books, records and other information reasonably
necessary or advisable for the collection of all Receivables
(including, without limitation, records adequate to permit the
daily identification of each new Receivable and all Collections
of and adjustments to each existing Receivable).
(e) [Reserved]
(f) Credit and Collection Policies.
The Collection Agent shall comply with the Credit
and Collection Policy in regard to the Receivables and each
related Account, except insofar as any failure to so comply could
not be reasonably expected to impair the collectibility of the
Receivables, on the whole, or a substantial amount thereof, or
otherwise have a Material Adverse Effect.
(g) No Rescission or Cancellation.
The Collection Agent shall not permit any
rescission or cancellation of a Receivable except as ordered by a
court of competent jurisdiction or other governmental authority
or in the ordinary course of its business and in accordance with
the Credit and Collection Policy.
(h) Protection of Company's Rights
The Collection Agent shall take no action, nor
omit to take any action, which would impair the rights of the
Company in the Receivables or the related Accounts.
SECTION 5.4. Negative Covenants of the Collection Agent.
At all times from the date hereof to the later to
occur of (i) the Termination Date or (ii) the date on which the
Net Investment has been reduced to zero and all other Aggregate
Unpaids shall have been paid in full, in cash, unless the Agent
shall otherwise consent in writing.
(a) No Sales, Liens, Etc.
Except as otherwise provided herein, the
Collection Agent shall not sell, assign (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist
any Adverse Claim upon (or the filing of any financing statement)
or with respect to (x) any of the Affected Assets or (y) any
account to which any Collections of any Receivable are sent, or
assign any right to receive income in respect thereof.
(b) No Change in Business or Credit Collection Policy.
The Collection Agent shall not make any change in
the character of its business or in the Credit and Collection
Policy, which change would, in either case, impair the
collectibility of the Receivables, on the whole, or otherwise
have a Material Adverse Effect.
(c) No Extension or Amendment of Receivables.
Except as otherwise permitted in Section 6.2
hereof, the Collection Agent shall not extend, amend or otherwise
modify the terms of any Receivable, or amend, modify or waive any
term or condition of any Account related thereto.
(d) No Mergers, Etc.
The Collection Agent shall not (i) consolidate or
merge with or into any other Person, or (ii) sell, lease or
transfer all or substantially all of its assets to any other
Person, unless (a) the Collection Agent is the surviving
corporation, or the entity or Person formed by or surviving any
such consolidation or merger (if other than the Collection Agent)
or to which such sale, lease or transfer shall have been made is
a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (b) the
entity or Person formed by or surviving any such consolidation or
merger (if other than the Collection Agent) or the entity or
Person to which such sale, lease or transfer shall have been made
assumes all the obligations of the Collection Agent under this
Agreement and the other Transaction Documents pursuant to an
agreement in form and substance satisfactory to the Agent; and
(c) immediately after such transaction, no Potential Termination
Event or Termination Event exists.
ARTICLE VI
ADMINISTRATION AND COLLECTIONS
SECTION 6.
SECTION 6.1. Appointment of Collection Agent.
The servicing, administering and collection of the
Receivables shall be conducted by such Person (the "Collection
Agent") so designated from time to time in accordance with this
Section 6.1. Until the Company gives notice to the Seller of the
designation of a new Collection Agent, under the circumstances
set forth below, the Seller is hereby designated as, and hereby
agrees to perform the duties and obligations of, the Collection
Agent pursuant to the terms hereof. The Collection Agent may not
delegate any of its material rights, duties or obligations
hereunder without prior notice to the Agent or designate a
substitute Collection Agent, without the prior written consent of
the Agent, and provided that in all events the Collection Agent
shall continue to remain solely liable for the performance of the
duties as Collection Agent hereunder notwithstanding any such
delegation hereunder. The Agent may, and upon the direction of
the Majority Investors the Agent shall, after the occurrence of a
Collection Agent Default or any other Termination Event designate
as Collection Agent any Person (including itself) to succeed the
Seller or any successor Collection Agent, on the condition in
each case that any such Person so designated shall agree to
perform the duties and obligations of the Collection Agent
pursuant to the terms hereof. The Agent may notify any Obligor
of the Transferred Interest.
SECTION 6.2. Duties of Collection Agent.
(a) The Collection Agent shall take or cause to be taken all
such action as may be necessary or advisable to collect each
Receivable from time to time, all in accordance with applicable
laws, rules and regulations, with reasonable care and diligence,
and in accordance with the Credit and Collection Policy. Each of
the Transferor, the Company, the Agent and the Bank Investors
hereby appoints as its agent the Collection Agent, from time to
time designated pursuant to Section 6.1 hereof, to enforce its
respective rights and interests in and under the Affected Assets.
To the extent permitted by applicable law, each of the Transferor
and the Seller (to the extent not then acting as Collection Agent
hereunder) hereby grants to any Collection Agent appointed
hereunder an irrevocable power of attorney to take any and all
steps in the Transferor's and/or the Seller's name and on behalf
of the Transferor or the Seller necessary or desirable, in the
reasonable determination of the Collection Agent, to collect all
amounts due under any and all Receivables, including, without
limitation, endorsing the Transferor's and/or the Seller's name
on checks and other instruments representing Collections and
enforcing such Receivables and the related Account Agreements.
The Collection Agent shall set aside for the account of the
Transferor and the Agent their respective allocable shares of the
Collections of Receivables in accordance with Sections 2.5 and
2.6 hereof. The Collection Agent shall segregate and deposit to
the Agent's account the Agent's allocable share of Collections of
Receivables when required pursuant to Article II hereof. The
Transferor shall deliver to the Collection Agent or its
designee(s) and the Collection Agent or its designees shall hold
in trust for the Transferor and the Agent, on behalf of the
Company and the Bank Investors, in accordance with their
respective interests, all Records which evidence or relate to
Receivables. The Collection Agent shall not make the Agent, the
Company or any of the Bank Investors a party to any litigation
without the prior written consent of such Person.
(b) The Collection Agent shall, as soon as practicable following
receipt thereof, turn over to the Transferor any collections of
any indebtedness of any Person which is not on account of a
Receivable. If the Collection Agent is not the Transferor or the
Seller or an Affiliate of the Transferor or the Seller, the
Collection Agent, by giving three Business Days' prior written
notice to the Agent, may revise the percentage used to calculate
the Servicing Fee so long as the revised percentage will not
result in a Servicing Fee that exceeds 110% of the reasonable and
appropriate out-of-pocket costs and expenses of such Collection
Agent incurred in connection with the performance of its
obligations hereunder as documented to the reasonable
satisfaction of the Agent; provided, however, that at any time
after the Buyer's Percentage Factor equals or exceeds 100%, any
compensation to the Collection Agent in excess of the Servicing
Fee initially provided for herein shall be an obligation of the
Transferor and shall not be payable, in whole or in part, from
Collections allocated to the Company or the Bank Investors, as
applicable. The Collection Agent, if other than the Transferor
or the Seller or an Affiliate of the Transferor or the Seller,
shall as soon as practicable upon demand, deliver to the Seller
all Records in its possession which evidence or relate to
indebtedness of an Obligor which is not a Receivable.
(c) On or before 100 days after the end of each fiscal year of
the Collection Agent, beginning with the fiscal year ending
December 31, 1998, the Collection Agent shall cause a firm of
nationally recognized independent public accountants (who may
also render other services to the Collection Agent, the
Transferor, the Seller or any Affiliates of any of the foregoing)
to furnish a report to the Agent to the effect that they have (i)
applied certain procedures, agreed upon with the Collection Agent
and the Agent and substantially as set forth in Exhibit C hereto,
which would re-perform certain accounting procedures performed by
the Collection Agent pursuant to certain documents and records
relating to the servicing of the Accounts under this Agreement;
in addition, each report shall set forth the agreed upon
procedures performed and the results of such procedures; and (ii)
compared the amounts and percentages set forth in the Investor
Reports forwarded by the Collection Agent pursuant to Section
2.11 during the period covered by such report with the computer
reports (which may include personal computer generated reports
that summarize data from the computer reports generated by either
the Transferor or Collection Agent which are used to prepare the
Investor Reports) which were the source of such amounts and
percentages and that on the basis of such comparison, such
amounts and percentages are in agreement except as shall be set
forth in such report.
(d) Notwithstanding anything to the contrary contained in this
Article VI, the Collection Agent, if not the Transferor, the
Seller or any Affiliate of the Transferor or the Seller, shall
have no obligation to collect, enforce or take any other action
described in this Article VI with respect to any indebtedness
that is not included in the Transferred Interest other than to
deliver to the Transferor the collections and documents with
respect to any such indebtedness as described in Section 6.2(b)
hereof.
SECTION 6.3. Rights After Designation of New Collection
Agent.
At any time following the designation of a Collection
Agent (other than the Transferor, the Seller or any Affiliate of
the Transferor or the Seller) pursuant to Section 6.1 hereof:
(i) The Agent may direct that payment of all amounts
payable under any Receivable be made directly to the Agent or its
designee.
(ii) In the event that a Termination Event has occurred, the
Transferor shall, at the Agent's request and at the Transferor's
expense, direct that payments be made directly by each Obligor to
the Agent or its designee, and, if necessary, give notice of the
Agent's, the Transferor's and/or the Bank Investors' ownership of
Receivables to each Obligor.
(iii) The Transferor shall, at the Agent's request, (A)
assemble all of the Records, and shall make the same available to
the Agent or its designee at a place selected by the Agent or its
designee, and (B) segregate all cash, checks and other
instruments received by it from time to time constituting
Collections of Receivables in a manner acceptable to the Agent
and shall, promptly upon receipt, remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments of
transfer, to the Agent or its designee.
(iv) The Transferor and the Seller hereby authorize the Agent to
take any and all lawful steps in the Transferor's or Seller's
name and on behalf of the Transferor and the Seller necessary or
desirable and reasonable, in the determination of the Agent, to
collect all amounts due under any and all Receivables, including,
without limitation, endorsing the Transferor's or Seller's name
on checks and other instruments representing Collections and
enforcing such Receivables and the related Account Agreements,
and the Transferor and the Seller shall request any third party
holding any Records to provide the Agent with access to such
Records to same extent as the Transferor and Seller have such
access.
SECTION 6.4. Collection Agent Default.
The occurrence of any one or more of the following
events shall constitute a Collection Agent Default:
(a) the Collection Agent or, to the extent that the Transferor,
the Seller or any Affiliate of the Transferor, the Seller, the
Initial Purchaser is then acting as Collection Agent, the
Transferor, the Seller, the Initial Purchaser or such Affiliate,
as applicable, shall fail to (i) observe or perform any term,
covenant or agreement to be observed or performed under Section
5.3(a), (f), (g) or (h) or Section 5.4(b), (c) or (d), and any
such failure to observe Section 5.3(a), (g) or (h) or
Section 5.4(c) shall have a Material Adverse Effect, or (ii)
observe or perform any term, covenant or agreement hereunder
(other than as referred to in clause (i) or (iii) of this Section
6.4(a)) or under any of the other Transaction Documents to which
such Person is a party or by which such Person is bound, which
failure shall have a Material Adverse Effect and shall remain
unremedied for ten (10) days, or (iii) make any payment or
deposit required to be made by it hereunder when due or the
Collection Agent shall fail to observe or perform any term,
covenant or agreement on the Collection Agent's part to be
performed under Section 2.8(b) hereof; or
(b) any representation, warranty, certification or statement
made by the Collection Agent (in the event that the Transferor,
the Seller or such Affiliate is then acting as the Collection
Agent) in this Agreement, the Receivables Purchase Agreements or
in any of the other Transaction Documents or in any certificate
or report delivered by it pursuant to any of the foregoing shall
prove to have been incorrect in any material adverse respect when
made or deemed made; or
(c) any event of default by the Collection Agent or any of its
Subsidiaries in the performance of any term, provision or
condition contained in any agreement under which any Indebtedness
greater than $10,000,000 was created or is governed, if the
effect of such event of default is to cause that Indebtedness to
become or be declared due and payable prior to its stated
maturity or the stated maturity of any underlying obligation, as
the case may be; or
(d) any Event of Bankruptcy shall occur with respect to the
Collection Agent or any of its Subsidiaries; or
(e) there shall have occurred any material adverse change in the
operations of the Collection Agent since the end of the last
fiscal year ending prior to the date of its appointment as
Collection Agent hereunder or any other event shall have occurred
which, in the commercially reasonable judgment of the Agent,
materially and adversely affects the Collection Agent's ability
to either collect the Receivables or to perform under this
Agreement.
SECTION 6.5. Responsibilities of the Transferor and the
Seller.
Anything herein to the contrary notwithstanding,
the Transferor shall, and/or shall cause the Seller to, (i)
perform all of the Seller's obligations under the Accounts
related to the Receivables to the same extent as if interests in
such Receivables had not been sold hereunder and under the
Receivables Purchase Agreements and the exercise by the Agent,
the Company and the Bank Investors of their rights hereunder and
under the Receivables Purchase Agreements shall not relieve the
Transferor or the Seller from such obligations and (ii) pay when
due any taxes, including without limitation, any sales taxes
payable in connection with the Receivables and their creation and
satisfaction. Neither the Agent, the Company nor any of the Bank
Investors shall have any obligation or liability with respect to
any Receivable or related Accounts, nor shall it be obligated to
perform any of the obligations of the Seller thereunder.
ARTICLE VII
TERMINATION EVENTS
SECTION 7.
SECTION 7.1. Termination Events.
The occurrence of any one or more of the following
events shall constitute a Termination Event:
(a) the Transferor, the Seller, the Initial Purchaser or the
Collection Agent shall fail to make any payment or deposit to be
made by it hereunder or under the Receivables Purchase Agreements
when due hereunder or thereunder, and such failure shall continue
for 2 Business Days; or
(b) any representation, warranty, certification or statement
made by the Transferor in this Agreement, any other Transaction
Document to which it is a party or in any other document
delivered pursuant hereto or thereto shall prove to have been
incorrect in any material adverse respect when made or deemed
made and, if susceptible of being remedied, has not been remedied
within 30 days thereafter; or
(c) the Transferor, or the Collection Agent, shall default in
the performance of any payment, covenant or undertaking (other
than those covered by clause (a) above) (i) to be performed or
observed under Sections 5.1(a)(vi), 5.1(a)(vii), 5.1(b), 5.1(f),
5.1(g), 5.1(i), 5.1(k), 5.1(l), 5.2(a), (c), (d) or (g) or
Section 5.3 or (ii) to be performed or observed under any other
provision hereof and such default in the case of this clause (ii)
shall continue for ten (10) days; or
(d) any event of default by the Transferor, the Seller, the
Initial Purchaser or any Subsidiary of the Transferor, the
Seller, or the Initial Purchaser in the performance of any term,
provision or condition contained in any agreement to which any
such Person is a party or under which any Indebtedness owing by
the Transferor, the Seller, the Initial Purchaser or any
Subsidiary of the Transferor, the Initial Purchaser or the Seller
greater than $10,000,000 was created or is governed if the effect
of such event of default is to cause that Indebtedness to become
or be declared due and payable prior to its stated maturity or
the stated maturity of any underlying obligation, as the case may
be; or
(e) any Event of Bankruptcy shall occur with respect to FCI
(provided that it continues to own 25% or more of the voting
stock of the Initial Purchaser), the Transferor, the Initial
Purchaser, the Seller or any Subsidiary of any of the foregoing;
or
(f) the Transferor shall, for any reason, fail to have a valid
ownership interest in the Receivables or the Agent, on behalf of
the Company and the Bank Investors, shall, for any reason, fail
or cease to have a valid and perfected first priority ownership
or security interest in the Affected Assets free and clear of any
Adverse Claims; or
(g) a Collection Agent Default shall have occurred; or
(h) (x) either of the Receivables Purchase Agreements shall have
terminated or (y) a default shall occur under either of the
Receivables Purchase Agreements which has a Material Adverse
Effect; or
(i) the Transferor, the Collection Agent, the Initial Purchaser,
or the Seller shall enter into any transaction or merger whereby
it is not the surviving entity; or
(j) there shall have occurred any material adverse change in the
operations of the Transferor or the Seller July 29, 1997 or any
other Material Adverse Effect shall have occurred; or
(k) the Liquidity Provider or the Credit Support Provider shall
have given notice that an event of default has occurred and is
continuing under any of its respective agreements with the
Company; or
(l) the Company's short-term unsecured debt shall not be rated
at least "A-2" by Standard & Poor's and at least "P-2" by
Moody's, respectively; or
(m) on any date (i) the Buyer's Percentage Factor shall exceed
the Maximum Buyer's Percentage Factor and shall not be cured
within one Business Day thereafter, (ii) the Buyer's Percentage
Factor shall equal or exceed 100% at any time or (iii) the Net
Investment plus, in the case where the Transferred Interest is
held by the Company, the Interest Component of all outstanding
Related Commercial Paper, shall exceed the Facility Limit; or
(n) the Spread Account balance shall be less than the Spread
Account Cap Percentage Amount on any Remittance Date and such
deficiency shall continue to exist unremedied at the close of
business on the next Remittance Date; or
(o) the Net Portfolio Yield averaged for any three consecutive
Collection Periods shall be less than 2%; or
(p) the Initial Purchaser shall at any time cease to own,
directly or indirectly, all of the outstanding capital stock of
the Seller; or
(q) any failure by FCI or any of its Affiliates (other than the
Initial Purchaser and its Subsidiaries) to maintain its Benefit
Plans in accordance with ERISA or the occurrence of any event of
the type set forth in clauses (i) through (v) of Section 5.2(h)
with respect to any such entity which, in any case, results in a
lien on the Receivables or otherwise has a Material Adverse
Effect.
SECTION 7.2. Termination.
(a) Upon the occurrence of any Termination Event the Agent may,
or at the direction of the Majority Investors shall, by notice to
the Transferor and the Collection Agent declare the Termination
Date to have occurred; provided, however, that in the case of any
event described in Section 7.1(f), 7.1(m)(ii) or 7.1(m)(iii)
above, the Termination Date shall be deemed to have occurred
automatically upon the occurrence of such event. Upon any such
declaration or automatic occurrence, the Agent shall have, in
addition to all other rights and remedies under this Agreement or
otherwise, all other rights and remedies provided under the UCC
of the applicable jurisdiction (except, in the case of a
Termination Event under clause (k) or (l), the right to re-sell
the Receivables at a foreclosure sale) and other applicable laws,
all of which rights shall be cumulative.
(b) At all times after the declaration or automatic occurrence
of the Termination Date pursuant to Section 7.2(a), Carrying
Costs shall thereafter be calculated on the basis of the Base
Rate plus 2.00%.
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.
SECTION 8.1. Indemnities by the Transferor.
Without limiting any other rights which the Agent,
the Company or the Bank Investors may have hereunder or under
applicable law each of the Transferor and the Collection Agent
hereby severally agrees to indemnify the Company, the Bank
Investors, the Agent, the Collateral Agent, the Liquidity
Provider and the Credit Support Provider and any successors and
permitted assigns and their respective officers, directors and
employees (collectively, "Indemnified Parties") from and against
any and all damages, losses, claims, liabilities, costs and
expenses, including, without limitation, reasonable attorneys'
fees (which such attorneys may be employees of the Liquidity
Provider, the Credit Support Provider, the Agent or the
Collateral Agent, as applicable) and disbursements (all of the
foregoing being collectively referred to as "Indemnified
Amounts") awarded against or incurred by any of them in any
action or proceeding between the Transferor, the Initial
Purchaser or the Seller (including, in its capacity as the
Collection Agent, except for indemnification which is being
sought against the Collection Agent) and any of the Indemnified
Parties or between any of the Indemnified Parties and any third
party or otherwise arising out of or as a result of this
Agreement, the other Transaction Documents, the ownership or
maintenance, either directly or indirectly, by the Agent, the
Company or any Bank Investor of the Transferred Interest or any
of the other transactions contemplated hereby or thereby,
excluding, however, (i) Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the part
of an Indemnified Party or (ii) recourse (except as otherwise
specifically provided in this Agreement) for uncollectible
Receivables. Notwithstanding the foregoing, the indemnity of the
Collection Agent pursuant to this Section shall be limited to
Indemnified Amounts relating to or resulting from any of the
following which relate to the Collection Agent or the Seller,
whether in its individual capacity or as Collection Agent.
Without limiting the generality of the foregoing, the Transferor
shall indemnify each Indemnified Party for Indemnified Amounts
relating to or resulting from all matters set forth below (other
than those described in the preceding sentence):
(i) any representation or warranty made by the Transferor,
Initial Purchaser or the Seller (including, in its capacity as
the Collection Agent) or any officers of the Transferor, the
Initial Purchaser or the Seller (including, in its capacity as
the Collection Agent) under or in connection with this Agreement,
the Receivable Purchase Agreements, any of the other Transaction
Documents, any Investor Report or any other information or report
delivered by the Transferor, Seller or the Collection Agent
pursuant hereto, which shall have been false or incorrect in any
material respect when made or deemed made;
(ii) the failure by the Transferor, the Initial Purchaser or the
Seller (including, in its capacity as the Collection Agent) to
comply with any applicable law, rule or regulation with respect
to any Receivable or the related Account, or the nonconformity of
any Receivable or the related Account with any such applicable
law, rule or regulation;
(iii) the failure (x) to vest and maintain vested in the
Agent, on behalf of the Company and the Bank Investors, an
undivided first priority, perfected percentage ownership interest
(to the extent of the Transferred Interest) in the Affected
Assets free and clear of any Adverse Claim or (y) to create or
maintain a valid and perfected first priority security interest
in favor of the Agent, for the benefit of the Company and the
Bank Investors, in the Affected Assets as contemplated pursuant
to Section 10.11 hereof, free and clear of any Adverse Claim;
(iv) the failure to file, or any delay in filing, financing
statements, continuation statements, or other similar instruments
or documents under the UCC of any applicable jurisdiction or
other applicable laws with respect to any of the Affected Assets;
(v) any dispute, claim, offset or defense (other than discharge
in bankruptcy) of the Obligor to the payment of any Receivable
(including, without limitation, a defense based on such
Receivable or the related Account not being the legal, valid and
binding obligation of such Obligor enforceable against it in
accordance with its terms);
(vi) any failure of the Collection Agent to perform its duties or
obligations in accordance with the provisions hereof;
(vii) any products liability claim or personal injury or
property damage suit or other similar or related claim or action
of whatever sort arising out of or in connection with merchandise
or services which are the subject of any Receivable;
(viii) the transfer of an ownership interest in any Receivable
other than an Eligible Receivable;
(ix) the failure by the Transferor or the Seller (individually or
as Collection Agent) to comply with any term, provision or
covenant contained in this Agreement or any of the other
Transaction Documents to which it is a party or to perform any of
its respective duties under the Account Agreements;
(x) [Reserved]
(xi) the failure of the Seller or Initial Purchaser to pay when
due any taxes, including without limitation, sales, excise or
personal property taxes payable in connection with any of the
Receivables;
(xii) any repayment by any Indemnified Party of any amount
previously distributed in reduction of Net Investment which such
Indemnified Party believes in good faith is required to be made;
(xiii) the commingling by the Transferor, the Seller, the
Collection Agent, or Initial Purchaser of Collections of
Receivables at any time with other funds;
(xiv) any investigation, litigation or proceeding related to
this Agreement, any of the other Transaction Documents, the use
of proceeds of Transfers by the Transferor or the Seller, the
ownership of Transferred Interests, or any Receivable or Account;
(xv) any inability to obtain any judgment in or utilize the court
or other adjudication system of, any state in which an Obligor
may be located as a result of the failure of the Transferor or
the Seller to qualify to do business or file any notice of
business activity report or any similar report;
(xvi) any failure of the Transferor or Initial Purchaser to
give reasonably equivalent value to the Initial Purchaser or
Seller, respectively, in consideration of the transfer by the
Transferor and the Initial Purchaser from the Initial Purchaser
and the Seller, respectively, of any Receivable, or any attempt
by any Person to void, rescind or set aside any such transfer
under statutory provisions or common law or equitable action,
including, without limitation, any provision of the Bankruptcy
Code; or
(xvii) any action taken by the Transferor, the Seller, the
Initial Purchaser or the Collection Agent (if the Transferor, the
Seller or any Affiliate or designee of the Transferor or the
Seller) in the enforcement or collection of any Receivable;
provided, however, that if the Company enters into agreements for
the purchase of interests in receivables from one or more Other
Transferors, the Company shall allocate such Indemnified Amounts
which are in connection with the Liquidity Provider Agreement,
the Credit Support Agreement or the credit support furnished by
the Credit Support Provider to the Transferor and each Other
Transferor; and, provided, further, that if such Indemnified
Amounts are attributable to the Transferor, the Seller, the
Initial Purchaser or the Collection Agent and not attributable to
any Other Transferor, the Transferor shall be solely liable for
such Indemnified Amounts or if such Indemnified Amounts are
attributable to Other Transferors and not attributable to the
Transferor, the Seller, the Initial Purchaser or the Collection
Agent, such Other Transferors shall be solely liable for such
Indemnified Amounts.
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses.
(a) If after the date hereof, the adoption of any Law or bank
regulatory guideline or any amendment or change in the
interpretation of any existing or future Law or bank regulatory
guideline by any Official Body charged with the administration,
interpretation or application thereof, or the compliance with any
directive of any Official Body (in the case of any bank
regulatory guideline, whether or not having the force of Law):
(i) shall subject any Indemnified Party to any tax, duty or
other charge (other than Excluded Taxes) with respect to this
Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest, the
Receivables or payments of amounts due hereunder, or shall change
the basis of taxation of payments to any Indemnified Party of
amounts payable in respect of this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of
the Transferred Interest, the Receivables or payments of amounts
due hereunder or its obligation to advance funds hereunder, under
the Liquidity Provider Agreement or the credit support furnished
by the Credit Support Provider or otherwise in respect of this
Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest or the
Receivables (except for changes in the rate of general corporate,
franchise, net income or other income tax imposed on such
Indemnified Party by the jurisdiction in which such Indemnified
Party's principal executive office is located);
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the
Federal Reserve System) against assets of, deposits with or for
the account of, or credit extended by, any Indemnified Party or
shall impose on any Indemnified Party or on the United States
market for certificates of deposit or the London interbank market
any other condition affecting this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of
the Transferred Interest, the Receivables or payments of amounts
due hereunder or its obligation to advance funds hereunder under
the Liquidity Provider Agreement or the credit support provided
by the Credit Support Provider or otherwise in respect of this
Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest or the
Receivables; or
(iii) imposes upon any Indemnified Party any other expense
(including, without limitation, reasonable attorneys' fees and
expenses, and expenses of litigation or preparation therefor in
contesting any of the foregoing) with respect to this Agreement,
the other Transaction Documents, the ownership, maintenance or
financing of the Transferred Interest, the Receivables or
payments of amounts due hereunder or its obligation to advance
funds hereunder under the Liquidity Provider Agreement or the
credit support furnished by the Credit Support Provider or
otherwise in respect of this Agreement, the other Transaction
Documents, the ownership, maintenance or financing of the
Transferred Interests or the Receivables,
and the result of any of the foregoing is to increase the cost to
such Indemnified Party with respect to this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of
the Transferred Interest, the Receivables, the obligations
hereunder, the funding of any purchases hereunder, the Liquidity
Provider Agreement or the Credit Support Agreement, by an amount
deemed by such Indemnified Party to be material, then, within ten
(10) days after demand by such Indemnified Party through the
Agent, the Transferor shall pay to the Agent, for the benefit of
such Indemnified Party, such additional amount or amounts as will
compensate such Indemnified Party for such increased cost or
reduction.
(b) If any Indemnified Party shall have determined that after
the date hereof, the adoption of any applicable Law or bank
regulatory guideline regarding capital adequacy, or any change
therein, or any change in the interpretation thereof by any
Official Body, or any directive regarding capital adequacy (in
the case of any bank regulatory guideline, whether or not having
the force of law) of any such Official Body, has or would have
the effect of reducing the rate of return on capital of such
Indemnified Party (or its parent) as a consequence of such
Indemnified Party's obligations hereunder or with respect hereto
to a level below that which such Indemnified Party (or its
parent) could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such
Indemnified Party to be material, then from time to time, within
ten (10) days after demand by such Indemnified Party through the
Agent, the Transferor shall pay to the Agent, for the benefit of
such Indemnified Party, such additional amount or amounts as will
compensate such Indemnified Party (or its parent) for such
reduction.
(c) The Agent will promptly notify the Transferor of any event
of which it has knowledge, occurring after the date hereof, which
will entitle an Indemnified Party to compensation pursuant to
this Section 8.2. A notice by the Agent or the applicable
Indemnified Party claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error.
In determining such amount, the Agent or any applicable
Indemnified Party may use any reasonable averaging and
attributing methods.
(d) Anything in this Section 8.2 to the contrary
notwithstanding, if the Company enters into agreements for the
acquisition of interests in receivables from one or more Other
Transferors, the Company shall allocate the liability for any
amounts under this Section 8.2 which are in connection with the
Liquidity Provider Agreement, the Credit Support Agreement or the
credit support provided by the Credit Support Provider ("Section
8.2 Costs") to the Transferor and each Other Transferor;
provided, however, that if such Section 8.2 Costs are
attributable to the Transferor, the Seller or the Collection
Agent and not attributable to any Other Transferor, the
Transferor shall be solely liable for such Section 8.2 Costs or
if such Section 8.2 Costs are attributable to Other Transferors
and not attributable to the Transferor, the Seller or the
Collection Agent, such Other Transferors shall be solely liable
for such Section 8.2 Costs.
SECTION 8.3. Taxes.
All payments made hereunder by the Transferor or
the Collection Agent (each, a "payor") to the Company, any Bank
Investor or the Agent (each, a "recipient") shall be made free
and clear of and without deduction for any present or future
income, excise, stamp or franchise taxes and any other taxes,
fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority on any recipient (or
any assignee of such parties) (such nonexcluded items being
called "Taxes"), but excluding franchise taxes and taxes imposed
on or measured by the recipient's net income or gross receipts
("Excluded Taxes"). In the event that any withholding or
deduction from any payment made by the payor hereunder is
required in respect of any Taxes, then such payor shall:
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment
to such authority; and
(c) pay to the recipient such additional amount or amounts as is
necessary to ensure that the net amount actually received by the
recipient will equal the full amount such recipient would have
received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against any
recipient with respect to any payment received by such recipient
hereunder, the recipient may pay such Taxes and the payor will
promptly pay such additional amounts (including any penalties,
interest or expenses) as shall be necessary in order that the net
amount received by the recipient after the payment of such Taxes
(including any Taxes on such additional amount) shall equal the
amount such recipient would have received had such Taxes not been
asserted.
If the payor fails to pay any Taxes when due to
the appropriate taxing authority or fails to remit to the
recipient the required receipts or other required documentary
evidence, the payor shall indemnify the recipient for any
incremental Taxes, interest, or penalties that may become payable
by any recipient as a result of any such failure.
SECTION 8.4. Other Costs, Expenses and Related Matters.
(a) The Transferor agrees, upon receipt of a written invoice, to
pay or cause to be paid, and to save the Company, the Bank
Investors and the Agent harmless against liability for the
payment of, all reasonable out-of-pocket expenses (including,
without limitation, attorneys', accountants', rating agencies'
and other third parties' fees and expenses, any filing fees and
expenses incurred by officers or employees of the Company, the
Bank Investors and/or the Agent) or intangible, documentary or
recording taxes incurred by or on behalf of the Company, any Bank
Investor and the Agent (i) in connection with the negotiation,
execution, delivery and preparation of this Agreement, the other
Transaction Documents and any documents or instruments delivered
pursuant hereto and thereto and the transactions contemplated
hereby or thereby (including, without limitation, the perfection
or protection of the Transferred Interest) whether or not the
transactions contemplated hereby are consummated and (ii) from
time to time (a) relating to any amendments, waivers or consents
under this Agreement and the other Transaction Documents, (b)
arising in connection with the Company's, any Bank Investor's,
the Agent's or the Collateral Agent's enforcement or preservation
of rights (including, without limitation, the perfection and
protection of the Transferred Interest under this Agreement), or
(c) arising in connection with any audit, dispute, disagreement,
litigation or preparation for litigation involving this Agreement
or any of the other Transaction Documents (all of such amounts,
collectively, "Transaction Costs").
(b) The Transferor shall pay the Agent, for the account of the
Company and the Bank Investors, as applicable, on demand any
Early Collection Fee due on account of the receipt by the Company
or any Bank Investor of any amounts applied in reduction of the
Net Investment on any day other than a Remittance Date or the
last day of any applicable funding period (in the case of any
LIBOR-based funding).
SECTION 8.5. Reconveyance Under Certain Circumstances.
The Transferor agrees to accept the reconveyance
from the Agent, on behalf of the Company and/or the Bank
Investors, of the Transferred Interest if the Agent notifies
Transferor of a breach of any representation or warranty made or
deemed made pursuant to Sections 3.1(a), (b), (c), (d) or (j)
hereof and Transferor shall fail to cure such breach (including,
without limitation, pursuant to Section 2.9(b)) within 15 days
(or, in the case of the representations and warranties in
Sections 3.1(d) and 3.1(j) hereof 3 days) of such notice. The
reconveyance price shall be paid by the Transferor to the Agent
hereof, for the account of the Company and the Bank Investors, as
applicable, in immediately available funds on such 15th day (or
3rd day, if applicable) in an amount equal to the Aggregate
Unpaids.
ARTICLE IX
THE AGENT; BANK COMMITMENT
SECTION 9.
SECTION 9.1. Authorization and Action.
(a) The Company and each Bank Investor hereby appoints and
authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement and the other
Transaction Documents as are delegated to the Agent by the terms
hereof and thereof, together with such powers as are reasonably
incidental thereto. In furtherance, and without limiting the
generality, of the foregoing, the Company and each Bank Investor
hereby appoints the Agent as its agent to execute and deliver all
further instruments and documents, and take all further action
that the Agent may deem necessary or appropriate or that the
Company or a Bank Investor may reasonably request in order to
perfect, protect or more fully evidence the interests transferred
or to be transferred from time to time by the Transferor
hereunder, or to enable any of them to exercise or enforce any of
their respective rights hereunder, including, without limitation,
the execution by the Agent as secured party/assignee of such
financing or continuation statements, or amendments thereto or
assignments thereof, relative to all or any of the Receivables
now existing or hereafter arising, and such other instruments or
notices, as may be necessary or appropriate for the purposes
stated herein above. The Company and the Majority Investors may
direct the Agent to take any such incidental action hereunder.
With respect to other actions which are incidental to the actions
specifically delegated to the Agent hereunder, the Agent shall
not be required to take any such incidental action hereunder, but
shall be required to act or to refrain from acting (and shall be
fully protected in acting or refraining from acting) upon the
direction of the Majority Investors; provided, however, that
Agent shall not be required to take any action hereunder if the
taking of such action, in the reasonable determination of the
Agent, shall be in violation of any applicable law, rule or
regulation or contrary to any provision of this Agreement or
shall expose the Agent to liability hereunder or otherwise. Upon
the occurrence and during the continuance of any Termination
Event or Potential Termination Event, the Agent shall take no
action hereunder (other than ministerial actions or such actions
as are specifically provided for herein) without the prior
consent of the Majority Investors (which consent shall not be
unreasonably withheld or delayed). The Agent shall not, without
the prior written consent of all Bank Investors, agree to (i)
amend, modify or waive any provision of this Agreement in any way
which would (A) reduce or impair Collections or the payment of
interest or fees payable hereunder to the Bank Investors or delay
the scheduled dates for payment of such amounts, (B) increase the
Servicing Fee (other than as permitted pursuant to Section
6.2(b)), (C) modify any provisions of this Agreement or the
Receivables Purchase Agreement relating to the timing of payments
required to be made by the Transferor or the Seller or the
application of the proceeds of such payments, (D) permit the
appointment of any Person (other than the Agent) as successor
Collection Agent, (E) release any property from the lien provided
by this Agreement (other than as expressly contemplated herein)
or (F) extend or permit the extension of the Commitment
Termination Date without the consent of each Bank Investor. The
Agent shall not agree to any amendment of this Agreement which
increases the dollar amount of a Bank Investor's Commitment
without the prior consent of such Bank Investor. In addition,
the Agent shall not agree to any amendment of this Agreement not
specifically described in the two preceding sentences without the
consent of the related Majority Investors (which consent shall
not be unreasonably withheld or delayed). "Majority Investors"
shall mean, at any time, the Agent and those Bank Investors which
hold Commitments aggregating in excess of 66 and 2/3% of the
Facility Limit as of such date. In the event the Agent requests
the Company's or a Bank Investor's consent pursuant to the
foregoing provisions and the Agent does not receive a consent
(either positive or negative) from the Company or such Bank
Investor within 10 Business Days of the Company's or Bank
Investor's receipt of such request, then the Company or such Bank
Investor (and its percentage interest hereunder) shall be
disregarded in determining whether the Agent shall have obtained
sufficient consent hereunder.
(b) The Agent shall exercise such rights and powers vested in it
by this Agreement and the other Transaction Documents, and use
the same degree of care and skill in their exercise, as a prudent
person would exercise or use under the circumstances in the
conduct of such person's own affairs.
SECTION 9.2. Agent's Reliance, Etc.
Neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them as Agent under or in
connection with this Agreement or any of the other Transaction
Documents, except for its or their own gross negligence or
willful misconduct. Without limiting the foregoing, the Agent:
(i) may consult with legal counsel (including counsel for the
Transferor or the Seller), independent public accountants and
other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or
experts; (ii) makes no warranty or representation to the Company
or any Bank Investor and shall not be responsible to the Company
or any Bank Investor for any statements, warranties or
representations made in or in connection with this Agreement;
(iii) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or
conditions of this Agreement or any of the other Transaction
Documents on the part of the Transferor, the Collection Agent or
the Seller or to inspect the property (including the books and
records) of the Transferor, the Collection Agent or the Seller;
(iv) shall not be responsible to the Company or any Bank Investor
for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, any of the
other Transaction Documents or any other instrument or document
furnished pursuant hereto or thereto; and (v) shall incur no
liability under or in respect of this Agreement or any of the
other Transaction Documents by acting upon any notice (including
notice by telephone), consent, certificate or other instrument or
writing (which may be by telex) believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 9.3. Credit Decision.
The Company and each Bank Investor acknowledges
that it has, independently and without reliance upon the Agent,
any of the Agent's Affiliates, any other Bank Investor or the
Company (in the case of any Bank Investor) and based upon such
documents and information as it has deemed appropriate, made its
own evaluation and decision to enter into this Agreement and the
other Transaction Documents to which it is a party and, if it so
determines, to accept the transfer to the Agent on its behalf of
any undivided ownership interest in the Affected Assets
hereunder. The Company and each Bank Investor also acknowledges
that it will, independently and without reliance upon the Agent,
any of the Agent's Affiliates, any other Bank Investor or the
Company (in the case of any Bank Investor) and based on such
documents and information as it shall deem appropriate at the
time, continue to make its own decisions in taking or not taking
action under this Agreement and the other Transaction Documents
to which it is a party.
SECTION 9.4. Indemnification of the Agent.
The Bank Investors agree to indemnify the Agent
(to the extent not reimbursed by the Transferor), ratably in
accordance with their Pro Rata Shares, from and against any and
all liabilities, 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 the Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by
the Agent, any of the other Transaction Documents hereunder or
thereunder; provided, however, that the Bank Investors shall not
be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct. Without limitation of the
foregoing, the Bank Investors agree to reimburse the Agent,
ratably in accordance with their Pro Rata Shares, promptly upon
demand for any out-of-pocket expenses (including counsel fees)
incurred by the Agent in connection with the administration,
modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice
in respect of rights or responsibilities under, this Agreement
and the other Transaction Documents, to the extent that such
expenses are incurred in the interests of or otherwise in respect
of the Bank Investors hereunder and/or thereunder and to the
extent that the Agent is not reimbursed for such expenses by the
Transferor.
SECTION 9.5. Successor Agent.
The Agent may resign at any time by giving written
notice thereof to each Bank Investor, the Company and the
Transferor and may be removed at any time with cause by the
Majority Investors. Upon any such resignation or removal, the
Company and the Majority Investors shall appoint a successor
Agent. The Company and each Bank Investor agrees that it shall
not unreasonably withhold or delay its approval of the
appointment of a successor Agent. If no such successor Agent
shall have been so appointed, and shall have accepted such
appointment, within 30 days after the retiring Agent's giving of
notice of resignation or the Majority Investors' removal of the
retiring Agent, then the retiring Agent may, on behalf of the
Company and the Bank Investors, appoint a successor Agent which
successor Agent shall be either (i) a commercial bank organized
under the laws of the United States or of any state thereof and
have a combined capital and surplus of at least $50,000,000 or
(ii) an Affiliate of such a bank. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties
and obligations under this Agreement. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this
Article IX shall continue to inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent
under this Agreement.
SECTION 9.6. Payments by the Agent.
Unless specifically allocated to a Bank Investor
pursuant to the terms of this Agreement, all amounts received by
the Agent on behalf of the Bank Investors shall be paid by the
Agent to the Bank Investors (at their respective accounts
specified in their respective Assignment and Assumption
Agreements) in accordance with their respective related pro rata
interests in the Net Investment on the Business Day received by
the Agent, unless such amounts are received after 12:00 noon on
such Business Day, in which case the Agent shall use its
reasonable efforts to pay such amounts to the Bank Investors on
such Business Day, but, in any event, shall pay such amounts to
the Bank Investors in accordance with their respective related
pro rata interests in the Net Investment not later than the
following Business Day.
SECTION 9.7. Bank Commitment; Assignment to Bank Investors.
(a) Bank Commitment.
At any time on or prior to the Commitment
Termination Date, in the event that the Company does not effect
an Incremental Transfer as requested under Section 2.2(a), then
at any time, the Transferor shall have the right to require the
Company to assign its interest in the Net Investment in whole to
the Bank Investors pursuant to this Section 9.7. In addition, at
any time on or prior to the Commitment Termination Date (i) upon
the occurrence of a Termination Event that results in the
Termination Date or (ii) the Company elects to give notice to the
Transferor of a Reinvestment Termination Date, the Transferor
hereby requests and directs that the Company assign its interest
in the Net Investment in whole to the Bank Investors pursuant to
this Section 9.7 and the Transferor hereby agrees to pay the
amounts described in Section 9.7(d) below. Provided that the Net
Asset Test is satisfied, upon any such election by the Company or
any such request by the Transferor, the Company shall make such
assignment and the Bank Investors shall accept such assignment
and shall assume all of the Company's obligations hereunder. In
connection with any assignment from the Company to the Bank
Investors pursuant to this Section 9.7, each Bank Investor shall,
on the date of such assignment, pay to the Company an amount
equal to its Assignment Amount. Upon any assignment by the
Company to the Bank Investors contemplated hereunder, the Company
shall cease to make any additional Incremental Transfers
hereunder.
(b) Assignment.
No Bank Investor may assign all or a portion of
its interests in the Net Investment, the Receivables, and
Collections and Proceeds with respect thereto and its rights and
obligations hereunder to any Person unless approved in writing by
the Transferor, the Agent, on behalf of the Company, and the
Agent. In the case of an assignment by the Company to the Bank
Investors or by a Bank Investor to another Person, the assignor
shall deliver to the assignee(s) an Assignment and Assumption
Agreement in substantially the form of Exhibit B attached hereto,
duly executed, assigning to the assignee a pro rata interest in
the Net Investment, the Receivables, and Collections and Proceeds
with respect thereto and the assignor's rights and obligations
hereunder and the assignor shall promptly execute and deliver all
further instruments and documents, and take all further action,
that the assignee may reasonably request, in order to protect, or
more fully evidence the assignee's right, title and interest in
and to such interest and to enable the Agent, on behalf of such
assignee, to exercise or enforce any rights hereunder and under
the other Transaction Documents to which such assignor is or,
immediately prior to such assignment, was a party. Upon any such
assignment, (i) the assignee shall have all of the rights and
obligations of the assignor hereunder and under the other
Transaction Documents to which such assignor is or, immediately
prior to such assignment, was a party with respect to such
interest for all purposes of this Agreement and under the other
Transaction Documents to which such assignor is or, immediately
prior to such assignment, was a party (it being understood that
the Bank Investors, as assignees, shall (x) be obligated to fund
Incremental Transfers under Section 2.2(a) hereof in accordance
with the terms thereof, notwithstanding that the Company was not
so obligated and (y) not have the right to elect the commencement
of the amortization of the Net Investment pursuant to the
definition of "Reinvestment Termination Date", notwithstanding
that the Company had such right) and (ii) the assignor shall
relinquish its rights with respect to such interest for all
purposes of this Agreement and under the other Transaction
Documents to which such assignor is or, immediately prior to such
assignment, was a party. No such assignment shall be effective
unless a fully executed copy of the related Assignment and
Assumption Agreement shall be delivered to the Agent and the
Transferor. All costs and expenses of the Agent and the assignor
and assignee incurred in connection with any assignment hereunder
shall be borne by the Transferor and not by the assignor or any
such assignee. No Bank Investor shall assign any portion of its
Commitment hereunder without also simultaneously assigning an
equal portion of its interest in the Liquidity Provider
Agreement.
(c) Effects of Assignment.
By executing and delivering an Assignment and
Assumption Agreement, the assignor and assignee thereunder
confirm to and agree with each other and the other parties hereto
as follows: (i) other than as provided in such Assignment and
Assumption Agreement, the assignor 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, the other Transaction Documents
or any other instrument or document furnished pursuant hereto or
thereto or the execution, legality, validity, enforceability,
genuineness, sufficiency or value or this Agreement, the other
Transaction Documents or any such other instrument or document;
(ii) the assignor makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the
Transferor, the Seller or the Collection Agent or the performance
or observance by the Transferor, the Seller or the Collection
Agent of any of their respective obligations under this
Agreement, the Receivables Purchase Agreement, the other
Transaction Documents or any other instrument or document
furnished pursuant hereto; (iii) such assignee confirms that it
has received a copy of this Agreement, the Receivables Purchase
Agreement and such other instruments, documents and information
as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Assumption Agreement
and to purchase such interest; (iv) such assignee will,
independently and without reliance upon the Agent, or any of its
Affiliates, or the assignor and based on such agreements,
documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not
taking action under this Agreement and the other Transaction
Documents; (v) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such
powers under this Agreement, the other Transaction Documents and
any other instrument or document furnished pursuant hereto or
thereto as are delegated to the Agent by the terms hereof or
thereof, together with such powers as are reasonably incidental
thereto and to enforce its respective rights and interests in and
under this Agreement, the other Transaction Documents, the
Receivables and the Account Agreements; (vi) such assignee agrees
that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement and the other
Transaction Documents are required to be performed by it as the
assignee of the assignor; and (vii) such assignee agrees that it
will not institute against the Company any proceeding of the type
referred to in Section 10.9 hereof prior to the date which is one
year and one day after the payment in full of all Commercial
Paper issued by the Company.
(d) Transferor's Obligation to Pay Certain Amounts; Additional
Assignment Amount.
The Transferor shall pay to the Agent, for the
account of the Company, in connection with any assignment by the
Company to the Bank Investors pursuant to this Section 9.7, an
aggregate amount equal to all Carrying Costs to accrue through
the end of each outstanding funding period plus all other
Aggregate Unpaids (other than the Net Investment). To the extent
that such Carrying Costs relate to interest or discount on
Related Commercial Paper, if the Transferor fails to make payment
of such amounts at or prior to the time of assignment by the
Company to the Bank Investors, such amount shall be paid by the
Bank Investors (in accordance with their respective Pro Rata
Shares) to the Company as additional consideration for the
interests assigned to the Bank Investors and the amount of the
"Net Investment" hereunder held by the Bank Investors shall be
increased by an amount equal to the additional amount so paid by
the Bank Investors.
(e) Administration of Agreement After Assignment.
After any assignment by the Company to the Bank
Investors pursuant to this Section 9.7 (and the payment of all
amounts owing to the Company in connection therewith), all rights
of the Agent and the Collateral Agent set forth herein shall be
deemed to be afforded to the Agent on behalf of the Bank
Investors instead of either such party.
(f) Payments.
After any assignment by the Company to the Bank
Investors pursuant to this Section 9.7, all payments to be made
hereunder by the Transferor or the Collection Agent to the
Company shall be made to the Agent's account as such account
shall have been notified to the Transferor and the Collection
Agent.
(g) Downgrade of Bank Investor.
If at any time prior to any assignment by the
Company to the Bank Investors as contemplated pursuant to this
Section 9.7, the short term debt rating of any Bank Investor
shall be "A-2" or "HP-2" from Standard & Poor's or Moody's,
respectively, with negative credit implications, such Bank
Investor, upon request of the Agent, shall, within 30 days of
such request, assign its rights and obligations hereunder to
another financial institution (which institution's short term
debt shall be rated at least "A-2" and "P-2" from Standard &
Poor's and Moody's, respectively, and which shall not be so rated
with negative credit implications). If the short term debt
rating of a Bank Investor shall be "A-3" or "P-3", or lower, from
Standard & Poor's or Moody's, respectively (or such rating shall
have been withdrawn by Standard & Poor's or Moody's), such Bank
Investor, upon request of the Agent, shall, within five (5)
Business Days of such request, assign its rights and obligations
hereunder to another financial institution (which institution's
short term debt shall be rated at least "A-2" and "P-2" from
Standard & Poor's and Moody's, respectively, and which shall not
be so rated with negative credit implications). In either such
case, if any such Bank Investor shall not have assigned its
rights and obligations under this Agreement within the applicable
time period described above, the Company shall have the right to
require such Bank Investor to accept the assignment of such Bank
Investor's Pro Rata Share of the Net Investment; such assignment
shall occur in accordance with the applicable provisions of this
Section 9.7. Such Bank Investor shall be obligated to pay to the
Company, in connection with such assignment, in addition to the
Pro Rata Share of the Net Investment, an amount equal to the
interest component of the outstanding Commercial Paper issued to
fund the portion of the Net Investment being assigned to such
Bank Investor, as reasonably determined by the Agent.
Notwithstanding anything contained herein to the contrary, upon
any such assignment to a downgraded Bank Investor as contemplated
pursuant to the immediately preceding sentence, the aggregate
available amount of the Facility Limit, solely as it relates to
new Incremental Transfers by the Company, shall be reduced by the
amount of unused Commitment of such downgraded Bank Investor; it
being understood and agreed, that nothing in this sentence or the
two preceding sentences shall affect or diminish in any way any
such downgraded Bank Investor's Commitment to the Transferor or
such downgraded Bank Investor's other obligations and liabilities
hereunder and under the other Transaction Documents.
ARTICLE X
MISCELLANEOUS
SECTION 10.
SECTION 10.1. Term of Agreement.
This Agreement shall terminate on the date
following the Termination Date upon which the Net Investment has
been reduced to zero and all other Aggregate Unpaids have been
paid in full, in each case, in cash; provided, however, that (i)
the rights and remedies of the Agent, the Company, the Bank
Investors and the Agent with respect to any representation and
warranty made or deemed to be made by the Transferor pursuant to
this Agreement, (ii) the indemnification and payment provisions
of Article VIII, and (iii) the agreement set forth in Section
10.9 hereof, shall be continuing and shall survive any
termination of this Agreement.
SECTION 10.2. Waivers; Amendments.
No failure or delay on the part of the Agent, the
Company or any Bank Investor in exercising any power, right or
remedy under this Agreement shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right
or remedy preclude any other further exercise thereof or the
exercise of any other power, right or remedy. The rights and
remedies herein provided shall be cumulative and nonexclusive of
any rights or remedies provided by law. Any provision of this
Agreement may be amended or waived if, but only if, in the case
of any amendment, such amendment is in writing and is signed by
the Transferor, the Company, the Agent and the Majority Investors
and in the case of any waiver, such waiver is granted in writing
by the Agent and the Majority Investors.
SECTION 10.3. Notices.
Except as provided below, all communications and
notices provided for hereunder shall be in writing (including
telecopy or electronic facsimile transmission or similar writing)
and shall be given to the other party at its address or telecopy
number set forth below or at such other address or telecopy
number as such party may hereafter specify for the purposes of
notice to such party. Each such notice or other communication
shall be effective (i) if given by telecopy, when such telecopy
is transmitted to the telecopy number specified in this Section
10.3 and confirmation is received, (ii) if given by mail 3
Business Days following such posting, postage prepaid, U.S.
certified or registered, (iii) if given by overnight courier, one
(1) Business Day after deposit thereof with a national overnight
courier service, or (iv) if given by any other means, when
received at the address specified in this Section 10.3. However,
anything in this Section to the contrary notwithstanding, the
Transferor hereby authorizes the Company to effect Transfers and
funding period selections based on telephonic notices made by any
Person which the Company in good faith believes to be acting on
behalf of the Transferor. The Transferor agrees to deliver
promptly to the Company a written confirmation of each telephonic
notice signed by an authorized officer of Transferor. However,
the absence of such confirmation shall not affect the validity of
such notice. If the written confirmation differs in any material
respect from the action taken by the Company, the records of the
Company shall govern absent manifest error.
If to the Company:
Kitty Hawk Funding Corporation
c/o Lord Securities Corporation
Two Wall Street
New York, New York 10005
Attention: Frank Bilotta
Telephone: (212) 346-9008
Telecopy: (212) 346-9012
(with a copy to the Agent)
Payment Information:
Bankers Trust
ABA 021 001 033
New York, NY
Account: Corporate Trust Agency Group
Account #: 01419647
Ref: Kitty Hawk Funding Corporation
For Further Credit KHFC Collateral
General Account #12035
If to the Transferor:
Metris Funding Co.
600 South Highway 169, Suite 300
St. Louis Park, MN 55426
Telephone: (612) 525-5024
Telecopy: (612) 525-5070
Payment Information:
Bank: Norwest Bank, N.A. Minnesota
ABA 091 000 019
Account 635 5039 358
Reference: KHFC/Mercantile
If to the Collection Agent:
Direct Merchants Credit Card Bank, N.A.
1455 West 2200 South
Salt Lake City, Utah 84119
Telephone: (801) 974-4699
Telecopy: (801) 974-4672
If to the Collateral Agent:
NationsBank, N.A.
NationsBank Corporate Center -- 10th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath, Structured
Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Agent:
NationsBank, N.A.
NationsBank Corporate Center, -- 10th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath, Structured
Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
Payment Information:
NationsBank, N.A.
ABA 053000196
for the account of IBG Operations/Admin.
Account No. 1093601650000
Ref: Mercantile Portfolio Acquisition
Attn.: Camille Zerbinos
If to the Bank Investors, at their respective
addresses set forth on the signature pages hereto or of the
Assignment and Assumption Agreement pursuant to which it became a
party hereto.
SECTION 10.4. Governing Law; Submission to Jurisdiction;
Integration.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Each of the
parties hereto agrees that a final judgment in any such court
shall be conclusive and may be enforced in such and other
jurisdictions by suit on the judgment or in any other manner
provided by law. Each of the Collection Agent and the Transferor
hereby irrevocably waives, to the fullest extent it may
effectively do so, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in
such a court has been brought in an inconvenient forum in
connection with any objection based on lack of personal
jurisdiction. Nothing in this Section 10.4 shall affect the
right of the Company to bring any action or proceeding against
the Transferor, the Collection Agent or their property in the
courts of other jurisdictions.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE AMONG ANY OF THEM ARISING OUT OF,
CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE OTHER
TRANSACTION DOCUMENTS.
(c) This Agreement contains the final and complete integration
of all prior expressions by the parties hereto with respect to
the subject matter hereof and shall constitute the entire
Agreement among the parties hereto with respect to the subject
matter hereof superseding all prior oral or written
understandings.
(d) Each of the parties hereto irrevocably consents to service
of process in the manner provided for notices in Section 10.3.
Nothing in this Agreement will affect the right of any party
hereto to serve process in any other manner permitted by law.
SECTION 10.5. Severability; Counterparts.
This Agreement may be executed in any number of
counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall
constitute one and the same Agreement. Any provisions of this
Agreement which are prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 10.6. Successors and Assigns.
(a) This Agreement shall be binding on the parties hereto and
their respective successors and assigns; provided, however, that
neither the Transferor nor the Seller may assign any of its
rights or delegate any of its duties hereunder or under the
Receivables Purchase Agreement or under any of the other
Transaction Documents to which it is a party without the prior
written consent of the Agent. No provision of this Agreement
shall in any manner restrict the ability of the Company or any
Bank Investor to assign, participate, grant security interests
in, or otherwise transfer any portion of the Transferred
Interest.
(b) Each of the Transferor and the Seller hereby agrees and
consents to the assignment by the Company from time to time of
all or any part of its rights under, interest in and title to
this Agreement and the Transferred Interest to any Liquidity
Provider. In addition, each of the Transferor and the Seller
hereby consents to and acknowledges the assignment by the Company
of all of its rights under, interest in and title to this
Agreement and the Transferred Interest to the Collateral Agent.
SECTION 10.7. Waiver of Confidentiality.
Each of the Transferor and the Seller hereby
consents to the disclosure of any nonpublic information with
respect to it received by the Company, the Agent or any Bank
Investor to any of the Company, the Agent, any nationally
recognized rating agency rating the Company's Commercial Paper,
the Collateral Agent, any Bank Investor or potential Bank
Investor, the Liquidity Provider or the Credit Support Provider
in relation to this Agreement; provided, that the Agent will use
its best efforts to obtain executed confidentiality agreements
covering the disclosure of any such information to any Bank
Investor, potential Bank Investor, Liquidity Provider or Credit
Support Provider other than the Agent.
SECTION 10.8. Confidentiality Agreement.
Each of the Transferor and the Collection Agent
hereby agrees that it will not disclose the contents of this
Agreement or any other proprietary or confidential information of
the Company, the Agent, the Collateral Agent, any Liquidity
Provider or any Bank Investor to any other Person except (i) its
auditors and attorneys, employees or financial advisors (other
than any commercial bank) and any nationally recognized rating
agency, provided such auditors, attorneys, employees, financial
advisors or rating agencies are informed of the highly
confidential nature of such information or (ii) as otherwise
required by applicable law or order of a court of competent
jurisdiction.
SECTION 10.9. No Bankruptcy Petition Against the Company.
Each of the Transferor and the Collection Agent
hereby covenants and agrees that, prior to the date which is one
year and one day after the payment in full of all outstanding
Commercial Paper or other indebtedness of the Company, it will
not institute against, or join any other Person in instituting
against, the Company 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 10.10. No Recourse Against Stockholders, Officers or
Directors.
No recourse under any obligation, covenant or
agreement of the Company contained in this Agreement shall be had
against Lord Securities Corporation (or any affiliate thereof),
or any stockholder, officer or director of the Company, as such,
by the enforcement of any assessment or by any legal or equitable
proceeding, by virtue of any statute or otherwise; it being
expressly agreed and understood that this Agreement is solely a
corporate obligation of the Company, and that no personal
liability whatsoever shall attach to or be incurred by Lord
Securities Corporation (or any affiliate thereof), or the
stockholders, officers or directors of the Company, as such, or
any of them, under or by reason of any of the obligations,
covenants or agreements of the Company contained in this
Agreement, or implied therefrom, and that any and all personal
liability for breaches by the Company of any of such obligations,
covenants or agreements, either at common law or at equity, or by
statute or constitution, of Lord Securities Corporation (or any
affiliate thereof) and every such stockholder, officer or
director of the Company is hereby expressly waived as a condition
of and consideration for the execution of this Agreement.
SECTION 10.11. Characterization of the Transactions
Contemplated by the Agreement.
It is the intention of the parties that the
transactions contemplated hereby constitute the sale of the
Transferred Interest, conveying good title thereto free and clear
of any Adverse Claims to the Agent, on behalf of the Company and
the Bank Investors, and that the Transferred Interest not be part
of the Transferor's estate in the event of an insolvency. If,
notwithstanding the foregoing, the transactions contemplated
hereby should be deemed a financing, the parties intend that the
Transferor shall be deemed to have granted to the Agent, on
behalf of the Company and the Bank Investors, and the Transferor
hereby grants to the Agent, on behalf of the Company and the Bank
Investors, a first priority perfected and continuing security
interest in all of the Transferor's right, title and interest in,
to and under the Receivables, together with Collections and
Proceeds with respect thereto, and together with all of the
Transferor's rights under the Receivables Purchase Agreement to
which it is a party with respect to the Receivables and with
respect to any obligations thereunder of the Seller with respect
to the Receivables, and that this Agreement shall constitute a
security agreement under applicable law. The Transferor hereby
assigns to the Agent, on behalf of the Company and the Bank
Investors, all of its rights and remedies under the Receivables
Purchase Agreement to which it is a party with respect to the
Receivables and with respect to any obligations thereunder of the
Sellers with respect to the Receivables.
IN WITNESS WHEREOF, the parties hereto have
executed and delivered the Transfer and Administration Agreement
as of the date first written above.
KITTY HAWK FUNDING CORPORATION,
as Company
By:
____________________________________
Name:
Title:
METRIS FUNDING CO.,
as Transferor
By:
____________________________________
Name:
Title:
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION,
as Collection Agent
By:______________________________________
Name:
Title:
NATIONSBANK, N.A.,
as a Bank Investor
By:
______________________________________
Name:
Title:
NATIONSBANK, N.A.,
as Agent
By:
______________________________________
Name:
Title:
TABLE OF CONTENTS
Page
TRANSFER AND ADMINISTRATION AGREEMENT 1
PRELIMINARY STATEMENTS 1
ARTICLE I
DEFINITIONS 1
SECTION 1.1. CERTAIN DEFINED TERMS. 1
SECTION 1.2. OTHER TERMS. 19
SECTION 1.3. COMPUTATION OF TIME PERIODS. 19
ARTICLE I I 19
PURCHASES AND SETTLEMENTS 19
SECTION 2.1. FACILITY. 19
SECTION 2.2. TRANSFERS; CERTIFICATES; ELIGIBLE RECEIVABLES. 20
SECTION 2.3. SELECTION OF INTEREST RATES AND INTEREST PERIODS;
EURODOLLAR PROTECTION; ILLEGALITY. 23
SECTION 2.4. CARRYING COSTS, FEES AND OTHER COSTS AND EXPENSES. 25
SECTION 2.5. ALLOCATIONS OF COLLECTIONS; NON-LIQUIDATION
SETTLEMENT AND REINVESTMENT PROCEDURES; SERVICER
ADVANCES. 26
SECTION 2.6. LIQUIDATION SETTLEMENT PROCEDURES. 28
SECTION 2.7. FEES. 29
SECTION 2.8. PROTECTION OF OWNERSHIP INTEREST OF THE COMPANY
AND THE BANK INVESTORS. 29
SECTION 2.9. APPLICATION OF PAYMENTS. 30
SECTION 2.10. PAYMENTS AND COMPUTATIONS, ETC. 31
SECTION 2.11. REPORTS. 31
SECTION 2.12. COLLECTION ACCOUNT AND SPREAD ACCOUNT. 32
SECTION 2.13. SHARING OF PAYMENTS, ETC. 33
SECTION 2.14. RIGHT OF SETOFF. 33
ARTICLE I II 34
REPRESENTATIONS AND WARRANTIES 34
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR. 34
SECTION 3.2. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES
BY THE TRANSFEROR. 38
SECTION 3.3. REPRESENTATIONS AND WARRANTIES OF THE COLLECTION
AGENT. 38
ARTICLE I V 40
CONDITIONS PRECEDENT 40
SECTION 4.1. CONDITIONS TO CLOSING. ON OR PRIOR TO THE DATE OF
EXECUTION HEREOF, THE TRANSFEROR SHALL DELIVER TO
THE AGENT THE FOLLOWING DOCUMENTS, INSTRUMENTS
AND FEES, ALL OF WHICH SHALL BE IN A FORM AND
SUBSTANCE ACCEPTABLE TO THE AGENT: 40
ARTICLE V 43
COVENANTS 43
SECTION 5.1. AFFIRMATIVE COVENANTS OF TRANSFEROR. 43
SECTION 5.2. NEGATIVE COVENANTS OF THE TRANSFEROR. 48
SECTION 5.3. AFFIRMATIVE COVENANTS OF THE COLLECTION AGENT. 50
SECTION 5.4. NEGATIVE COVENANTS OF THE COLLECTION AGENT. 52
ARTICLE VI 53
ADMINISTRATION AND COLLECTIONS 53
SECTION 6.1. APPOINTMENT OF COLLECTION AGENT. 53
SECTION 6.2. DUTIES OF COLLECTION AGENT. 53
SECTION 6.3. RIGHTS AFTER DESIGNATION OF NEW COLLECTION AGENT. 55
SECTION 6.4. COLLECTION AGENT DEFAULT. 55
SECTION 6.5. RESPONSIBILITIES OF THE TRANSFEROR AND THE SELLER. 56
ARTICLE VII 57
TERMINATION EVENTS 57
SECTION 7.1. TERMINATION EVENTS. 57
SECTION 7.2. TERMINATION. 59
ARTICLE VIII 59
INDEMNIFICATION; EXPENSES; RELATED MATTERS 59
SECTION 8.1. INDEMNITIES BY THE TRANSFEROR. 59
SECTION 8.2. INDEMNITY FOR TAXES, RESERVES AND EXPENSES. 62
SECTION 8.3. TAXES. 64
SECTION 8.4. OTHER COSTS, EXPENSES AND RELATED MATTERS. 65
SECTION 8.5. RECONVEYANCE UNDER CERTAIN CIRCUMSTANCES. 66
ARTICLE IX 66
THE AGENT; BANK COMMITMENT 66
SECTION 9.1. AUTHORIZATION AND ACTION. 66
SECTION 9.2. AGENT'S RELIANCE, ETC. 67
SECTION 9.3. CREDIT DECISION. 68
SECTION 9.4. INDEMNIFICATION OF THE AGENT. 68
SECTION 9.5. SUCCESSOR AGENT. 69
SECTION 9.6. PAYMENTS BY THE AGENT. 69
SECTION 9.7. BANK COMMITMENT; ASSIGNMENT TO BANK INVESTORS. 69
ARTICLE X 73
MISCELLANEOUS 73
SECTION 10.1. TERM OF AGREEMENT. 73
SECTION 10.2. WAIVERS; AMENDMENTS. 73
SECTION 10.3. NOTICES. 73
SECTION 10.4. GOVERNING LAW; SUBMISSION TO JURISDICTION;
INTEGRATION. 75
SECTION 10.5. SEVERABILITY; COUNTERPARTS. 76
SECTION 10.6. SUCCESSORS AND ASSIGNS. 76
SECTION 10.7. WAIVER OF CONFIDENTIALITY. 77
SECTION 10.8. CONFIDENTIALITY AGREEMENT. 77
SECTION 10.9. NO BANKRUPTCY PETITION AGAINST THE COMPANY. 77
SECTION 10.10. NO RECOURSE AGAINST STOCKHOLDERS, OFFICERS OR
DIRECTORS. 77
SECTION 10.11. CHARACTERIZATION OF THE TRANSACTIONS CONTEMPLATED
BY THE AGREEMENT. 78
EXHIBIT A Form of Additional Investment Certificate
EXHIBIT B Form of Assignment and
Assumption Agreement
EXHIBIT C Form of Agreed Upon Procedures
EXHIBIT D Form of Investor Report
EXHIBIT E Form of Certificate
EXHIBIT F Form of Transfer Certificate
EXHIBIT G Location of Records
EXHIBIT H List of Subsidiaries, Divisions and Tradenames
TRANSFER AND ADMINISTRATION AGREEMENT
among
KITTY HAWK FUNDING CORPORATION
as the Company,
METRIS FUNDING CO.,
as the Transferor,
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION,
as the Collection Agent
and
NATIONSBANK, N.A.
as the Agent and Bank Investor
Dated as of October 23, 1997
MERCANTILE PORTFOLIO
_______________________________
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